<PAGE>
As filed with the Securities and Exchange Commission on November 19, 1999
Registration No. 333-84909
================================================================================
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------
Amendment No. 1
to
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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KANAKARIS COMMUNICATIONS, INC.
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(Name of Small Business Issuer in its charter)
Nevada 3714 86-0888532
- ---------------------------- --------------------------- ------------------
(State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification No.) Code Number)
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3303 HARBOR BOULEVARD, SUITE F-3
COSTA MESA, CA 92626
(714) 444-0560
------------------------------------------------------------------
(Address and telephone number of Registrant's principal executive
offices and principal place of business)
------------------
Alex Kanakaris
President and Chief Executive Officer
Kanakaris Communications, Inc.
3303 Harbor Boulevard, Suite F-3
Costa Mesa, CA 92629
(714) 444-0560
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(Name, address, and telephone number of agent for service)
Copies to:
Larry A. Cerutti, Esq.
Cristy Lomenzo Parker, Esq.
Rutan & Tucker, LLP
611 Anton Boulevard, 14th Floor
Costa Mesa, California 92626
(714) 641-5100
------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
From time to time after this Registration Statement becomes effective.
------------------
<PAGE>
If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [X]
If this form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration number of the earlier effective registration
statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective Registration statement
for the same offering. [ ]
If the delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
====================================================================================================================
Proposed Maximum Proposed Maximum Amount of
Title of Each Class of Amount to Offering Price Aggregate Registration
Securities to be Registered be Registered (1) per Share(2) Offering Price(2) Fee(3)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common shares 1,783,334 $ .658 $1,173,434 $326.21
====================================================================================================================
</TABLE>
(1) In the event of a stock split, stock dividend, or similar transaction
involving common stock of the Registrant, in order to prevent dilution,
the number of shares registered shall be automatically increased to cover
the additional shares in accordance with Rule 416(a) under the Securities
Act.
(2) Estimated solely for the purpose of determining the registration fee.
Calculated pursuant to Rule 457(c) under the Securities Act, on the basis
of the average of the bid and asked price per share as reported for such
securities by the NASD's OTC Bulletin Board on November 18, 1999.
(3) In connection with its initial filing, the Registrant paid a registration
fee equal to $1,304.
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 becomes effective on
such date as the Commission, acting under Section 8(a), may determine.
<PAGE>
Subject to Completion, November 19, 1999
PROSPECTUS
Kanakaris Communications, Inc.
1,783,334 Shares of Common Stock
This prospectus relates to an offering of up to 1,783,334 shares of our
company's common stock, $.001 par value. The offering consists of the periodic
sale by certain entities (collectively, the "Selling Security Holders") listed
in the "Principal and Selling Security Holders" section of this prospectus of up
to 1,783,334 shares of common stock that may be issued upon conversion of our
10% Convertible Subordinated Debentures (the "debentures") that were issued in
two private placement transactions not involving a public offering
(collectively, the "Shares"). Our common stock trades on the NASD's OTC Bulletin
Board under the symbol "KKRS." On November 18, 1999, the average of the bid and
asked prices of our common stock on the OTC Bulletin Board was $.658 per share.
We will not receive any portion of the proceeds from the sale of the
Shares offered by this prospectus. The Selling Security Holders will receive all
of the net proceeds from the sale of the Shares and pay all selling commissions,
if any, applicable to any sale. We are responsible for payment of all other
expenses incident to the offer and sale of the Shares.
The Selling Security Holders may sell their Shares from time to time
directly to purchasers or through agents, underwriters or dealers. Such sales
may occur in one or more transactions on the NASD's OTC Bulletin Board, in
negotiated transactions, in private transactions, or otherwise, or in a
combination of these methods of sale. These sales may occur at market prices
prevailing at the time of sale, at prices related to such prevailing market
prices or at negotiated prices. More information is provided in the section
titled "Plan of Distribution."
SEE "RISK FACTORS" BEGINNING ON PAGE 2 FOR A DISCUSSION
OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY INVESTORS.
The information in this prospectus is not complete and may be changed.
The securities may not be sold until the registration statement filed with the
Securities and Exchange Commission, of which this prospectus is a part, is
declared effective. This prospectus is not an offer to sell these securities and
it is not soliciting an offer to buy these securities in any state where the
offer or sale is not permitted.
---------------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
, 1999
<PAGE>
RISK FACTORS
An investment in our common stock involves a high degree of risk. You
should consider the following factors carefully before deciding to purchase any
shares of our common stock.
BECAUSE WE HAVE LIMITED OPERATING HISTORY WITHIN THE INTERNET AND E-COMMERCE
INDUSTRIES, IT IS DIFFICULT TO EVALUATE OUR BUSINESS
We have a limited operating history within the Internet and e-commerce
industries. Although our wholly-owned subsidiary, Desience Corporation, has been
operating within the data control console industry since the early 1980's, we
began to operate within the Internet industry in 1997. Because of our intent to
focus our efforts within the Internet industry, our limited operating history
within this industry has resulted in limited operating and financial data about
us upon which to base an evaluation of our performance and an investment in our
common stock. To date, all of our revenues have been generated through the
manufacture and sale of our data control console products. You should consider
our prospects in light of the risks, uncertainties, expenses and difficulties we
may encounter, including those frequently encountered by companies competing in
new rapidly evolving markets such as the Internet and e-commerce markets.
The risks and uncertainties include, among other things, the following:
o we may not be able to develop awareness and brand loyalty for our
products and services;
o we may not be able to anticipate and adapt to the changing market
for Internet services and e-commerce;
o we may not be able to expand our sales and marketing efforts;
o we may not successfully respond to competitive developments; and
o we may not be able to develop and renew strategic relationships.
We may not be successful in accomplishing any or all of these
objectives, which could materially harm our business. In this case, the value of
your investment may decline.
WE HAVE INCURRED OPERATING LOSSES, EXPECT CONTINUED LOSSES AND MAY NOT
ACHIEVE PROFITABILITY. IF WE CONTINUE TO LOSE MONEY, WE MAY HAVE TO CURTAIL OUR
OPERATIONS.
We have not been profitable and we may continue to lose money for the
foreseeable future. Historically, we have incurred losses and experienced
negative cash flow. As of June 30, 1999, we had an accumulated deficit of
approximately $6.9 million. We may continue to incur losses and may never
achieve or sustain profitability. An extended period of losses and negative cash
flow may prevent us from operating and expanding our business, especially our
Internet-based business.
WE CANNOT PREDICT WHETHER WE WILL BE SUCCESSFUL, BECAUSE A SIGNIFICANT PORTION
OF OUR CURRENT BUSINESS MODEL IS UNPROVEN AND OUR MARKET IS DEVELOPING
Our Internet and e-commerce businesses comprise a significant portion
of our current business model. The market for these businesses is newly
developing, and we are relatively inexperienced in these businesses. The
commercial success of our Internet and e-commerce businesses will depend upon
many factors that are beyond our control, including but not limited to, the pace
and scope of technological advancement, consumer trends and the general economy.
Our success will also depend upon our ability to attract and retain managers and
employees with the skills needed to facilitate productive, innovative and
cost-effective operations. There can be no assurance that we will be able to
successfully assemble the staff and resources needed to prove our business
model.
2
<PAGE>
WE MAY NEED AND BE UNABLE TO OBTAIN ADDITIONAL FUNDING ON SATISFACTORY TERMS,
WHICH COULD DILUTE OUR SHAREHOLDERS OR IMPOSE BURDENSOME FINANCIAL RESTRICTIONS
ON OUR BUSINESS
Historically, we have relied upon cash from financing activities and
revenues generated from operations to fund all of the cash requirements of our
company's activities. We have not been able to generate any cash from our
operating activities in the past and cannot assure you that we will be able to
do so in the future. As a result, we may require additional financing. This may
not be available on a timely basis, in sufficient amounts or on terms acceptable
to us. This financing may also dilute existing shareholders' equity. Any debt
financing or other financing of securities senior to common stock will likely
include financial and other covenants that will restrict our flexibility. At a
minimum, we expect these covenants to include restrictions on our ability to pay
dividends on our common stock. Any failure to comply with these covenants would
have a material adverse effect on our business, prospects, financial condition
and results of operations.
OUR OPERATING RESULTS IN ONE OR MORE FUTURE PERIODS ARE LIKELY TO FLUCTUATE
SIGNIFICANTLY AND MAY NEGATIVELY IMPACT OUR STOCK PRICE
Our quarterly results have varied significantly in the past and will
likely continue to do so in the future due to a variety of factors, many of
which are beyond our control, including the timing and nature of revenues from
our Internet and e-commerce businesses and data control console product sales
that are recognized during any particular quarter, the impact of price
competition on our average prices for our services and products, market
acceptance of new product or service introductions by us and our competitors,
the timing of expenditures in anticipation of future sales, product returns, the
financial health of our customers, the overall state of the Internet and
e-commerce industries and the data control console industries and economic
conditions generally. The volume and timing of product sales and rendered
services during a quarter are difficult to forecast. As a result, it is likely
that in some future periods our operating results will be below the expectations
of securities analysts and investors. If this happens, the trading price of our
common stock would likely be materially and adverseley affected.
WE OPERATE WITHIN THE INTERNET AND E-COMMERCE INDUSTRIES WHICH ARE HIGHLY
COMPETITIVE, AND WE MAY BE UNABLE TO COMPETE SUCCESSFULLY AGAINST NEW ENTRANTS
AND ESTABLISHED INDUSTRY COMPETITORS WITH SIGNIFICANTLY GREATER FINANCIAL
RESOURCES
The Internet and e-commerce industries are extremely competitive and
can be significantly affected by many factors, including changes in local,
regional, or national or global economic conditions, changes in consumer
preferences, brand name recognition and marketing and the development of new and
competing technologies. We expect that existing businesses that compete with us
and which have greater resources than us will be able to implement more
extensive marketing campaigns and adopt more aggressive advertising sales
policies.
OUR PRINCIPAL SHAREHOLDERS AND MANAGEMENT OWN A SIGNIFICANT PERCENTAGE OF OUR
COMMON STOCK AND WILL BE ABLE TO EXERCISE SIGNIFICANT INFLUENCE
Of the 26,983,050 shares of our common stock outstanding as of November
5, 1999, the current directors and executive officers of our company
beneficially own and control 5,381,147 shares, or approximately 19.23% of our
outstanding common stock. In addition, our Chairman of the Board, President and
Chief Executive Officer owns 1,000,000 shares of our preferred stock that allows
for three non-cumulative votes for each share on all matters that are voted upon
by holders of our common stock. As a result, those persons will have sufficient
voting power to significantly influence the outcome of all corporate matters
submitted to the vote of the shareholders. Those matters could include the
election of directors, changes in the size and composition of the Board of
Directors (and, thereby, the qualification and appointment of our officers), and
mergers and other business combinations involving our company. In addition,
through their significant influence over the Board of Directors and beneficial
ownership of our common stock and preferred stock, they will have significant
influence over certain decisions, including decisions with respect to our
company's dividend policy, our access to capital (including borrowing from
third-party lenders and the issuance of additional equity securities), and the
acquisition or disposition of our assets. In addition, this concentration of
ownership could have the effect of delaying or preventing a change in control of
our company and may affect the market price of our common stock.
3
<PAGE>
OUR FAILURE TO MANAGE GROWTH EFFECTIVELY COULD IMPAIR OUR BUSINESS
Our strategy envisions a period of rapid growth that may put a strain
on our administrative and operational resources. While we believe that we have
established an infrastructure to support growth, our ability to effectively
manage growth will require us to continue to expand the capabilities of our
operational and management systems and to attract, train, manage and retain
qualified engineers, technicians, salespersons and other personnel. There can be
no assurance that we will be able to do so. If we are unable to successfully
manage our growth, our business, prospects, financial condition and results of
operations could be adversely affected.
BECAUSE OUR SOFTWARE LICENSE AGREEMENT WITH ION SYSTEMS IS NOT EXCLUSIVE, AND
BECAUSE OTHER COMPANIES OWN PROPRIETARY SOFTWARE THAT IS FUNCTIONALLY SIMILAR TO
ION SYSTEM'S SOFTWARE, OUR COMPETITORS MAY BE ABLE TO PROVIDE ONLINE DELIVERY OF
CONTENT IN THE SAME MANNER AS WE PROVIDE SUCH CONTENT
Our license agreement with ION Systems, Inc. allows us to use their
E*Web and X*Maker proprietary computer software for the secure downloading and
viewing of books and related materials on our NetBooks.com web site. This
software enables authors and publishers to retain control over their content,
which is a key consideration to most authors and publishers that offer materials
through NetBooks.com or other web sites. Because our license agreement with ION
Systems is not an exclusive arrangement, and because other companies, including
Microsoft Corporation, own proprietary software that is functionally similar to
the software we license from ION Systems, our present and future competitors,
many of whom may have significantly greater financial and other resources than
us, may be able to enter into similar license agreements with ION Systems or
others or may use their own proprietary software to provide online delivery of
content in the same manner as we provide such content. Such an occurrence would
eliminate or substantially diminish one of the key advantages we currently have
over many of our competitors in the online book delivery business, which could
have a material adverse impact on our ability to generate revenues from our
book-related Internet business.
OUR STOCK PRICE IS SUBJECT TO SIGNIFICANT VOLATILITY, WHICH COULD RESULT IN
LITIGATION AGAINST US
There is currently an extremely limited trading market for our common
stock. Our common stock trades on the OTC Bulletin Board under the symbol
"KKRS." There can be no assurance that any regular trading market for our common
stock will develop or, if developed, will be sustained. The trading prices of
our common stock could be subject to wide fluctuations in response to
quarter-to-quarter variations in our operating results, material announcements
of technological innovations, price reductions, significant customer orders or
establishment of strategic partnerships by us or our competitors or providers of
alternative products, general conditions in the Internet and e-commerce
industries, or other events or factors, many of which are beyond our control. In
addition, the stock market as a whole and individual stocks have experienced
extreme price and volume fluctuations, which have often been unrelated to the
performance of the related corporations. Our operating results in future
quarters may be below the expectations of market makers, securities analysts and
investors. In any such event, the price of our common stock will likely decline,
perhaps substantially. In the past, following periods of volatility in the
market price of a company's securities, securities class action litigation has
occurred against the issuing company. There can be no assurance that such
litigation will not occur in the future with respect to our company. Such
litigation could result in substantial costs and a diversion of management's
attention and resources, which could have a material adverse effect on our
business, prospects, financial condition and results of operations. Any adverse
determination in such litigation could also subject us to substantial
liabilities.
4
<PAGE>
OUR FAILURE AND THE FAILURE OF THIRD PARTIES TO BE YEAR 2000 COMPLIANT COULD
NEGATIVELY IMPACT OUR BUSINESS
The Year 2000 issue is the result of computer programs being written
using two digits rather than four to define the applicable year. Any of our
programs that have time-sensitive software may recognize a date using "00" as
the year 1900 rather than the year 2000. This could result in major system
failure or miscalculations. We have performed a review of our internal systems
to identify and resolve the effect of Year 2000 software issues on the integrity
and reliability of our financial and operational systems. Based on this review,
our management believes that our internal systems are substantially compliant
with Year 2000 issues. In addition, we are also communicating with our principal
service providers to ensure Year 2000 issues will not have an adverse impact on
us. If we, and third parties upon which we rely, are unable to address this
issue in a timely manner, it could result in a material financial risk to us. In
order to assure that this does not occur, we plan to devote all resources
required to resolve any significant Year 2000 issues in a timely manner.
BECAUSE WE ARE SUBJECT TO THE "PENNY STOCK" RULES, THE LEVEL OF TRADING ACTIVITY
IN OUR STOCK MAY BE REDUCED
Broker-dealer practices in connection with transactions in "penny
stocks" are regulated by certain penny stock rules adopted by the Securities and
Exchange Commission. Penny stocks, like shares of our common stock, generally
are equity securities with a price of less than $5.00 (other than securities
registered on certain national securities exchanges or quoted on Nasdaq). The
penny stock rules require a broker-dealer, prior to a transaction in a penny
stock not otherwise exempt from the rules, to deliver a standardized risk
disclosure document that provides information about penny stocks and the nature
and level of risks in the penny stock market. The broker-dealer also must
provide the customer with current bid and offer quotations for the penny stock,
the compensation of the broker-dealer and its salesperson in the transaction,
and, if the broker-dealer is the sole market maker, the broker-dealer must
disclose this fact and the broker-dealer's presumed control over the market,
and monthly account statements showing the market value of each penny stock held
in the customer's account. In addition, broker-dealers who sell these securities
to persons other than established customers and "accredited investors" must make
a special written determination that the penny stock is a suitable investment
for the purchaser and receive the purchaser's written agreement to the
transaction. Consequently, these requirements may have the effect of reducing
the level of trading activity, if any, in the secondary market for a security
subject to the penny stock rules, and investors in our common stock may find it
difficult to sell their shares.
WE RELY HEAVILY ON OUR KEY EMPLOYEES, AND THE LOSS OF THEIR SERVICES COULD
MATERIALLY AND ADVERSELY AFFECT OUR BUSINESS
Our success is highly dependent upon the continued services of key
members of our management, including our Chairman of the Board, President and
Chief Executive Officer, Alex Kanakaris, and our Vice Chairman of the Board,
Secretary and Desience Division President, Branch Lotspeich. The loss of either
of Mr. Alex Kanakaris or Mr. Lotspeich could have a material adverse effect on
our company. We have not entered into any employment agreement with Mr.
Kanakaris, Mr. Lotspeich or any other officer of our company. Currently, we do
not maintain key-man life insurance policies on any member of management.
OUR SUCCESS IS DEPENDENT ON OUR KEEPING PACE WITH ADVANCES IN TECHNOLOGY. IF WE
ARE UNABLE TO KEEP PACE WITH ADVANCES IN TECHNOLOGY, CONSUMERS MAY STOP
PURCHASING OUR PRODUCTS AND SERVICES AND OUR REVENUE WILL DECREASE
The Internet and e-commerce markets are characterized by rapid
technological change, changes in consumer preferences and new product and
service offerings that could render our existing web sites and technology
obsolete. Our performance will depend, in part, on our ability to:
o continue to enhance our existing products and services;
o develop new technology that addresses the increasingly
sophisticated and varied needs of our prospective customers;
and
o license leading technologies and respond to technological
advances and emerging industry standards and practices on a
timely and cost-effective basis.
5
<PAGE>
We may not be successful in using new technologies effectively or
adapting our web sites or other technology to customer requirements or to
emerging industry standards. If we are unable to adapt to changing technologies,
our business, results of operations and financial condition could be negatively
impacted.
ALTHOUGH INTERNET COMMERCE HAS YET TO ATTRACT SIGNIFICANT REGULATION, GOVERNMENT
REGULATION MAY RESULT IN FINES, PENALTIES, TAXES OR OTHER COSTS THAT MAY REDUCE
OUR FUTURE EARNINGS
Our Internet and e-commerce businesses currently are not directly
regulated by any governmental agency, other than through regulations applicable
to businesses generally. However, due to the increasing popularity and use of
the Internet, it is possible that a number of laws and regulations may be
adopted with respect to the Internet covering, among other things, the following
issues:
o taxation of consumer transactions;
o advertising;
o user privacy;
o unsolicited marketing;
o pricing;
o quality of products and services;
o intellectual property;
o information security; and
o anti-competitive practices.
The adoption of laws or regulations covering these issues may decrease
the growth of Internet commerce. Such laws could decrease the demand for our
products and services, increase our cost of doing business, or otherwise have an
adverse effect on our business, operating results or financial condition.
Moreover, the applicability to the Internet of existing laws governing
issues including intellectual property ownership, libel and personal privacy is
uncertain. If these existing laws were to be applied to the Internet, our
business may be harmed.
Taxing authorities in a number of states are currently reviewing the
appropriate tax treatment of companies engaged in Internet commerce. New state
tax regulations may subject us to additional state sales, use and income taxes.
The adoption of any of these laws or regulations may decrease the growth of
Internet usage or the acceptance of Internet commerce which could, in turn,
decrease the demand for our products and services, increase costs and otherwise
have a material adverse effect on our business, results of operations and
financial condition. To date, we have not spent significant resources on
lobbying or related government affairs issues but we may need to do so in the
future.
WE MAY UNINTENTIONALLY INFRINGE ON THE PROPRIETARY RIGHTS OF OTHERS, WHICH MAY
RESULT IN COSTLY LITIGATION AND LOSS OF THE RIGHT TO USE SUCH PROPRIETARY RIGHTS
We may be subject to claims alleging that we have infringed upon third
party proprietary rights which may result in significant damages. Even if any of
these claims ultimately proves to be without merit, the time management spends
addressing those claims and the legal costs associated with these claims could
harm our business.
WE LICENSE TECHNOLOGY AND CONTENT FROM THIRD PARTIES AND IT IS POSSIBLE THAT WE
COULD BECOME A PARTY TO INFRINGEMENT ACTIONS BASED UPON THE LICENSES FROM THOSE
THIRD PARTIES.
We generally obtain representations as to the origin and ownership of
all licensed technology and content; however, this may not adequately protect
us. Any infringement actions, with or without merit, could subject us to costly
litigation and the diversion of our technical and management personnel.
6
<PAGE>
MISAPPROPRIATION OF OUR INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS COULD
IMPAIR OUR COMPETITIVE POSITION
Our ability to compete depends upon our systems and technology. Despite
efforts to protect our proprietary rights through the use of trademarks, trade
secrets and copyright law, confidentiality agreements and technical measures,
unauthorized parties may attempt to copy aspects of our services or obtain and
use information that we regard as proprietary. Policing unauthorized use of our
proprietary rights is difficult. Effective trademark, service mark, copyright
and trade secret protection may not be available in every country in which our
products and services are made available online.
In addition, litigation may be necessary in the future to enforce or
protect our intellectual property rights or to defend against claims of
infringement or invalidity. As part of our confidentiality procedures, we
generally enter into agreements with our employees and consultants and limit
access to our trade secrets and technology. We cannot be sure that the steps
taken by us will prevent misappropriation of technology or that the agreements
entered into for that purpose will be enforceable. Misappropriation of our
intellectual property or potential litigation could have a negative impact on
our business.
WE MAY BE HURT BY SYSTEM INTERRUPTIONS IF OUR PRIMARY SERVERS ARE LOCATED AT A
SINGLE PRINCIPAL LOCATION. IF COMMUNICATIONS TO THAT LOCATION WERE INTERRUPTED,
OUR OPERATIONS COULD BE NEGATIVELY IMPACTED
Our movies and general KKRS.Net web site are hosted on a server owned
and operated by a third party in Rancho Santa Margarita, California. Our
NetBooks.com web site presently is hosted on a server owned and operated by
Earthlink but may in the future be hosted on the third-party server in Rancho
Santa Margarita, California. Although offsite backup servers are maintained by
our hosts, all of our primary servers are vulnerable to interruption by damage
from fire, flood, power loss, telecommunications failure, break-ins and other
events beyond our control. We have, from time to time, experienced periodic
systems interruptions and anticipate that these interruptions will occur in the
future. If we experience significant system disruptions, our business, results
of operations and financial condition would be materially adversely affected. We
do not currently maintain business interruption insurance.
OUR COMPUTER INFRASTRUCTURE MAY SUFFER SECURITY BREACHES. ANY SUCH BREACHES
COULD JEOPARDIZE CONFIDENTIAL INFORMATION TRANSMITTED OVER THE INTERNET, CAUSE
INTERRUPTIONS IN OUR OPERATIONS OR CAUSE US TO HAVE LIABILITY TO THIRD PARTIES
We rely on technology that is designed to facilitate the secure
transmission of confidential information. Our computer infrastructure is
potentially vulnerable to physical or electronic computer break-ins, viruses and
similar disruptive problems. A party who is able to circumvent our security
measures could misappropriate proprietary information, jeopardize the
confidential nature of information transmitted over the Internet or cause
interruptions in our operations. Concerns over the security of Internet
transactions and the privacy of users could also inhibit the growth of the
Internet in general, particularly as a means of conducting commercial
transactions. To the extent that our activities involve the storage and
transmission of proprietary information, including personal financial
information, security breaches could expose us to a risk of financial loss,
litigation and other liabilities. Our insurance does not currently protect us
against these losses. Any security breach would have a material adverse effect
on our business, results of operations and financial condition.
7
<PAGE>
OUR ISSUED AND OUTSTANDING PREFERRED STOCK HAS SPECIAL VOTING RIGHTS AND IS
ENTIRELY HELD BY OUR CHAIRMAN OF THE BOARD, PRESIDENT AND CHIEF EXECUTIVE
OFFICER
We have authorized and issued a total of 1,000,000 shares of our Class
A Convertible Preferred stock to our Chairman of the Board, President and Chief
Executive Officer, Alex Kanakaris. The preferred stock carries certain voting
rights that allow for three non-cumulative votes per share on all matters that
are voted upon by holders of our common stock. As a result, Mr. Kanakaris,
together with certain of our other key employees and board members, has
sufficient voting power to significantly influence the outcome of all corporate
matters submitted to the vote of shareholders.
FORWARD-LOOKING STATEMENTS ARE INHERENTLY UNCERTAIN, AND THEREFORE ACTUAL
RESULTS MAY DIFFER MATERIALLY FROM THOSE EXPRESSED OR IMPLIED BY FORWARD-LOOKING
STATEMENTS
Some statements contained in this prospectus are forward-looking
statements. These forward-looking statements include, but are not limited to,
statements about our industry, plans, objectives, expectations, intentions and
assumptions and other statements contained in the prospectus that are not
historical facts. When used in this prospectus, the words "expect,"
"anticipate," "intend," "plan," "believe," "seek," "estimate" and similar
expressions are generally intended to identify forward-looking statements.
Because these forward-looking statements involve risks and uncertainties,
including those described in this "Risk Factors" section, actual results may
differ materially from those expressed or implied by these forward-looking
statements.
8
<PAGE>
USE OF PROCEEDS
We will not receive any proceeds from the sale of the Shares by the
Selling Security Holders.
PRICE RANGE OF OUR COMMON STOCK
Our common stock commenced trading on the OTC Bulletin Board under the
symbol "KANA" on November 26, 1997. On August 2, 1999 we changed our symbol to
"KKRS."
The following table shows the high and low closing bid prices of our
common stock for the periods presented. The quotations shown below reflect
interdealer prices, without retail mark-up, mark-down or commissions, and may
not represent actual transactions.
High Low
---- ---
Year Ended September 30, 1998:
First Quarter.........................................$3.625 $3.50
Second Quarter........................................ 4.00 1.375
Third Quarter......................................... 3.25 .40625
Fourth Quarter........................................ .40625 .035
Year Ended September 30, 1999:
First Quarter.........................................$ .25 $ .03
Second Quarter........................................ 2.25 .17
Third Quarter......................................... 2.96875 1.09375
Fourth Quarter........................................ 1.46875 .71875
The closing bid price of our common stock on November 18, 1999 was
$.625.
At November 18, 1999, there were approximately 243 shareholders of
record of our common stock. Within the holders of record of our common stock are
depositories such as Cede & Co. that hold shares of stock for brokerage firms
which, in turn, hold shares of stock for beneficial owners.
DIVIDEND POLICY
We have never paid any dividends on our common stock and do not
anticipate declaring or paying cash dividends in the foreseeable future. We
intend to retain future earnings, if any, to reinvest in our business. We expect
that covenants in our future financing agreements will prohibit or limit our
ability to declare or pay cash dividends.
CAPITALIZATION
The following table sets forth our cash position and capitalization as
of June 30, 1999. The information set forth below should be read in conjunction
with our consolidated financial statements and the related notes included
elsewhere in this prospectus.
June 30, 1999
-------------
Cash and cash equivalents......................................... $ 200,701
=============
Long-term debt.................................................... -
=============
Stockholders' equity:
Preferred stock, $.01 par value; authorized 5,000,000 shares;
Class A Convertible Preferred Stock; issued and outstanding
1,000,000 shares........................................ 10,000
Common stock; $.001 par value; authorized 100,000,000
shares; issued and outstanding 25,490,550 shares........... 25,491
Additional paid-in capital................................... 7,282,375
Treasury stock............................................... (201,920)
Stock subscriptions.......................................... (1,260)
Accumulated deficit.......................................... (6,975,741)
-------------
Total stockholders' equity................................. 138,945
-------------
Total capitalization.............................................. $ 339,646
=============
9
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected historical financial data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the financial statements, related notes and other
financial information included elsewhere in this prospectus. The statement of
operations data for the year ended September 30, 1998 and the period from
February 25, 1997 (inception) to September 30, 1997, and the selected balance
sheet data as of September 30, 1998 and 1997, are derived from our consolidated
financial statements which have been audited by Weinberg & Company, P.A. and are
included in this prospectus. The statement of operations data for the nine
months ended June 30, 1998 and 1999, and the balance sheet data as of June 30,
1999, are derived from our unaudited consolidated financial statements for such
interim periods and as of such date, which are included in this prospectus. In
the opinion of management, these unaudited interim data include all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of the results of operations for such periods and the financial
position at such date. Historical results are not necessarily indicative of
future results, and results for any interim period are not necessarily
indicative of results for a full year.
<TABLE>
<CAPTION>
FEBRUARY 25, 1997 YEAR ENDED
(INCEPTION) TO SEPTEMBER 30, NINE MONTHS ENDED JUNE 30,
SEPTEMBER 30, ------------- --------------------------
1997 1998 1998 1999
------------- ------------- ---- ----
STATEMENT OF OPERATIONS
DATA:
<S> <C> <C> <C> <C>
Net sales................................ $ 8,475 $ 919,905 $ 740,499 $ 772,167
Cost of sales............................ - 481,349 371,981 457,252
------------- ------------- ------------- -------------
Gross profit........................ 8,475 438,556 368,518 314,915
Operating expenses:
Sales and marketing................. 14,717 27,384 33,220 257,270
Provision for bad debt.............. - 300,000 - -
General and administrative.......... 764,774 4,176,046 3,359,875 2,223,118
------------- ------------- ------------- -------------
Total operating expenses.......... 779,491 4,503,430 3,393,095 2,480,388
------------- ------------- ------------- -------------
Operating loss.................... (771,016) (4,064,874) (3,024,577) (2,165,473)
Interest expense (income) net............ (5,135) (8,475) (5,483) (12,012)
Income tax expense....................... - - - -
------------- ------------- ------------- -------------
Net loss.......................... $ (765,881) $ (4,056,399) $ (3,019,094) $ (2,153,461)
============= ============= ============= =============
Net loss attributable to
common shares................... $ (765,881) $ (4,056,399) $ (3,019,094) $ (2,153,461)
============= ============= ============= =============
Basic and diluted net loss per
common share............................ $ (.2733) $ (.2813) $ (.1668) $ (.099)
============= ============= ============= =============
Weighted average common
shares used in determining
net loss per share...................... 2,802,154 14,419,873 18,100,000 21,786,418
============= ============= ============= =============
</TABLE>
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30,
------------------- AS OF JUNE 30,
1997 1998 1999
---- ---- ----
BALANCE SHEET DATA:
<S> <C> <C> <C>
Cash and cash equivalents................................ $ 53,804 $ 5,415 $ 200,701
Working capital (deficiency)............................. 79,326 (411,984) (429,590)
Total assets............................................. 309,763 787,970 1,019,989
Long-term debt........................................... - 20,753 -
Total stockholders' equity (deficiency).................. 290,990 160,421 138,945
</TABLE>
10
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with "Selected
Consolidated Financial Data" and our financial statements and related notes
included elsewhere in this prospectus. Our actual results could differ
materially from those anticipated or implied by the forward-looking statements
discussed here. Factors that could cause or contribute to differences include
those discussed in "Risk Factors" as well as those discussed elsewhere in this
prospectus. We urge prospective investors to exercise caution and not to place
undue reliance on any such forward-looking statements.
OVERVIEW
We are an Internet-based provider of online delivery of films and
books. Our Internet web site, www.KKRS.Net, is the portal to all of the
proprietary content and web sites of our company. Our films are accessible by
Internet users at access rates from 56K to broadband. We have over 200 on-demand
movies available with full-screen scalability and television quality. We have
over 250 books online available. The books feature re-sizable type, the ability
to turn pages without scrolling and the ability to search by word or phrase. In
addition, currently we offer other content at www.KKRS.Net, including co-branded
auctions, classified ads and personal ads.
In addition to our Internet and e-commerce businesses, we design,
manufacture and install ergonomic data control console systems for high-end
computer command centers used by governmental agencies and Fortune 500 and other
companies. Our customers include NASA, the Federal Bureau of Investigation, the
United States Navy, Bank of America and Mitsubishi.
To date, all of our revenues have been derived through sales of our
data control console systems. Our current business strategy includes expansion
of our data control console business and a significant emphasis upon developing
and expanding our Internet and e-commerce businesses.
Our company is a Nevada corporation that was incorporated on November
1, 1991 and is the sole shareholder of Kanakaris InternetWorks, Inc. Kanakaris
InternetWorks, Inc. is the sole shareholder of Desience Corporation. Our common
stock is currently traded on the OTC Bulletin Board under the ticker symbol
"KKRS."
We currently derive all of our revenue from the manufacture and sale of
our data control console systems. We are in the process of further developing
and expanding our Internet-related businesses with the goal of deriving revenues
from these businesses in the near future. In that regard, we anticipate deriving
revenue from, among other sources: rental and sales of online, downloaded and
print books and other written materials; movie subscription and pay-per-view
fees; classified and personal ad advertising fees; fees based on the value of
items auctioned through our Internet Lifestyle Network; and sales of
downloadable music.
We expect to continue to place significant emphasis upon the further
development and expansion of our Internet and e-commerce businesses. We expect
to increase our sales and marketing expenses in the near term. We intend to
increase our marketing efforts substantially in order to develop awareness and
brand loyalty for our Internet-based products and services and to generate
revenues from those who visit our Internet sites. These marketing efforts will
require a considerable effort on our part.
We also intend to continue to invest in the development of new products
and services, complete the development of our products and services currently
under development and expand our network.
We have incurred significant losses since our inception. As of June 30,
1999, we had an accumulated deficit of approximately $6.9 million. We expect to
incur substantial operating losses for the foreseeable future. Our results of
operations have been and may continue to be subject to significant fluctuations.
The results for a particular period may vary due to a number of factors, many of
which are beyond our control, including the timing and nature of revenues from
our Internet and e-commerce businesses and data control console product sales
that are recognized during any particular quarter, the impact of price
competition on our average prices for our products and services, market
acceptance of new product or service introductions by us or our competitors, the
timing of expenditures in anticipation of future sales, product returns, the
financial health of our customers, the overall state of the Internet and
e-commerce industries and the data control console industries and economic
conditions generally. See "Risk Factors" for a discussion of the risks we face.
11
<PAGE>
RESULTS OF OPERATIONS
NINE MONTHS ENDED JUNE 30, 1999 AND 1998
Total sales increased $31,668 or 4.31%, from $740,499 for the nine
months ended June 30, 1998 to $772,167 for the same period in 1999. This slight
increase in total sales was primarily due to an increase in sales of our OPCON
Module System.
Gross profit decreased $53,603, or 14.5%, from $368,518 for the nine
months ended June 30, 1998 to $314,915 for the same period in 1999. The decrease
in gross profit and corresponding decrease in gross margin from 49.8% to 40.1%
was primarily due to the purchase of intangible movie and book rights for use on
our web sites.
Total operating expenses decreased $912,707, or 26.9%, from $3,393,095
for the nine months ended June 30, 1998 to $2,480,388 for the same period in
1999. This decrease in total operating expenses was primarily due to a
significant decrease in our consulting fees from $2,850,401 for the nine months
ended June 30, 1998 to $1,195,873 for the same period to 1999. This decrease in
consulting fees was primarily due to the use of stock for payment of these costs
at a lower stock value.
Other income was $5,854 for the nine months ended June 30, 1999, an
increase from $0 for the same period in 1998. The increase was a result of the
write off of prior indebtedness.
YEAR ENDED SEPTEMBER 30, 1998 AND PERIOD FROM FEBRUARY 25, 1997 (INCEPTION) TO
SEPTEMBER 30, 1997
Net sales were $919,905 and $8,475 for the year ended September 30,
1998 and the period from inception to September 30, 1997, respectively. This
significant increase in net sales was due to the acquisition of Desience
Corporation during fiscal 1998 and the inclusion of Desience Corporation's net
sales in fiscal 1998.
Gross profit increased $430,081 from $8,475 for the period from
inception to September 30, 1997 to $438,556 for the year ended September 30,
1998. This increase was due to the acquisition of Desience Corporation during
fiscal 1998 and the inclusion of Desience Corporation's net sales for fiscal
1998.
Total operating expenses increased $3,723,939 from $779,491 to
$4,503,430 partially due to the acquisition of Desience Corporation during
fiscal 1998 and the inclusion of Desience Corporation's operating expenses for
fiscal 1998. During fiscal 1998, our consulting fees were $3,241,466 as compared
with $453,841 for the period from inception to September 30, 1997. This increase
in consulting fees was due to recording the stock issued for consulting services
as an expense using the fair value of the stock as of the date of issue, which
value was significantly higher in 1998 than in 1997.
LIQUIDITY AND CAPITAL RESOURCES
From February 25, 1997 through June 30, 1999, we funded our operations
primarily from equity investments through private placements of our securities,
proceeds from our line of credit and revenue generated from our operations.
As of June 30, 1999, we had a negative working capital of $429,590 and
an accumulative deficit of $6,975,741. As of that date, we had $200,701 in cash
and $139,728 in accounts receivable. We also had obligations under our line of
credit in the amount of $150,000. The amounts under the line of credit were
subsequently converted in September 1999 into a portion of our debentures.
12
<PAGE>
Cash used in our operating activities totaled $556,459 for the nine
months ended June 30, 1999 versus $194,725 for the nine months ended June 30,
1998 and $282,795 in fiscal 1998 versus $229,886 in fiscal 1997. Cash used in
our investing activities totaled $20,900 for the nine months ended June 30, 1999
versus $53,426 from investing activities for the nine months ended June 30,
1998.
Cash provided by our financing activities was $772,645 during the nine
months ended June 30, 1999. That amount was raised primarily through the
issuance of our common stock which generated $643,512, and borrowings of
$150,000 under our line of credit. Cash used in financing activities for the
nine months ended June 30, 1999 consisted of the repayment of notes payable of
$20,867. Cash provided by our financing activities was $522,279 in fiscal 1998
as compared to $536,448 in fiscal 1997.
On February 25, 1999, we obtained a $5,000,000 revolving line of credit
from Alliance Equities. On April 7, 1999, this line of credit was increased to
$7,000,000. The February 25, 1999 agreement memorializing our arrangement with
Alliance Equities provides that a definitive agreement is to be negotiated
within seven days of that date. The parties have never finalized a definitive
agreement and have been operating under the February 25, 1999 agreement as
amended by the April 7, 1999 amendment.
We believe that current and future available capital resources,
revenues generated from operations, and other existing sources of liquidity,
including our revolving line of credit with Alliance Equities, will be adequate
to meet our anticipated working capital and capital expenditure requirements for
at least the next 12 months. If, however, our capital requirements or cash flow
vary materially from our current projections or if unforseen circumstances
occur, we may require additional financing sooner than we anticipate. Failure to
raise necessary capital could restrict our growth, limit our development of new
products and services or hinder our ability to compete. See "Risk Factors -- We
May Need and Be Unable to Obtain Additional Funding on Satisfactory Terms, Which
Could Dilute Our Shareholders or Impose Burdensome Financial Restrictions on Our
Business."
YEAR 2000 COMPLIANCE
Many existing computer programs use only two digits to identify a year
in the date field. These programs were designed and developed without
considering the impact of the upcoming change in the century. If not corrected,
such computer applications could fail or create erroneous results by or at the
Year 2000. We are currently identifying which of our information technology and
non-information technology systems will be affected by Year 2000 issues.
Our Year 2000 compliance program consists of three phases:
identification and assessment, remediation and testing. For any given system,
the phases occur in sequential order, from identification and assessment of Year
2000 problems, to remediation and, finally, to testing our solutions.
We have completed the identification and assessment of most of our
information technology systems, and those systems address or have been modified
to address Year 2000 problems. We have received assurances from our vendors and
suppliers that their products and businesses are Year 2000 compliant. However,
we have no direct control over these third parties and cannot assure you that
any third-party software and hardware systems will be timely converted. The
failure of certain individual vendors or suppliers, or a combination of vendors
or suppliers, to make their systems Year 2000 compliant could have a material
adverse effect on our financial results.
We have completed all phases of our Year 2000 compliance program. Our
costs to date for our Year 2000 compliance program have not been material.
We rely on third-party network infrastructure providers to gain access
to the Internet. If such providers experience business interruptions as a result
of their failure to achieve Year 2000 compliance, our ability to provide our
services could be impaired, which could harm our business, financial condition
and operating results.
We are currently unable to determine our most reasonably likely worst
case Year 2000 scenario. Because most of our information technology systems
address or have been modified to address Year 2000 problems and because we do
not have significant non-information technology systems, we do not anticipate
that the Year 2000 will have a significant impact on our operations. However, a
failure to address all of our Year 2000 issues successfully could have a
material adverse effect on our business, results of operations and financial
conditions.
13
<PAGE>
BUSINESS
COMPANY HISTORY
Our company is the surviving company in a series of transactions
involving Kanakaris InternetWorks, Inc., a Delaware corporation that was
incorporated on February 25, 1997 ("KIW"), Desience Corporation, a California
corporation that was incorporated on April 17, 1984 ("Desience"), and Big Tex
Enterprises, a Nevada corporation that was incorporated on November 1, 1991
("Big Tex"). On October 10, 1997, KIW purchased all of the outstanding shares of
common stock of Desience in exchange for a royalty payable to the prior sole
shareholder of Desience based upon a percentage of Desience's gross sales. On
November 25, 1997, Big Tex purchased all of the outstanding shares of common
stock of KIW in exchange for 3,000,000 shares of our common stock owned by
Nelson Vasquez, the then president of Big Tex, 3,000,000 newly issued shares of
our common stock and 1,000,000 newly issued shares of our preferred stock. On
November 26, 1997, Big Tex changed its name from Big Tex to Kanakaris
Communications, Inc. Consequently, our company is a Nevada corporation that was
incorporated on November 1, 1991 and is the sole shareholder of KIW, and KIW is
the sole shareholder of Desience. Our common stock is currently traded on the
OTC Bulletin Board under the ticker symbol "KKRS."
COMPANY OVERVIEW
We are an Internet-based provider of online delivery of films and
books. Our Internet web site, www.KKRS.Net, is the portal to all of the
proprietary content and web sites of our company. Our films are accessible by
Internet users at access rates from 56K to broadband. We have over 200 on-demand
movies available with full-screen scalability and television quality. We have
over 250 books online available. The books feature re-sizable type, the ability
to turn pages without scrolling and the ability to search by word or phrase. In
addition, currently we offer other content at www.KKRS.Net, including co-branded
auctions, classified ads and personal ads.
In addition to our Internet and e-commerce businesses, we design,
manufacture and install ergonomic data control console systems for high-end
computer command centers used by governmental agencies and Fortune 500 and other
companies. Our customers include NASA, the Federal Bureau of Investigation, the
United States Navy, Bank of America and Mitsubishi.
To date, all of our revenues have been derived through sales of our
data control console systems. Our current business strategy includes expansion
of our data control console business and a significant emphasis upon developing
and expanding our Internet and e-commerce businesses.
We currently derive all of our revenue from the manufacture and sale of
our data control console systems. We are in the process of further developing
and expanding our Internet-related businesses with the goal of deriving revenues
from these businesses in the near future. In that regard, we anticipate deriving
revenue from, among other sources: rental and sales of online, downloaded and
print books and other written materials; movie subscription and pay-per-view
fees; classified and personal ad advertising fees; fees based on the value of
items auctioned through our Internet Lifestyle Network; and sales of
downloadable music.
We store single digital source files of content on our servers. This
single file - which may be a movie, a book or, in the future, music - is
duplicated on demand as as many times as demand warrants. We deliver our content
direct over the Internet, which eliminates traditional remanufacturing, storage
and shipping costs. In addition, we provide Internet services such as the design
and hosting of web sites, proprietary web sites, digital book publishing, themed
content commerce web sites and online advertising. We also design and
manufacture computer command centers used by corporations and governmental
agencies. We are focused on developing proprietary web sites and downloadable
Internet content and anticipate that these components of our business will be a
major portion of our overall and Internet business.
14
<PAGE>
Our currently available and planned Internet services are designed to
provide the following key benefits to individual consumers and end-users:
ONLINE MOVIES
o No Plug-In Required For Delivery
o Works With Any Computer With An Internet Connection
o Compatible With Any Browser Or On Any Platform
o Pay-Per-View for Individual Movies
o Monthly Access to Unlimited Viewing
o Full-Screen Viewing of Movies
ONLINE BOOKS
o Real-time Delivery
o Secured Impressions
o Direct Delivery
o Dynamic Updates
ONLINE MUSIC (in development)
o 24-Hour Access to New Artists
o Direct Online Purchase Of A Wide Variety Of Music
ONLINE SHOPPING/ENTERTAINMENT (in initial implementation)
o Specialized Items for the Internet Lifestyle
Our data control console products are designed to provide the following
key benefits to customers:
o Maximization of operator efficiency and productivity through
ergonomics, focusing on data and immediate accessibility
o Operator productivity is increased by providing an environment
which reduces visual and physical stress, enhancing the operator's
ability to focus attention and facilitating equipment access
o Maximization of the number of displays per operator in a compact
space
o Flexibility to accommodate growth and change in both hardware and
location
INTERNET INDUSTRY BACKGROUND
The Internet began in the late 1960s as an experiment in the design of
robust computer networks. Basically, the Internet is a collection of computer
networks - a network of networks - that allows anyone to connect with their
computer to the Internet and immediately communicate with other computers and
users across the world. Its use for decades was primarily limited to defense
contractors and academic institutions. With the advent of high-speed modems for
digital communication over common telephone lines, some individuals and
organizations began connecting to and taking advantage of the Internet's
advanced global communications ability.
Although there were several factors responsible for the growth of the
Internet, the factors that are most often attributed to its success are the
advent of HTML, the World Wide Web and Internet browsers. With the expansion in
the number of Internet users and web sites, we believe two recent phenomena have
developed: (i) growth in the amount of commerce that is being transacted over
the Internet and (ii) willingness of businesses to spend money to be a part of
the Internet.
15
<PAGE>
Because the Internet has experienced rapid growth, it has developed
into a significant tool for global communications, commerce and media, enabling
millions of people to share information and transact business electronically.
International Data Corporation, or IDC, estimates that there were over 51
million web users in the United States and over 97 million worldwide at the end
of 1998. IDC projects these numbers to increase to over 135 million web users in
the United States and over 319 million worldwide by the end of 2002.
Internet-based businesses have emerged to offer a variety of products and
services over the Internet. Advances in online security and payment mechanisms
have also prompted more businesses and consumers to engage in electronic
commerce. IDC estimates that the value of purchases of goods and services,
excluding fund transfers and stock transfers, on the Internet will grow from
$32.4 billion worldwide in 1998 to $425.7 billion worldwide in 2002.
DATA CONTROL CONSOLE INDUSTRY BACKGROUND
The data control console industry focuses on the design, manufacture,
and implementation of high-tech furniture systems used to fully integrate
computer systems and communications systems in the workplace. Working with IBM,
we developed the first modular system for enclosing and organizing the equipment
and cabling associated with data and network control centers. The first large
installation occurred in 1985. We were the first and only manufacturer using a
standard, modular "system" which could be quickly installed by bolting together
without any site construction and could similarly be added to or reconfigured
easily with additional parts.
OUR STRATEGY
Our objective is to be the leader of downloadable content, information
and entertainment products and a leading supplier of data control console
products. Our goal is to provide the direct delivery of interactive content,
including movies, books and music, directly over the Internet to computer
devices available in schools, offices, homes and cars on a worldwide
around-the-clock basis. To achieve these objectives, we have developed a
strategy with the following key elements:
o EXPAND OUR MOTION PICTURE LIBRARY. Currently we have over 200
movies available for viewing in full-length, full computer
screen format on demand through our "virtual theater", which
utilizes Microsoft Media 4.0 technology. We intend to expand
our motion picture library as funds become available.
o FINALIZE THE DEVELOPMENT AND IMPLEMENTATION OF OUR MOVIE
PARTNER PROGRAM. We intend to finalize the development and
implementation of our Movie Partner Program to allow any
mainstream web site in the world to host a virtual theater. We
plan to attract web sites to participate in our proposed Movie
Partner Program by allowing such web sites to join our program
free of charge and to share in our revenues generated through
their participation in our program.
o BECOME THE LEADING PROVIDER OF DIRECT-OVER-THE-INTERNET
DELIVERY OF BOOKS. We are working toward providing the largest
number of copyrighted books available via secure
direct-over-the-Internet technology. To accomplish this goal,
we are seeking new relationships with publishers and authors.
o DEVELOP AND CULTIVATE STRATEGIC ALLIANCES. We intend to
cultivate our existing strategic alliances with Microsoft
Corporation, ION Systems, Inc. and others and to develop new
strategic alliances that will aid us in building brand
awareness for our Internet and e-commerce web sites and
enhancing the products and services we provide.
o BUILD THE KKRS.NET NAME. We intend to increase our focus on
building the KKRS.Net name. As funds become available, we
intend to launch a promotional campaign to increase awareness
of the KKRS.Net name through, among other things, our
strategic alliances, co-branding of others' web sites and
traditional media, including print and radio.
16
<PAGE>
o CAPITALIZE ON FREE SERVICES. We believe that our free services
will attract a critical mass of users and educate Internet
users, authors and publishers regarding the benefits of our
products and services.
o EXPAND OUR PRODUCTION AND INSTALLATION OF DATA CONTROL CONSOLE
PRODUCTS. We intend to generate new and exciting sales
materials and aids to enhance our product exposure and to
increase our sales force to penetrate deeper into national and
international markets.
OUR INTERNET PRODUCTS AND SERVICES
ONLINE MOVIES
We operate an online movie site, entitled "NetMovieMania.com," which
enables Internet users to download full-length motion pictures with no download
time and no plug-in required utilizing Microsoft Windows Media Technology 4.0.
NetMovieMania.com is a channel on our KKRS.Net entertainment web portal. We plan
to offer pay-per-view movies as well as promotional movies. We have amassed a
catalog of over 400 film titles, of which more than 200 are currently available
for online distribution. We plan to offer pay-per-view movies as well as sell
advertising to our web site. We plan to charge a monthly access fee for those
customers who desire unlimited viewing access to a larger portion of our web
site. We are in the process of merchant service system that will enable us to
charge and collect access fees to our NetMovieMania.com web site.
We have developed a Movie Partner Program aimed at attracting web sites
to utilize our innovative technology. We intend to allow other web sites to
co-brand our virtual theater and receive a commission for subscription and
pay-per-view fees generated by visitors from their web sites.
We plan to introduce our Movie Partner Program during the first quarter
of calendar year 2000. We anticipate that our Movie Partner Program will include
the following revenue streams:
o Advertising sales to companies interested in selling products
to our viewers
o Monthly subscription fees for unlimited access to a larger
number of online movies
o Pay-per-view fees for individual viewers at broadband access
speeds for selected movies and events
o Co-branding of our content with other web sites to increase
traffic value of ads and the potential numbers of subscribers
and pay-per-view customers
ONLINE BOOKS
We have a web site called "NetBooks.com" which is integrated within our
main web site KKRS.Net and which offers secure online delivery of books using
proprietary technology licensed from ION Systems. Over the past several years,
book publishing in the United States has shown a steady increase. As a result,
the emerging online bookselling industry is expected to grow from $630 million
in 1998 to $3 billion in 2003, according to Forrester Research, Inc., a
Cambridge, Massachusetts, research group.
Currently, online booksellers account for about three percent of the
market for books and industry experts believe that this market share is growing.
We estimate there are 500 book titles available electronically on the Internet
today. Microsoft, in an advertisement in Publisher's Weekly in November 1999,
stated that by the year 2020, 90% of all book titles will be available
electronically.
Our company's content, which currently is available as movies and
books, is downloadable in real-time which means there is not a significant delay
in the display of text or images. This allows the consumer to obtain immediate
access to the medium of their choice. We believe that our site is secure to the
extent that it preserves the author's rights to ownership. We also believe that
we are the only online Internet publisher that provides real-time secure
fulfillment from one source file.
17
<PAGE>
The primary concern for downloadable content providers is security.
There are currently other sites on the Internet that offer a variety of
downloadable titles. However, the number of titles available is extremely
limited because authors and publishers are reluctant to put their materials
online. This is largely a result of a lack of security systems offered by other
similar sites. When security is lacking, the author and publisher lose control
of their property. The material can be copied, printed, e-mailed, or transferred
to anyone as many times as the user would like with no payment or royalty to the
owner. In addition, other sites make it difficult for people to comfortably read
books. The document is downloaded and the text and spacing cannot be changed.
Often times, this makes for an uncomfortable reading experience.
We have made available a solution for both the security problem as well
as the comfort problem with our software solutions. Books and articles are now
available through high-speed access for use on desktops, laptops, personal data
assistants, compact discs and other innovative end user hardware. Most
importantly, there is no end user software needed. Earlier this year, we entered
into an alliance with ION Systems for use of their secure online download
technologies. Using this new, innovative software, we can rent or sell books
online while allowing authors and publishers to retain control over their
content.
Authors and publishers whose materials are available on our
NetBooks.com web site determine which of the following access options are to be
made available to visitors to our website:
o Free Browsing - Currently, a visitor may browse certain posted
materials free of charge.
o Purchase Hourly Access - We anticipate that a visitor will in the
future be able to rent the online version of the materials on an
hourly basis. The author or publisher may allow visitors to apply
a percentage of the online rental fees toward another method of
purchase or rental described below.
o Purchase of Download Version - Currently, a visitor may purchase
the download version of the materials, thus enabling them to use
the materials for off-line reading in unlimited sessions for an
unlimited amount of time. The copyright notice will state that the
visitor cannot duplicate the book.
o Purchase Extended Access - We anticipate that a visitor will in
the future be able to purchase a password enabling them to read
the online version of the materials for five years in any number
of sessions.
o Purchase of Print Version - We anticipate that a visitor will in
the future be able to purchase a print version of the materials
and that when an order for a print copy is submitted, the
purchasing visitor will be given immediate access to the online
version while the book is shipped.
The text of the online materials cannot be copied, printed, or
extracted using optical character recognition software. Our licensed technology
also prevents temporary Internet files from storing usable text. We believe this
is the first application of a technology through which the author and publisher
can retain complete control of how their creative work is used online. Any book
or document - no matter how long - can be read page by page. The reader also
maintains control over the size of the type with just the click of the mouse.
None of these features requires any special user software other than a
JAVA-enabled browser. By using this technology, a long document, book, textbook
or manual can be read without scrolling and in any type size the reader's eyes
find comfortable.
A value-added feature of our company's system is real-time secure
fulfillment of orders from customers. When an order for a print copy is
submitted, the purchaser is given immediate access to the online version while
the book is shipped. We believe that the online protection of the author's
intellectual property and the enhanced reading format differentiate our company
from any other Internet distributor.
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<PAGE>
We are also working with ION Systems to develop and implement an
exclusive Partner Program, which will be a unique method of title acquisition
among Internet publishers. The program will allow qualified publishers to post
books online free of charge and to share in revenues derived from access
charges. The program will be available to publishers, agents, packagers or other
persons or organizations who have the copyright to book titles. Qualified
partners will be able to post books online for free and receive multiple new
revenue streams. The program is available to publishers, agents, packagers or
other persons or entities who have the copyright to multiple book titles.
ONLINE MUSIC
We plan to establish an online music site entitled cyberpop.com. We
anticipate that cyberpop.com will be a downloadable music site offering a
combinations of 24-hour Internet radio exposure to artists, combined with direct
online sales of songs and compact disks in a choice of the leading Internet
delivery technologies.
ONLINE SHOPPING/ENTERTAINMENT
We have established the Internet LifeStyle Network. To maximize
exposure and accessibility, the site is fully integrated with our downloadable
movie and book web sites. The site presently offers co-branded auctions,
classified ads and personal ads.
OUR DATA CONTROL CONSOLE PRODUCTS
Our primary data control console product is our OPCON Module System, a
proprietary modular system for high-end computer command centers. Our OPCON
Module Systems have been purchased and installed by major governmental agencies
such as NASA, the Federal Bureau of Investigation and the United States Navy and
by large corporations including Bank of America, Mitsubishi and Pacific Bell.
Our control center consoles are ergonomically designed to maximize
comfort, function, adaptability and efficiency for the corporate network system.
We assist clients in the planning process by making site visits, taking lists of
requirements, then providing customers with blueprint floor plans of OPCON
Module System layouts, elevated views of suggested equipment layouts and
perspective presentation drawings. In order to assure complete customer
satisfaction, we oversee the manufacturing of products as well as the
installation.
Our company through its wholly-owned subsidiary, Desience Corporation,
has been marketing and selling the OPCON Module System to corporate and
government mainframe computer users since the early 1980's. Historically,
approximately 90% of our sales have been in the United States. During the 1990's
we have seen increased business from South America, including multiple orders
from Venezuela, and have also seen increased business from Mexico. We have also
sold and installed the OPCON Module System in Canada, Barbados, Bermuda, St.
Lucia, Kuwait and Guam.
In 1999, we announced plans to develop a "personal" module system,
tentatively titled Opcon 2000, to provide a single computer work station for the
home or office. This product will represent the first consumer product offering
in our history. We plan to market this product over the Internet with the
intention of consumer retail distribution throughout the world.
Currently, there are five companies competing in the marketplace for
modular system solutions, including Desience Corporation, Wrightline, Evans
Consoles, and Stacking Systems, which provide metal products, and
Infrastructures, which provides wood-type products. All of our competitors have
more resources than us, and most competitors offer similar services such as
installation, warranties and customer service. Deciding factors such as price,
service and features vary according to the requirements of the customer.
Wood is a low cost short-range solution with no ability to endure the
rigors of years of use and frequent reconfigurations so often required in our
environment. Therefore, only the other metal products are true competition for
us. We are a leader in the design and production of quality metal products. Our
system is made of heavy steel, has a proprietary lens to provide better task
lighting, provides extremely open architecture for cable routing and is easy to
reconfigure. To this end, we are proud that our existing clients return often
for new and/or expanded systems.
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STRATEGIC RELATIONSHIPS
In order to expand our Internet and e-commerce businesses, we have
developed strategic relationships with various Internet, technology and software
companies. The following is a brief description of some of our more important
strategic relationships.
MICROSOFT CORPORATION
In August 1999, we entered into an Internet content partner agreement
with Microsoft Corporation. Under the terms of the agreement, Microsoft promotes
certain portions of our web content in consideration for our adoption and use of
Microsoft's Windows Media technology. Microsoft has agreed to promote four of
our web sites through December 30, 2001. Microsoft is providing clickable
headline links to our NetMovieMania.com web site consisting of brief summaries
of the content available via the site link on their WindowsMedia.com web site.
This site link enables Internet users to read and click on the text relating to
our advertised service and be directly connected to our applicable web site. In
addition, in November 1999 our company was selected by Microsoft to participate
in the Microsoft Windows Media Technologies Broadband Jumpstart Initiative. As a
result, we anticipate providing broadband content and having Microsoft provide
links to this content from its WindowsMedia.com web site.
ION SYSTEMS
Our license agreement with ION Systems allows us to use their secure
online download technologies. The agreement continues through December 31, 2004,
and thereafter will be renewable automatically for additional renewal terms of
five years each. Under this agreement, ION Systems has granted us a license to
use their E*Web and the X*Maker computer software which allows for the secure
downloading and viewing of our web sites. ION System's software may be used by
us solely for the publishing, displaying, promoting, marketing, offering and
selling for a fee of certain specified book categories as well as of products or
services listed in the books published. The fee for each book conversion
performed by ION Systems is $100.00, and the royalties for each book sale and
product sale are 20% and 5% respectively, of gross revenue. In April 1999, we
amended our agreement with ION Systems to provide that ION Systems would manage
all e-commerce transactions through our web sites for Netbooks.com and would
also manage the maintenance of all our web sites for Netbooks.com, including
site maintenance and coordination with site hosting facilities.
SALES AND MARKETING
Sales and marketing activities with respect to our data control console
business are currently handled by a limited number of manufacturer's
representatives and the four employees of our company that are engaged primarily
in this portion of our business, who locate potential customers and assist them
in the planning process by making site visits, taking lists of requirements,
then providing customers with proposed blueprints and drawings suited to the
customers' individual needs. We intend to increase the number of manufacturer's
representatives and employees devoted to these functions as funds and
opportunities become available so that we can continue to enhance Desience
Corporation's name as the pioneer and a modern leader in the data control
console business.
Sales and marketing activities with respect to our Internet and
e-commerce businesses are currently limited primarily to headline links provided
by Microsoft Corporation from its web site to our NetMovieMania.com web site,
co-branding of others' web sites, and hosting web events such as the upcoming
live webcast of a charitable fashion show for the Los Angeles organization known
as L.A. Shanti, which is scheduled for December 14, 1999. An important piece of
our current marketing strategy is to offer free services. For example, movies on
our web site presently can be viewed free of charge and will remain viewable
free of charge for a limited time. This is intended to allow us to expand our
customer base and get customers in the habit of using our services while
building brand awareness and increasing the number of hits to our web site,
resulting in increased sales of our products and services. Also, we anticipate
that our exclusive Partner Program will allow authors and publishers to post
books to our web site free of charge and take advantage of the opportunity to
share in revenues generated from such posts.
As discussed more fully below, to capitalize on our business model, we
intend to initiate a more traditional marketing campaign as funds allow. Such a
campaign is likely to initially include targeted print and radio advertising and
may also include hiring marketing staff that would be primarily responsible for
communications, advertising and public relations for our data control console
business and our Internet and e-commerce businesses.
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ADVERTISING AND PROMOTION
There are numerous Internet sites that are frequently visited by
Internet users. These sites range from television network companies such as ABC,
CBS and NBC to lesser known companies that publish information on their web
sites on various special interest topics. Because of the popularity of these
sites, these sites provide excellent mediums in which to advertise products and
services. Several different business models are currently being used by the
Internet community regarding advertising on web sites. One model allows the
owner of the web site to charge a fee to display an advertisement on its web
site with a link to the advertiser's site. Another uses cooperative arrangements
in which companies exchange advertisements on each other's sites. Our company is
pursuing both types of relationships. Currently, we are not involved in any
significant advertising or promotion. However, as funds become available, our
company plans to advertise its site in traditional advertising mediums that will
be directed to the first time Internet user as well as sophisticated Internet
users. This will include print, radio and possibly television advertisements
targeted to specific markets.
We intend to place advertisements for the KKRS.net web site in
influential trade publications catering to the entertainment industry, such as
the advertisement we placed in the September 14-20, 1999 issue of The Hollywood
Reporter. Since 1997, we have created Internet web events in order to drive
traffic to our web site. We intend to continue to create high profile Internet
events as a means to further promote our business.
Alex Kanakaris, our Chairman of the Board, President and Chief
Executive Officer, is the author of a new book that highlights the impact of the
Internet on our society. The book was released November 8, 1999. We believe that
the promotion of this book will bring further attention to our web site.
COMPETITION
The Internet and e-commerce businesses are extremely competitive and
can be significantly affected by many factors, including changes in local,
regional or national economic conditions, changes in consumer preferences, brand
name recognition and marketing and the development of new and competing
technologies. We expect that existing businesses that compete with us and which
have greater resources than us will be able to undertake more extensive
marketing campaigns and adopt more aggressive advertising sales policies than
us, thereby generating more traffic to their web sites.
We believe that KKRS.Net is the only web site that currently offers
both online movies and books. Also, we are not aware of any web site that
intends to offer online movies, books and music. We believe that our unique
combination of products on our web site will assist us in becoming and remaining
competitive with other movie, book and music web sites by allowing us to share
traffic, and therefore share revenue potential, between our various web sites.
Although there are numerous movie web sites on the Internet, we believe
that we have a competitive edge in the online movie industry because, among
other things:
o We believe that NetMovieMania.com currently offers the largest
number of full-length, mainstream Hollywood movies with
Internet access at multiple access speeds.
o Most of our full-length movies can be downloaded in
approximately one minute rather than in a few hours, as on
many other web sites.
o We currently have over 220 full-length films online, which are
viewable in streams from 28.8 to broadband. Because of the
significant time involved in translating film into streaming
media technology, we believe that our film library gives us a
significant lead over others in the online movie industry.
The emerging online book industry is expected to grow from $630 million
in 1998 to $3 billion in 2003, according to Forrester Research, Inc., a
Cambridge Massachusetts research group. Currently, online booksellers account
for about three percent of the market for books. We estimate there are 500 book
titles available electronically on the Internet today. Microsoft Corporation, in
an advertisement in Publisher's Weekly in November 1999, projected that by the
year 2020, 90% of all book titles will be available electronically.
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Although there are numerous book sites on the Internet, we believe that
our NetBooks.com web site is the only web site that provides real-time secure
fulfillment from one source file. In addition, we believe that NetBooks.com is
the only web site that currently uses proprietary technology which enables
consumers to read posted books and other materials without scrolling and in any
type size the consumer's eyes find comfortable while allowing authors and
publishers to maintain ownership and control over their proprietary content.
With respect to competition with our data control console business,
currently there are five companies competing in the marketplace for modular
system solutions, including Desience Corporation, Wrightline, Evans Consoles,
and Stacking Systems, which provide metal products, and Infrastructures, which
provides wood-type products. Most of our competitors offer similar services,
such as installation, warranties and customer service. Deciding factors such as
price, service, features and materials vary according to the requirements of the
customer.
Although we were the pioneers in this industry and are a leader in the
design and production of quality metal data control console products, we believe
that all of our competitors currently have more financial and other resources
than us. Nevertheless, we have remained competitive in the data control console
industry based upon our delivery of quality products and services with
relatively minimal overhead. We intend to maintain and enhance our competitive
position in this industry by committing additional staffing and other resources
to our data control console business as funds become available.
PATENTS AND PROPRIETARY RIGHTS
We rely on a combination of trademark, trade secret and copyright law
and contractual agreements to protect our proprietary technology and
intellectual property rights. We hold the Internet domain names "KKRS.Net,"
"NetBooks.com," "NetMovieMania.com," "cyberpop.com" and many others. Under
current domain name registration practices, no one else can obtain an identical
domain name, but someone might obtain a similar name, or the identical name with
a different suffix, such as ".org", or with a country designation. The
relationship between regulations governing domain names and the laws protecting
trademarks and similar proprietary rights is enforceable under local national
law. In addition, the regulation of domain names in the United States and in
foreign countries is subject to change, and we could be unable to prevent
third-parties from acquiring domain names that infringe or otherwise decrease
the value of our domain names.
GOVERNMENT REGULATION
There is currently only a small body of laws and regulations directly
applicable to access to or commerce on the Internet. However, due to the
increasing popularity and use of the Internet, it is possible that a number of
laws and regulations may be adopted at the international, federal, state and
local levels with respect to the Internet, covering issues such as user privacy,
freedom of expression, pricing, characteristics and quality of products and
services, taxation, advertising, intellectual property rights, information
security and the convergence of traditional telecommunications services with
Internet communications. Moreover, a number of laws and regulations have been
proposed and are currently being considered by federal, state and foreign
legislatures with respect to these issues. The nature of any new laws and
regulations and the manner in which existing and new laws and regulations may be
interpreted and enforced cannot be fully determined.
In addition, there is substantial uncertainty as to the applicability
to the Internet of existing laws governing issues such as property ownership,
copyrights and other intellectual property issues, taxation, libel, obscenity
and personal privacy. The vast majority of these laws were adopted prior to the
advent of the Internet and, as a result, did not contemplate the unique issues
and environment of the Internet. Future developments in the law might decrease
the growth of the Internet, impose taxes or other costly technical requirements,
create uncertainty in the market or in some other manner have an adverse effect
on the Internet. These developments could, in turn, have a material adverse
effect on our business, prospects, financial condition and results of
operations.
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We provide our services through data transmissions over public
telephone lines and other facilities provided by telecommunications companies.
These transmissions are subject to regulation by the Federal Communications
Commission, state public utility commissions and foreign governmental
authorities. However, we are not subject to direct regulation by the Federal
Communications Commission or any other governmental agency, other than
regulations applicable to businesses generally. Nevertheless, as Internet
services and telecommunications services converge or the services we offer
expand, there may be increased regulation of our business, including regulation
by agencies having jurisdiction over telecommunications services. Additionally,
existing telecommunications regulations affect our business through regulation
of the prices we pay for transmission services, and through regulation of
competition in the telecommunications industry.
The Federal Communications Commission has ruled that calls to Internet
service providers are jurisdictionally interstate and that Internet service
providers should not pay access charges applicable to telecommunications
carriers. Several telecommunications carriers are advocating that the Federal
Communications Commission regulate the Internet in the same manner as other
telecommunications services by imposing access fees on Internet service
providers. The Federal Communications Commission is examining inter-carrier
compensation for calls to Internet service providers, which could affect
Internet service providers' costs and consequently substantially increase the
costs of communicating via the Internet. This increase in costs could slow the
growth of Internet use and thereby decrease the demand for our services.
FACILITIES
We currently occupy approximately 1,780 square feet of office space at
our headquarters in Costa Mesa, California. We sublease this space for $1,579
per month. The sublease expires August 20, 2000.
EMPLOYEES
As of November 8, 1999, we employed or contracted a total of 7
employees and 4 consultants on a full or part-time basis. We have 8 full-time
and 3 hourly workers. Seven of our workers are devoted primarily to our Internet
and e-commerce businesses, and 4 of our workers are devoted primarily to our
data control console business.
Our future success will depend, in part, on our ability to continue to
attract, retain and motivate highly qualified technical, marketing and
management personnel. Our employees are not represented by any collective
bargaining unit. We have never experienced a work stoppage. We believe our
relationship with our employees is good.
LEGAL PROCEEDINGS
On September 15, 1999, Robert Adams filed a complaint against our
company and our Chairman of the Board, President and Chief Executive Officer,
Alex Kanakaris, individually, in Los Angeles Superior Court (Case No. LC050023)
alleging breach of contract and fraud. Mr. Adams based his fraud claim primarily
on alleged misrepresentations and concealment involving a consulting agreement
between our company and Mr. Adams. Mr. Adams alleged that he is entitled to
certain stock options, of which 75% of the option price allegedly is already
deemed paid in exchange for services allegedly rendered by Mr. Adams to our
company. Mr. Adams is attempting to exercise the options for the purchase of a
certain number of shares to which he claims to be entitled pursuant to the
agreement. We have engaged counsel to analyze the complaint and vigorously
defend us against all of Mr. Adams' claims.
On October 14, 1999, Institutional Management, Inc., an Illinois
corporation ("IMI"), filed suit against our company and Alpha Tech Stock
Transfer & Trust Company, our stock transfer agent and registrar, in the Circuit
Court of Cook County, Illinois (Case No. 99L 011509). The case was removed to
the United States District Court for the Northern District of Illinois, Eastern
Division (Case No. 99C 7100). In the complaint, IMI sought damages in excess of
$50,000 under breach of contract and various other state law theories in
connection with our unwillingness to permit them to transfer shares of our
company's common stock held by IMI. We believe that the shares were wrongfully
converted by a predecessor to IMI. We have engaged counsel to analyze the
complaint, vigorously defend us against all of IMI's claims and pursue any
appropriate counterclaims we may have.
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On August 2, 1999, the Securities and Exchange Commission filed suit in
the United States District Court in the District of Nevada against our company,
Mr. Kanakaris, David Valenti, who is a major stockholder of our company, and
another individual seeking permanent injunctions and civil penalties based on
alleged violations of Sections 5(a), 5(c) and 17(a)(1)-(3) of the Securities Act
of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5
thereunder in connection with the sale of approximately 6,000,000 shares of our
company's common stock in 1996 and 1997 to the former shareholders of Kanakaris
InternetWorks, Inc., a subsidiary of our company. On August 9, 1999, a final
judgment of permanent injunction and other relief was entered in connection with
the execution by each defendant of a consent to entry of injunction and the
payment by each of Mr. Kanakaris and Mr. Valenti of a $25,000 civil penalty.
Without admitting or denying any guilt involving the violations cited in the
decrees, Mr. Kanakaris, Mr. Valenti and our company each have agreed pursuant to
the consents to entry of injunction not to take actions that would violate
federal securities laws in connection with the offer, purchase or sale of
securities.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of our company and their ages are
as follows:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Alex Kanakaris.................................... 43 Chairman of the Board, President,
Chief Executive Officer and Director
Branch Lotspeich.................................. 52 Vice Chairman of the Board, Secretary and
Director
John Robert McKay................................. 38 Webmaster and Director
David Thomas Shomaker............................. 43 Acting Chief Financial Officer
</TABLE>
Alex F. Kanakaris has served as a director and as our Chairman of the
Board, President and Chief Executive Officer since November 1997. Mr. Kanakaris
served as the President of Kanakaris InternetWorks, Inc. from 1994 until it was
acquired by our company in November 1997. During the past 15 years, Mr.
Kanakaris created innovative web sites, including www.cyberpop.com and
www.NetBooks.com, and he served as editor-in-chief of various publications such
as Video Swapper, Video Entertainment, New Talent Streetscene and L.A.>POP. Mr.
Kanakaris is author of the book "Signs of Intelligent Life on the Internet"
published by Darce/Brentwood Media Group, November 1999.
On August 2, 1999, the Securities and Exchange Commission filed suit in
the United States District Court in the District of Nevada against our company,
Mr. Kanakaris, David Valenti, who is a major stockholder of our company, and
another individual seeking permanent injunctions and civil penalties based on
alleged violations of Sections 5(a), 5(c) and 17(a)(1)-(3) of the Securities Act
of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5
thereunder in connection with the sale of approximately 6,000,000 shares of our
company's common stock in 1996 and 1997 to the former shareholders of Kanakaris
InternetWorks, Inc., a subsidiary of our company. On August 9, 1999, a final
judgment of permanent injunction and other relief was entered in connection with
the execution by each defendant of a consent to entry of injunction and the
payment by each of Mr. Kanakaris and Mr. Valenti of a $25,000 civil penalty.
Without admitting or denying any guilt involving the violations cited in the
decrees, Mr. Kanakaris, Mr. Valenti and our company each have agreed pursuant to
the consents to entry of injunction not to take actions that would violate
federal securities laws in connection with the offer, purchase or sale of
securities.
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Branch Lotspeich has served as our Vice Chairman of the Board and as
President of our Desience Division since June 1997. He has served as our
Secretary and as a director since November 1997. Prior to that, he also served
as Vice-President of Desience Corporation from March 1992 through June 1997.
Prior to that Mr. Lotspeich worked as an independent consultant in
telecommunications, acquiring accounts including Proctor & Gamble and Cincinnati
Bell Telephone. Mr. Lotspeich is a Summa Cum Laude graduate of the University of
Cincinnati with a Bachelor of Fine Arts degree in Television Broadcasting.
John Robert McKay has served as a director and as our Webmaster since
August 1999. Mr. McKay served as our Vice-President Internet Division from
November 1997 through July 1998. Mr. McKay has been a Webmaster since 1995 and
has worked both full-time and as a consultant to our company's Chairman of the
Board, Chief Executive Officer, Alex Kanakaris, since 1994. Mr. McKay was a web
site administrator for NNA Services, a non-profit educational organization, from
1993 to 1994. Prior to that, he served as Sales Promotion Manager for ORA
Electronics/Alliance Corporation, an international consumer electronics company,
from 1991 to 1992. From 1987 to 1991, Mr. McKay served as the advertising
manager for Kelly-Moore Paint Co. Mr. McKay is a graduate of San Francisco State
University with a Bachelor of Science degree in Marketing.
David Shomaker has served as our acting Chief Financial Officer since
May 1999. He has been a partner of Haynie & Company, Certified Public
Accountants, based in Orange County, California and Salt Lake City, Utah since
1990. Mr. Shomaker holds a Bachelor of Science degree in Accounting from Brigham
Young University, Provo, Utah.
EXECUTIVE COMPENSATION
The following table sets forth summary information concerning
compensation paid or accrued for services rendered to our company in all
capacities during the fiscal year ended September 30, 1998 to our Chairman of
the Board, President and Chief Executive Officer, who was the only executive
officer whose total compensation in 1998 exceeded $100,000 (the "Named
Executive Officer").
<TABLE>
SUMMARY COMPENSATION TABLE
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION -------------
------------------- SECURITIES
NAME AND FISCAL ALL OTHER UNDERLYING
PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION STOCK OPTIONS
------------------ ------ ------ ----- ------------ -------------
<S> <C> <C> <C> <C> <C>
Alex Kanakaris........... 1998 $98,000 $39,802 -- --
Chairman of the Board,
President and Chief
Executive Officer
</TABLE>
STOCK INCENTIVE PLAN
Our company's 1999 Stock Incentive Plan (the "Option Plan") was adopted
by our Board of Directors in July 1999 and is subject to shareholder approval.
The purpose of the Option Plan is to attract and retain qualified personnel,
provide additional incentives to employees, officers and non-employee directors
of our company and the subsidiaries it may have from time to time, and promote
the success of our company's business. Under the Option Plan, our company may
grant incentive and non-qualified stock options to key employees, officers and
non-employee directors of our company. A total of 2,750,000 shares of common
stock have been reserved for issuance under the Option Plan. As of November 8,
1999, a total of 1,050,000 incentive stock options and 1,300,000 non-qualified
stock options had been granted subject to shareholder approval of the Option
Plan.
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Our Board of Directors selects the key employees and officers of our
company to whom stock options are granted (provided that incentive stock options
only be granted to employees of our company), interprets and adopts rules for
the operation of the Option Plan and specifies other terms of stock options.
Subject to the limitations set forth in the Option Plan, our Board of Directors
has the authority to designate the number of shares to be covered by each
option, determine whether an option is to be an incentive stock option or a
non-qualified stock option, establish vesting schedules, specify the type of
consideration to be paid to our company upon exercise and, subject to certain
restrictions, specify other terms of the options.
The maximum term of options granted under the Option Plan is ten years.
The aggregate fair market value of the stock with respect to which incentive
stock options are first exercisable in any calendar year may not exceed $100,000
per optionee. Options granted under the Option Plan are nontransferable (except
by will or the laws of descent and distribution) and generally expire three
months after the termination of an optionee's service to our company. However,
generally if an optionee is permanently disabled or dies during his or her
service to our company, the optionee's options, to the extent then presently
exercisable, shall remain in full force and effect and may be exercised through
the expiration date of such options.
The exercise price of incentive stock options must equal at least the
fair market value of a share of our common stock on the date of grant. The
exercise price of incentive stock options granted to any person who at the time
of grant owns stock possessing more than 10% of the total combined voting power
of all classes of stock must be at least 110% of the fair market value of such
stock on the date of grant, and the term of those options cannot exceed five
years.
The Option Plan provides that each non-employee member of our Board of
Directors shall automatically be granted a non-qualified stock option to
purchase 5,000 shares of common stock on each anniversary of the non-employee
director's continuous service on our Board of Directors. These options have a
term of ten years and are exercisable six months and one day from the later of
the date of grant, or the date of shareholder approval of the Option Plan
through the expiration of the option term, regardless of whether the
non-employee director is a member of our Board of Directors at the time of
exercise or later enters the employ of our company.
DIRECTOR COMPENSATION
Our directors do not receive any compensation for attendance at Board
of Directors meetings.
BOARD COMMITTEES; COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Our Board of Directors has not established any committees. No executive
officer of our company has served as a director or member of the compensation
committee of any other entity whose executive officers served as a director of
our company.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Our Articles of Incorporation, as amended, do not expressly limit the
liability of our company's directors for monetary damages. However, our Bylaws
provide that every person who was or is a party or is threatened to be made a
party to or is involved in any action, suit or proceeding, whether civil,
criminal, administrative or investigative, by reason of the fact that he or a
person of whom he is the legal representative is or was a director or officer of
our company or is or was serving at the request of our company or for its
benefit as a director or officer of another corporation, or as our company's
representative in a partnership, joint venture, trust or other enterprise, shall
be indemnified and held harmless to the fullest extent legally permissible under
the General Corporation Law of the State of Nevada from time to time against all
expenses, liability and loss (including attorneys' fees, judgments, fines and
amounts paid or to be paid in settlement) reasonably incurred or suffered by him
in connection therewith.
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Our Bylaws provide that the expenses of officers and directors incurred
in defending a civil or criminal action, suit or proceeding must be paid by our
company as they are incurred and in advance of the final disposition of the
action, suit or proceeding upon receipt of an undertaking by or on behalf of the
director or officer to repay the amount if it is ultimately determined by a
court of competent jurisdiction that he is not entitled to be indemnified by our
company. Such right of indemnification is a contract right that is not exclusive
of any other right such directors, officers or representatives may have,
including rights under any bylaw, agreement, vote of shareholders, provision of
law and any other rights.
Our Bylaws provide further that our Board of Directors may cause our
company to purchase and maintain insurance on behalf of any person who is or was
a director or officer of our company, or is or was serving at the request of our
company as a director or officer of another corporation, or as its
representative in a partnership, joint venture, trust or other enterprise
against any liability asserted against such person and incurred in any such
capacity or arising out of such status, whether or not our company would have
the power to indemnify such person.
The Selling Security Holders and our company each have agreed to
indemnify the other and their respective officers, directors and other
controlling persons against certain liabilities in connection with this
registration, including liabilities under the Securities Act of 1933, and to
contribute to payments such persons may be required to make in respect thereof.
RESALES OF SHARES COVERED BY THIS PROSPECTUS
This prospectus covers the resale by the Selling Security Holders of an
aggregate of up to 1,783,334 shares of common stock that may be issued upon
conversion of our debentures that were issued in two private placement
transactions not involving a public offering. This prospectus does not cover the
sale or other transfer of the debentures or the issuance of shares of common
stock to holders of debentures upon conversion or pursuant to the escrow
arrangement whereby holders of the debentures may receive from time to time
shares of our common stock if the fair market value of a share of our common
stock falls below a certain price. If a Selling Security Holder transfers its
debentures prior to conversion, the transferee of the debentures may not sell
the shares of common stock issuable upon conversion of the debentures under the
terms of this prospectus unless this prospectus is appropriately amended or
supplemented by us.
All of the debentures contain anti-dilution and adjustment provisions
providing for the adjustment of the underlying shares and/or the conversion
price upon the occurrence of certain events, including recapitalizations,
reclassifications, share dividends, share splits or combinations, mergers or
acquisitions or similar transactions. In the event of the liquidation,
dissolution or winding up of our company, holders of the debentures will not be
entitled to receive any of our assets available for distribution to the holders
of common stock.
In the event of any reclassification, capital reorganization or other
similar change in our outstanding common stock, any consolidation or merger
involving our company (other than a consolidation or merger which does not
result in any reclassification, capital reorganization or other similar change
in our outstanding common stock) or a sale or conveyance to another corporation
of all or substantially all of the property of our company, each of the
debentures will become convertible for the kind and number of shares of stock or
other securities, assets or cash to which a holder of the number of shares of
common stock issuable (at the time of such reclassification, reorganization,
consolidation, merger or sale) upon conversion of the debentures would have been
entitled upon such reclassification, reorganization, consolidation, merger or
sale. However, this prospectus covers only our common stock, and any other
securities received upon conversion of the debentures are not offered hereby.
For the period a holder holds our debentures, the holder has the
opportunity to profit from a rise in the market price of our common stock
without assuming the risk of ownership of the shares of common stock issuable
upon the conversion of the debentures. The holders of debentures may be expected
to voluntarily convert their debentures for common stock when the conversion
price is less than the market price for our common stock. Further, the terms on
which we could obtain additional capital during the period in which the
debentures remain outstanding may be adversely affected.
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PRINCIPAL AND SELLING SECURITY HOLDERS
The following table sets forth information as of November 18, 1999 with
respect to the beneficial ownership of our common stock both before and
immediately following the offering by:
o each person known by us to own beneficially more than five
percent, in the aggregate, of the outstanding shares of our
common stock,
o the Selling Security Holders in this offering,
o each of our directors and our Named Executive Officer, and
o all executive officers and directors as group.
The following calculations of the percentages of outstanding shares are
based on 26,983,050 shares of our common stock outstanding as of November 18,
1999. We determined beneficial ownership in accordance with the rules of the
Securities and Exchange Commission, which generally require inclusion of shares
over which a person has voting or investment power. Share ownership in each case
includes shares issuable upon exercise of outstanding options and warrants or
conversion of outstanding shares of Class A Convertible Preferred Stock or
debentures that are exercisable or convertible within sixty days of November 18,
1999, as described in the footnotes below. Percentage of ownership is calculated
pursuant to Securities and Exchange Commission Rule 13d-3(d)(i).
We will not receive any of the proceeds from the sale of the Shares by
the Selling Security Holders.
<TABLE>
<CAPTION>
Shares of Common Shares of Common
Stock Beneficially Stock Being Shares of Common
Name and Address of Owned Prior Offered Pursuant Stock Owned
Beneficial Holder(1) to this Offering to this Prospectus After the Offering(2)
----------------- ------------------- ------------------ ------------------
Number Percent Number Percent
------ ------- ------ -------
<S> <C> <C> <C> <C> <C>
Alliance Equities
1915 Merion Lane
Coral Springs, FL 33071(3)............ 866,667 3.11% 866,667 -- --
AJW Partners, LLC
1670 Old Country Road, Suite 112
Plainview, New York 11803(3).......... 416,667 1.52% 416,667 -- --
New Millenium Capital Partners II, LLC
1670 Old Country Road, Suite 112
Plainview, New York 11803(3).......... 250,000 * 250,000 -- --
Bank Insinger de Beaufort
Herengtecht 551
1017 BW Amsterdam
Netherlands(3)........................ 250,000 * 250,000 -- --
Alex F. Kanakaris(4).................. 3,149,147 11.25% -- 3,149,147 11.25%
Branch Lotspeich...................... 1,372,000 5.08% -- 1,372,000 5.08%
John Robert McKay..................... 685,000 2.54% -- 685,000 2.54%
David Valenti
519 Idaho Avenue,
Santa Monica, California 90403........ 2,197,280 8.14% -- 2,197,280 8.14%
David Shomaker(5)..................... 175,000 * -- 175,000 *
All directors and executive
officers as a group
(4 persons)(6)......................... 5,381,147 19.23% -- 5,381,147 19.23%
</TABLE>
29
<PAGE>
- ---------------
* Less than 1%.
(1) Unless otherwise indicated, the address of each person in this table is
c/o Kanakaris Communications, Inc., 3303 Harbor Boulevard, Suite F-3,
Costa Mesa, California 92626. Messrs. Kanakaris, Lotspeich and McKay
are directors and executive officers of our company. Mr. Shomaker is
Acting Chief Financial Officer of our company.
(2) Assumes that all of the Shares are sold pursuant to this prospectus.
(3) Represents shares of common stock issuable upon conversion of 10%
Convertible Subordinated Debentures.
(4) Consists of 2,149,147 shares of common stock issued and outstanding and
1,000,000 shares of common stock issuable upon conversion of Class A
Convertible Preferred Stock.
(5) Mr. Shomaker is a partner of Haynie & Co. which owns 175,000 shares of
our company's common stock.
(6) Consists of 4,381,147 shares of common stock issued and outstanding and
1,000,000 shares of common stock issuable upon conversion of Class A
Convertible Preferred Stock.
We will prepare and file all amendments and supplements to the
registration statement as may be necessary in accordance with the rules and
regulations of the Securities Act of 1933, as amended (the "Securities Act") to
keep it effective until the earlier to occur of (i) the date as of which all
Shares may be resold in a public transaction without volume limitations or other
material restrictions without registration under the Securities Act, including
without limitation, pursuant to Rule 144 under the Securities Act or (ii) the
date as of which all Shares offered hereby have been resold. We have agreed to
pay the expenses, other than broker discounts and commissions, if any, in
connection with this prospectus.
PLAN OF DISTRIBUTION
We have no specific information concerning whether or when any offers
or sales of Shares covered by this prospectus will be made, or if made, what the
price, terms or conditions of any such offers or sales will be. Based on
information available to us, it is our understanding that the Selling Security
Holders may offer and sell the Shares in one or more transactions either: (i) by
one or more broker-dealers as agents for the Selling Security Holders at a price
or prices related to the then current market price of the common stock on the
OTC Bulletin Board, with such commission to be paid by the Selling Security
Holders to the broker-dealers as shall be agreed upon by them; or (ii) by the
Selling Security Holders to the broker-dealers (for resale by the broker-dealers
as principals) at a price or prices related to the then current market price of
our common stock, less such discount, if any, as shall be agreed upon by the
Selling Security Holders and the broker-dealers; or (iii) directly, at prices
and on terms to be determined at the time of sale; or (iv) by a combination of
the methods described above. In effecting sales, broker-dealers engaged by the
Selling Security Holders may arrange for other broker-dealers to participate in
resales. Shares may also be offered or sold as described above by pledgees,
donees, transferees, or other successors in interest to the Selling Security
Holders, subject to any appropriate amendment or supplement to this Prospectus.
We will bear the expense of preparation and filing of the registration
statement (of which this prospectus is a part) and certain other expenses.
Commissions and discounts, if any, attributable to the sale of the Shares will
be borne by the Selling Security Holders.
In connection with distributions of the Shares or otherwise, the
Selling Security Holders may sell Shares short and redeliver the Shares to
closeout such short positions. The Selling Security Holders may also enter into
option or other transactions with broker-dealers which require the delivery to
the broker-dealer of the Shares registered hereunder, which the broker-dealer
may resell or otherwise transfer pursuant to this prospectus. The Selling
Security Holders may also loan or pledge the Shares registered hereunder to a
broker-dealer, and the broker-dealer may sell the Shares so loaned or upon a
default the broker-dealer may effect sales of the pledged Shares pursuant to
this prospectus.
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<PAGE>
We have agreed to indemnify certain Selling Security Holders and each
of such Selling Security Holder's officers, directors and partners and any
person who controls such selling security holder against liabilities under the
Securities Act, and to contribute to payments such Selling Security Holder and
such persons may be required to make in respect thereof. The Selling Security
Holders may agree to indemnify any broker-dealer or agent that participates in
transactions involving sales of the shares against certain liabilities under the
Securities Act.
Broker-dealers or agents may receive compensation in the form of
commissions, discounts, or concessions from Selling Security Holders in amounts
to be negotiated in connection with the sale. Such broker-dealers and any other
participating broker-dealers may be deemed to be "underwriters" within the
meaning of the Securities Act in connection with such sales and any such
commission, discount or concession may be deemed to be underwriting discounts or
commissions under the Securities Act. In addition, any securities covered by
this prospectus which qualify for sale pursuant to Rule 144 may be sold under
Rule 144 rather than pursuant to this prospectus. The Selling Security Holders
also may be considered "underwriters" within the meaning of the Securities Act.
See the section entitled "Principal and Selling Security Holders" for
information concerning the beneficial ownership of our securities by such
Selling Security Holders.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In connection with the acquisition by Kanakaris InternetWorks, Inc. of
Desience Corporation in October 1997, Mr. Lotspeich, our Vice Chairman of the
Board and Secretary, is entitled to receive 2.5% of the gross sales of Desience
Corporation. As of June 30, 1999, $38,762 was due and payable to Mr. Lotspeich
pursuant to this arrangement.
Effective as of February 26, 1997, Alex Kanakaris, who is our Chairman
of the Board, President and Chief Executive Officer and who was then a director
and the President of Kanakaris InternetWorks, Inc., executed an unsecured
promissory note in favor of Kanakaris Internetworks, Inc. in the principal
amount of the smaller of $50,000 or the sum of the drawn amounts between
February 26, 1997 and September 30, 1997, with interest at an annual rate of
6.625%. Interest payments under the note are due annually commencing June 30,
1998, with a final interest payment at maturity of the note on February 26,
2002. Principal payments are due in five equal installments annually commencing
December 31, 1998, with a final principal payment at maturity of the note. As of
September 30, 1999, the outstanding principal balance of this note was $39,680.
Effective as of February 27, 1997, David Valenti, who is currently one
of our principal shareholders and who was then a director and the national sales
manager of Kanakaris InternetWorks, Inc. executed an unsecured promissory note
in favor of Kanakaris Internetworks, Inc. in the principal amount of the smaller
of $50,000 or the sum of the drawn amounts between February 26, 1997 and
September 30, 1997, with interest at an annual rate of 6.625%. Interest payments
under the note are due annually commencing June 30, 1998, with a final interest
payment at maturity of the note on February 26, 2002. Principal payments are due
in five equal installments annually commencing December 31, 1998, with a final
principal payment at maturity of the note. As of September 30, 1999, the
outstanding principal balance of this note was $39,680.
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<PAGE>
Effective as of April 7, 1997, John McKay, who is a director and the
webmaster of our company and who was then a director and the webmaster of
Kanakaris InternetWorks, Inc., executed an unsecured promissory note in favor of
Kanakaris Internetworks, Inc. in the principal amount of the smaller of $18,000
or the sum of the drawn amounts between April 7, 1997 and September 30, 1997,
with interest at an annual rate of 6.625%. Interest payments under the note are
due annually commencing June 30, 1998, with a final interest payment at maturity
of the note on April 7, 2002. Principal payments are due in five equal
installments annually commencing December 31, 1998, with a final principal
payment at maturity of the note. As of September 30, 1999, the outstanding
principal balance of this note was $13,599.
Effective as of May 19, 1997, Branch Lotspeich, who is a director and
executive officer of our company and who was then a director of Kanakaris
InternetWorks, Inc. and the President of Desience Corporation, executed an
unsecured promissory note in favor of Kanakaris Internetworks, Inc. in the
principal amount of the smaller of $10,000 or the sum of the drawn amounts
between May 19, 1997 and September 30, 1997, with interest at an annual rate of
6.625%. Interest payments under the note are due annually commencing June 30,
1998, with a final interest payment at maturity of the note on May 19, 2002.
Principal payments are due in five equal installments annually commencing
December 31, 1998, with a final principal payment at maturity of the note. As of
September 30, 1999, the outstanding principal balance of this note was $7,680.
Effective as of September 30, 1997, Alex Kanakaris executed an
unsecured promissory note in favor of Kanakaris Internetworks, Inc. in the
principal amount of $101,915.49, with interest at an annual rate of 8.0%.
Principal and interest payments under the note are due in annual installments of
$38,250.03 commencing September 30, 1998 and continuing until September 30,
2002, at which time the remaining unpaid principal and interest shall be due in
full. As of September 30, 1999, the outstanding principal balance of this note
was $103,295, and the note was prepaid through a portion of the year 2000.
On January 8, 1998, John McKay executed an unsecured promissory note in
favor of Kanakaris Internetworks, Inc. in the principal amount of the smaller of
$50,000 or the sum of the drawn amounts between January 1, 1998 and December 31,
1998, with interest at an annual rate of 6.625%. Interest payments under the
note are due annually commencing June 30, 1999, with a final interest payment at
maturity of the note on January 1, 2003. Principal payments are due in five
equal installments annually commencing December 31, 1999, with a final principal
payment at maturity of the note. As of September 30, 1999, the outstanding
principal balance of this note was $9,599.
On January 8, 1998, Alex Kanakaris executed an unsecured promissory
note in favor of Kanakaris Internetworks, Inc. in the principal amount of the
smaller of $85,000 or the sum of the drawn amounts between January 1, 1998 and
December 31, 1998, with interest at an annual rate of 6.625%. Interest payments
under the note are due annually commencing June 30, 1999, with a final interest
payment at maturity of the note on January 1, 2003. Principal payments are due
in five equal installments annually commencing December 31, 1998, with a final
principal payment at maturity of the note. As of September 30, 1999, the
outstanding principal balance of this note was $16,640.
On January 8, 1998, Branch Lotspeich executed an unsecured promissory
note in favor of Kanakaris Internetworks, Inc. in the principal amount of the
smaller of $30,000 or the sum of the drawn amounts between January 1, 1998 and
December 31, 1998, with interest at an annual rate of 6.625%. Interest payments
under the note are due annually commencing June 30, 1999, with a final interest
payment at maturity of the note on January 1, 2003. Principal payments are due
in five equal installments annually commencing December 31, 1998, with a final
principal payment at maturity of the note. As of September 30, 1999, the
outstanding principal balance of this note was $8,000.
On January 8, 1998, David Valenti executed an unsecured promissory note
in favor of Kanakaris Internetworks, Inc. in the principal amount of the smaller
of $85,000 or the sum of the drawn amounts between January 1, 1998 and December
31, 1998, with interest at an annual rate of 6.625%. Interest payments under the
note are due annually commencing June 30, 1999, with a final interest payment at
maturity of the note on January 1, 2003. Principal payments are due in five
equal installments annually commencing December 31, 1998, with a final principal
payment at maturity of the note. As of September 30, 1999, the outstanding
principal balance of this note was $10,240.
32
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Our authorized capital stock consists of 100,000,000 shares of common
stock, $.001 par value per share, and 5,000,000 shares of preferred stock, $.01
par value per share. Of the 5,000,000 shares of preferred stock, 1,000,000
shares have been designated as Class A Convertible Preferred Stock and the
remaining 4,000,000 shares of preferred stock are undesignated. As of November
18, 1999, there were 26,983,050 shares of common stock outstanding held by 243
holders of record and 1,000,000 shares of Class A Convertible Preferred Stock
outstanding held by Alex Kanakaris, a director and the President and Chief
Executive Officer of our company. The following is a description of the capital
stock of our company.
COMMON STOCK
The holders of outstanding shares of our common stock are entitled to
receive dividends out of assets legally available therefor at times and in
amounts as the board of directors may from time to time determine, subordinate
to any preferences that may be granted to the holders of preferred stock.
Holders of common stock are entitled to one vote per share on all matters on
which the holders of common stock are entitled to vote.
The common stock is not entitled to preemptive rights and may not be
redeemed or converted. Upon liquidation, dissolution or winding-up of the
company, the assets legally available for distribution to stockholders are
divided among the holders of the common stock in proportion to the number of
shares of common stock held by each of them, after payment of all of our debts
and liabilities and the rights of any outstanding class or series of preferred
stock to have priority to distributed assets.
All outstanding shares of common stock are, and the shares of common
stock to be issued in this offering will be, when issued and delivered, validly
issued, fully paid and nonassessable. The rights, preferences and privileges of
holders of common stock are subordinate to any series of preferred stock that we
may issue in the future.
PREFERRED STOCK
Preferred stock may be issued from time to time in one or more series,
and our board of directors, without action by the holders of common stock, may
fix or alter the voting rights, redemption provisions, dividend rights, dividend
rates, claims to our assets superior to those of holders of our common stock,
conversion rights and any other rights, preferences, privileges and restrictions
of any wholly unissued series of preferred stock. The board of directors,
without shareholder approval, can issue shares of preferred stock with rights
that could adversely affect the rights of the holders of common stock. No shares
of preferred stock presently are outstanding other than the shares of our Class
A Convertible Preferred Stock and we have no present plans to issue any
additional preferred shares. The issuance of shares of preferred stock could
adversely affect the voting power of the holders of common stock and could have
the effect of making it more difficult for a third party to acquire or could
discourage or delay a third party from acquiring, a majority of our outstanding
stock.
33
<PAGE>
CLASS A CONVERTIBLE PREFERRED STOCK
Shares of our Class A Convertible Preferred Stock ("Class A Preferred")
rank senior to our common stock as to dividends and distributions. The holders
of outstanding shares of Class A Preferred are entitled to receive dividends out
of assets legally available therefor at times and in amounts as the board of
directors may from time to time determine, before any dividend is paid on common
stock.
Holders of Class A Preferred are entitled to three non-cumulative votes
per share on all matters presented to our shareholders for action, and the
affirmative vote of the holders of a majority of the Class A Preferred then
outstanding, voting as a separate class, is required for our company to (i)
amend, alter or repeal any of the preferences or rights of the Class A
Preferred, (ii) authorize any reclassification of the Class A Preferred, (iii)
increase the authorized number of shares of the Class A Preferred or (iv) create
any class or series of shares ranking prior to the Class A Preferred as to
dividends or upon liquidation. The Class A Preferred is not entitled to
preemptive rights.
Shares of Class A Preferred have a liquidation preference of $.10 per
share plus accumulated and unpaid dividends. After payment of the full amount of
the liquidating distribution to which they are entitled, holders of Class A
Preferred will not be entitled to any further participation in any distribution
of assets by our company.
The Class A Preferred may be redeemed by our company at any time upon
30 days' prior written notice at a redemption price of $.50 per share. Holders
of Class A Preferred have the right to convert their shares of Class A Preferred
into our common stock until the third business day prior to the end of the
30-day notice period. The redemption price for Class A Preferred is payable
together with accumulated and unpaid dividends to the date fixed for redemption.
If full cumulative dividends on the Class A Preferred through the most recent
dividend payment date have not been paid, the Class A Preferred may not be
redeemed in part unless approved by the holders of a majority of the outstanding
shares of Class A Preferred, and our company may not purchase or acquire any
share of Class A Preferred other than pursuant to a purchase or exchange offer
made on the same terms to all holders of Class A Preferred. If less than all
outstanding shares of Class A Preferred are to be redeemed, our company will
select those to be redeemed by lot or a substantially equivalent method.
The shares of Class A Preferred are not subject to any sinking fund or
other similar provision. The redemption by our company of all or part of the
Class A Preferred is subject to the availability of cash. Moreover, under Nevada
law, shares of capital stock shall not be redeemed when the capital of a company
is impaired or when the redemption would cause any impairment of capital.
Holders of Class A Preferred have the right to convert their shares of
Class A Preferred into shares of common stock at any time before the third
business day prior to the end of any 30-day redemption notice period, at an
initial conversion rate of one share of common stock per share of Class A
Preferred. The conversion rate is subject to certain anti-dilution adjustments.
If our company disappears in a merger or consolidation or we sell substantially
all of our assets, each share of Class A Preferred will entitle the holder to
convert such shares into the kind and amount of consideration that the holder
would have been entitled to receive immediately after such transaction.
34
<PAGE>
10% CONVERTIBLE SUBORDINATED DEBENTURES
Our company's 10% Convertible Subordinated Debentures were issued
pursuant to Debenture Purchase Agreements. The outstanding principal balance of
the debentures bears interest at the rate of 10% per year. Interest will be
computed based on a 365-day year. Interest through the last day of each calendar
quarter shall be due and payable in arrears on the first business day of the
month immediately following the end of such calendar quarter.
The debentures shall mature and the outstanding principal balance and
all accrued and unpaid interest shall be due and payable on the first
anniversary of the Debenture Purchase Agreements. The debentures are
transferable by their holders upon delivery to us of a duly executed written
instrument of transfer and an opinion of legal counsel reasonably satisfactory
to us that the proposed transfer is lawful.
The debentures rank pari passu with one another in right of payment of
principal and interest and are subordinated or junior in right of payment of
principal and interest to all present and future indebtedness that we owe or
have guaranteed to any bank, savings and loan, investment company, insurance
company, other licensed financial or lending institution, or accounts receivable
or factoring lender. Consequently, upon any distribution to our creditors in a
liquidation or dissolution of our company or in a bankruptcy, reorganization,
receivership or similar proceeding relating to our company or its property, the
holders of all senior debt will be entitled to receive payment in full of the
outstanding principal balance and all accrued but unpaid interest on such senior
debt before the debenture holders will be entitled to receive any payment of
principal or interest on the debentures.
At our option, we may prepay all or any part of the outstanding
principal balance of the debentures. Certain of the debentures require us to
provide 30 days' prior written notice to the holders of the debentures and pay
100% of the principal amount being prepaid plus all accrued and unpaid interest
on such amount. The other debentures require that if we prepay all or any
portion of the outstanding principal balance of such debentures, we must also
pay a prepayment penalty equal to 120% of the value of the outstanding principal
balance of and accrued interest on such debentures. All of the debentures
provide that if we elect to prepay less than all of the outstanding principal
balance of the debentures, then we must prepay the same percentage of the
outstanding principal balance of the debentures held by each holder. Until
prepayment is made, the holder retains full conversion rights described below
with respect to any amount of debentures called for prepayment.
The debentures are convertible at any time at the option of the holder,
or automatically on the earlier of (i) the effective date of the registration
statement for a public offering of at least $5,000,000 of our company's common
stock, (ii) the date our company's common stock is listed for sale on a national
stock exchange or has its sales or bid price quoted on NASDAQ with a sales/bid
price of at least $5.00 per share, as adjusted for stock splits, subdivisions
and combinations or (iii) the securities into which the debentures would be
convertible as a result of a merger or consolidation of our company into another
company where we are not the surviving entity or as a result of a sale of
substantially all of our assets to another person meet the criteria set forth in
clause (i) or (ii) above. In addition, certain of the debentures are convertible
automatically on March 1, 2000, if any registration statement filed or amended
subsequent to the relevant Debenture Purchase Agreement has not become effective
and to which any portion of such debenture is converted to shares and registered
for resale.
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<PAGE>
The conversion price initially is $.60 per share and is subject to
adjustment for capital reorganizations or a sale of our company, stock splits,
subdivisions or combinations of shares of our common stock and the like. The
conversion price is also subject to anti-dilution adjustments if we issue shares
of common stock, whether directly or on the exercise of an option, warrant or
other right to purchase shares of common stock or on the conversion of any
convertible security, for a sales price that is less than both the conversion
price and the market price (a) pursuant to any stock split, stock dividend or
subdivision or (b) on the exercise or conversion of any option, warrant or
convertible security outstanding on the date hereof or (c) pursuant to any
employee stock or stock option plan approved by our shareholders.
As security for our obligation to issue shares upon conversion of
certain of the debentures, we were required to deposit into an escrow account
916,667 shares of our common stock underlying those debentures, with such number
being subject to adjustment for stock splits, stock dividends and similar
events. If we fail to issue the appropriate number of shares of common stock
upon conversion of those debentures, the escrow agent shall transfer the
appropriate number of escrow shares to the holder. The escrow arrangement
terminates upon the earlier of (a) the receipt by the debenture holder of the
appropriate number of shares of common stock upon conversion of the entire
outstanding principal balance of the debentures to which the escrow arrangement
applies and (b) our payment of the entire outstanding principal balance of the
debentures to which the escrow arrangement applies. Upon termination of the
escrow arrangement, the shares of our common stock, if any, remaining in the
escrow account shall be returned to us.
As used in the debentures, the market price of a share of our common
stock is the average for the 20 trading days immediately preceding the date in
question of the closing prices of our common stock as reported on Nasdaq or, if
not listed on Nasdaq, on the principal national security exchange or quotation
system on which our common stock is quoted or listed or admitted to trading, or
if not quoted or listed or admitted to trading on any national securities
exchange or quotation system, the closing bid price of such security on the
over-the-counter market as reported by the National Quotation Bureau
Incorporated, or a similar generally accepted reporting service, or if not so
available, in such manner as furnished by any Nasdaq member firm of the NASD
selected from time to time by our Board of Directors for that purpose.
A debenture holder may declare the entire unpaid principal balance and
all accrued but unpaid interest immediately due and payable by giving written
notice to us if: we fail to make any principal payment to such holder within 30
days of its due date; we breach any provision of the debenture and do not cure
such breach within 30 days after receiving written notice of the breach from the
holder or, if such breach cannot be cured within 30 days, we commence to cure
the breach within 30 days but are not successful within 180 days; we are in
default under any senior debt, the senior lender accelerates the maturity of the
senior debt and the acceleration would cause a material adverse effect on our
company; we are in default under any other debenture and the holder thereof
accelerates the maturity of such debenture; or we elect to dissolve, dissolve or
are the subject of any order, judgment or decree of any court or governmental
authority dissolving or ending our existence.
The entire unpaid principal balance and all accrued but unpaid interest
will automatically become due and payable immediately, without notice from the
holder, if we file or consent to any voluntary or involuntary petition for
bankruptcy, insolvency, reorganization, liquidation or other similar form of
debtor relief, or petition for or consent to the appointment of a receiver,
trustee or liquidator appointed on our behalf for all or a substantial portion
of our assets, unless such petition or appointment is set aside, withdrawn or
ceases to be in effect within 90 ninety days.
The debentures have certain demand and incidental registration rights
that expire on the earliest to occur of (i) the sale of all of the shares issued
upon conversion of the debentures, (ii) receipt by the holders of a written
opinion by our counsel stating that such shares may be sold publicly without
registration or (iii) the tenth anniversary of the date of the applicable
registration rights agreement. The incidental registration rights apply whenever
we propose to file a registration statement under the Securities Act of 1933 in
connection with a public offering of shares of our common stock for cash, other
than in connection with any merger, acquisition or other transaction under Rule
145 of the Securities Act of 1933, exchange offer, dividend reinvestment plan,
employee benefit plan or stock option plan. Such incidental registration rights
are subject to underwriters' cutbacks and other customary provisions. The demand
registration rights involve up to four demands that may be made by the holders
of at least a majority of the outstanding shares issued or issuable upon
conversion of the debentures. Each such demand must relate to at least 20% of
the total shares of common stock issued or issuable upon conversion of the
debentures.
36
<PAGE>
Certain of the debentures entitle their holder to receive shares of our
common stock from time to time under certain conditions until the sooner of one
year after the effective date of the registration statement relating to the
shares of common stock underlying their debentures or the date that the holder
realizes proceeds from sales of such shares equal to 150% of the purchase price
of the holder's debentures. The number of shares of common stock, if any, to be
issued to a holder shall, at a holder's written election, be determined as of
the first trading day of each calendar month commencing October 1, 1999
("Issuance Date") based on 25% of the total purchase price of the holder's
debentures ("Designated Principal Portion"). If, on an Issuance Date, the
market price of a share our common stock is less than 150% of the conversion
price, as adjusted, then we must issue and deliver to the holder within ten days
of the holder's written election a number of shares of common stock equal to the
difference between (i) 150% of the Designated Principal Portion divided by the
market price of a share of our common stock and (ii) the Designated Principal
Portion divided by the conversion price of a share of our common stock.
TRANSFER AGENT AND REGISTRAR
The stock transfer agent and registrar for our common stock is Alpha
Tech Stock Transfer.
LEGAL MATTERS
Certain legal matters with respect to the legality of the Shares
offered pursuant to this prospectus will be passed upon for us by Rutan &
Tucker, LLP, Costa Mesa, California.
EXPERTS
The consolidated financial statements of Kanakaris Communications, Inc.
and subsidiaries for the year ended September 30, 1998 and for the period from
February 25, 1997 (inception) to September 30, 1997, have been included in this
prospectus and in the registration statement in reliance upon the report of
Weinberg & Company, P.A., independent certified public accountants, appearing
elsewhere in this prospectus, and upon the authority of said firm as experts in
accounting and auditing.
The consolidated financial statements of Kanakaris Communications, Inc.
(formerly Desience Corporation) for the years ended September 30, 1995, 1996 and
1997 have been included in this prospectus and in the registration statement in
reliance upon the report of Tanner & Co., independent certified public
accountants, appearing elsewhere in this prospectus, and upon the authority of
said firm as experts in accounting and auditing.
CHANGE IN INDEPENDENT ACCOUNTANTS
In May 1998, our company engaged Weinberg & Company, P.A. as the
independent certified public accountants for our company and its subsidiaries.
Prior thereto, Tanner & Co. served as the independent certified public
accountant for our company's subsidiaries. The change in accountants from Tanner
& Co. to Weinberg & Company, P.A. was effective for the audit of the financial
statements for the year ended September 30, 1997, was unanimously approved by
our Board of Directors and was not due to any disagreements between our company
or its subsidiaries and Tanner & Co. on any matter of accounting principles or
practices, financial statement disclosure or auditing scope or procedures.
37
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission, Washington,
D.C. 20549, a registration statement on Form SB-2 under the Securities Act of
1933, and the rules and regulations enacted under its authority, with respect to
the common stock offered in this prospectus. This prospectus, which constitutes
a part of the registration statement, does not contain all of the information
set forth in the registration statement and its exhibits and schedules.
Statements contained in this prospectus as to the contents of any contract or
other document referred to are not necessarily complete, and in each instance
reference is made to the full text of the contract or other document which is
filed as an exhibit to the registration statement. Each statement concerning a
contract or document which is filed as an exhibit should be read along with the
entire contract or document. For further information regarding us and the common
stock offered in this prospectus, reference is made to this registration
statement and its exhibits and schedules. The registration statement, including
its exhibits and schedules, may be inspected without charge at the public
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the Commission's regional offices located at 7
World Trade Center, 13th Floor, New York, New York 10048 and at Citicorp Center,
50 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of these
documents may be obtained from the Commission at its principal office in
Washington, D.C. upon the payment of the charges prescribed by the Commission.
The Commission maintains a web site that contains reports, proxy and
information statements and other information regarding issuers that file
electronically with the Commission. The Commission's address on the World Wide
Web is http://www.sec.gov.
All trademarks or trade names referred to in this prospectus are the
property of their respective owners.
38
<PAGE>
INDEX TO FINANCIAL STATEMENTS
KANAKARIS COMMUNICATIONS, INC.
AND SUBSIDIARIES
Page
----
Report of Independent Public Accountants...................................F - 2
Consolidated Balance Sheets at September 30, 1997 and 1998.................F - 3
Consolidated Statements of Operations for the Year Ended
September 30, 1998 and for the period from February
25, 1997 (inception) to September 30, 1997........................F - 5
Consolidated Statements of Changes in Stockholders' Equity for
the Year Ended September 30, 1998 and for the period from
February 25, 1997 (inception) to September 30, 1997...............F - 7
Consolidated Statements of Cash Flows for the Year Ended
September 30, 1998 and for the period from February
25, 1997 (inception) to September 30, 1997........................F - 8
Notes to Consolidated Financial Statements.................................F -10
Consolidated Balance Sheet at June 30, 1999................................F -21
Consolidated Statements of Operations for the Nine Months
Ended June 30, 1998 and 1999......................................F -23
Consolidated Statement of Changes Stockholders' Equity for the
Nine Months Ended June 30, 1999...................................F -24
Consolidated Statements of Cash Flows for the Nine Months
Ended June 30, 1998 and 1999......................................F -25
Notes to Consolidated Financial Statements.................................F -27
KANAKARIS COMMUNICATIONS, INC.
(FORMERLY DESIENCE CORPORATION)
Page
----
Report of Independent Public Accountants...................................F -39
Consolidated Balance Sheets at September 30, 1995, 1996 and 1997...........F -40
Consolidated Statements of Operations and Accumulated Deficit for
the Years Ended September 30, 1995, 1996 and 1997.................F -41
Consolidated Statements of Cash Flows for the Years Ended
September 30, 1995, 1996 and 1997.................................F -42
Notes to Financial Statements..............................................F -43
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of:
Kanakaris Communications, Inc.
We have audited the accompanying consolidated balance sheets of Kanakaris
Communications, Inc. and Subsidiaries (formerly Kanakaris Internetworks, Inc.
and Subsidiary) as of September 30, 1998 and 1997 and the related
consolidated statements of operations, changes in stockholders' equity and
cash flows for the year ended September 30, 1998 and for the period from
February 25, 1997 (inception) to September 30, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based
on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. These standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the
consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Kanakaris
Communications, Inc. and Subsidiaries (formerly Kanakaris Internetworks, Inc.
and Subsidiary) as of September 30, 1998 and 1997 and the results of their
operations and their cash flows for the year ended September 30, 1998 and for
the period from February 25, 1997 (inception) to September 30, 1997 in
conformity with generally accepted accounting principles.
/s/ WEINBERG & COMPANY, P.A.
Boca Raton, Florida
March 10, 1999 (Except for
Notes 1(B) and 6(B) as to
which the date is September 21, 1999)
F-2
<PAGE>
KANAKARIS COMMUNICATIONS, INC. AND SUBSIDIARIES
(FORMERLY KANAKARIS INTERNETWORKS, INC. AND SUBSIDIARY)
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1998 AND 1997
---------------------------
ASSETS
------
1998 1997
---------- ----------
CURRENT ASSETS
Cash $ 5,415 $ 53,804
Accounts receivable 118,473 -
Inventory 10,122 -
Advances to suppliers 7,839 -
Current maturities of notes
receivable-shareholders and
related parties 36,280 39,160
Interest receivable 16,683 5,135
---------- ----------
Total Current Assets 194,812 98,099
---------- ----------
PROPERTY AND EQUIPMENT
Furniture and equipment 22,631 8,044
Less: Accumulated depreciation (6,184) (1,584)
---------- ----------
Total Property and Equipment 16,447 6,460
---------- ----------
OTHER ASSETS
Notes receivable - shareholders and
related parties - non-current 247,033 202,554
Organization costs - net 2,050 2,650
Security deposits 700 -
Goodwill - net of amortization 326,928 -
---------- ----------
Total Other Assets 576,711 205,204
---------- ----------
TOTAL ASSETS $ 787,970 $ 309,763
- ------------ ========== ==========
See accompanying notes to financial statements.
F-3
<PAGE>
KANAKARIS COMMUNICATIONS, INC. AND SUBSIDIARIES
(FORMERLY KANAKARIS INTERNETWORKS, INC. AND SUBSIDIARY)
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1998 AND 1997
---------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
1998 1997
---------- ----------
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 521,432 $ 18,773
Notes payable 25,000 -
Due to former shareholder of subsidiary 30,937 -
Customer deposits 29,427 -
---------- ----------
Total Current Liabilities 606,796 18,773
---------- ----------
LONG-TERM LIABILITIES
Royalties payable 20,753 -
---------- ----------
Total Liabilities 627,549 18,773
---------- ----------
STOCKHOLDERS' EQUITY
Preferred stock, $0.01 par value
in 1998 and 1997; 5,000,000 and
1,697,280 shares authorized in
1998 and 1997; 1,000,000 Class A Convertible
Preferred and 1,697,280 Preferred Stock
issued and outstanding in 1998 and 1997 10,000 16,973
Common stock, $0.001 and $0.01 par
value in 1998 and 1997; 100,000,000
and 3,302,720 shares authorized in
1998 and 1997; 19,179,636 issued and
19,080,612 outstanding in 1998; 2,802,154,
shares issued and outstanding in 1997 19,179 28,022
Common shares to be issued,
1,340,140 1,340 -
Additional paid-in capital 5,155,362 1,011,876
Accumulated deficit (4,822,280) (765,881)
Less subscriptions receivable
(1,260,000 shares, common) (1,260) -
---------- ----------
Total paid-in capital and
retained earnings 362,341 290,990
Less cost of treasury stock
(99,024 shares, common) (201,920) -
---------- ----------
TOTAL STOCKHOLDERS' EQUITY 160,421 290,990
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $ 787,970 $ 309,763
========== ==========
See accompanying notes to financial statements.
F-4
<PAGE>
KANAKARIS COMMUNICATIONS, INC. AND SUBSIDIARIES
(FORMERLY KANAKARIS INTERNETWORKS, INC. AND SUBSIDIARY)
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 1998 AND FOR THE
PERIOD FROM FEBRUARY 25, 1997 (INCEPTION) TO SEPTEMBER 30, 1997
---------------------------------------------------------------
1998 1997
------------ ------------
NET SALES $ 919,905 $ 8,475
COST OF SALES 481,349 -
------------ ------------
GROSS PROFIT 438,556 8,475
------------ ------------
OPERATING EXPENSES
Executive compensation 235,802 -
Salaries 279,462 -
Employee benefits 6,479 -
Payroll taxes 20,184 -
Consulting fees 3,241,466 453,841
Royalties 20,753 -
Development costs - 85,253
Travel and entertainment 40,872 20,333
Telephone and utilities 46,172 18,656
Marketing 27,384 14,717
Professional fees 75,494 12,027
Rent 52,302 11,450
Office supplies and expense 10,703 9,185
Equipment rental and expense 7,953 4,279
Insurance 10,979 4,251
Auto expense 1,500 2,000
Depreciation and amortization 30,214 1,934
Provision for bad debt 300,000 -
Taxes - other 1,370 -
Repairs and maintenance 2,238 1,093
Other expenses 13,712 -
Moving expense 6,055 -
Advertising 70,726 140,472
Bank charges 1,610 -
------------ ------------
TOTAL OPERATING EXPENSES 4,503,430 779,491
------------ ------------
LOSS BEFORE INTEREST INCOME (4,064,874) (771,016)
Interest income - net 8,475 5,135
------------ ------------
NET LOSS $(4,056,399) $ (765,881)
- -------- ============ ============
NET LOSS PER COMMON SHARE $ (.2813) $ (.2733)
============ ============
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 14,419,873 2,802,154
============ ============
See accompanying notes to financial statements.
F-5
<PAGE>
KANAKARIS COMMUNICATIONS, INC. AND SUBSIDIARIES
(FORMERLY KANAKARIS INTERNETWORKS, INC. AND SUBSIDIARY)
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM FEBRUARY 25, 1997 (INCEPTION) TO SEPTEMBER 30, 1998
-----------------------------------------------------------------------
<TABLE>
<CAPTION>
COMMON STOCK
COMMON STOCK TO BE ISSUED PREFERRED STOCK ADDITIONAL
----------------------- ------------------- --------------------- PAID-IN
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL
---------- ---------- --------- ------- ---------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Stock Issued For:
Cash 427,174 $ 4,272 - - 1,697,280 $ 16,973 $ 515,203
Consulting fees 2,294,980 22,950 - - - - 357,473
Advertising services 80,000 800 - - - - 139,200
Net loss 1997 - - - - - - -
---------- ---------- --------- ------- ---------- --------- ------------
Balance, September 30, 1997 2,802,154 28,022 - - 1,697,280 16,973 1,011,876
Stock Issued For:
Cash 22,680 227 - - - - 43,073
Consulting fees 1,500,843 15,008 - - - - 2,850,401
Advertising services 5,000 50 - - - - 9,496
RECAPITALIZATION TRANSACTIONS:
- ------------------------------
Cancellation of KIW, Inc.
stock resulting from
recapitalization (4,330,677) (43,307) - - (1,697,280) (16,973) 60,280
Pre exchange Big Tex
Common stock outstanding 6,000,000 6,000 - - - - (6,000)
Surrender of Common Stock by
50% Shareholder of Big Tex (3,000,000) (3,000) - - - - 3,000
Issuance of Common Stock
to Shareholders of Kanakaris
Internetworks, Inc. 6,000,000 6,000 - - - - (6,000)
Issuance of Preferred Stock
to Shareholders of Kanakaris
Internetworks, Inc. - - - 1,000,000 10,000 (10,000)
---------- ---------- --------- ------- ---------- --------- ------------
Balance after recapitalization 9,000,000 9,000 - - 1,000,000 10,000 3,956,126
Stock Issued For:
Cash 155,250 155 96,000 96 - - 184,624
Consulting fees 1,703,200 1,703 100,000 100 - - 306,793
Executive compensation 3,000,000 3,000 - - - - 180,750
Advertising services 20,000 20 - - - - 61,230
504 offering 3,981,800 3,982 537,500 537 - - 466,505
Subscriptions 1,260,000 1,260 - - - - -
Stock exchange program 59,386 59 606,640 607 - - (666)
Treasury stock redemption
Net loss 1998 - - - - - - -
---------- ---------- --------- ------- ---------- --------- ------------
BALANCE, SEPTEMBER 30, 1998 19,179,636 $ 19,179 1,340,140 $ 1,340 1,000,000 $ 10,000 $ 5,155,362
========== ========== ========= ======= ========== ========= ============
</TABLE>
F-6
<PAGE>
<TABLE>
<CAPTION>
TREASURY STOCK
ACCUMULATED STOCK SUBSCRIPTIONS
DEFICIT AMOUNT RECEIVABLE TOTAL
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Stock Issued For:
Cash - - - $ 536,448
Consulting fees - - - 380,423
Advertising services - - - 140,000
Net loss 1997 (765,881) - - (765,881)
-------------- -------------- -------------- --------------
Balance, September 30, 1997 (765,881) - - 290,990
Stock Issued For:
Cash - - - 43,300
Consulting fees - - - 2,865,409
Advertising services - - - 9,546
RECAPITALIZATION TRANSACTIONS:
- -----------------------------
Cancellation of KIW, Inc.
stock resulting from
recapitalization - - - -
Pre exchange Big Tex
Common stock outstanding
Surrender of Common Stock by
50% Shareholder of Big Tex - - - -
Issuance of Common Stock
to Shareholders of Kanakaris
Internetworks, Inc. - - - -
Issuance of Preferred Stock
to Shareholders of Kanakaris
Internetworks, Inc. - - - -
-------------- -------------- -------------- --------------
Balance after recapitalization (765,881) - - 3,209,245
Stock Issued For:
Cash - - - 184,875
Consulting fees - - - 308,596
Executive compensation - - - 183,750
Advertising services - - - 61,250
504 offering - - - 471,024
Subscriptions - - (1,260) -
Stock exchange program - - - -
Treasury stock redemption - (201,920) - (201,920)
Net loss 1998 (4,056,399) - - (4,056,399)
-------------- -------------- -------------- --------------
BALANCE, SEPTEMBER 30, 1998 $ (4,822,280) $ (201,920) $ (1,260) $ 160,421
============== ============== ============== ==============
</TABLE>
See accompanying notes to financial statements.
F-7
<PAGE>
KANAKARIS COMMUNICATIONS, INC. AND SUBSIDIARIES
(FORMERLY KANAKARIS INTERNETWORKS, INC. AND SUBSIDIARY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED SEPTEMBER 30, 1998 AND FOR THE
PERIOD FROM FEBRUARY 25, 1997 (INCEPTION) TO SEPTEMBER 30, 1997
---------------------------------------------------------------
1998 1997
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(4,056,399) $ (765,881)
Adjustments to reconcile net loss
to net cash used in
operating activities:
Amortization of goodwill 23,352 -
Depreciation and amortization 6,862 1,934
Write-off of fixed assets 793 -
Provision for bad debts 300,000
Consulting and advertising fees
incurred in exchange for common stock 3,428,550 520,423
Changes in assets and liabilities
(Increase) decrease in:
Accounts receivable (61,699) -
Inventory (1,434) -
Prepaid expenses 11,846 -
Advances to suppliers (7,839) -
Interest receivable (11,548) (5,135)
Increase (decrease) in:
Accounts payable and accrued expenses 103,139 18,773
Royalties payable 20,753 -
Deferred revenue (68,598) -
Customer deposits 29,427 -
------------ ------------
Net cash used in operating activities (282,795) (229,886)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (7,204) (8,044)
(Increase) decrease in notes
receivable - shareholders and
related parties (41,599) (241,714)
(Increase)in notes receivable (300,000) -
Payment of organization costs - (3,000)
Cash provided by subsidiary
acquisition 60,930 -
------------ ------------
Net cash used in investing
activities (287,873) (252,758)
------------ ------------
See accompanying notes to financial statements.
F-8
<PAGE>
KANAKARIS COMMUNICATIONS, INC. AND SUBSIDIARIES
(FORMERLY KANAKARIS INTERNETWORKS, INC. AND SUBSIDIARY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED SEPTEMBER 30, 1998 AND FOR THE
PERIOD FROM FEBRUARY 25, 1997 (INCEPTION) TO SEPTEMBER 30, 1997
---------------------------------------------------------------
1998 1997
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in notes payable 25,000 -
Proceeds from sale of common stock 4,498 4,272
Proceeds from sale of preferred stock - 16,973
Proceeds from additional paid in capital 694,701 515,203
Purchase of treasury stock (201,920) -
---------- ----------
Net cash provided by financing
activities 522,279 536,448
---------- ----------
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (48,389) 53,804
CASH AND CASH EQUIVALENTS -
BEGINNING OF YEAR 53,804 -
---------- ----------
CASH AND CASH EQUIVALENTS -
END OF YEAR $ 5,415 $ 53,804
========== ==========
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
- -----------------------------------------------------------------------
During the year ended September 30, 1998 the Company issued 1,260,000 shares of
common stock in exchange for unpaid subscriptions of $1,260, and 4,723,200
shares of common stock for executive compensation, consulting and other services
valued at $3,428,550
The Company has incurred a liability in the amount of $30,937 which is due to
the former sole shareholder of the Company's subsidiary, Desience, pursuant to
the acquisition agreement.
During the year ended September 30, 1997 the Company issued 2,374,980 shares of
common stock for consulting fees and other services valued at $520,423.
See accompanying notes to financial statements.
F-9
<PAGE>
KANAKARIS COMMUNICATIONS, INC. AND SUBSIDIARIES
(FORMERLY KANAKARIS INTERNETWORKS, INC.
AND SUBSIDIARY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 1998 AND 1997
---------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- ---------------------------------------------------
(A) BUSINESS ORGANIZATION AND ACTIVITY
Kanakaris Internetworks, Inc. (the "Company") was
incorporated in the State of Delaware on February 25, 1997.
The Company develops and supplies internet products, on line
products and online commerce.
(B) BUSINESS COMBINATIONS
On October 10, 1997 (the "Acquisition Date"), the Company
consummated a Stock Purchase Agreement (the "Purchase Agreement")
with the shareholder (the "Seller") of Desience Corporation
("Desience") to purchase 10,000 common shares representing 100%
of its issued and outstanding common stock in exchange for a 4%
royalty on the gross sales (after collection) of Desience
subsequent to the Acquisition Date, to be paid monthly for as
long as Desience remains in business or its products are sold. In
addition, the Seller shall receive five percent of funds which
are to be allocated to Desience arising from the Company's next
securities offering as a non-refundable advance on the royalty.
The Company will hold harmless the Seller from any claims, causes
of action, costs, expenses, liabilities and prior shareholder
advances. Immediately following the exchange, Desience became an
indirect wholly owned subsidiary of the Company. The fair value
of the assets and liabilities acquired pursuant to the
acquisition of Desience was $148,776 and $468,120, respectively,
which resulted in goodwill of $319,344 at the date of
acquisition. Desience designs and installs specialized business
furniture for a variety of industries. (See Note 7 for unaudited
proforma financial information.)
On November 25, 1997, the Company and its shareholders (the
("Shareholders") consummated an acquisition agreement with Big
Tex Enterprises, Inc. ("Big Tex"), a public shell, whereby the
shareholders sold all of their preferred and common stock,
which represented 100% of the Company's issued and outstanding
capital stock, to Big Tex in exchange for 7,000,000 shares
(6,000,000 common, 1,000,000 preferred) of Big Tex's
restricted stock, representing 66.67% of the issued and
outstanding common stock and 100% of the issued and
outstanding preferred stock of Big Tex, aggregating 75% of the
total voting rights (the "Exchange"). Big Tex was founded in
1991 for the purpose of lawful business or enterprise, but had
been inactive since 1991.
Generally accepted accounting principles require that the
company whose stockholders retain the majority interest in a
combined business be treated as the acquirer for accounting
purposes. Accordingly, the Big Tex acquisition will be
accounted for as an acquisition of Big Tex by the Company and
a recapitalization of the Company. The financial statements
F-10
<PAGE>
KANAKARIS COMMUNICATIONS, INC. AND SUBSIDIARIES
(FORMERLY KANAKARIS INTERNETWORKS, INC.
AND SUBSIDIARY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 1998 AND 1997
---------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
- ---------------------------------------------------------------
immediately following the acquisition are as follows: (1) the
balance sheet includes the Company's net assets at historical
costs and Big Tex's net assets at historical costs and (2) the
statement of operations includes the Company's operations for
the period presented and Big Tex's operations from November
25, 1997. As part of the agreement, Big Tex changed its name
to Kanakaris Communications, Inc.
The dollar, share and par value amounts that appear in the
1997 balance sheet's stockholders' equity section represent
the balances and denominations for such accounts prior to the
acquisition and recapitalization agreements. The dollar, share
and par value amounts that appear in the 1998 balance sheet's
stockholders' equity section represent the balances and
denominations for such accounts subsequent to the acquisition
and recapitalization agreements.
(C) PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the
accounts of the Company, Kanakaris InternetWorks, Inc. and
Desience, the Company's wholly-owned subsidiaries. All
significant intercompany balances and transactions have been
eliminated in consolidation.
(D) USE OF ESTIMATES
The accompanying financial statements have been prepared in
accordance with generally accepted accounting principles. The
preparation of financial statements in accordance with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements
and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those
estimates.
(E) CASH AND CASH EQUIVALENTS
For purposes of the statements of cash flows, the Company
considers all highly liquid debt instruments purchased with an
original maturity of three months or less to be cash
equivalents.
F-11
<PAGE>
KANAKARIS COMMUNICATIONS, INC. AND SUBSIDIARIES
(FORMERLY KANAKARIS INTERNETWORKS, INC.
AND SUBSIDIARY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 1998 AND 1997
---------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
- ---------------------------------------------------------------
(F) PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and depreciated
using the declining balance method over the estimated economic
useful life of 5 to 7 years. Maintenance and repairs are
charged to expense as incurred. Major improvements are
capitalized. Depreciation expense for the years ended
September 30, 1998 and 1997 was $6,262 and $1,584,
respectively.
(G) INVENTORIES
Inventories consisting of parts, finished goods, and
collectibles are recorded at the lower of cost or market, cost
being determined using the first-in, first-out method.
(H) ORGANIZATION COSTS
Organization costs, which are included in other assets, are
being amortized over 60 months on a straight line basis.
Amortization expense for the years ended September 30, 1998
and 1997 was $600 and $350, respectively.
(I) GOODWILL
Goodwill arising from the acquisition of Desience, as
discussed in Note 1 (B) - Business Combinations, is being
amortized on a straight-line basis over 15 years.
Amortization expense for the year ended September 30, 1998
was $23,352.
(J) EARNINGS PER SHARE
Earnings per share are computed using the weighted average of
common shares outstanding as defined by Financial Accounting
Standards No. 128, "Earnings per Share".
(K) INCOME TAXES
The Company accounts for income taxes under Statement of
Financial Accounting Standards No. 109, "Accounting for Income
Taxes" (SFAS 109). SFAS 109 is an asset and liability approach
that requires the recognition of deferred tax assets and
liabilities for the expected future tax consequences of events
that have been recognized in the Company's financial
statements or tax returns. In estimating future tax
consequences, SFAS 109 generally considers all expected future
events other than enactments of changes in the tax law or
rates. Any available deferred tax assets arising from net
F-12
<PAGE>
KANAKARIS COMMUNICATIONS, INC. AND SUBSIDIARIES
(FORMERLY KANAKARIS INTERNETWORKS, INC.
AND SUBSIDIARY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 1998 AND 1997
---------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
- ---------------------------------------------------------------
operating loss carryforwards has been offset by a deferred tax
valuation allowance on the entire amount.
(L) CONCENTRATION OF CREDIT RISK
The Company maintains its cash in bank deposit accounts which,
at times, may exceed federally insured limits. The Company has
not experienced any losses in such accounts and believes it is
not exposed to any significant credit risk or cash and cash
equivalents.
(M) NEW ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board has recently issued
several new accounting pronouncements. Statement No. 130,
"Reporting Comprehensive Income" establishes standards for
reporting and display of comprehensive income and its
components, and is effective for fiscal years beginning after
December 15, 1997. Statement No. 131, "Disclosures about
Segments of an Enterprise and Related Information" establishes
standards for the way that public business enterprises report
information about operating segments in annual financial
statements and requires that those enterprises report selected
information about operating segments in interim financial
reports issued to shareholders. It also establishes standards
for related disclosures about products and services,
geographic areas, and major customers, and is effective for
financial statements for periods beginning after December 15,
1997. Statement No. 132, "Employers' Disclosures About
Pensions and Other Postretirement Benefits" revises employers'
disclosure requirements about pension and other postretirement
benefit plans and is effective for fiscal years beginning
after December 15, 1997. Statement No 133, "Accounting for
Derivative Instruments and Hedging Activities" establishes
accounting and reporting standards for derivative instruments
and related contracts and hedging activities. This statement
is effective for all fiscal quarters and fiscal years
beginning after June 15, 1999. The Company believes that its
future adoption of these pronouncements will not have a
material effect on the Company's financial position or results
of operations.
F-13
<PAGE>
KANAKARIS COMMUNICATIONS, INC. AND SUBSIDIARIES
(FORMERLY KANAKARIS INTERNETWORKS, INC.
AND SUBSIDIARY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 1998 AND 1997
---------------------------------
NOTE 2 - NOTES RECEIVABLE - SHAREHOLDERS AND RELATED PARTIES
- ------------------------------------------------------------
The following is a summary of notes receivable at September 30, 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Note receivable - Shareholder, unsecured.
Interest at 6%. Principal is due
December 31, 1997 $ - $ 7,000
Note receivable - Shareholder, unsecured.
Interest at 6%. Principal is due
December 31, 1997 - 7,000
Notes receivable - Shareholder, unsecured.
Interest at 6.625% is payable beginning
June 30, 1998 when all accrued interest
will be due, then annually on each
subsequent June 30. Principal payments
are due beginning December 31, 1998
when one-fifth of the outstanding
amount is due. Subsequent payments are
due one-fifth each December 31 until
February 26, 2002 when all outstanding
principal and interest is due. 70,400 49,600
Notes receivable - Shareholder, unsecured.
Interest at 6.625% is payable beginning
June 30, 1998 when all accrued interest
will be due, then annually on each
subsequent June 30. Principal payments
are due beginning December 31, 1998 when
one-fifth of the outstanding amount is due.
Subsequent payments are due one-fifth each
December 31 until February 26, 2002 when all
outstanding principal and interest is due. 62,400 49,600
Notes receivable - Related Party, unsecured.
Interest at 6.625% is payable beginning
June 30, 1998 when all accrued interest will
be due, then annually on each subsequent
June 30. Principal payments are due beginning
December 31, 1998 when one-fifth of the
outstanding amount is due. Subsequent payments
are due one-fifth each December 31 until
February 26, 2002 when all outstanding
principal and interest is due. 28,998 16,999
</TABLE>
F-14
<PAGE>
KANAKARIS COMMUNICATIONS, INC. AND SUBSIDIARIES
(FORMERLY KANAKARIS INTERNETWORKS, INC.
AND SUBSIDIARY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 1998 AND 1997
---------------------------------
NOTE 2 - NOTES RECEIVABLE - SHAREHOLDERS AND RELATED PARTIES - CONTINUED
- ------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997
-------- -------
<S> <C> <C>
Notes receivable - Related Party,
unsecured. Interest at 6.625% is payable
beginning June 30, 1998 when all accrued
interest will be due, then annually on
each subsequent June 30. Principal payments
are due beginning December 31, 1998
when one-fifth of the outstanding amount
is due. Subsequent payments are due one-fifth
each December 31 until February 26, 2002 when
all outstanding principal and interest is due. 19,600 9,600
Note receivable - Shareholder, unsecured.
Interest at 8%, principal and interest
is payable in five annual installments of
$38,250 beginning September 30, 1998. The
note was prepaid through a portion of
the year 2000 101,915 101,915
--------- ---------
Total Notes Receivable 283,313 241,714
Less: Current maturities 36,280 39,160
--------- ---------
TOTAL NOTES RECEIVABLE - LESS CURRENT
- -------------------------------------
MATURITIES $ 247,033 $ 202,554
---------- ========= =========
</TABLE>
The aggregate amount of notes receivable maturing in each of the five years
subsequent to September 30, 1998 is as follows:
For the year ending September 30, 1999 $ 36,280
2000 61,695
2001 74,529
2002 110,809
---------
$ 283,313
=========
NOTE 3 - PREFERRED STOCK
- ------------------------
The Company has authorized the issuance of 5,000,000 shares of
preferred stock. The 1,000,000 shares of preferred stock
issued in connection with the Big Tex business combination
discussed in Note 1 (B) are convertible to common stock. The
preferred stock also has 3 to 1 voting rights over all common
stock.
F-15
<PAGE>
KANAKARIS COMMUNICATIONS, INC. AND SUBSIDIARIES
(FORMERLY KANAKARIS INTERNETWORKS, INC.
AND SUBSIDIARY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 1998 AND 1997
---------------------------------
NOTE 4 - COMMITMENTS AND CONTINGENCIES
- --------------------------------------
(A) LEASES
On October 8, 1998 the Company, as subtenant, entered into a
sublease agreement with the existing tenant commencing on
October 15, 1998. The term of the sublease is through and
including the end of the original term of the tenant's lease
of the premises, which is August 20, 2000. The monthly rent on
this sublease is $1,512 through August 20, 1999 at which time
it will increase to $1,579 a month until August 20, 2000.
Future annual minimum rentals under this sublease agreement
are as follows:
YEARS ENDING
SEPTEMBER 30 AMOUNT
------------ --------
1999 $ 16,632
2000 17,369
(B) LEGAL ACTIONS
In the normal course of business, there may be various legal
actions and proceedings pending which seek damages against the
Company. Management believes that the amount, if any, that may
result from these claims, will not have a material adverse
effect on the financial statements.
(C) SECURITIES AND EXCHANGE COMMISSION INFORMAL INQUIRY
In August 1998, the Securities and Exchange Commission ("SEC")
began an informal inquiry relating to the sales of shares of the
Company in 1996 and 1997 to the former shareholders of Kanakaris
Internetworks, Inc. ("KIW") (See Note 1(A), (B) and (C)).
Approximately 6,000,000 shares were sold to investors of KIW.
Named in the inquiry as defendants are the Company and its
President and Vice President. Settlement negotiations have been
conducted with the SEC during 1999 and it is the opinion of
counsel that the Company, its executives and the SEC will accept
the following settlement: Without admitting or denying any wrong
doing, the Company and its executives will consent to a permanent
injunction enjoining them from engaging in acts which constitute,
among other things violations of Section 17(a)(1) 2 OR 3 of the
Securities Act of 1933. In addition Company counsel advises that
the proposed settlement would not carry any civil penalties.
F-16
<PAGE>
KANAKARIS COMMUNICATIONS, INC. AND SUBSIDIARIES
(FORMERLY KANAKARIS INTERNETWORKS, INC.
AND SUBSIDIARY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 1998 AND 1997
---------------------------------
NOTE 4 - COMMITMENTS AND CONTINGENCIES - (CONT'D)
- -------------------------------------------------
(D) YEAR 2000 ISSUES
The Company is aware of the issues associated with the
programming code in existing computer systems as the
millennium (Year 2000) approaches. The "Year 2000" problem is
pervasive and complex as virtually every computer operation
will be affected in some way by the rollover of the two-digit
year value to 00. The issue is whether computer systems will
properly recognize date-sensitive information when the year
changes to 2000. Systems that do not properly recognize such
information could generate erroneous data or cause a system to
fail.
The Company uses a standard off the shelf accounting software
package for all of its accounting requirements. Management has
contacted the software vendor and determined that the
accounting software is Year 2000 compliant. All internal
management software is Microsoft based and management
continually monitors the Year 2000 status of such software.
Management has verified Year 2000 status with its primary
vendors and has not identified any Year 2000 issues with those
vendors. Costs of investigating internal and external Year
2000 compliance issues have not been material to date. As a
result, management believes that the effect of investigating
and resolving Year 2000 compliance issues on the Company will
not have a material effect on the Company's future financial
position or results of operations.
In addition to the effect of Year 2000 issues on the Company's
accounting and management systems, Year 2000 issues may effect
the Company's products as the products are primarily computer
related. The Company's products have been developed and tested
with regard to Year 2000 compliance. All products were deemed
to be Year 2000 compliant. The costs of such development and
testing and validating were minimal and absorbed as part of
the Company's normal quality control procedures.
NOTE 5 - PRIVATE PLACEMENT
- --------------------------
June 15, 1998, the Company prepared an Offering Memorandum
under Securities and Exchange Commission exemptions from
Registration provided by Section 3 (b) Regulation D and Rule
504 promulgated thereunder to raise $625,000 by offering
shares of the Company's common stock. The offering was
terminated on September 28, 1998 and the Company raised
$471,024 from such offering. (Also See Note 6 (D)).
F-17
<PAGE>
KANAKARIS COMMUNICATIONS, INC. AND SUBSIDIARIES
(FORMERLY KANAKARIS INTERNETWORKS, INC.
AND SUBSIDIARY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 1998 AND 1997
---------------------------------
NOTE 6 - SUBSEQUENT EVENTS
- --------------------------
(A) LETTER OF INTENT
On January 26, 1999, the Company entered into a Letter of
Intent with Timothy L. Waller to develop, design, and maintain
two Real Estate Web Sites: (1) www.brea.com (Bank Real Estate
Auctions) is intended to be used to sell bank owned real
estate via the internet in an auction like atmosphere and (2)
www.fsbomls.com (For Sale By Owner Multiple Listing Service)
is intended to enable real estate owners to market and sell
their property without the services of a professional real
estate broker. The two parties agreed to sign a formal
agreement within 120 days from the date of the Letter of
Intent.
(B) LICENSE AGREEMENT
On February 18, 1999, the Company entered into a License
Agreement ("Agreement") with ION Systems, Inc. ("ION"), a
Missouri corporation. The Agreement is through December 31,
2004, and thereafter will be renewed automatically for
additional renewal terms of five years each, ending on
December 31 of each fifth year. Under the terms of the
Agreement, ION grants to the Company a license to use its
products, the E*Web and the X*Maker computer software enabling
the secure downloading and viewing of web sites, for or in
connection with the Company's web sites. The two parties
agreed that the software may be used solely for the
publishing, displaying, promoting, marketing, offering and
selling for a fee of certain specified book categories as well
as of products or services listed in the books published. The
aforementioned activities are meant to be offered directly to
customers and end users using the facilities of a web site. No
geographic or territorial restrictions apply to the use of the
software. At the option of the Company to be exercised until
August 30, 1999, the license with regard to E*Web shall be
exclusive to the Company for a license fee of $1,000,000. The
agreed fee for each book conversion performed by ION will be
$100, and the royalties for each book sale and product sale
shall be 12% and 5%, respectively, of the gross revenue.
Furthermore, ION shall have the right to buy 100,000 shares of
the Company's common stock at a price of $0.30 per share one
time at any time between June 1, 1999 and December 31, 2005.
The Company did not exercise the exclusive $1,000,000 license
option it had with ION under the terms of this agreement.
(C) REVOLVING LINE OF CREDIT
On February 25, 1999, the Company signed a Memorandum of
Understanding ("Memorandum") with Alliance Equities Inc.
("Alliance"), a Florida-based venture capital firm. The
F-18
<PAGE>
KANAKARIS COMMUNICATIONS, INC. AND SUBSIDIARIES
(FORMERLY KANAKARIS INTERNETWORKS, INC.
AND SUBSIDIARY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 1998 AND 1997
---------------------------------
NOTE 6 - SUBSEQUENT EVENTS - (CONT'D)
- -------------------------------------
two parties agreed to sign a final agreement within 14 days
from the date of the Memorandum. Under the terms of the
Memorandum, Alliance will make available a $5 million
revolving line of credit in order to enable the Company to
pursue current Internet opportunities, commerce development,
and a possible stock buy back program. The two parties agreed
that the indebtedness may be paid back by the Company either
with cash or the issuance of stock. Any money advanced to the
Company by Alliance in the interim of signing the final
agreement will be returned if no final agreement can be
reached. Furthermore, the two parties agreed that Alliance
will continue its ongoing consulting services to the Company
including, but not limited to, strategic growth advice and
introductions, marketing advice, and business ideas. Alliance
will be compensated for these services at the option of the
Company either in cash, or through the issuance of stock or
credit towards the purchase of stock.
(D) OFFERING MEMORANDUMS
On December 3, 1998 and February 18, 1999 the Company
completed two offerings under the Securities and Exchange
Commission Regulation D, Rule 504. In the first offering,
3,333,333 shares were sold to two investors at $.06 per share
for a total of $200,000. In the second offering 470,000 shares
were sold to one investor at $.50 per share for a total of
$235,000.
(E) AGREEMENT AND SETTLEMENT
As a result of certain actions by its former securities
attorney, which led, among other things, to the Company's
recognition of a bad debt in the amount of $300,000, the
Company entered into a settlement agreement with the former
attorney and received a $250,000 non-interest bearing
promissory note dated February 3, 1999. The note is payable in
monthly installments of $20,833 commencing February 15, 1999.
The Company is negotiating with its former attorney relating
to a further financial settlement concerning the actions of
the attorney and others.
Should the Company's efforts to informally resolve these
matters prove to be unsuccessful, the Company intends to
vigorously pursue its claims, and has had preliminary
discussions with new legal counsel relating to the matter.
F-19
<PAGE>
KANAKARIS COMMUNICATIONS, INC. AND SUBSIDIARIES
(FORMERLY KANAKARIS INTERNETWORKS, INC.
AND SUBSIDIARY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 1998 AND 1997
---------------------------------
NOTE 7 - BUSINESS COMBINATION - UNAUDITED PRO FORMA FINANCIAL INFORMATION
- --------------------------------------------------------------------------
The following unaudited pro forma financial information for the
Company gives effect to the Desience acquisition as if it
occurred on October 1, 1996. (See Note 1(B)) These pro forma
results have been prepared for comparative purposes only and do
not purport to be indicative of the results of operations which
actually would have resulted had the acquisition occurred on the
date indicated, or which may result in the future.
The accompanying financial statements for the year ended
September 30, 1998, include the operations of Desience for the
entire year from October 1, 1997 to September 30, 1998.
<TABLE>
PROFORMA CONDENSED STATEMENT OF OPERATIONS
(UNAUDITED)
<CAPTION>
Desience Kanakaris
Corporation Communications,
Year ended 2/25/97 (Inception) Proforma
9/30/97 to 9/30/97 adjustment Consolidated
------------ ------------------- ---------- -------------
<S> <C> <C> <C> <C>
Revenue $ 1,409,408 $ 8,475 $ 1,417,883
------------ ------------ ------------
Cost of Revenues 879,821 0 879,821
General &
Administrative 358,209 774,356 21,290 1,153,855
------------ ------------ ------------
1,238,030 774,356 21,290 2,033,676
------------ ------------ ------------
Net Income (loss) $ 171,378 ($765,881) ($615,793)
============ ============ ============
Net Loss per common share ($0.220)
Weighted Average shares outstanding 2,802,154
Proforma Adjustment:
Amortization Goodwill $319,344
15 year amortization-
per yr 21,290
</TABLE>
F-20
<PAGE>
<TABLE>
KANAKARIS COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Balance Sheet
June 30, 1999
(Unaudited)
<CAPTION>
ASSETS
- ------
<S> <C>
Current assets:
Cash $ 200,701
Accounts receivable 139,728
Inventories 11,435
Prepaid expenses and other current assets 17,779
Notes receivable from shareholders and related
parties, current portion 37,660
Interest receivable from shareholders and
related parties 30,609
Deposits 13,542
--------------
TOTAL CURRENT ASSETS 451,454
--------------
Property and equipment:
Furniture and equipment 23,037
Computer hardware and software 20,495
Less accumulated depreciation (10,703)
--------------
TOTAL PROPERTY AND EQUIPMENT 32,829
--------------
Other assets:
Notes receivable from shareholders and related parties,
net of current portion 210,753
Security deposits 700
Organization costs, net of accumulated amortization
of $1,400 1,600
Goodwill, net of accumulated amortization of $40,866 322,653
--------------
TOTAL OTHER ASSETS 535,706
--------------
TOTAL ASSETS $ 1,019,989
==============
</TABLE>
See notes to consolidated financial statements.
F-21
<PAGE>
<TABLE>
KANAKARIS COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Balance Sheet
June 30, 1999
(Unaudited)
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
<S> <C>
Current liabilities:
Line-of-credit $ 150,000
Accounts payable and accrued expenses 619,362
Due to former shareholder of subsidiary 62,020
Royalties payable 38,762
Other current liabilities 10,900
--------------
TOTAL CURRENT LIABILITIES 881,044
--------------
Stockholders' equity:
Preferred stock $0.01 par value; 5,000,000 shares authorized;
Class A Convertible Preferred Stock;
1,000,000 issued and outstanding 10,000
Common stock
$0.001 par value; 100,000,000 shares authorized;
25,490,550 issued and outstanding 25,491
Treasury stock
99,024 shares of common stock (201,920)
Additional paid-in capital 7,282,375
Accumulated deficit (6,975,741)
Stock subscriptions receivable (1,260)
--------------
TOTAL STOCKHOLDERS' EQUITY 138,945
--------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,019,989
==============
</TABLE>
See notes to consolidated financial statements.
F-22
<PAGE>
<TABLE>
KANAKARIS COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
For the Nine Months Ended June 30, 1999 and 1998
(Unaudited)
<CAPTION>
1999 1998
-------------- --------------
<S> <C> <C>
Sales:
Product sales $ 688,325 $ 660,095
Installation fees 31,950 30,629
Freight income 51,892 49,775
-------------- --------------
Total sales 772,167 740,499
-------------- --------------
Cost of sales:
Manufacturing costs 364,522 296,283
Installation costs 17,767 13,838
Commissions 37,954 30,117
Freight 37,009 31,743
-------------- --------------
Total cost of sales 457,252 371,981
-------------- --------------
Gross profit 314,915 368,518
-------------- --------------
Operating expenses:
Salaries 69,125 40,402
Executive compensation 295,658 172,803
Payroll taxes and employee benefits 11,539 18,654
Subcontractor costs 28,020 -
Consulting fees 1,195,873 2,850,401
Royalties 35,852 22,768
Travel and entertainment 52,034 43,191
Rent 19,828 34,599
Marketing and investment costs 257,270 33,220
Utilities and telephone 15,579 29,848
Professional fees 393,815 72,789
Insurance 11,665 14,082
Office supplies and expenses 35,651 19,303
Depreciation and amortization 22,483 22,237
Equipment rental 3,535 6,509
General services and expense 24,642 2,537
Moving costs 600 6,055
Repairs and maintenance 4,187 2,422
Bank charges 2,817 1,275
Other taxes 215 -
-------------- --------------
Total operating expenses 2,480,388 3,393,095
-------------- --------------
Net (loss) before interest and other income (2,165,473) (3,024,577)
Other income 5,854 -
Interest income, net 6,158 5,483
-------------- --------------
Net (loss) $ (2,153,461) $ (3,019,094)
============== ==============
Net (loss) per common share $ (.099) $ (.1668)
============== ==============
Weighted average common shares outstanding 21,786,418 18,100,000
============== ==============
</TABLE>
See notes to consolidated financial statements.
F-23
<PAGE>
<TABLE>
KANAKARIS COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Statement of Changes in Stockholders' Equity
For the Nine Months Ended June 30, 1999
(Unaudited)
<CAPTION>
Common Stock Preferred
Common Stock to be issued Stock Additional Stock
---------------------------------------------------------- Paid-in Accumulated Treasury Subscriptions
Shares Amount Shares Amount Shares Amount Capital Deficit Stock Receivable Total
---------- ------- ----------- -------- --------- ------- ---------- ------------ ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balances
September 30,
1998 19,179,636 $19,179 1,340,140 $ 1,340 1,000,000 $10,000 $5,155,362 $(4,822,280) $(201,920) $ (1,260) $ 160,421
Stock issued
for cash:
504 and 506
offerings 5,064,814 5,066 (1,340,140) (1,340) - - 639,786 - - - 643,512
Stock issued
for:
Consulting fees 841,000 841 - - - - 1,115,664 - - - 1,116,505
Advertising
services 120,100 120 - - - - 133,198 - - - 133,318
Professional
services 285,000 285 - - - - 238,365 - - - 238,650
Net (loss) for
the nine months
ended June 30,
1999 - - - - - - - (2,153,461) - - (2,153,461)
---------- ------- ----------- -------- --------- ------- ---------- ------------ ---------- ---------- ------------
BALANCES
JUNE 30, 1999 25,490,550 $25,491 - - 1,000,000 $10,000 $7,282,375 $(6,975,741) $(201,920) $ (1,260) $ 138,945
========== ======= =========== ======== ========= ======= ========== ============ ========== ========= ============
</TABLE>
See notes to consolidated financial statements.
F-24
<PAGE>
<TABLE>
KANAKARIS COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the Nine Months Ended June 30, 1999 and 1998
(Unaudited)
<CAPTION>
1999 1998
-------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) $ (2,153,461) $ (3,019,094)
Adjustments to reconcile net loss
to net cash used in operating activities:
Amortization of goodwill 4,275 20,000
Depreciation and other amortization 4,968 2,237
Consulting, legal and advertising fees
incurred in exchange for common stock 1,488,473 2,861,087
Income from forgiveness of debt (26,607) -
Interest receivable 8,548 (7,004)
Notes receivable from shareholders
and related parties 34,900 (92,762)
(Increase) decrease in assets:
Accounts receivable (21,256) 9,775
Inventories (1,313) 2,034
Prepaid expenses and other current assets (17,779) 2,978
Deposits (5,703) -
Increase (decrease) in liabilities:
Accounts payable and accrued expenses 97,931 64,460
Royalties payable 18,009 -
Due to former shareholder of subsidiary 31,083 -
Customer deposits (29,427) 30,162
Other current liabilities 10,900 (68,598)
-------------- --------------
NET CASH USED IN OPERATING ACTIVITIES (556,459) (194,725)
-------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment (20,900) (6,804)
Cash provided by acquisition - 60,230
Payment of Security Deposit - (700)
-------------- --------------
NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES (20,900) 53,426
-------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on notes payable (20,867) -
Borrowings on line-of-credit 150,000 -
Proceeds from issuance of common stock 643,512 323,905
Purchase of treasury stock - (148,070)
-------------- --------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 772,645 175,835
-------------- --------------
INCREASE IN CASH 195,286 34,536
Cash, beginning of period 5,415 53,804
-------------- --------------
CASH, END OF PERIOD $ 200,701 $ 88,340
============== ==============
</TABLE>
See notes to consolidated financial statements.
F-25
<PAGE>
KANAKARIS COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Statement of Cash Flows
For the Nine Months Ended June 30, 1999
(Unaudited)
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Income taxes $ -
============
Interest $ 5,475
============
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
During the nine months ended June 30, 1999, the Company issued 1,246,100
shares of common stock for consulting, advertising services and
professional services having a fair value of $1,488,473.
See notes to consolidated financial statements.
F-26
<PAGE>
KANAKARIS COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 1999 and 1998
(Unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
Organization and nature of business
-----------------------------------
Kanakaris Communications, Inc., (formerly Kanakaris Internetworks, Inc.)
was incorporated in the State of Delaware in February of 1997. The
Company develops and supplies internet products for electronic commerce,
and operates a subsidiary which designs and installs modular consoles.
Business combinations
---------------------
In October of 1997, the Company consummated a stock purchase agreement
with the shareholder (the "Seller") of Desience Corporation to purchase
100% of its issued and outstanding common stock in exchange for a 4%
royalty on the gross sales (after collection) of Desience Corporation
subsequent to the acquisition date, to be paid monthly for as long as
Desience Corporation remains in business or its products are sold. In
addition, the Seller shall receive five percent of funds which are to be
allocated to Desience Corporation arising from the Company's next
securities offering as a non-refundable advance on the royalty. The
Company will hold the Seller harmless from any claims, causes of action,
costs, expenses, liabilities and prior shareholder advances. Immediately
following the exchange, Desience Corporation became a wholly-owned
subsidiary of the Company. Desience Corporation designs and installs
specialized business furniture for a variety of industries.
In November of 1997, the Company and its shareholders consummated an
acquisition agreement with Big Tex Enterprises, Inc. ("Big Tex"), a
Nevada public shell, whereby the shareholders exchanged all of their
preferred and common stock, which represented 100% of the Company's
issued and outstanding capital stock, to Big Tex in exchange for
7,000,000 shares (6,000,000 common, 1,000,000 preferred) of Big Tex's
restricted stock, representing 66.67% of the issued and outstanding
common stock and 100% of the issued and outstanding preferred stock of
Big Tex, aggregating 75% of the total voting rights. Big Tex was founded
in 1991, but had been inactive since 1991. Immediately following the
exchange, the Company changed its name to Kanakaris Communications, Inc.
Principles of consolidation
---------------------------
The consolidated financial statements include the accounts of Kanakaris
Communications, Inc., Kanakaris InternetWorks, Inc. and Desience
Corporation (wholly-owned subsidiaries). All significant intercompany
transactions have been eliminated in consolidation.
F-27
<PAGE>
KANAKARIS COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 1999 and 1998
(Unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
------------------------------------------------------
Basis of presentation
---------------------
Management uses estimates and assumptions in preparing financial
statements. Those estimates and assumptions affect the reported amounts
of assets and liabilities, the disclosure of contingent assets and
liabilities, and the reported revenues and expenses. Actual results could
differ from those estimates.
Cash and cash equivalents
-------------------------
For purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments purchased with an original maturity of
three months or less to be cash equivalents. The Company from time to
time maintains cash balances that exceed the FDIC insurance coverage
limits.
Property and equipment
----------------------
Property and equipment is stated at cost. Depreciation is computed on the
straight-line method over the estimated useful lives of the related
assets ranging from five to seven years for financial statement purposes.
Accelerated methods are used for tax reporting purposes over estimated
useful lives ranging from three to seven years.
Repairs and maintenance which do not extend the useful lives of the
assets are expensed as incurred. Major renewals and betterments are
capitalized. When items are retired or otherwise disposed of, the related
cost and accumulated depreciation are removed from the respective
accounts and any profit or loss on the disposition is credited or charged
to income.
Accounts receivable
-------------------
As of June 30, 1999, the Company considers its accounts receivable to be
fully collectible and, as such, there is no allowance for doubtful
accounts.
Inventories
-----------
Inventories are valued at the lower of cost or market using the first-in,
first-out method and consist of parts, finished goods, and collectibles.
Organization costs
------------------
Expenses which are connected directly with the creation of the Company
are accounted for as organization costs and amortized by the use of the
straight-line method over a period of 5 years. Amortization expense for
the nine months ended June 30, 1999 was $450.
F-28
<PAGE>
KANAKARIS COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 1999 and 1998
(Unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
------------------------------------------------------
Goodwill
--------
Goodwill arising from the acquisition of Desience Corporation, as
discussed above, is being amortized on a straight-line basis over 15
years. Amortization expense for the nine months ended June 30, 1999 was
$17,514.
Income taxes
------------
The Company has adopted the Financial Accounting Standards Board
Statement of Financial Accounting Standards No. 109 "Accounting for
Income Taxes," which requires a change from the deferred method to the
asset and liability method of accounting for income taxes. Under the
asset and liability method, deferred income taxes are recognized for the
tax consequences of "temporary differences" by applying enacted statutory
tax rates applicable to future years to differences between the financial
statement carrying amounts and the tax bases of existing assets and
liabilities. Under Statement 109, the effect on deferred taxes of a
change in tax rates is recognized in income in the period that includes
the enactment date. Under the deferred method, deferred taxes are
recognized using the tax rate applicable to the year of the calculation
and are not adjusted for subsequent changes in tax rates. Any available
deferred tax assets arising from net operating loss carryforwards, which
approximate $1,600,000, have been offset by a deferred tax valuation
allowance on the entire amount.
Earnings per share
------------------
Earnings per share are computed using the weighted average of common
shares outstanding as defined by Financial Accounting Standards No. 128,
"Earnings per Share".
New accounting pronouncements
-----------------------------
The Financial Accounting Standard Board has recently issued several new
accounting pronouncements. Statement No. 130, "Reporting Comprehensive
Income" establishes standards for reporting and display of comprehensive
income and its components, and is effective for fiscal years beginning
after December 15, 1997. Statement No. 131, "Disclosures about Segments
of an Enterprise and Related Information" establishes standards for the
way that public business enterprises report information about operating
segments in annual financial statements and requires that those
enterprises report selected information about operating segments in
interim financial reports issued to shareholders. It also establishes
standards for related disclosures about products and services, geographic
areas, and major customers, and is effective for financial statements for
F-29
<PAGE>
KANAKARIS COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 1999 and 1998
(Unaudited)
June 30, 1999 and 1998
(Unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
------------------------------------------------------
New accounting pronouncements (continued)
-----------------------------------------
periods beginning after December 15, 1997. Statement No. 132, "Employers'
Disclosures About Pensions and Other Postretirement Benefits" revises
employers' disclosure requirements about pension and other postretirement
benefit plans and is effective for fiscal years beginning after December
15, 1997. Statement No. 133, "Accounting for Derivative Instruments and
Hedging Activities" establishes accounting and reporting standards for
derivative instruments and related contracts and hedging activities. This
statement is effective for all fiscal quarters and fiscal years beginning
after June 15, 1999. The Company believes that adoption of these
pronouncements will not have a material effect on the Company's financial
position or results of operations.
2. NOTES RECEIVABLE FROM SHAREHOLDERS AND RELATED PARTIES
------------------------------------------------------
Notes receivable from shareholders and related parties consist of the
following:
<TABLE>
<CAPTION>
<S> <C>
Unsecured notes receivable from a shareholder, with interest at 6.625%,
payable beginning June 30, 1998. Principal payments are due beginning
December 31, 1998, with one-fifth of the outstanding amount due each
December 31 until February 26, 2002 when all
outstanding principal and interest is due. $ 56,320
Unsecured notes receivable from a shareholder, with interest at 6.625%,
payable beginning June 30, 1998. Principal payments are due beginning
December 31, 1998, with one-fifth of the outstanding amount due each
December 31 until February 26, 2002 when all outstanding principal
and interest is due. 49,920
Unsecured notes receivable from a related party, with interest at 6.625%,
payable beginning June 30, 1998. Principal payments are due beginning
December 31, 1998, with one-fifth of the outstanding amount due each
December 31 until February 26, 2002 when all
outstanding principal and interest is due. 23,198
F-30
<PAGE>
KANAKARIS COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 1999 and 1998
(Unaudited)
2. NOTES RECEIVABLE FROM SHAREHOLDERS AND RELATED PARTIES (CONTINUED)
------------------------------------------------------------------
Unsecured notes receivable from a related party, with interest at 6.625%,
payable beginning June 30, 1998. Principal payments are due beginning
December 31, 1998, with one-fifth of the outstanding amount due each
December 31 until February 26, 2002 when all
outstanding principal and interest is due. $ 15,680
Unsecured note receivable from a related party, with interest at 8%,
principal and interest payable in five annual installments of $38,250
beginning September 30, 1998. The note is prepaid through
a portion of the year 2000. 103,295
--------------
Total notes receivable 248,413
Less current portion (37,660)
$ 210,753
==============
The aggregate amount of notes receivable maturing in each of the three
years subsequent to June 30, 1999 are as follows:
For the year ending June 30,
2000 $ 37,660
2001 74,530
2002 136,223
--------------
$ 248,413
==============
</TABLE>
3. NOTE RECEIVABLE
---------------
As a result of certain actions by its former securities attorney, the
Company entered into a settlement agreement with the attorney and
received a $250,000 non-interest bearing promissory note dated February
3, 1999. The note is payable in monthly installments of $20,833
commencing February 15, 1999. The note is currently in default and the
Company has recorded an allowance for doubtful accounts on the entire
amount of the note as of June 30, 1999. The Company is negotiating a
further financial settlement concerning the actions of the attorney and
others and the Company intends to vigorously pursue its claims.
F-31
<PAGE>
KANAKARIS COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 1999 and 1998
(Unaudited)
4. NOTE PAYABLE
------------
The Company had a note payable in the original amount of $25,000 dated
June 25, 1998. Interest accrued at 5% per month which is due and payable
on the retirement of the loan. The note, including interest, was settled
in full for $26,607.
5. PREFERRED STOCK
---------------
The Company has authorized the issuance of 5,000,000 shares of preferred
stock. The 1,000,000 shares of preferred stock issued in connection with
the Big Tex business combination discussed above are convertible to
common stock. The preferred stock also has 3 to 1 voting rights over all
common stock.
6. COMMITMENTS AND CONTINGENCIES
-----------------------------
Leases
------
In October of 1998 the Company, as a subtenant, entered into a sublease
agreement with the existing tenant commencing on October 15, 1998. The
term of the sublease is through and including the end of the original
term of the tenant's lease of the premises, which is August 20, 2000. The
monthly rent on this sublease is $1,512 through August 20, 1999 at which
time it will increase to $1,579 a month until August 20, 2000. Future
annual minimum rentals under this sublease agreement are as follows:
For year ending June 30,
2000 $ 18,814
2001 3,159
-------------
$ 21,973
=============
Legal actions
-------------
In the normal course of business, there may be various legal actions and
proceedings pending which seek damages against the Company. Management
believes that the amount, if any, that may result from these claims, will
not have a material adverse effect on the financial statements.
F-32
<PAGE>
KANAKARIS COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 1999 and 1998
(Unaudited)
6. COMMITMENTS AND CONTINGENCIES (CONTINUED)
-----------------------------------------
Securities and Exchange Commission Informal Inquiry
---------------------------------------------------
In August of 1998, the Securities and Exchange Commission ("SEC") began
an informal inquiry relating to the sale of shares of the Company in 1996
and 1997 to the former shareholders of Kanakaris Internetworks, Inc. (See
Note 1 above). Approximately 6,000,000 shares were sold to investors.
Named in the inquiry as defendants are the Company, its CEO and former
sales manager. Settlement negotiations have been concluded with the SEC
effective June 9, 1999. The Company, its executives and the SEC have
accepted the following settlement: without admitting or denying any wrong
doing, the Company and its executives will consent to a permanent
injunction enjoining them from engaging in acts which constitute, among
other things violations of Section 17 (a)1, 2 or 3 of the Securities Act
of 1933. Company counsel advises that the proposed settlement does not
carry any civil penalties against the Company.
Year 2000 Issues
----------------
The Company is aware of the issues associated with the programming code
in existing computer systems as the millennium (Year 2000) approaches.
The "Year 2000" problem is pervasive and complex as virtually every
computer operation will be affected in some way by the rollover of the
two-digit year value to 00. The issue is whether computer systems will
properly recognize date-sensitive information when the year changes to
2000. Systems that do not properly recognize such information could
generate erroneous data or cause a system to fail.
The Company uses a standard off the shelf accounting software package for
all of its accounting requirements. Management has contacted the software
vendor and determined that the accounting software is Microsoft based and
management continually monitors the Year 2000 status of each software.
Management has verified Year 2000 status with its primary vendors and has
not identified any Year 2000 issues with those vendors. Costs of
investigating internal and external Year 2000 compliance issues have not
been material to date. As a result, management believes that the effect
of investigating and resolving Year 2000 compliance issues on the Company
will not have a material effect on the Company's future financial
position or results of operations.
In addition to the effect of Year 2000 issues on the Company's accounting
and management systems, Year 2000 issues may affect the Company's product
as the products are primarily computer related. The Company's products
have been developed and tested with regard to Year 2000 compliance. All
products were deemed to be Year 2000 compliant. The costs of such
development and testing and validating were minimal and absorbed as part
of the Company's normal quality control procedures.
F-33
<PAGE>
KANAKARIS COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 1999 and 1998
(Unaudited)
6. COMMITMENTS AND CONTINGENCIES (CONTINUED)
-----------------------------------------
Letter of intent
----------------
In January of 1999, the Company entered into a letter of intent to
develop, design, and maintain two real estate web sites: (1) www.brea.com
(bank real estate actions) is intended to be used to sell bank owned real
estate via the Internet in an auction like atmosphere and (2)
www.fsbomls.com (for sale by owner multiple listing service) is intended
to enable real estate owners to market and sell their property without
the services of a professional real estate broker. The two parties intend
to sign a formal agreement and are still in negotiations as of the date
of this report.
License agreement
-----------------
In February of 1999, the Company entered into a license agreement
("Agreement") with ION Systems, Inc. ("ION"), a Missouri corporation. The
Agreement is through December 31, 2004, and thereafter will be renewed
automatically for additional terms of five years each. Under the terms of
the Agreement, ION grants to the Company a license to use its software
products, which enable the secure downloading and viewing of web sites in
connection with the Company's web sites. The parties agreed that the
software may be used solely for the publishing, displaying, promoting,
marketing, and selling for a fee certain specified book categories as
well as products or services listed in the books published. The
aforementioned activities are meant to be offered directly to customers
and end users using the facilities of a web site. No geographic or
territorial restrictions apply to the use of the software. At the option
of the Company, until August 30, 1999, the license shall be exclusive for
a license fee of $1,000,000. The agreed upon fee for each book conversion
performed by ION will be $100, and the royalties for each book sale and
product sale shall be 12% and 5%, respectively, of the gross revenue.
Furthermore, ION shall have the right to a one time purchase of 100,000
shares of the Company's common stock at a price of $0.30 per share at any
time between June 1, 1999 and December 31, 2005 (see note 10).
Service agreements
------------------
On April 20, 1999, the Company entered into a one year service agreement
(effective June 15, 1999) with GEO Publishing, Inc. (GEO), whereby GEO
will provide their "emblazed" technology for their web page, as well as
weekly assistance in live broadcasting over the internet. In
consideration for GEO's services, the Company will provide five hours of
audio content weekly and pay a monthly fee of $7,500. GEO will pay the
Company 50% of any net revenues actually received by GEO in connection
with sales placed at the Company's broadcast page. As of June 30, 1999,
services had not commenced (see note 10).
F-34
<PAGE>
KANAKARIS COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 1999 and 1998
(Unaudited)
6. COMMITMENTS AND CONTINGENCIES (CONTINUED)
-----------------------------------------
On April 15, 1999, the Company entered into a six month agreement with
Wall Street Advancement, Inc. (WSA), whereby WSA would locate and
introduce the Company to fund managers, analysts, selected retail and
institutional brokers and introduce the Company to investment writers.
The Company will provide WSA with a three year option to purchase 300,000
shares of Rule 144 stock with "piggy back" registration rights at three
dollars and fifty cents per share. The first 100,000 shares are due upon
signing, the next 100,000 shares are due in the third month, and the
final 100,000 shares are due in the fifth month. The Company also agreed
to allocate thirty thousand dollars of cash as well as sixty thousand
shares of Rule 144 stock with "piggy back" registration rights to Wall
Street Advancement, Inc. As of June 30, 1999, no services had been
provided (see note 10).
Internet data center services agreement
---------------------------------------
On June 27, 1999, the Company entered into an agreement with Exodus
Communications, Inc. to provide the Company with internet data services.
Under the agreement, Exodus Communications, Inc. will perform services
under a discounted pricing agreement.
Letter of intent
----------------
On June 28, 1999, the Company entered into a letter of intent with RH
Investment Corporation, as an advisor, to structure and formalize a
proposed offering of the Company's securities pursuant to the SB-2
registration statement filed with the Securities and Exchange Commission
as previously discussed. Under the letter of intent, the Company and
advisor intend and agree to enter into (i) a contractual financial
consulting agreement, (ii) a strategic alliance wherein the advisor will
assist the Company in funding its ongoing capital requirements, (iii) an
agreement to provide the Company with investment banking services
relating to financial planning and capital sourcing and (iv) seek to form
a non-exclusive underwriting syndicate for the Company's SB-2 offering.
7. PRIVATE PLACEMENTS
------------------
In December of 1998 and February of 1999, the Company completed two
offerings under the Securities and Exchange Commission Regulation D, Rule
504. In the first offering, 2,892,326 shares were sold to two investors
at $.06 per share for a total of $173,540. In the second offering 475,000
shares were sold to one investor at $.50 per share for a total of
$237,500. On June 17, 1999 the Company initiated a Regulation D, Rule 504
offering, but on July 23, 1999, the Company's Board of Directors voted to
cancel the June 17 offering.
The Company has also issued securities under Regulation D, Rule 506, to
various investors at prices ranging from $.32 to $.50.
F-35
<PAGE>
KANAKARIS COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 1999 and 1998
(Unaudited)
8. REVOLVING LINE-OF-CREDIT
------------------------
In February of 1999, the Company signed a memorandum of understanding
("Memorandum") with Alliance Equities Inc. ("Alliance")" a Florida-based
venture capital firm. Under the terms of the memorandum, Alliance will
make available a $5 million revolving line-of-credit in order to enable
the Company to pursue developing internet opportunities, commerce
development, and a possible stock buy back program. The two parties
agreed that the indebtedness may be paid back by the Company either with
cash or the issuance of stock. Furthermore, the two parties agreed that
Alliance will continue its ongoing consulting services to the Company
including, but not limited to, strategic growth advice and introductions,
marketing advice and business ideas. Alliance will be compensated for
these services at the option of the Company either in cash or through the
issuance of stock or credit towards the purchase of stock. The
line-of-credit was increased to $7 million on April 7, 1999. As of June
30, 1999, the outstanding principal balance was $150,000 (see note 10).
9. RELATED PARTY TRANSACTIONS
--------------------------
As discussed in note 2, the Company has amounts receivable from
shareholders.
In addition to the 4% royalty discussed in note 1, the Company has a 2
1/2% royalty, relating to the revenues of the subsidiary, payable to an
officer/shareholder. The royalty payable at June 30, 1999 is $38,762, and
the royalty expense for the nine months is $18,009.
10. SUBSEQUENT EVENTS
-----------------
Internet data services agreements
---------------------------------
On September 9, 1999, the Company entered into an agreement with
Microsoft Corporation whereby Microsoft will promote certain of the
Company's web sites in consideration for the Company's promotion of
specified Microsoft Windows media technology on the Company's web sites.
On August 23, 1999, the Company entered into a one year agreement with
ScreamingMedia, Inc. to receive daily customized content update for the
Company's web site. Under the terms of this agreement, the Company will
pay ScreamingMedia $12,000 with $3,000 payable on September 1, 1999
followed by twelve monthly installments of $750.
F-36
<PAGE>
KANAKARIS COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 1999 and 1998
(Unaudited)
10. SUBSEQUENT EVENTS (CONTINUED)
-----------------------------
Stock option plan
-----------------
On January 6, 1999, the Company's Board of Directors unanimously agreed
to adopt a stock option plan. The plan authorizes 2,750,000 shares to be
reserved for the granting of options to employees, officers and
non-employee directors. The Board of Directors has granted would grant
qualified options of 1,050,000 shares at $.18 per share expiring through
January 6, 2009, and non-qualified options of 1,300,000 shares at $.25
per share expiring on January 6, 2009. The plan is currently pending
shareholder approval.
License agreement
-----------------
Although the Company continues to use ION Systems, Inc. software, the
parties have mutually agreed not to exercise the agreement dated February
18, 1999 (see note 6.)
Service agreements
------------------
The Company is in the process of re-negotiating the terms of the service
contract with GEO Publishing, Inc. (see note 6).
In July of 1999, there was a verbal conversation with representatives of
the Wall Street Advancement group wherein, the Company verbally requested
to have the service agreement placed on hold (see note 6).
Common stock offering
---------------------
On August 10, 1999, the Company submitted a registration statement under
Form SB-2 whereby the Company is offering 5,000,000 shares of common
stock and common stock options.
Preferred stock
---------------
In July, the board of directors approved a resolution to change the
voting rights from 3 to 1 to a 20 to 1 voting preference. This change
will need to be modified by a majority of the common stockholders (see
note 5).
F-37
<PAGE>
KANAKARIS COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 1999 and 1998
(Unaudited)
10. SUBSEQUENT EVENTS (CONTINUED)
-----------------------------
Convertible debt
----------------
In order to provide working capital and financing for the Company's
expansion, on August 5, 1999, the Company entered into an agreement with
Alliance Equities ("the purchaser") whereby the purchaser will acquire up
to $1.2 million of the Company's 10% convertible subordinated debentures,
due August 4, 2000. Under the agreement the purchaser will make the funds
available to the Company and the Company will draw funds and issue
Debentures to the Purchaser as the Company needs the funding.
The debentures and the Company's common stock upon conversion of the
debentures have not been registered; therefore, the debentures or the
shares of stock must be registered before they can be subsequently
resold.
The purchaser may convert the debenture and accrued interest to common
stock at a conversion price of $0.60 per share ("fixed conversion price")
at any time after the issuance date or automatically at the earlier of
(i) an effective date of an IPO where the Company raises at least
$5,000,000 from the sale of common stock or (ii) a quote or list date on
a natural exchange or NASDAQ with a bid price of at least $5.00.
The debenture contains a contingency provision whereby, if the Company
issues common stock at a price less than both the fixed conversion price
and the then market price on the date of issuance, the fixed conversion
price shall be adjusted as stipulated in the agreement. Pursuant to the
rules and regulations of the Securities and Exchange Commission, the
Company will expense as financing costs any excess of the fair market
value of the common stock at the debenture issuance date over the fixed
conversion price. There is no amortization period for these financing
costs since the debentures are convertible immediately upon issuance.
As of September 24, 1999, the Company had issued $520,000 of these
convertible debentures. Of this amount, $150,000 represented amounts
previously outstanding under the line of credit as of June 30, 1999 (see
note 8.)
F-38
<PAGE>
INDEPENDENT AUDITORS' REPORT
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS
OF KANAKARIS COMMUNICATIONS, INC.
(FORMERLY DESIENCE CORPORATION)
We have audited the accompanying balance sheet of KANAKARIS COMMUNICATIONS, INC.
(FORMERLY DESIENCE CORPORATION), as of September 30, 1997, 1996, and 1995 and
the related statements of operations and accumulated 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
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of KANAKARIS COMMUNICATIONS, INC.
(FORMERLY DESIENCE CORPORATION) as of September 30, 1997, 1996, and 1995, and
the results of its operations and its cash flows for the years then ended in
conformity with generally accepted accounting principles.
/s/ Tanner & Co.
Salt Lake City, Utah
January 14, 1998
F-39
<PAGE>
<TABLE>
KANAKARIS COMMUNICATIONS, INC.
BALANCE SHEET
SEPTEMBER 30,
- --------------------------------------------------------------------------------------------
<CAPTION>
ASSETS 1997 1996 1995
------ ---------------------------------------
<S> <C> <C> <C>
Current assets:
Cash $ 60,930 $ 8,489 $ 3,597
Accounts receivable 56,774 81,110 29,053
Inventories 8,688 17,430 14,348
Prepaid expenses 11,846 6,539 1,374
---------------------------------------
Total current assets 138,238 113,568 48,372
Property and equipment, net 9,838 12,585 17,655
Related party advances - 387,000 380,000
Other assets 700 3,000 3,000
---------------------------------------
Total assets $ 148,776 $ 516,153 $ 449,027
=======================================
- --------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDER'S DEFICIT
-------------------------------------
Current liabilities:
Accounts payable $ 389,792 $ 416,525 $ 437,708
Current portion of long-term debt - 70,629 72,427
Accrued payroll - 331,846 82
Accrued expenses 9,729 348 276,635
Deferred revenue 68,598 187,526 118,761
---------------------------------------
Total current liabilities 468,119 1,006,874 905,613
---------------------------------------
Commitments and contingencies - - -
Stockholder's deficit:
Common stock, $.01 par value, 5,000,000
shares authorized; 10,000 shares
issued and outstanding 100 100 100
Accumulated deficit (319,443) (490,821) (456,686)
---------------------------------------
Total stockholder's deficit (319,343) (490,721) (456,586)
---------------------------------------
Total liabilities and
stockholder's deficit $ 148,776 $ 516,153 $ 449,027
=======================================
- --------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
</TABLE>
F-40
<PAGE>
<TABLE>
KANAKARIS COMMUNICATIONS, INC.
STATEMENT OF OPERATIONS AND ACCUMULATED DEFICIT
YEARS ENDED SEPTEMBER 30,
- -------------------------------------------------------------------------------------------------
<CAPTION>
1997 1996 1995
--------------------------------------------
<S> <C> <C> <C>
Revenue:
Net sales $ 1,260,979 $ 1,193,084 $ 1,688,832
Installation 79,936 76,678 135,042
Freight 68,493 54,976 104,966
--------------------------------------------
Total revenue 1,409,408 1,324,738 1,928,840
--------------------------------------------
Cost and expenses:
Cost of sales 879,821 807,837 1,157,810
General and administrative 421,093 535,097 658,374
--------------------------------------------
1,300,914 1,342,934 1,816,184
--------------------------------------------
Income (loss) from operations 108,494 (18,196) 112,656
Other income (expense):
Interest expense (6,316) (15,139) (38,699)
Forgiveness of payables 70,000 - -
--------------------------------------------
Income (loss) before income taxes 172,178 (33,335) 73,957
Provision for income taxes - current (800) (800) (800)
--------------------------------------------
Net income (loss) 171,378 (34,135) 73,157
Accumulated deficit beginning of year (490,821) (456,686) (529,843)
--------------------------------------------
Accumulated deficit end of year $ (319,443) $ (490,821) $ (456,686)
============================================
Earnings (loss) per common and common
equivalent share $ 17.14 $ (3.41) $ 7.32
============================================
Weighted average number of common and
common equivalent shares 10,000 10,000 10,000
============================================
- -------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
</TABLE>
F-41
<PAGE>
<TABLE>
KANAKARIS COMMUNICATIONS, INC.
STATEMENT OF CASH FLOWS
YEARS ENDED SEPTEMBER 30,
- -----------------------------------------------------------------------------------------------------
<CAPTION>
1997 1996 1995
----------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 171,378 $ (34,135) $ 73,157
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation 3,405 5,070 7,600
Loss on disposal of property and
equipment 92 - -
Decrease (increase) in:
Accounts receivable 24,336 (52,057) 121,386
Inventories 8,742 (3,082) 8,683
Prepaid expenses (5,307) (5,165) 1,119
Other assets 2,300 - -
Increase (decrease) in:
Accounts payable 143,205 (21,183) (101,212)
Deferred revenue (118,928) 68,765 32,648
Accrued payroll (122,877) 55,211 64,136
Accrued liabilities 9,383 266 (24,138)
----------------------------------------------
Net cash provided by
operating activities 115,729 13,690 183,379
----------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES-
purchase of property and equipment (750) - -
----------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Related party advances 8,091 (7,000) (64,000)
Payment of notes payable (70,629) (1,798) (123,376)
----------------------------------------------
Net cash used in
financing activities (62,538) (8,798) (187,376)
----------------------------------------------
Net increase (decrease) in cash 52,441 4,892 (3,997)
Cash, beginning of year 8,489 3,597 7,594
----------------------------------------------
Cash, end of year $ 60,930 $ 8,489 $ 3,597
==============================================
- -----------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
</TABLE>
F-42
<PAGE>
KANAKARIS COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1997, 1996, AND 1995
- --------------------------------------------------------------------------------
1. SUMMARY OF ORGANIZATION AND NATURE OF BUSINESS
SIGNIFICANT Kanakaris Communications, Inc. (formerly known as Desience
ACCOUNTING Corporation) was incorporated in California in 1984. The
POLICIES Company changed its name to Kanakaris Communications, Inc.
from Desience Corporation on October 20, 1997. See note 12.
The Company designs and installs trading desks for the
investment industry. The Company has supplied Operation
Console (OPCON) modular systems to data and network centers
worldwide. The Company assists in the planning process by
providing a blueprint floor plan of OPCON layouts and
oversees the product manufacturing and the installation
processes.
CASH EQUIVALENTS
For purposes of the statement of cash flows, cash includes
all cash and investments with original maturities to the
Company of three months or less.
INVENTORIES
Inventories consisting of parts and finished goods are
recorded at the lower of cost or market, cost being
determined on a first-in, first-out (FIFO) method.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are recorded at cost, less
accumulated depreciation. Depreciation and amortization on
capital leases and property, plant and equipment is
determined using the straight-line method over the estimated
useful lives of the assets or terms of the lease.
Expenditures for maintenance and repairs are expensed when
incurred and betterments are capitalized. Gains and losses
on sale of property, plant and equipment are reflected in
net income.
REVENUE RECOGNITION
Revenue is recognized upon shipment of product or
performance of services.
INCOME TAXES
Deferred income taxes are provided in amounts sufficient to
give effect to temporary differences between financial and
tax reporting, principally related to depreciation.
EARNINGS PER SHARE
Earnings per share are based upon the weighted average of
the 10,000 shares outstanding for each year.
- --------------------------------------------------------------------------------
F-43
<PAGE>
KANAKARIS COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
Continued
- --------------------------------------------------------------------------------
1. SUMMARY OF CONCENTRATION OF CREDIT RISK
SIGNIFICANT Financial instruments which potentially subject the Company
ACCOUNTING to concentration of credit risk consist primarily of trade
POLICIES receivables. In the normal course of business, the Company
Continued provides credit terms to its customers. Accordingly, the
Company performs ongoing credit evaluations of its customers
and maintains allowances for possible losses which, when
realized, have been within the range of management's
expectations.
The Company maintains its cash in bank deposit accounts
which, at times, may exceed federally insured limits. The
Company has not experienced any losses in such account and
believes it is not exposed to any significant credit risk on
cash and cash equivalents.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results
could differ from those estimates.
2. PROPERTY AND Property and equipment consist of the following at cost:
EQUIPMENT
SEPTEMBER 30,
--------------------------------------------
1997 1996 1995
--------------------------------------------
Leasehold improvements $ 750 $ 15,523 $ 15,523
Furniture and fixtures 272,796 276,472 276,472
--------------------------------------------
273,546 291,995 291,995
Less accumulated
depreciation and
amortization (263,708) (279,410) (274,340)
--------------------------------------------
$ 9,838 $ 12,585 $ 17,655
============================================
- --------------------------------------------------------------------------------
F-44
<PAGE>
KANAKARIS COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
Continued
- --------------------------------------------------------------------------------
3. LONG-TERM Long-term debt consists of the following:
DEBT
SEPTEMBER 30,
---------------------------------------
1997 1996 1995
---------------------------------------
8% note payable
to a company
requiring monthly
payments of
$7,513 including
interest. This
note was not paid
in accordance
with its terms,
secured by
security
agreement $ - $ 70,629 $ 72,427
---------------------------------------
Less current portion - (70,629) (72,427)
---------------------------------------
Long-term debt $ - $ - $ -
=======================================
4. RELATED The Company had amounts due from the stockholder for the
PARTY years ending September 30, 1996 and 1995. As a result of the
TRANSACTIONS death of the stockholder in June of 1997, the amounts of
stockholder advances were eliminated by offsetting the
amount due with certain liabilities. The liabilities
included approximately $6,000 of business/personal expenses
of the stockholder, $79,000 of special borrowings (notes
payable), $85,000 of an old note payable, and approximately
$209,000 of accrued compensation which an employee has agree
to forego.
Included in general and administration expenses is $52,500,
$53,000, and $55,000 for the years ending September 30,
1997, 1996, and 1995, respectively, for services provided by
the stockholder.
- --------------------------------------------------------------------------------
F-45
<PAGE>
KANAKARIS COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
Continued
- --------------------------------------------------------------------------------
5. INCOME The current provision for income taxes represents federal
TAXES income taxes and includes taxes withheld on royalties by
foreign countries.
The provision for income taxes is different than amounts
which would be provided by applying the statutory federal
income tax rate to income before provision for income taxes
for the following reasons:
SEPTEMBER 30,
--------------------------------------------
1997 1996 1995
--------------------------------------------
Federal income tax (benefit)
provision at statutory rate $ 56,000 $ (11,000) $ 24,000
State taxes 12,800 (1,200) 5,800
Change in valuation allowance (68,000) 13,000 (29,000)
Other
--------------------------------------------
$ 800 $ 800 $ 800
============================================
SEPTEMBER 30,
--------------------------------------------
1997 1996 1995
--------------------------------------------
Net operating loss $ 128,000 $ 796,000 $ 183,000
Valuation allowance (128,000) (196,000) (183,000)
Accrued payroll - - -
--------------------------------------------
$ - $ - $ -
============================================
The Company has net operating loss carryover of
approximately $318,000, which is available to offset future
income taxes. They begin to expire in 2006. Since
substantial changes in the Company's ownership have
occurred, there will be an annual limitation of the amount
of NOL carryforwards which can be utilized.
- --------------------------------------------------------------------------------
F-46
<PAGE>
KANAKARIS COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
Continued
- --------------------------------------------------------------------------------
6. PREFERRED The Company is authorized to issued up to 1,000,000 shares
STOCK of $.01 par value preferred stock. The preferred stock can
be issued under various series and terms. There was no
preferred stock issued and outstanding at September 30,
1997, 1996, and 1995.
7. FORGIVENESS During 1997, an officer of the Company forgave the Company
OF PAYABLES of $70,000 of accrued salary payable from a previous year.
8. SUPPLEMENTAL During the year ended September 30, 1997:
CASH FLOW
INFORMATION o The Company reduced related party advances by $378,909,
accounts payable by $5,938, notes payable by $164,000,
and accrued payroll by $208,969.
YEAR ENDED
SEPTEMBER 30,
-----------------------------------------
1997 1996 1995
-----------------------------------------
Interest $ 6,316 $ 15,139 $ 38,699
=========================================
Income taxes $ 800 $ 800 $ 800
=========================================
9. FAIR VALUE OF None of the Company's financial instruments are held for
FINANCIAL trading purposes. The Company estimates that the fair value
INSTRUMENTS of all financial instruments at September 30, 1997, does not
differ materially from the aggregate carrying values of its
financial instruments recorded in the accompanying balance
sheet. The estimated fair value amounts have been determined
by the Company using available market information and
appropriate valuation methodologies. Considerable judgement
is necessarily required in interpreting market data to
develop the estimates of fair value, and, accordingly, the
estimates are not necessarily indicative of the amounts that
the Company could realize in a current market exchange.
- --------------------------------------------------------------------------------
F-47
<PAGE>
KANAKARIS COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
Continued
- --------------------------------------------------------------------------------
10. COMMITMENTS In the normal course of business, there may be various other
AND legal actions and proceedings pending which seek damages
CONTINGENCIES against the Company. Management believes that the amount, if
any, that may result from these claims, will not have a
material adverse effect on the financial statements.
11. SIGNIFICANT The Company purchases materials and inventory from two
SUPPLIERS significant suppliers. Purchases from these suppliers are as
follows:
YEAR SUPPLIER A SUPPLIER B
---- ---------------------------------
1997 $ 262,233 $ 303,714
1996 $ 299,173 $ 234,875
1995 $ 542,772 $ 238,235
12. SUBSEQUENT NAME CHANGE
EVENTS On October 10, 1997, the Company entered into an agreement
with Kanakaris Internet Works where all of the Company's
shares were exchanged for a 4% royalty on gross sales that
the Company has in perpetuity. The Company became a
wholly-owned subsidiary of Kanakaris Internet Works. The
Company, on October 20, 1997, changed its name to Kanakaris
Communications, Inc. from Desience Corporation.
In addition, on November 25, 1997, the Company's new parent
entered into an agreement where it was acquired by Big Tex
Enterprises. As part of this agreement, Big Tex Enterprises
changed its name to Kanakaris Communications, Inc.
- --------------------------------------------------------------------------------
F-48
<PAGE>
You should rely only on the information contained in this document or to which
we have referred you. We have not authorized anyone to provide you with
information that is different. This document may be used only when it is legal
to sell these securities. The information in this document may only be accurate
on the date of this document.
------------------------
TABLE OF CONTENTS
PAGE
----
Risk Factors............................................................... 2
Use of Proceeds............................................................ 9
Price Range of Our Common Stock............................................ 9
Dividend Policy............................................................ 9
Capitalization............................................................. 9
Selected Consolidated Financial Data....................................... 10
Management's Discussion and Analysis of Financial Condition and
Results of Operations.................................................... 11
Business................................................................... 14
Management................................................................. 25
Resales of Shares Covered by this
Prospectus............................................................... 28
Principal and Selling Security Holders..................................... 29
Plan of Distribution....................................................... 30
Certain Relationships and Related Transactions............................. 31
Description of Capital Stock............................................... 33
Legal Matters.............................................................. 37
Experts.................................................................... 37
Change in Independent Accountants.......................................... 37
Where You Can Find More Information........................................ 38
Index to Financial Statements.............................................. F-1
------------------------
1,783,334 Shares
KANAKARIS
COMMUNICATIONS, INC.
COMMON STOCK
-----------------
PROSPECTUS
-----------------
, 1999
<PAGE>
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Our Articles of Incorporation, as amended, do not expressly limit the
liability of our company's directors for monetary damages. However, our Bylaws
provide that every person who was or is a party or is threatened to be made a
party to or is involved in any action, suit or proceeding, whether civil,
criminal, administrative or investigative, by reason of the fact that he or a
person of whom he is the legal representative is or was a director or officer of
our company or is or was serving at the request of our company or for its
benefit as a director or officer of another corporation, or as our company's
representative in a partnership, joint venture, trust or other enterprise, shall
be indemnified and held harmless to the fullest extent legally permissible under
the General Corporation Law of the State of Nevada from time to time against all
expenses, liability and loss (including attorneys' fees, judgments, fines and
amounts paid or to be paid in settlement) reasonably incurred or suffered by him
in connection therewith.
Our Bylaws provide that the expenses of officers and directors incurred
in defending a civil or criminal action, suit or proceeding must be paid by our
company as they are incurred and in advance of the final disposition of the
action, suit or proceeding upon receipt of an undertaking by or on behalf of the
director or officer to repay the amount if it is ultimately determined by a
court of competent jurisdiction that he is not entitled to be indemnified by our
company. Such right of indemnification is a contract right that is not exclusive
of any other right such directors, officers or representatives may have,
including rights under any bylaw, agreement, vote of shareholders, provision of
law and any other rights.
Our Bylaws provide further that our Board of Directors may cause our
company to purchase and maintain insurance on behalf of any person who is or was
a director or officer of our company, or is or was serving at the request of our
company as a director or officer of another corporation, or as its
representative in a partnership, joint venture, trust or other enterprise
against any liability asserted against such person and incurred in any such
capacity or arising out of such status, whether or not our company would have
the power to indemnify such person.
Certain of the Selling Security Holders and our company each have
agreed to indemnify the other and their respective officers, directors and other
controlling persons against certain liabilities in connection with this
registration, including liabilities under the Securities Act of 1933, and to
contribute to payments such persons may be required to make in respect thereof.
II-1
<PAGE>
ITEM 25. OTHER EXPENSES OF ISSUANCES AND DISTRIBUTION.
The following table sets forth the estimated expenses in connection with the
offering described in this Registration Statement:
SEC registration fee.............................. $ 1,034
NASD filing fee................................... 0
Printing and engraving expenses................... *
Legal fees and expenses........................... *
Blue Sky fees and expenses........................ *
Accounting fees and expenses...................... *
Miscellaneous..................................... *
----------
Total....................................... $ *
==========
- ------------------
* To be completed by amendment.
All of the above expenses will be paid by the Registrant.
II-2
<PAGE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
In December 1998, the Registrant issued 2,892,336 shares of common
stock to two accredited investors in a private offering in exchange for $189,400
in cash.
In January 1999, the Registrant issued 200,000 shares of common stock
to one consultant in a private offering in exchange for services rendered with
an estimated value of $84,000.
In February 1999, the Registrant issued 475,000 shares of common stock
to one accredited investor in a private offering in exchange for $237,500 in
cash.
In February 1999, the Registrant issued 100,000 shares of common stock
to one consultant in a private offering in connection with the acquisition of
the name Netbook.com with an estimated value of $106,000.
In March 1999, the Registrant issued 150,000 shares of common stock to
one consultant in a private offering in exchange for services rendered with an
estimated value of $175,500.
In April 1999, the Registrant issued 635,000 shares of common stock to
two accredited investors in a private offering in exchange for $317,500 in cash.
In April 1999, the Registrant issued 35,000 shares of common stock to
one consultant in a private offering in exchange for services rendered with an
estimated value of $91,875.
In April 1999, the Registrant issued an aggregate of 416,100 shares of
common stock to five consultants in a private offering, 406,000 shares of which
were issued in exchange for services rendered with an estimated value of
$583,625 and 10,100 shares of which were issued in satisfaction of certain
accounts payable by the Registrant in the amount of $10,000.
In June 1999, the Registrant issued an aggregate of 345,000 shares of
common stock to five consultants in a private offering in exchange for services
rendered with an estimated value of $452,640.
In July 1999, the Registrant issued 50,000 shares of common stock in a
private offering to one consultant in exchange for services rendered with an
estimated value of $53,125.
In August 1999, the Registrant issued an aggregate of 287,500 shares of
common stock to six consultants in private offerings in exchange for services
rendered with an estimated value of $305,469.
In August 1999, the Registrant issued 255,000 shares of common stock in
a private offering to one accredited investor in exchange for $100,000.
In October 1999, the Registrant issued 25,000 shares of common stock in
a private offering to one consultant in exchange for services rendered with an
estimated value of $18,750.
On November 1, 1999, the Registrant issued 1,000,000 shares of common
stock in a private offering to one consultant in exchange for services rendered
with an estimated value of $750,000.
Exemption from the registration provisions of the Securities Act of
1933 for the transactions described above is claimed under Section 4(2) of the
Securities Act of 1933, among others, on the basis that such transactions did
not involve any public offering and the purchasers were sophisticated with
access to the kind of information registration would provide.
II-3
<PAGE>
<TABLE>
<CAPTION>
ITEM 27. EXHIBITS.
EXHIBIT NO. DESCRIPTION
----------- -----------
<S> <C>
3.1................................ Articles of Incorporation of the Registrant filed with the
Nevada Secretary of State on November 1, 1991*
3.2................................ Certificate of Amendment of Articles of Incorporation of
the Registrant filed with the Nevada Secretary of State on
June 26, 1997*
3.3................................ Certificate of Amendment of Articles of Incorporation of
the Registrant filed with the Nevada Secretary of State on
November 26, 1997*
3.4................................ Certificate of Amendment of Articles of
Incorporation of the Registrant filed with the
Nevada Secretary of State on March 3, 1999*
3.5................................ Certificate of Designation of Class A Convertible
Preferred Stock of the Registrant filed with the Nevada
Secretary of State on March 9, 1999*
3.6................................ By-Laws of the Registrant*
4.1................................ Specimen Common Stock Certificate
4.2................................ Kanakaris Communications, Inc. 1999 Stock Incentive Plan
4.3................................ Form of Qualified Stock Option Agreement
4.4................................ Form of Non-Qualified Stock Option Agreement
4.5................................ Debenture Purchase Agreement dated as of August 5, 1999
between Alliance Equities and the Registrant**
4.6................................ Debenture Purchase Agreement dated as of September 29, 1999
between the Purchaser named therein and the Registrant
4.7................................ Kanakaris Communications, Inc. 10% Convertible Subordinated
Debenture due August 4, 2000 made by the Registrant in
favor of Alliance Equities**
4.8................................ Kanakaris Communications, Inc. 10% Convertible Subordinated
Debenture due September 29, 2000 made by the Registrant
in favor of the Payee named therein
4.9................................ Stock Escrow and Security Agreement dated as of November 1,
1999 between the Registrant, Owen Naccarato and the Holder
named therein
4.10............................... Registration Rights Agreement dated as of August 5, 1999
by and between Alliance Equities and the Registrant**
4.11............................... Registration Rights Agreement dated as of September 29, 1999
by and between the Registrant and the Purchaser named therein
5.1................................ Opinion of Rutan & Tucker, LLP***
II-4
<PAGE>
10.1............................... Stock Purchase Agreement dated as of October 10, 1997 by
and between Christel H. Uttenbogaart and Kanakaris
InternetWorks, Inc.
10.2............................... Acquisition Agreement dated as of November 25, 1997 between
Big Tex Enterprises, Inc. and Kanakaris InternetWorks, Inc.
10.3............................... Windows Media (TM) Technology Promotion Agreement dated
February 18, 1999 between Microsoft Corporation and the
Registrant
10.4............................... GEO Publishing, Inc. WebRadio(TM) Webcasting Service
Agreement - Live 24/7 Audio Streaming dated June 15,
1999 between GEO Publishing Inc. and the Registrant
10.5............................... Sublease Agreement dated as of October 8, 1999 by and between
Belfiore-Fitzgerald and the Registrant
10.6............................... License Agreement dated as of February 18, 1999 between the
Registrant and ION Systems, Inc.
10.7............................... First Amendment to License Agreement dated effective as of
March 22, 1999 by and between the Registrant and ION
Systems, Inc.
10.8............................... Agreement dated October 21, 1999 between eConnect and the
Registrant
10.9............................... Memorandum of Understanding dated November 1, 1999 by and
between SyCoNet.com Inc. and the Registrant
10.10.............................. Custom Content Service Agreement dated August 23, 1999 between
ScreamingMedia.Net, Inc. and the Registrant
10.11.............................. On-Line Classifieds/On-Line Auctions/On-Line Personals Internet
Content Provider Agreement dated effective August 1, 1999
between InXsys Broadcast Networks, Inc. and the Registrant
10.12.............................. Memorandum of Understanding dated February 25, 1999 between
the Registrant and Alliance Equities
10.13.............................. Memorandum of Understanding dated April 7, 1999 between the
Registrant and Alliance Equities
10.14.............................. Promissory Note dated May 19, 1997 made by Branch Lotspeich
in favor of Kanakaris InternetWorks, Inc.
10.15.............................. Promissory Note dated February 27, 1997 made by David Valenti
in favor of Kanakaris InternetWorks, Inc.
10.16.............................. Promissory Note dated February 26, 1997 made by Alex Kanakaris
in favor of Kanakaris InternetWorks, Inc.
10.17.............................. Promissory Note dated September 30, 1997 made by Alex
Kanakaris in favor of Kanakaris InternetWorks, Inc.
10.18.............................. Promissory Note dated April 7, 1997 made by John McKay in favor
of Kanakaris InternetWorks, Inc.
10.19.............................. Promissory Note dated January 8, 1998 made by John McKay
in favor of Kanakaris InternetWorks, Inc.
10.20.............................. Promissory Note dated January 8, 1998 made by Alex Kanakaris in
favor of Kanakaris InternetWorks, Inc.
10.21.............................. Promissory Note dated January 8, 1998 made by Branch Lotspeich
in favor of Kanakaris InternetWorks, Inc.
II-5
<PAGE>
10.22.............................. Promissory Note dated January 8, 1998 made by David Valenti in
favor of Kanakaris InternetWorks, Inc.
10.23.............................. Windows Media(TM) ICP Broadband Jumpstart Program Agreement
dated effective as of December 7, 1999 between the Registrant
and Microsoft Corporation
16.1............................... Letter On Change in Certifying Accountant***
21.1............................... Subsidiaries of the Registrant
23.1............................... Consent of Weinberg & Company, P.A., independent
certified public accountants
23.2............................... Consent of Tanner & Co., independent certified public
accountants
23.3............................... Consent of Rutan & Tucker, LLP (contained in the
opinion included as Exhibit 5.1)***
27.1............................... Financial Data Schedule
- ---------------
</TABLE>
* Filed as an exhibit to the Registrant's Form SB-2 filed with the
Securities and Exchange Commission on August 10, 1999 (Registration No.
333-84909) and incorporated herein by reference.
** Supersedes an incomplete version which was inadvertantly filed as an
exhibit to the Registrant's Form SB-2 filed with the Securities and
Exchange Commission on August 10, 1999 (Registration No. 333-84909).
*** To be filed by amendment.
II-6
<PAGE>
ITEM 28. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement to:
(i) include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933 (the "Securities Act");
(ii) reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the information in
the Registration Statement; and
(iii) include any additional or changed material information on the
plan of distribution.
(2) That, for determining liability under the Securities Act, each such
post-effective amendment shall be treated as a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(3) To file a post-effective amendment to remove from registration any
of the securities being registered that remain unsold at the termination of the
offering.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
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 Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
II-7
<PAGE>
SIGNATURES
Pursuant to 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 has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Costa Mesa, State of California, on November 18,
1999.
KANAKARIS COMMUNICATIONS, INC.
By: /S/ ALEX F. KANAKARIS
--------------------------------------
Alex F. Kanakaris, Chairman of the
Board, President and Chief Executive
Officer
II-8
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned officers and
directors of Kanakaris Communications, Inc., a Nevada corporation, which is
filing a Registration Statement on Form SB-2 with the Securities and Exchange
Commission under the provisions of the Securities Act of 1933, as amended,
hereby constitute and appoint Alex Kanakaris and Branch Lotspeich, and each of
them, their true and lawful attorneys-in-fact and agents; with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign such Registration Statement and any or all
amendments to the Registration Statement, including a Prospectus or an amended
Prospectus therein, and all other documents in connection therewith to be filed
with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, 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 interests and purposes as they might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them, or their substitute or substitutes,
may lawfully do or cause to be done by virtue hereof.
Pursuant to 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>
SIGNATURE TITLE DATE
--------- ----- ----
<CAPTION>
<S> <C> <C>
/S/ ALEX F. KANAKARIS Chairman of the Board, November 18, 1999
- ---------------------------- President, Chief Executive
Alex F. Kanakaris Officer, and Director
(Principal Executive
Officer)
/S/ BRANCH LOTSPEICH Vice Chairman of the Board, November 18, 1999
- ---------------------------- Secretary and Director
Branch Lotspeich
/S/ DAVID THOMAS SHOMAKER Acting Chief Financial November 18, 1999
- ---------------------------- Officer (Principal Financial
David Thomas Shomaker Officer)
/S/ JOHN ROBERT MCKAY Director November 18, 1999
- ----------------------------
John Robert McKay
</TABLE>
II-9
<PAGE>
<TABLE>
EXHIBITS
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<S> <C>
4.1................................ Specimen Common Stock Certificate
4.2................................ Kanakaris Communications, Inc. 1999 Stock Incentive Plan
4.3................................ Form of Qualified Stock Option Agreement
4.4................................ Form of Non-Qualified Stock Option Agreement
4.5................................ Debenture Purchase Agreement dated as of August 5, 1999
between Alliance Equities and the Registrant
4.6................................ Debenture Purchase Agreement dated as of September 29, 1999
between the Purchaser named therein and the Registrant
4.7................................ Kanakaris Communications, Inc. 10% Convertible Subordinated
Debenture due September 29, 2000 made by the Registrant
in favor of Alliance Equities
4.8................................ Kanakaris Communications, Inc. 10% Convertible Subordinated
Debenture due September 29, 2000 made by the Registrant
in favor of the Payee named therein
4.9................................ Stock Escrow and Security Agreement dated as of November 1,
1999 between the Registrant, Owen Naccarato and the Holder
named therein
4.10............................... Registration Rights Agreement dated as of August 5, 1999
by and between Alliance Equities and the Registrant
4.11............................... Registration Rights Agreement dated as of September 29, 1999
by and between the Registrant and the Purchaser named therin
10.1............................... Stock Purchase Agreement dated as of October 10, 1997 by
and between Christel H. Uttenbogaart and Kanakaris
InternetWorks, Inc.
10.2............................... Acquisition Agreement dated as of November 25, 1997 between
Big Tex Enterprises, Inc. and Kanakaris InternetWorks, Inc.
10.3............................... Windows Media (TM) Technology Promotion Agreement dated
February 18, 1999 between Microsoft Corporation and the
Registrant
10.4............................... GEO Publishing, Inc. WebRadio(TM) Webcasting Service
Agreement - Live 24/7 Audio Streaming dated effective as
of June 15, 1999 between GEO Publishing Inc. and the
Registrant
10.5............................... Sublease Agreement dated as of October 8, 1999 by and between
Belfiore-Fitzgerald and the Registrant
10.6............................... License Agreement dated as of February 18, 1999 between the
Registrant and ION Systems, Inc.
10.7............................... First Amendment to License Agreement dated effective as of
March 22, 1999 by and between the Registrant and ION
Systems, Inc.
10.8............................... Agreement dated October 21, 1999 between eConnect and the
Registrant
10.9............................... Memorandum of Understanding dated November 1, 1999 by and
between SyCoNet.com Inc. and the Registrant
10.10.............................. Custom Content Service Agreement dated August 23, 1999 between
ScreamingMedia.Net, Inc. and the Registrant
10.11.............................. On-Line Classifieds/On-Line Auctions/On-Line Personals Internet
Content Provider Agreement dated effective August 1, 1999
between InXsys Broadcast Networks, Inc. and the Registrant
II-10
<PAGE>
10.12.............................. Memorandum of Understanding dated February 25, 1999 between
the Registrant and Alliance Equities
10.13.............................. Memorandum of Understanding dated April 7, 1999 between the
Registrant and Alliance Equities
10.14.............................. Promissory Note dated May 19, 1997 made by Branch Lotspeich
in favor of Kanakaris InternetWorks, Inc.
10.15.............................. Promissory Note dated February 27, 1997 made by David Valenti
in favor of Kanakaris InternetWorks, Inc.
10.16.............................. Promissory Note dated February 26, 1997 made by Alex Kanakaris
in favor of Kanakaris InternetWorks, Inc.
10.17.............................. Promissory Note dated September 30, 1997 made by Alex
Kanakaris in favor of Kanakaris InternetWorks, Inc.
10.18.............................. Promissory Note dated April 7, 1997 made by John McKay in favor
of Kanakaris InternetWorks, Inc.
10.19.............................. Promissory Note dated January 8, 1998 made by John McKay
in favor of Kanakaris InternetWorks, Inc.
10.20.............................. Promissory Note dated January 8, 1998 made by Alex Kanakaris in
favor of Kanakaris InternetWorks, Inc.
10.21.............................. Promissory Note dated January 8, 1998 made by Branch Lotspeich
in favor of Kanakaris InternetWorks, Inc.
10.22.............................. Promissory Note dated January 8, 1998 made by David Valenti in
favor of Kanakaris InternetWorks, Inc.
10.23.............................. Windows Media(TM) ICP Broadband Jumpstart Program Agreement
dated effective as of December 7, 1999 between the Registrant
and Microsoft Corporation
21.1............................... Subsidiaries of the Registrant
23.1............................... Consent of Weinberg & Company, P.A., independent
certified public accountants
23.2............................... Consent of Tanner & Co., independent certified public
accountants
27.1............................... Financial Data Schedule
II-11
</TABLE>
Exhibit 4.1
NOT VALID UNLESS COUNTERSIGNED BY TRANSFER AGENT:
INCORPORATED UNDER THE LAWS OF THE STATE OF NEVADA
Capitalization 100,000,000 Shares CUSIP 483615100
+---------------+ COMMON STOCK +---------------+
| SHARES | at $.001 Par Value | SHARES |
| | | |
+---------------+ +---------------+
KANAKARIS COMMUNICATIONS, INC.
THIS CERTIFIES THAT
SPECIMEN
IS THE RECORD HOLDER OF
transferable on the books of the Corporation in person or by duly authorized
attorney upon surrender of this Certificate properly endorsed. This Certificate
is not valid until countersigned by the Transfer Agent and registered by the
Registrar.
Witness the facsimile seal of the Corporation and the facsimile
signatures of its duly authorized officers.
Dated:
/s/ John R. McKay [CORPORATE SEAL OF /s/ Alex Kanakaris
Secretary Kankaris Communications, Inc. President
here]
Countersigned & Registered:
Alpha Tech Stock Transfer
4505 So. Wasatch Blvd., Suite 205-A
Salt Lake City, UT 84124
(801) 278-1777
By: /s/ Jay
- --------------------
Authorized Signature
<PAGE>
NOTICE: Signature must be guaranteed by a firm which is a member of a
registered national stock exchange, or by a bank (other than a saving
bank), or a trust company. The following abbreviations, when used in
the inscription on the face of this certificate, shall be construed as
though they were written out in full according to applicable laws or
regulations:
TEN COM - as tenants in common UNIF GIFT MIN ACT .....Custodian....
TEN ENT - as tenants by the entireties (Cust) (Minor)
JT TEN - as joint tenants with right of under Uniform Gifts to Minors
survivorship and not as tenants Act......................
in common (State)
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, _________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
+------------------------------------+
| |
+------------------------------------+
________________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
________________________________________________________________________________
________________________________________________________________________________
__________________________________________________________________________Shares
of the capital stock represented by the within certificate, and do hereby
irrevocably constitute and appoint
________________________________________________________________________Attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated ___________________
________________________________________________________________________________
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS
WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR WITHOUT ALTERATION
OR ENLARGEMENT OR ANY CHANGE WHATEVER
RESTRICTED STOCK
THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD OR TOHERWISE
TRANSFERRED UNLESS A COMPLIANCE WITH THE REGISTRATION PROVISIONS OF SUCH ACT HAS
BEEN MADE OR UNLESS AVAILABILITY OF AN EXEMPTION FROM SUCH REGISTRATION
PROVISIONS HAS BEEN ESTABLISHED, OR UNLESS SOLD PURSUANT TO RULE 144 UNDER THE
SECURITIES ACT OF 1933.
Exhibit 4.2
KANAKARIS COMMUNICATIONS, INC.
1999 STOCK INCENTIVE PLAN
1. GENERAL PROVISIONS
1.1 Purpose.
--------
The 1999 Stock Incentive Plan (the "Plan") is
intended to allow designated officers and employees (all of whom are sometimes
collectively referred to herein as "Employees") and certain Non-Employee
Directors of Kanakaris Communications, Inc. ("KANA") and its Subsidiaries which
it may have from time to time (KANA and such Subsidiaries are referred to herein
as the "Company") to receive certain options ("Stock Options") to purchase
KANA's common stock, $.001 par value ("Common Stock"), and to receive grants of
Common Stock subject to certain restrictions ("Awards"). As used in this Plan,
the term "Subsidiary" shall mean each corporation which is a "subsidiary
corporation" of KANA within the meaning of Section 424(f) of the Internal
Revenue Code of 1986, as amended (the "Code"). The purpose of this Plan is to
provide Employees with equity-based compensation incentives to make significant
and extraordinary contributions to the long-term performance and growth of the
Company, and to attract and retain Employees of exceptional ability.
1.2 Administration.
---------------
1.2.1 The Plan shall be administered by the
Compensation Committee (the "Committee") of, or appointed by, the Board of
Directors of KANA (the "Board"). Each member of the Committee shall be a
"disinterested person" as that term is defined in Rule 16b-3 promulgated by the
Securities and Exchange Commission (the "Commission") pursuant to the Securities
Exchange Act of 1934 (the "Exchange Act"), but no action of the Committee shall
be invalid if this requirement is not met. The Committee shall select one of its
members as Chairman and shall act by vote of a majority of a quorum, or by
unanimous written consent. A majority of its members shall constitute a quorum.
The Committee shall be governed by the provisions of KANA's By-Laws and of
California law applicable to the Board, except as otherwise provided herein or
determined by the Board.
1.2.2 The Committee shall have full and complete
authority, in its discretion, but subject to the express provisions of the Plan:
to approve the Employees nominated by the management of the Company to be
granted Awards or Stock Options; to determine the number of Awards or Stock
Options to be granted to an Employee; to determine the time or times at which
Awards or Stock Options shall be granted; to establish the terms and conditions
upon which Awards or Stock Options may be exercised; to remove or adjust any
restrictions and conditions upon Awards or Stock Options; to specify, at the
time of grant, provisions relating to exercisability of Stock Options and to
accelerate or otherwise modify the exercisability of any Stock Options; and to
adopt such rules and regulations and to make all other determinations deemed
necessary or desirable for the administration of the Plan. All interpretations
and constructions of the Plan by the Committee, and all of its actions
hereunder, shall be binding and conclusive on all persons for all purposes.
-1-
<PAGE>
1.2.3 The Company hereby agrees to indemnify and hold
harmless each Committee member and each employee of the Company, and the estate
and heirs of such Committee member or employee, against all claims, liabilities,
expenses, penalties, damages or other pecuniary losses, including legal fees,
which such Committee member or employee, his or her estate or heirs may suffer
as a result of his or her responsibilities, obligations or duties in connection
with the Plan, to the extent that insurance, if any, does not cover the payment
of such items. No member of the Committee or the Board shall be liable for any
action or determination made in good faith with respect to the Plan or any Award
or Stock Option granted pursuant to the Plan.
1.3 Eligibility and Participation.
------------------------------
Employees eligible under the Plan shall be approved
by the Committee from those Employees who, in the opinion of the management of
the Company, are in positions which enable them to make significant and
extraordinary contributions to the long-term performance and growth of the
Company. In selecting Employees to whom Stock Options or Awards may be granted,
consideration shall be given to factors such as employment position, duties and
responsibilities, ability, productivity, length of service, morale, interest in
the Company and recommendations of supervisors. No member of the Committee shall
be eligible to participate under the Plan or under any other Company plan if
such participation would contravene the standard of paragraph 1.2.1 above
relating to "disinterested persons."
1.4 Shares Subject to the Plan.
---------------------------
The maximum number of shares of Common Stock that may
be issued pursuant to the Plan shall be 2,750,000, subject to adjustment
pursuant to the provisions of paragraph 4.1. If shares of Common Stock awarded
or issued under the Plan are reacquired by the Company due to a forfeiture or
for any other reason, such shares shall be cancelled and thereafter shall again
be available for purposes of the Plan. If a Stock Option expires, terminates or
is cancelled for any reason without having been exercised in full, the shares of
Common Stock not purchased thereunder shall again be available for purposes of
the Plan.
2. PROVISIONS RELATING TO STOCK OPTIONS
2.1 Grants of Stock Options.
------------------------
The Committee may grant Stock Options in such amounts, at such
times, and to such Employees nominated by the management of the Company as the
Committee, in its discretion, may determine. Stock Options granted under the
Plan shall constitute "incentive stock options" within the meaning of Section
422 of the Code, if so designated by the Committee on the date of grant. The
Committee shall also have the discretion to grant Stock Options which do not
constitute incentive stock options, and any such Stock Options shall be
designated non-statutory stock options by the Committee on the date of grant.
The aggregate fair market value (determined as of the time an incen tive stock
option is granted) of the Common Stock with respect to which incentive stock
options are exercisable for the first time by any Employee during any one
-2-
<PAGE>
calendar year (under all plans of the Company and any parent or Subsidiary of
the Company) may not exceed the maximum amount permitted under Section 422 of
the Code (currently $100,000.00). Non-statutory stock options shall not be
subject to the limitations relating to incentive stock options contained in the
preceding sentence. Each Stock Option shall be evidenced by a written agreement
(the "Option Agreement") in a form approved by the Committee, which shall be
executed on behalf of the Company and by the Employee to whom the Stock Option
is granted, and which shall be subject to the terms and conditions of this Plan.
In the discretion of the Committee, Stock Options may include provisions (which
need not be uniform), authorized by the Committee in its discretion, that
accelerate an Employee's rights to exercise Stock Options following a "Change in
Control," upon termination of such Employee employment by the Company without
"Cause" or by the Employee for "Good Reason," as such terms are defined in
paragraph 3.1 hereof. The holder of a Stock Option shall not be entitled to the
privileges of stock ownership as to any shares of Common Stock not actually
issued to such holder.
2.2 Purchase Price.
---------------
The purchase price (the "Exercise Price") of shares of Common
Stock subject to each Stock Option ("Option Shares") shall equal the fair market
value ("Fair Market Value") of such shares on the date of grant of such Stock
Option. Notwithstanding the foregoing, the Exercise Price of Option Shares
subject to an incentive stock option granted to an Employee who at the time of
grant owns stock possessing more than 10% of the total combined voting power of
all classes of stock of the Company or of any parent or Subsidiary shall be at
least equal to 110% of the Fair Market Value of such shares on the date of grant
of such Stock Option. The Fair Market Value of a share of Common Stock on any
date shall be equal to the closing price (or if no closing price is reported,
the average of the last bid and asked prices) of the Common Stock for the last
preceding day on which KANA's shares were traded, and the method for determining
the closing price shall be determined by the Committee.
2.3 Option Period.
--------------
The Stock Option period (the "Term") shall commence on the
date of grant of the Stock Option and shall be ten years or such shorter period
as is determined by the Committee. Notwithstanding the foregoing, the Term of an
incentive stock option granted to an Employee who at the time of grant owns
stock possessing more than 10% of the total combined voting power of all classes
of stock of the Company or of any parent or Subsidiary shall not exceed five
years. Each Stock Option shall provide that it is exercisable over its term in
such periodic installments as the Committee in its sole discretion may
determine. Such provisions need not be uniform. Notwithstanding the foregoing,
but subject to the provisions of paragraphs 1.2.2 and 2.1, Stock Options granted
to Employees who are subject to the reporting requirements of Section 16(a) of
the Exchange Act ("Section 16 Reporting Persons") shall not be exercisable until
at least six months and one day from the date the Stock Option is granted.
-3-
<PAGE>
2.4 Exercise of Options.
--------------------
2.4.1 Each Stock Option may be exercised in whole or
in part (but not as to fractional shares) by delivering it for surrender or
endorsement to the Company, attention of the Corporate Secretary, at the
principal office of the Company, together with payment of the Exercise Price and
an executed Notice and Agreement of Exercise in the form prescribed by paragraph
2.4.2. Payment may be made (i) in cash, (ii) by cashier's or certified check,
(iii) by surrender of previously owned shares of the Company's Common Stock
valued pursuant to paragraph 2.2 (if the Committee authorizes payment in stock
in its discretion), (iv) by withholding from the Option Shares which would
otherwise be issuable upon the exercise of the Stock Option that number of
Option Shares having an aggregate fair market value (determined in the manner
prescribed by paragraph 2.2) as of the date of the exercise of the Stock Option
equal to the exercise price of the Stock Option, if such withholding is
authorized by the Committee in its discretion, or (v) in the discretion of the
Committee, by the delivery to the Company of the optionee's promissory note
secured by the Option Shares, bearing interest at a rate sufficient to prevent
the imputation of interest under Sections 483 or 1274 of the Code, and having
such other terms and conditions as may be satisfactory to the Committee.
2.4.2 Exercise of each Stock Option is conditioned
upon the agreement of the Employee to the terms and conditions of this Plan and
of such Stock Option as evidenced by the Employee's execution and delivery of a
Notice and Agreement of Exercise in a form to be determined by the Committee in
its discretion. Such Notice and Agreement of Exercise shall set forth the
agreement of the Employee that: (a) no Option Shares will be sold or otherwise
distributed in violation of the Securities Act of 1933 (the "Securities Act") or
any other applicable federal or state securities laws, (b) each Option Share
certificate may be imprinted with legends reflecting any applicable federal and
state securities law restrictions and conditions, (c) the Company may comply
with said securities law restrictions and issue "stop transfer" instructions to
its Transfer Agent and Registrar without liability, (d) if the Employee is a
Section 16 Reporting Person, the Employee will furnish to the Company a copy of
each Form 4 or Form 5 filed by said Employee and will timely file all reports
required under federal securities laws, and (e) the Employee will report all
sales of Option Shares to the Company in writing on a form prescribed by the
Company.
2.4.3 No Stock Option shall be exercisable unless and
until any applicable registration or qualification requirements of federal and
state securities laws, and all other legal requirements, have been fully
complied with. The Company will use reasonable efforts to maintain the
effectiveness of a Registration Statement under the Securities Act for the
issuance of Stock Options and shares acquired thereunder, but there may be times
when no such Registration Statement will be currently effective. The exercise of
Stock Options may be temporarily suspended without liability to the Company
during times when no such Registration Statement is currently effective, or
during times when, in the reasonable opinion of the Committee, such suspension
is necessary to pre clude violation of any requirements of applicable law or
regulatory bodies having jurisdiction over the Company. If any Stock Option
would expire for any reason except the end of its term during such a suspension,
then if exercise of such Stock Option is duly tendered before its expiration,
such Stock Option shall be exercisable and exercised (unless the attempted
exercise is withdrawn) as of the first day after the end of such suspension. The
Company shall have no obligation to file any Registration Statement covering
resales of Option Shares.
-4-
<PAGE>
2.5 Continuous Employment.
----------------------
Except as provided in paragraph 2.7 below, an Employee may not
exercise a Stock Option unless from the date of grant to the date of exercise
such Employee remains con tinuously in the employ of the Company. For purposes
of this paragraph 2.5, the period of continuous employment of an Employee with
the Company shall be deemed to include (without extending the term of the Stock
Option) any period during which such Employee is on leave of absence with the
consent of the Company, provided that such leave of absence shall not exceed
three months and that such Employee returns to the employ of the Company at the
expiration of such leave of absence. If such Employee fails to return to the
employ of the Company at the expiration of such leave of absence, such
Employee's employment with the Company shall be deemed terminated as of the date
such leave of absence commenced. The continuous employment of an Employee with
the Company shall also be deemed to include any period during which such
Employee is a member of the Armed Forces of the United States, provided that
such Employee returns to the employ of the Company within 90 days (or such
longer period as may be prescribed by law) from the date such Employee first
becomes entitled to discharge. If an Employee does not return to the employ of
the Company within 90 days (or such longer period as may be prescribed by law)
from the date such Employee first becomes entitled to discharge, such Employee's
employment with the Company shall be deemed to have terminated as of the date
such Employee's military service ended.
2.6 Restrictions on Transfer.
-------------------------
Each Stock Option granted under this Plan shall be
transferable only by will or the laws of descent and distribution. No interest
of any Employee under the Plan shall be subject to attachment, execution,
garnishment, sequestration, the laws of bankruptcy or any other legal or
equitable process. Each Stock Option granted under this Plan shall be
exercisable during an Employee's lifetime only by such Employee or by such
Employee's legal representative.
2.7 Termination of Employment.
--------------------------
2.7.1 Upon an Employee's Retirement, Disability or
death, (a) all Stock Options to the extent then presently exercisable shall
remain in full force and effect and may be exer cised pursuant to the provisions
thereof, including expiration at the end of the fixed term thereof, and (b)
unless otherwise provided by the Committee, all Stock Options to the extent not
then presently exercisable by such Employee shall terminate as of the date of
such termination of employment and shall not be exercisable thereafter.
-5-
<PAGE>
2.7.2 Upon the termination of the employment of an
Employee with the Company for any reason other than the reasons set forth in
paragraph 2.7.1 hereof, (a) all Stock Options to the extent then presently
exercisable by such Employee shall remain exercisable only for a period of 90
days after the date of such termination of employment (except that the 90-day
period shall be extended to 12 months if the Employee shall die during such
90-day period), and may be exercised pursuant to the provisions thereof,
including expiration at the end of the fixed term thereof, and (b) unless
otherwise provided by the Committee, all Stock Options to the extent not then
presently exercisable by such Employee shall terminate as of the date of such
termination of employment and shall not be exercisable thereafter.
2.7.3 For purposes of this Plan:
(a) "Retirement" shall mean an Employee's
retirement from the employ of the Company on or after the date on which such
Employee attains the age of sixty-five (65) years; and
(b) "Disability" shall mean total and
permanent incapacity of an Employee, due to physical impairment or legally
established mental incompetence, to perform the usual duties of such Employee's
employment with the Company, which disability shall be determined: (i) on
medical evidence by a licensed physician designated by the Committee, or (ii) on
evidence that the Employee has become entitled to receive primary benefits as a
disabled employee under the Social Security Act in effect on the date of such
disability.
2.8 Grants of Options to Non-Employee Directors.
--------------------------------------------
Each member of the Board who is not an Employee (a
"Non-Employee Director:), whether or not such member is a member of the
Committee, shall automatically be granted non-statutory Stock Options to
purchase 5,000 shares of Common Stock on each anniversary of such Non-Employee
Director's continuous service on the Board. The term of each such Stock Option
granted to a Non-Employee Director shall commence on the date of grant and shall
be for ten years thereafter. Each such Stock Option granted to a Non-Employee
Director shall first be exercisable six months and one day from the later of the
date of grant or the date of shareholder approval of this Plan, and thereafter
shall be exercisable at any time until the expiration of its term, whether or
not the Non-Employee Director is a member of the Board at the time of exercise
or later enters the employ of the Company. Notwithstanding the foregoing or any
other provision of this Plan, all unexercised Stock Options held by a
Non-Employee Director shall automatically terminate as of the date his or her
directorship is terminated, if such directorship is terminated on account of any
act of fraud, embezzlement, misappropriation or conversion of assets or
opportunities of the Company. Upon termination of such Stock Options, such
Non-Employee Director shall forfeit all rights and benefits under this Plan.
Notwith-standing the provisions of paragraph 4.4, the provisions of this
paragraph 2.8 may not be amended more than once every six months, other than to
comport with changes in the Code or the regulations thereunder. The Committee
shall not grant any Awards to Non-Employee Directors and shall have no
discretion as to (a) the selection of Non-Employee Directors to whom Stock
Options may be granted, (b) the number of Stock Options granted to any
Non-Employee Director, (c) the times at which or the periods within which Stock
Options may be granted to, or exercised by, Non-Employee Directors, or (d)
except to the limited extent provided in paragraph 2.2, the price at which any
Stock Option granted to a Non-Employee Director may be exercised. Except as
specifically set forth in this paragraph 2.8, Stock Options granted to
Non-Employee Directors will be governed by all of the other terms and provisions
of this Plan.
-6-
<PAGE>
3. PROVISIONS RELATING TO AWARDS
3.1 Grant of Awards.
----------------
Subject to the provisions of the Plan, the Committee shall
have full and complete authority, in its discretion, but subject to the express
provisions of this Plan, to (i) grant Awards pursuant to the Plan, (ii)
determine the number of shares of Common Stock subject to each Award ("Award
Shares"), (iii) determine the terms and conditions (which need not be identical)
of each Award, including the consideration (if any) to be paid by the Employee
for such Common Stock, which may, in the Committee's discretion, consist of the
delivery of the Employee's promissory note meeting the requirements of paragraph
2.4.1, (iv) establish and modify performance criteria for Awards, and (v) make
all of the determinations necessary or advisable with respect to Awards under
the Plan. Each award under the Plan shall consist of a grant of shares of Common
Stock subject to a restriction period (after which the restrictions shall
lapse), which shall be a period commencing on the date the award is granted and
ending on such date as the Committee shall determine (the "Restriction Period").
The Committee may provide for the lapse of restrictions in installments, for
acceleration of the lapse of restrictions upon the satisfaction of such
performance or other criteria or upon the occurrence of such events as the
Committee shall determine, and for the early expiration of the Restriction
Period upon an Employee's death, Disability or Retirement as defined in
paragraph 2.7.3, or, following a Change of Control, upon termination of an
Employee's employment by the Company without "Cause" or by the Employee for
"Good Reason," as those terms are defined herein. For purposes of this Plan:
"Change of Control" shall be deemed to occur (a) on the date
the Company first has actual knowledge that any person (as such term is used in
Sections 13(d) and 14(d) (2) of the Exchange Act) has become the beneficial
owner (as defined in Rule 13(d)-3 under the Exchange Act), directly or
indirectly, of securities of the Company representing 40% or more of the
combined voting power of the Company's then outstanding securities, or (b) on
the date the shareholders of the Company approve (i) a merger of the Company
with or into any other corporation in which the Company is not the surviving
corporation or in which the Company survives as a subsidiary of another
corporation, (ii) a consolidation of the Company with any other corporation, or
(iii) the sale or disposition of all or substantially all of the Company's
assets or a plan of complete liquidation.
"Cause," when used with reference to termination of the
employment of an Employee by the Company for "Cause," shall mean:
-7-
<PAGE>
(a) the Employee's continuing wilful and material
breach of his or her duties to the Company after he or she receives a demand
from the Chief Executive of the Company specifying the manner in which he or she
has wilfully and materially breached such duties, other than any such failure
resulting from Disability of the Employee or his or her resignation for "Good
Reason," as defined herein; or
(b) the conviction of the Employee of a felony; or
(c) the Employee's commission of fraud in the course
of his or her employment with the Company, such as embezzlement or other
material and intentional violation of law against the Company; or
(d) the Employee's gross misconduct causing material
harm to the Company.
"Good Reason" shall mean any one or more of the
following, occurring following or in connection with a Change of Control and
within 90 days prior to the Employee's resignation, unless the Employee shall
have consented thereto in writing:
(a) the assignment to the Employee of duties
inconsistent with his or her executive status prior to the Change of Control or
a substantive change in the officer or officers to whom he or she reports from
the officer or officers to whom he or she reported immediately prior to the
Change of Control; or
(b) the elimination or reassignment of a majority of
the duties and responsibilities that were assigned to the Employee immediately
prior to the Change of Control; or
(c) a reduction by the Company in the Employee's
annual base salary as in effect immediately prior to the Change of Control; or
(d) the Company's requiring the Employee to be based
anywhere outside a 35-mile radius from his or her place of employment
immediately prior to the Change of Control, except for required travel on the
Company's business to an extent substantially consistent with the Employee's
business travel obligations immediately prior to the Change of Control; or
(e) the failure of the Company to grant the Employee
a performance bonus reasonably equivalent to the same percentage of salary the
Employee normally received prior to the Change of Control, given comparable
performance by the Company and the Employee; or
(f) the failure of the Company to obtain a
satisfactory Assumption Agreement (as defined in paragraph 4.12 of the Plan)
from a successor, or the failure of such successor to perform such Assumption
Agreement.
-8-
<PAGE>
3.2 Incentive Agreements.
---------------------
Each Award granted under the Plan shall be evidenced by a
written agreement (an "Incentive Agreement") in a form approved by the Committee
and executed by the Company and the Employee to whom the Award is granted. Each
Incentive Agreement shall be subject to the terms and conditions of the Plan and
other such terms and conditions as the Committee may specify.
3.3 Waiver of Restrictions.
-----------------------
The Committee may modify or amend any Award under the Plan or
waive any restrictions or conditions applicable to such Awards; provided,
however, that the Committee may not undertake any such modifications, amendments
or waivers if the effect thereof materially increases the benefits to any
Employee, or adversely affects the rights of any Employee without his or her
consent.
3.4 Terms and Conditions of Awards.
-------------------------------
3.4.1 Upon receipt of an Award of shares of Common
Stock under the Plan, even during the Restriction Period, an Employee shall be
the holder of record of the shares and shall have all the rights of a
shareholder with respect to such shares, subject to the terms and conditions of
the Plan and the Award.
3.4.2 Except as otherwise provided in this paragraph
3.4, no shares of Common Stock received pursuant to the Plan shall be sold,
exchanged, transferred, pledged, hypothecated or otherwise disposed of during
the Restriction Period applicable to such shares. Any purported disposition of
such Common Stock in violation of this paragraph 3.4.2 shall be null and void.
3.4.3 If an Employee's employment with the Company
terminates prior to the expiration of the Restriction Period for an Award,
subject to any provisions of the Award with respect to the Employee's death,
Disability or Retirement, or Change of Control, all shares of Common Stock
subject to the Award shall be immediately forfeited by the Employee and
reacquired by the Company, and the Employee shall have no further rights with
respect to the Award. In the discretion of the Committee, an Incentive Agreement
may provide that, upon the forfeiture by an Employee of Award Shares, the
Company shall repay to the Employee the consideration (if any) which the
Employee paid for the Award Shares on the grant of the Award. In the discretion
of the Committee, an Incentive Agreement may also provide that such repayment
shall include an interest factor on such consideration from the date of the
grant of the Award to the date of such repayment.
3.4.4 The Committee may require under such terms and
conditions as it deems appropriate or desirable that (i) the certificates for
Common Stock delivered under the Plan are to be held in custody by the Company
or a person or institution designated by the Company until the Restriction
Period expires, (ii) such certificates shall bear a legend referring to the
restrictions on the Common Stock pursuant to the Plan, and (iii) the Employee
shall have delivered to the Company a stock power endorsed in blank relating to
the Common Stock.
-9-
<PAGE>
4. MISCELLANEOUS PROVISIONS
4.1 Adjustments Upon Change in Capitalization.
------------------------------------------
4.1.1 The number and class of shares subject to each
outstanding Stock Option, the Exercise Price thereof (but not the total price),
the maximum number of Stock Options that may be granted under the Plan, the
minimum number of shares as to which a Stock Option may be exercised at any one
time, and the number and class of shares subject to each outstanding Award,
shall be proportionately adjusted in the event of any increase or decrease in
the number of the issued shares of Common Stock which results from a split-up or
consolidation of shares, payment of a stock dividend or dividends exceeding a
total of 5% for which the record dates occur in any one fiscal year, a
recapitalization (other than the conversion of convertible securities according
to their terms), a combination of shares or other like capital adjustment, so
that (i) upon exercise of the Stock Option, the Employee shall receive the
number and class of shares such Employee would have received had such Employee
been the holder of the number of shares of Common Stock for which the Stock
Option is being exercised upon the date of such change or increase or decrease
in the number of issued shares of the Company, and (ii) upon the lapse of
restrictions of the Award Shares, the Employee shall receive the number and
class of shares such Employee would have received if the restrictions on the
Award Shares had lapsed on the date of such change or increase or decrease in
the number of issued shares of the Company.
4.1.2 Upon a reorganization, merger or consolidation
of the Company with one or more corporations as a result of which KANA is not
the surviving corporation or in which KANA survives as a wholly-owned subsidiary
of another corporation, or upon a sale of all or substantially all of the
property of the Company to another corporation, or any dividend or distribution
to shareholders of more than 10% of the Company's assets, adequate adjustment or
other provisions shall be made by the Company or other party to such transaction
so that there shall remain and/or be substituted for the Option Shares and Award
Shares provided for herein, the shares, securities or assets which would have
been issuable or payable in respect of or in exchange for such Option Shares and
Award Shares then remaining, as if the Employee had been the owner of such
shares as of the applicable date. Any securities so substituted shall be subject
to similar successive adjustments.
4.2 Withholding Taxes.
------------------
The Company shall have the right at the time of exercise of
any Stock Option, the grant of an Award, or the lapse of restrictions on Award
Shares, to make adequate provision for any federal, state, local or foreign
taxes which it believes are or may be required by law to be withheld with
respect to such exercise ("Tax Liability"), to ensure the payment of any such
Tax Liability. The Company may provide for the payment of any Tax Liability by
any of the following means or a combination of such means, as determined by the
Committee in its sole and absolute discretion in the particular case: (i) by
requiring the Employee to tender a cash payment to the Company, (ii) by
withholding from the Employee's salary, (iii) by withholding from the Option
Shares which would otherwise be issuable upon exercise of the Stock Option, or
-10-
<PAGE>
from the Award Shares on their grant or date of lapse of restrictions, that
number of Option Shares or Award Shares having an aggregate fair market value
(determined in the manner prescribed by paragraph 2.2) as of the date the
withholding tax obligation arises in an amount which is equal to the Employee's
Tax Liability or (iv) by any other method deemed appropriate by the Committee.
Satisfaction of the Tax Liability of a Section 16 Reporting Person may be made
by the method of payment specified in clause (iii) above only if the following
two conditions are satisfied:
(a) the withholding of Option Shares or Award Shares and the
exercise of the related Stock Option occur at least six months and one day
following the date of grant of such Stock Option or Award; and
(b) the withholding of Option Shares or Award Shares is made
either (i) pursuant to an irrevocable election ("Withholding Election") made by
such Employee at least six months in advance of the withholding of Options
Shares or Award Shares, or (ii) on a day within a ten-day "window period"
beginning on the third business day following the date of release of the
Company's quarterly or annual summary statement of sales and earnings.
Anything herein to the contrary notwithstanding, a Withholding Election may be
disapproved by the Committee at any time.
4.3 Relationship to Other Employee Benefit Plans.
---------------------------------------------
Stock Options and Awards granted hereunder shall not be deemed
to be salary or other compensation to any Employee for purposes of any pension,
thrift, profit-sharing, stock purchase or any other employee benefit plan now
maintained or hereafter adopted by the Company.
4.4 Amendments and Termination.
---------------------------
The Board of Directors may at any time suspend, amend or
terminate this Plan. No amendment, except as provided in paragraph 2.8, or
modification of this Plan may be adopted, except subject to stockholder
approval, which would: (a) materially increase the benefits accruing to
Employees under this Plan, (b) materially increase the number of securities
which may be issued under this Plan (except for adjustments pursuant to
paragraph 4.1 hereof), or (c) materially modify the requirements as to
eligibility for participation in the Plan.
4.5 Successors in Interest.
-----------------------
The provisions of this Plan and the actions of the Committee
shall be binding upon all heirs, successors and assigns of the Company and of
Employees.
-11-
<PAGE>
4.6 Other Documents.
----------------
All documents prepared, executed or delivered in connection
with this Plan (including, without limitation, Option Agreements and Incentive
Agreements) shall be, in substance and form, as established and modified by the
Committee; provided, however, that all such documents shall be subject in every
respect to the provisions of this Plan, and in the event of any conflict between
the terms of any such document and this Plan, the provisions of this Plan shall
prevail.
4.7 No Obligation to Continue Employment.
-------------------------------------
This Plan and grants hereunder shall not impose any obligation
on the Company to continue to employ any Employee. Moreover, no provision of
this Plan or any document executed or delivered pursuant to this Plan shall be
deemed modified in any way by any employment contract between an Employee (or
other employee) and the Company.
4.8 Misconduct of an Employee.
--------------------------
Notwithstanding any other provision of this Plan, if an
Employee commits fraud or dishonesty toward the Company or wrongfully uses or
discloses any trade secret, confidential data or other information proprietary
to the Company, or intentionally takes any other action materially inimical to
the best interests of the Company, as determined by the Committee, in its sole
and absolute discretion, such Employee shall forfeit all rights and benefits
under this Plan.
4.9 Term of Plan.
-------------
This Plan was adopted by the Board effective January 6, 1999.
No Stock Options or Awards may be granted under this Plan after December 31,
2008.
4.10 Governing Law.
--------------
This Plan shall be construed in accordance with, and governed
by, the laws of the State of California.
4.11 Shareholder Approval.
---------------------
No Stock Option shall be exercisable, or Award granted, unless
and until the Shareholders of the Company have approved this Plan and all other
legal requirements have been fully complied with.
-12-
<PAGE>
4.12 Assumption Agreements.
----------------------
The Company will require each successor, (direct or indirect,
whether by purchase, merger, consolidation or otherwise), to all or
substantially all of the business or assets of the Company, prior to the
consummation of each such transaction, to assume and agree to perform the terms
and provisions remaining to be performed by the Company under each Incentive
Agreement and Stock Option and to preserve the benefits to the Employees
thereunder. Such assumption and agreement shall be set forth in a written
agreement in form and substance satisfactory to the Committee (an "Assumption
Agreement"), and shall include such adjustments, if any, in the application of
the provisions of the Incentive Agreements and Stock Options and such additional
provisions, if any, as the Committee shall require and approve, in order to
preserve such benefits to the Employees. Without limiting the generality of the
foregoing, the Committee may require an Assumption Agreement to include
satisfactory undertakings by a successor:
(a) to provide liquidity to the Employees at the end of the
Restriction Period applicable to Common Stock awarded to them under the Plan, or
on the exercise of Stock Options;
(b) if the succession occurs before the expiration of any
period specified in the Incentive Agreements for satisfaction of performance
criteria applicable to the Common Stock awarded thereunder, to refrain from
interfering with the Company's ability to satisfy such performance criteria or
to agree to modify such performance criteria and/or waive any criteria that
cannot be satisfied as a result of the succession;
(c) to require any future successor to enter into an
Assumption Agreement; and
(d) to take or refrain from taking such other actions as the
Committee may require and approve, in its discretion.
The Committee referred to in this paragraph 4.12 is the Committee appointed by a
Board of Directors in office prior to the succession then under consideration.
4.13 Compliance With Rule 16B-3.
---------------------------
Transactions under the Plan are intended to comply with all
applicable conditions of Rule 16b-3. To the extent that any provision of the
Plan or action by the Committee fails to so comply, it shall be deemed null and
void, to the extent permitted by law and deemed advisable by the Committee.
IN WITNESS WHEREOF, this Plan has been executed effective as of the 6th
day of January, 1999.
KANAKARIS COMMUNICATIONS, INC.
By: /S/ ALEX F. KANAKARIS
----------------------------------
Alex F. Kanakaris
President
-13-
Exhibit 4.3
KANAKARIS COMMUNICATIONS, INC.
QUALIFIED STOCK OPTION AGREEMENT
This Stock Option Agreement is made this _____ day of __________, ____
between Kanakaris Communications, Inc. (the "Company"), and the Employee,
_____________________ (the "Option Holder").
R E C I T A L S
A. The Board of Directors, on January 6, 1999, adopted, to be approved by
the shareholders of the Company, the 1999 Stock Incentive Plan, as amended (the
"Plan"), for the granting to selected executives, directors and key employees of
the Company and its subsidiaries of options to purchase shares of the Common
Stock of the Company.
B. Pursuant to the Plan, the Company has determined that it is to the
advantage and best interest of the Company and its shareholders to grant an
option to the Option Holder covering shares of the Company's Common Stock as an
inducement to remain in the service of the Company and as an incentive for
increased effort during such service, and has approved the execution of this
Stock Option Agreement between the Company and the Option Holder.
C. The option granted hereby is intended to qualify as an "incentive stock
option," in regard to Employees, under Section 422A of the Internal Revenue Code
of 1954, as amended.
NOW THEREFORE, the parties hereto agree as follows:
1. The Company grants to the Option Holder the right and option to purchase
on the terms and conditions hereinafter set forth, all or any part of an
aggregate of ______________ shares of the Common Stock of the Company at the
purchase price of $____ per share, which was determined to be 100% of the Fair
Market Value of the stock, having an "Effective Date" of the ____ day of
_________, ____, and exercisable from time to time in accordance with the
provisions of this Agreement during a period expiring on the tenth anniversary
of the Effective Date of this Agreement (the "Expiration Date").
2. The Option Holder may not purchase any shares by exercise of this Option
between the Effective Date of this Agreement and the first anniversary date
thereof. Thereafter, shares may be purchased by exercise of this Option on or
after the respective anniversary of the Effective Date in the amounts indicated
as follows:
1
<PAGE>
Cumulative
Anniversary Percentage Percentage
Date Exercisable Exercisable
---- ----------- -----------
1st 33 1/3% 33 1/3%
2nd 33 1/3% 66 2/3%
3rd 33 1/3% 100%
At any time after the third such anniversary date of this Agreement, but no
later than the Expiration Date, the Option Holder may purchase all or any part
of the shares subject to this Option which the Option Holder theretofore has not
exercised. In each case the number of shares which may be purchased shall be
calculated to the nearest full share and shall not be for fewer than 100 shares.
The foregoing limitations shall similarly apply to the transferees of the Option
Holder by will or by the laws of descent or distribution, so that said
transferees shall be entitled (provided they act within twelve (12) months after
the death of the Option Holder but in no event later than the Expiration Date)
to purchase by exercise of this Option all or any portion of the shares subject
to this Option which the Option Holder could have purchased by the exercise of
the option at the time of the Option Holder's death but with respect to which
this Option was not previously exercised, and no more. This Option may be
exercised during the lifetime of the Option Holder only by the Option Holder, or
within twelve (12) months after his death by his transferees by will or the laws
of the descent or distribution, and not otherwise, regardless of any community
property interest therein of the spouse of the Option Holder, or such spouse's
successors in interest. If the spouse of the Option Holder shall have acquired a
community property interest in this Option, the Option Holder, or Option
Holder's permitted successors in interest, may exercise the option on behalf of
the spouse of the Option Holder or such spouse's successors in interest.
3. Each exercise of this Option shall be by means of a written notice of
exercise delivered to the Secretary of the Company, specifying the number of
shares to be purchased and accompanied by payment to the Company of the full
purchase price of the shares to be purchased payable in cash or certified or
cashier's check payable to the order of the company. Alternative payments may be
made only upon specific approval of the Board of Directors as specified in the
Plan.
Subject to approval of the Board of Directors, an employee may pay for any
shares of Common Stock with respect to which an Option has been exercised by
tendering to the Company other shares of Common Stock at the time of the
exercise of such Option, provided, however, that at the time of such exercise,
the Company shall have a Committee consisting of two (2) or more disinterested
directors who shall approve the payment for option shares with other shares. The
certificates representing such other shares of Common Stock must be accompanied
by stock power duly executed with signature guaranteed. The value of Common
Stock must be accompanied by a stock power duly executed with signature
guaranteed . The value of Common Stock so tendered shall be determined by the
committee in its sole discretion. The Committee may, in its sole and absolute
discretion, refuse any tender of shares of Common Stock in which case it shall
deliver the tendered shares of Common Stock back to the employee and notify the
employee of such refusal.
2
<PAGE>
4. The fair market value of a share of Common Stock shall be determined for
purposes of this Agreement by reference to the most recent sale price of the
Company's Common Stock and such other factors as the Board of Directors of the
Committee may deem appropriate to reflect the then fair market thereof, unless
such shares are publicly traded on a stock exchange or otherwise, in which case
such value shall be determined by reference to the closing price of such share
on the principal stock exchange on which such shares are traded, or, if such
shares are not then traded on a principal stock exchange, the mean between the
bid and asked price of a share as supplied by the National Association of
Securities Dealers through NASDAQ (or its successor in function), in each case
as reported by The Wall Street Journal, for the business day immediately
preceding the date on which the option is exercised.
5. The Option granted hereby and all rights hereunder, to the extent such
rights shall not have been exercised, shall terminate and become null and void
if the Option Holder ceases for any reason whatsoever to be an employee of the
Company or of a subsidiary corporation (as defined in Section 425(f) of the
Internal Revenue Code of 1954, as amended) excepting only that (i) in the event
that such cessation of his employment shall be due to Option Holder's voluntary
resignation with the consent of the Board of Directors of the Company or such
subsidiary, expressed in the form of a resolution, or to the retirement of the
Option Holder under the provisions of any Pension or Retirement Plan of the
Company or of such subsidiary then in effect, the Option Holder may at any time
within a period of three (3) months after the date he so ceases to be an
employee of any such corporation, and not thereafter, exercise the option
granted hereby to the extent such option was exercisable by him on the date of
such cessation of such employment, and (ii) in the event of the death or
permanent disability (as defined in Section 105(d) (4) of the Code) of the
Option Holder while in the employ of the company or of such subsidiary, the
option granted hereby may be exercised within twelve (12) months after the date
of such death or permanent disability to the extent that the Option Holder was
entitled to exercise such option on the date of such death or permanent
disability. During the period after death, the Option may, to the extent that it
remained unexercised be exercised by the person or persons to whom the Option
Holder's rights under the option granted hereby shall pass by any reason of the
death of the Option Holder, whether by will or by the applicable laws of descent
and distribution; provided, however, that in no event may the option granted
hereby be exercised to any extent by anyone after the expiration date specified
in paragraph 1 above. The employment of the Option Holder shall be deemed to
continue during any leave of absence which has been authorized by the Company,
provided that no exercise of this option may take place during any such
authorized leave of absence excepting only during the first three (3) months
thereof.
6. No shares issuable upon the exercise of this Option shall be issued and
delivered unless and until there shall have been full compliance with all
applicable registration requirements of the Securities Act of 1933, as amended,
all applicable listing requirements of any national securities exchange on which
shares of the same class are then listed and any other requirements of law or of
any regulatory bodies having jurisdiction over such issuance and delivery.
3
<PAGE>
Without limiting the foregoing, the undersigned hereby agrees that unless
and until the shares of stock covered by the Plan have been registered with the
Securities and Exchange Commission under the Securities Act of 1933, as amended,
he will purchase all shares of stock to be issued upon exercise of this option
for investment and not for resale or for distribution and that upon each
exercise of any portion of this option the person entitled to exercise the same
shall, upon the request of the Company, furnish evidence satisfactory to the
Company (including a written and signed representation) to that effect in form
and substance satisfactory to the Company, including an indemnification of the
Company in the event of any violation of the Securities Act of 1933, as amended,
by such person. Furthermore, the Company may, if it deems appropriate, affix a
legend to certificates representing shares of stock purchased upon exercise of
options indicating that such shares have not been registered with the Securities
and Exchange Commission and may so notify its Transfer Agent, and may take such
other action as it deems necessary or advisable to comply with any other
regulatory or governmental requirements.
7. If Option Holder or Option Holder's permitted successors in interest
disposes of shares of Common Stock acquired pursuant to the exercise of this
Option, the Company shall have the right to require Option Holder or Option
Holder's permitted successor in interest to pay the Company the amount of any
taxes, which the Company may be required to withhold with respect to such
shares.
8. This Option and the rights and privileges granted hereby shall not be
transferred, assigned, pledged or hypothecated in any way, whether by operation
of the law or otherwise, except by will or the laws of descent and distribution.
Upon any attempt so to transfer, assign, pledge, hypothecate or otherwise
dispose of this option or any right or privileges granted hereby contrary to the
provisions hereof, this Option and all rights and privileges contained herein
shall immediately become null and void and of no further force or effect.
9. If the outstanding shares of the Common Stock of the Company are
increased, decreased, changed into, or exchanged for a different number or kind
of shares or securities of the Company through reorganization, recapitalization,
reclassification, stock dividend, stock split or reverse stock split, an
appropriate and proportionate adjustment (to be conclusively determined by the
Board of Directors of the Company) shall be made in the number and kind of
securities receivable upon the exercise of this Option, without change in the
total price applicable to the unexercised portion of this Option but with a
corresponding adjustment in the price for each unit of any security covered by
this Option.
Upon the dissolution or liquidation of the Company, or upon a
reorganization, merger or consolidation of the Company with one or more
corporations as a result of which the Company is not the surviving corporation,
or upon the sale of substantially all the property or more than 80% of the then
outstanding stock of the Company to another corporation, this Option shall
terminate, unless express written provision be made in connection with such
transaction for (i) the immediate exercisability of this Option, (ii) the
assumption of this Option or the substitution therefor of a new option covering
the stock of a successor employer corporation, or a parent or subsidiary
thereof, with appropriate adjustments as to number and kind of shares and
prices, such adjustments to be conclusively determined by the Board of Directors
of the Company; or (iii) the continuance of the Plan by such successor
corporation in which event this Option shall remain in full effect under the
terms so provided.
4
<PAGE>
Adjustments under this paragraph 9 shall be made by the Board of Directors,
whose determination as to what adjustments shall be made, and the extent
thereof, shall be final, binding and conclusive. No fractional shares of stock
shall be issued under the Plan on any such adjustment.
10. Nothing herein contained shall affect the right of the Option Holder to
participate in and receive benefits under and in accordance with the then
current provisions of any pension, insurance profit sharing or other employee
welfare plan or program of the Company or of any subsidiary of the Company.
11. Neither the Option Holder nor any other person legally entitled to
exercise this option shall be entitled to any of the rights or privileges of a
shareholder of the Company in respect of any shares issuable upon any exercise
of this option unless and until a certificate or certificates representing such
shares shall have been actually issued and delivered to him.
12. The Option hereby granted is subject to, and the Company and the Option
holder agrees to be bound by, all of the terms and conditions of the Company's
1990 Stock Incentive Plan, as the same shall be amended from time to time in
accordance with the terms thereof, but no such amendment shall adversely affect
the Option Holder's rights under this option without the prior written consent
of Option Holder.
13. This option has been executed and delivered the day and year first
above-written at Costa Mesa, California, and the interpretation, performance and
enforcement of this Agreement shall be governed by the laws of the State of
California.
KANAKARIS COMMUNICATIONS, INC.
By: ______________________________
Alex Kanakaris
President
______________________________
______________________________
Option Holder
5
Exhibit 4.4
KANAKARIS COMMUNICATIONS, INC.
NON-QUALIFIED STOCK OPTION AGREEMENT
This Stock Option Agreement is made this ____ day of _______, ____, between
Kanakaris Communications, Inc. (the "Company"), and _____________________ (the
"Option Holder").
R E C I T A L S
A. The Board of Directors has determined that it is to the advantage and
best interest of the Company and its shareholders to grant an option to the
Option Holder covering shares of the Company's Common Stock as an inducement to
remain in the service of the Company and as an incentive for increased effort
during such service, and on __________________, ____ (the "Effective Date")
approved the execution of this Stock Option Agreement between the Company and
the Option Holder.
B. The option granted hereby, although under the Plan, is not intended to
qualify as an "incentive stock option," pursuant to Section 422A of the Internal
Revenue Code of 1954, as amended.
NOW, THEREFORE, the parties hereto agree as follows:
1. The Company grants to the Option Holder the right and option to purchase
on the terms and conditions hereinafter set forth, all or any part of an
aggregate of _________ shares of the Common Stock of the Company at the purchase
price of $____ per share, and exercisable from time to time in accordance with
the provisions of this Agreement during a period expiring on the tenth
anniversary from the Effective Date of this Agreement (the "Expiration Date").
The Fair Market Value of the Company's common stock on _____________, ____ was
approximately $____ per share.
2. The Option Holder may purchase any or all shares by exercise of this
Option between the Effective Date of this Agreement and the Expiration Date. The
number of shares which may be purchased shall be calculated to the nearest full
share and shall not be for fewer than 100 shares. The foregoing limitations
shall similarly apply to the transferees of the Option Holder by will or by the
laws of descent or distribution, so that said transferees shall be entitled
(provided they act within twelve (12) months after the death of the Option
Holder but in no event later than the Expiration Date) to purchase by exercise
of this Option all or any portion of the shares subject to this Option which the
Option Holder could have purchased by the exercise of the option at the time of
the Option Holder's death but with respect to which this Option was not
previously exercised, and no more. This Option may be exercised during the
lifetime of the Option Holder only by the Option Holder, or within twelve (12)
months after his death by his transferees by will or the laws of the descent or
distribution, and not otherwise, regardless of any community property interest
therein of the spouse of the Option Holder, or such spouse's successors in
interest. If the spouse of the Option Holder shall have acquired a community
property interest in this Option, the Option Holder, or Option Holder's
permitted successors in interest, may exercise the option on behalf of the
spouse of the Option Holder or such spouse's successors in interest.
<PAGE>
3. Each exercise of this Option shall be by means of a written notice of
exercise delivered to the Secretary of the Company, specifying the number of
shares to be purchased and accompanied by payment to the Company of the full
purchase price of the shares to be purchased. The purchase price of the shares
upon exercise of an option shall be paid (i) in cash or by certified or
cashier's check payable to the order of the Company, (ii) by delivery of shares
of Common Stock of the Company already owned by and in the possession of the
option holder, or (iii) by a promissory note made by option holder in favor of
the Company, upon the terms and conditions determined by the Board of Directors
and secured by the shares issuable upon exercise complying with applicable law
(including, without limitation, state, corporate and federal margin
requirements), or any combination thereof. Shares of Common Stock used to
satisfy the exercise price of this Option shall be valued at their fair market
value determined as of the close of the business day immediately preceding the
date of exercise.
4. The fair market value of a share of Common Stock shall be determined for
purposes of this Agreement by reference to the most recent sale price of the
Company's Common Stock and such other factors as the Board of Directors may deem
appropriate to reflect the then fair market thereof, unless such shares are
publicly traded on a stock exchange or otherwise, in which case such value shall
be determined by reference to the closing price of such share on the principal
stock exchange on which such shares are traded, or, if such shares are not then
traded on a principal stock exchange, the mean between the bid and asked price
of a share as supplied by the National Association of Securities Dealers through
NASDAQ (or its successor in function), in each case as reported by The Wall
Street Journal, for the business day immediately preceding the date on which the
option is exercised.
5. No shares issuable upon the exercise of this Option shall be issued and
delivered unless and until there shall have been full compliance with all
applicable registration requirements of the Securities Act of 1933, as amended,
all applicable listing requirements of any national securities exchange on which
shares of the same class are then listed and any other requirements of law or of
any regulatory bodies having jurisdiction over such issuance and delivery.
Without limiting the foregoing, the undersigned hereby agrees that unless
and until the shares of stock covered by this Option have been registered with
the Securities and Exchange Commission under the Securities Act of 1933, as
amended, he will purchase all shares of stock to be issued upon exercise of this
Option for investment and not for resale or for distribution and that upon each
exercise of any portion of this Option the person entitled to exercise the same
shall, upon the request of the Company, furnish evidence satisfactory to the
Company (including a written and signed representation) to that effect in form
and substance satisfactory to the Company, including an indemnification of the
Company in the event of any violation of the Securities Act of 1933 by such
person. Furthermore, the Company may, if it deems appropriate, affix a legend to
certificates representing shares of stock upon exercise of options indicating
that such shares have not been registered with the Securities and Exchange
Commission and may so notify its Transfer Agent, and may take such other action
as it deems necessary or advisable to comply with any other regulatory
or governmental requirements.
2
<PAGE>
6. If Option Holder or Option Holder's permitted successors in interest
disposes of shares of Common Stock acquired pursuant to the exercise of this
Option, the Company shall have the right to require Option Holder or Option
Holder's permitted successor in interest to pay the Company the amount of any
taxes, which the Company may be required to withhold with respect to such
shares.
7. This Option and the rights and privileges granted hereby shall not be
transferred, assigned, pledged or hypothecated in any way, whether by operation
of the law or otherwise, except by will or the laws of descent and distribution.
Upon any attempt so to transfer, assign, pledge, hypothecate or otherwise
dispose of this option or any right or privileges granted hereby contrary to the
provisions hereof, this Option and all rights and privileges contained herein
shall immediately become null and void and of no further force or effect.
8. If the outstanding shares of the Common Stock of the Company are
increased, decreased, changed into, or exchanged for a different number or kind
of shares or securities of the Company through reorganization,
recapitalization,reclassification, stock dividend, stock split or reverse stock
split, an appropriate and proportionate adjustment (to be conclusively
determined by the Board of Directors of the Company) shall be made in the number
and kind of securities receivable upon the exercise of this Option, without
change in the total price applicable to the unexercised portion of this Option
but with a corresponding adjustment in the price for each unit of any security
covered by this Option.
Upon the dissolution or liquidation of the Company, or upon a
reorganization, merger or consolidation of the Company with one or more
corporations as a result of which the Company is not the surviving corporation,
or upon the sale of substantially all the property or more than 80% of the then
outstanding stock of the Company to another corporation, this Option shall
terminated, unless express written provision be made in connection with such
transaction for (i) the immediate exercisability of this Option, (ii) the
assumption of this Option or the substitution therefore of a new option covering
the stock of a successor corporation, or a parent or subsidiary thereof, with
appropriate adjustments as to number and kind of shares and prices, such
adjustments to be conclusively determined by the Board of Directors of the
Company. Adjustments under this paragraph 8 shall be made by the Board of
Directors, whose determination as to what adjustments shall be made, and the
extent thereof, shall be final, binding and conclusive. No fractional shares
shall be issued under any such adjustment.
9. Neither the Option Holder nor any other person legally entitled to
exercise this option shall be entitled to any of the rights or privileges of a
shareholder of the Company in respect of any shares issuable upon any exercise
of this Option unless and until a certificate or certificates representing such
shares shall have been actually issued and delivered to him.
3
<PAGE>
10. This Option has been executed and delivered the day and year first
above-written at Costa Mesa, California, and the interpretation, performance and
enforcement of this Agreement shall be governed by the laws of the State of
California.
KANAKARIS COMMUNICATIONS, INC.
By:________________________________
Alex Kanakaris
President
By:________________________________
________________________________
Option Holder
4
Exhibit 4.5
DEBENTURE PURCHASE AGREEMENT
This Debenture Purchase Agreement (the "Agreement") is made and entered
into as of this 5th day of August, 1999, by and between Alliance Equities, a
Florida corporation (the "Purchaser"), and Kanakaris Communications, Inc., a
Nevada corporation (the "Company").
RECITALS
A. In order to provide working capital and financing for the Company's
expansion, the Purchaser will purchase up to $1.2 million of the Company's 10%
Convertible Subordinated Debentures (the "Debentures"). The Purchaser will make
the funds available to the Company, and the Company will draw funds and issue
Debentures to the Purchaser as the Company needs the funding.
B. The Company desires to issue and sell the Debentures to the
Purchaser and the Purchaser desires to purchase the Debentures from the Company
on the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the foregoing, the mutual promises
and cove-nants contained herein, and for other good and valuable consideration,
the receipt and adequacy of which are hereby acknowledged, the parties hereby
agree as follows:
AGREEMENT
1. PURCHASE OF THE DEBENTURES.
1.1 FUNDING. Upon execution hereof, Purchaser shall deposit
Five Hundred and Twenty Thousand Dollars ($520,000) with the Company, which
shall be used by the Company as provided for herein.
1.2 PURCHASE OF THE DEBENTURES. Subject to the terms and
conditions of this Agreement, and subject to compliance with all applicable
federal and state securities laws, the Purchaser hereby purchases from the
Company and the Company hereby issues and sells to the Purchaser Debentures, in
substantially the form as set forth in Exhibit B attached hereto, in the
aggregate amount of up to One Million Two Hundred Thousand Dollars ($1,200,000).
Concurrent with the execution and delivery of this Agreement, the Purchaser
shall purchase and the Company shall issue and sell a Debenture in the amount of
Five Hundred and Twenty Thousand Dollars ($520,000). Thereafter, whenever the
Company accepts funds and issue additional Debentures, the Company shall give
the Purchaser at least five (5) business days prior written notice, and shall
issue and deliver to the Purchaser a Debenture in the face amount of the amount
to be drawn.
1.3 REGISTRATION RIGHTS AGREEMENT. Concurrent with the
execution and deli-very of this Agreement, the parties will execute and deliver
the Registration Rights Agreement in substantially the form as set forth in
Exhibit C attached hereto
<PAGE>
2. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER. The Purchaser
hereby represents and warrants to the Company as follows:
2.1 ORGANIZATION, STANDING, AND POWER. The Purchaser is a
corporation duly organized, validly existing, and in good standing under the
laws of the State of Florida, and has all requisite power and authority to enter
into this Agreement and to perform its obligations hereunder.
2.2 EXECUTION, DELIVERY, AND PERFORMANCE. The execution,
delivery, and performance of this Agreement by the Purchaser and the
consummation of the transactions con-templated herein have been approved by all
requisite action by the Purchaser. This Agreement has been duly and validly
executed and delivered on behalf of the Purchaser and constitutes a valid and
binding obligation of the Purchaser.
2.3 NO VIOLATION. The execution, delivery, and performance of
this Agreement and the consummation of the transactions contemplated herein will
not violate any provision of the organizational documents of the Purchaser,
violate any statute, law, or any judg-ment, decree, order, regulation, or rule
of any court or governmental authority, or cause a breach of or default under,
with or without any notice or the lapse of time or both, any provision of any
agreement or instrument to which the Company is a party or by which any of its
properties are affected.
2.4 NO BROKERS OR FINDERS. The Purchaser has not employed any
broker or finder or incurred any liability for any brokerage fees, commissions,
or finder's fees in connec-tion with the purchase of the Debentures.
2.5 SECURITIES LAWS REPRESENTATIONS.
(a) The Purchaser is an "Accredited Investor," as
such term is defined in Rule 501(a) of Regulation D, promulgated under the
Securities Act of 1933, as amended (the "Securities Act").
(b) The Purchaser is acquiring the Debentures solely
for the Pur-chaser's own account and not as a nominee or agent for any third
party, for investment purposes only, and not with a view to or for sale in
connection with any distribution. The Purchaser does not have any contract,
undertaking, agreement, or arrangement with any person to sell or transfer the
Debentures or grant participations in the Debentures to such person or to any
third person.
(c) The Purchaser understands that the sale of the
Debentures, and the issuance of shares (the "Shares") of the Company's common
stock (the "Common Stock") on conversion of the Debentures, has not been
registered under the Securities Act, or registered or qualified under the
securities laws of any (collectively, the "Securities Laws"), in reliance upon
exemptions from such registration and qualification requirements, and that such
exemptions are dependent in part on the representations made herein. The
Purchaser understands that any subsequent resale of the Debentures or the Shares
must either be registered and/or qualified pursuant to the Securities Laws or be
pursuant to an exemption from registration and qualification contained in the
Securities Laws or the rules and regulations thereunder.
<PAGE>
d) The Purchaser understands that since the sale of
the Debentures has not been registered or qualified under the Securities Laws,
the Purchaser must bear the economic risk of an investment in the Debentures for
an indefinite period of time. The Purchaser under-stands that the Company has no
obligation to register or qualify the Debentures for resale under the Securities
Laws or to take any action (including but not limited to the filing of reports
or the publication of information required by Rule 144 under the Securities Act)
that would make available any exemption from such registration and/or
qualification requirements. The Purchaser further understands that while the
Company has an obligation to register the Shares for resale, there are certain
restrictions on such obligation and further restrictions and delays in the
registration process, such that timely registration of the Shares for resale may
not be available when the Purchaser desires.
(e) The Purchaser understands that the purchase of
the Debentures involves certain risks, and the Purchaser has taken full
cognizance of and understand all the risks related to the purchase of the
Debentures. The Purchaser has the knowledge, sophistication, and experience in
financial and business matters to be capable of fully evaluating the merits and
risks of the purchase of the Debentures, to be capable of fully understanding
the information provided by the Company, and to be able to protect the
Purchaser's interests in connection with the purchase of the Debentures. The
Purchaser is capable of bearing the economic risk of a complete loss of the
Purchaser's investment in the Debentures. The Purchaser was not formed for the
purpose of purchasing the Debentures.
(f) The Purchaser has undertaken an independent
investigation of the investment in the Debentures and of the business potential
of the Company as a prudent, sophisticated investor would deem appropriate for
an investment in the Debentures. The Purchaser believes that the Purchaser has
received all the information the Purchaser considers necessary or appropriate
for deciding whether to purchase the Debentures. The Purchaser has had the
opportunity to ask questions and receive answers from the Company concerning its
busi-nesses and financial condition and the terms and conditions of the purchase
of the Debentures and to obtain additional information (to the extent the
Company possessed such information or could acquire it without unreasonable
effort or expense) necessary to verify the accuracy of any information furnished
to the Purchaser or to which the Purchaser had access. The Purchaser has a
pre-existing business or personal relationship with the Company or its officers,
directors, or controlling persons, which is of such a nature and duration as has
enabled the Purchaser, as a reasonably prudent investor, to be aware of the
character, business acumen, and general business and financial circumstances of
the Company or such persons connected with the Company.
(g) The Purchaser understands that the Company will
issue stop transfer instructions to its transfer agent with respect to the
Debentures and the Shares, and that the certificates evidencing the Debentures
and the Shares will contain the following restrictive transfer legend:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR
REGISTERED OR QUALIFIED UNDER APPLICABLE STATE SECURITIES LAWS IN
RELIANCE UPON EXEMPTIONS THEREFROM. NO OFFER, SALE, TRANSFER,
ASSIGN-MENT, PLEDGE, HYPOTHECATION, OR OTHER DISPOSITION OF OR
ENCUMBRANCE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY BE
MADE EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT AND THE RULES AND REGULATIONS PROMULGATED THEREUNDER AND
IN COMPLIANCE WITH ALL APPLICABLE STATE SECURITIES LAWS, OR UPON
RECEIPT BY THE ISSUER OF AN OPINION OF LEGAL COUNSEL FOR THE HOLDER
REASONABLY SATISFACTORY TO THE ISSUER TO THE EFFECT THAT SUCH OFFER,
SALE, TRANSFER, ASSIGNMENT, PLEDGE, HYPOTHECATION, OR OTHER DISPOSITION
OR ENCUM-BRANCE IS EXEMPT FROM THE REGISTRATION PROVISIONS OF THE
SECURITIES ACT AND THE RULES AND REGULATIONS PROMU-LGATED THEREUNDER
AND THE REGISTRATION AND/OR QUALIFI-CATION PROVISIONS OF APPLICABLE
STATE SECURITIES LAWS.
<PAGE>
(h) The Purchaser understands that neither the
Securities and Exchange Commission (the "SEC") nor the securities administrator
of any state has issued any finding or determination relating to the fairness of
an investment in the Debentures and that neither the SEC nor the securities
administrator of any state has or will recommend or endorse any such investment.
(i) The investment in the Debentures does not exceed
ten percent (10%) of the Purchaser's net worth.
2.6 INVESTMENT REPRESENTATIONS.
(a) The Purchaser understands that the Debentures are
speculative and that an investment in the Company involves a high degree of
risk.
(b) The Purchaser understands that the Company has
experienced operating losses in the last two years, and that the Company may
experience operating losses in the future. There are no assurances that the
Company will achieve profitability and report net income.
(c) The Purchaser understands that the has only a
limited operating history upon which the Purchaser may evaluate its performance.
The Company's prospects must be considered in light of the risks, difficulties,
expenses, and delays encountered in a company with limited operating history.
The Purchaser understands that there are no assurances that the Company will be
successful or achieve profitability.
(d) The Purchaser understands that the Company is in
the growth stage of its development, and its operations are subject to all of
the risks inherent in a growing business enterprise, including the likelihood of
operating losses. The likelihood of the success of the Company must be
considered in light of the problems, expenses, difficulties, complications, and
delays frequently encountered in connection with the growth of an existing
business, the implementation of the Company's business plan, and the competitive
environment in which the Company operates.
(e) The Purchaser understands that the financial
projections included in the materials presented to the Purchaser represent the
manager's estimates as to the future financial performance of the Company based
upon certain assumptions and courses of action that the Company plans to
undertake. Among the material assumptions are that the Company will receive the
funding at the times and in the amounts indicated, achieve the projected sales
revenues, and control costs as indicated. However, there will usually be
differences between the financial projections and the actual results experienced
because events and circumstances frequently do not occur as expected, and those
differences may be material. In addition, the further the projections are for
the future, the greater the likelihood that actual results will differ
materially from the projections. There are no assurances that the Company will
perform as set forth in the financial projections, or that the assumptions on
which the projections are based will occur or will occur at the times indicated.
<PAGE>
(f) The Purchaser understands that there is no
trading market for the Debentures and that the Company does not anticipate that
a trading market will develop, or if developed, will continue. If no market
develops, it may be difficult or impossible for the Purchaser to resell the
Debentures should the Purchaser desire to do so. There are no assurances that
the Purchaser will be able to resell the Debentures, or if the Purchaser is able
to resell, that the Purchaser will be able to resell the Debentures at the
purchase price.
(g) The Purchaser understands that there is only a
thin trading market for the Common Stock and that there are no assurances that a
trading market will develop with sufficient volume to enable the Purchaser to
easily sell the Shares, or if developed, will continue. If no market with
sufficient trading volume develops, it may be difficult or impossible for the
Purchaser to resell the Shares should the Purchaser desire to do so. There are
no assurances that the Purchaser will be able to resell the Shares, or if the
Purchaser is able to resell, that the Purchaser will be able to resell the
Shares at the purchase price.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
represents and warrants to the Purchaser as follows:
3.1 ORGANIZATION, STANDING, AND POWER. The Company is a
corporation duly organized, validly existing, and in good standing under the
laws of the State of Nevada, and has all requisite power and authority to enter
into this Agreement and to perform its obligations hereunder.
3.2 EXECUTION, DELIVERY, AND PERFORMANCE. The execution,
delivery, and performance of this Agreement by the Company and the consummation
of the transactions con-templated herein have been approved by all requisite
action by the Company. This Agreement has been duly and validly executed and
delivered on behalf of the Company and constitutes a valid and binding
obligation of the Company.
3.3 NO VIOLATION. The execution, delivery, and performance of
this Agreement and the consummation of the transactions contemplated herein will
not violate any provision of the organizational documents of the Company,
violate any statute, law, or any judg-ment, decree, order, regulation, or rule
of any court or governmental authority, or cause a breach of or default under,
with or without any notice or the lapse of time or both, any provision of any
agreement or instrument to which the Company is a party or by which any of its
properties are affected.
3.4 CAPITALIZATION. The Company is authorized to issue up to
one hundred million (100,000,000) shares of Common Stock, par value $.001 per
share, and five million (5,000,000) shares of preferred stock, par value $.01
per share. As of the date hereof, the Company has issued and outstanding
nineteen million eighty thousand six hundred twelve (19,080,612) shares of
Common stock and one million (1,000,000) shares of preferred stock. Other than
the outstanding shares of preferred stock, the Company has no outstanding
options, warrants, or rights to purchase shares of Common Stock or securities
convertible into shares of Common Stock.
<PAGE>
4. CONDITIONS TO THE ISSUANCE OF THE DEBENTURES. Other than the
issuance of the Debenture concurrent with the execution and delivery of this
Agreement, each draw upon funds and issuance of a Debenture therefor shall be
subject to the following conditions, unless waived in writing by the party that
is the beneficiary of such condition:
4.1 REPRESENTATIONS AND WARRANTIES TRUE. All of the
representations and warranties of the Company contained in Section 3 of this
Agreement shall be true and correct as of the date of the draw, and the Company
shall deliver to the Purchaser a certificate executed by the Company's President
attesting thereto; provided that any change in the Company's capitalization as
set forth in Section 3.4 of this Agreement shall be set forth in such
certificate. All of the representations and warranties of the Purchaser
contained in Section 2 of this Agreement shall be true and correct as of the
date of the draw, and all such representations and warranties shall be deemed to
be correct and the Company shall have the right to rely upon them unless the
Purchaser shall have notified the Company in writing prior to the draw.
4.2 NOTICE. The Company shall have given the Purchaser written
notice at least five (5) business days prior to drawing on the funds.
4.3 DELIVERY TO THE PURCHASER. The Company shall have
delivered to the Purchaser (i) a duly executed Debenture in an amount equal to
the draw, and (ii) a solvency certificate executed by the Company's Chief
Financial Officer.
4.4 NO DEFAULT. The Company shall not be in default under the
Debentures.
5. INDEMNIFICATION.
5.1 INDEMNIFICATION. Each party (the "Indemnifying Party")
shall indemnify, save, defend, and hold the other party (the "Indemnified
Party") harmless from and against any and all claims, demands, expenses,
lawsuits, liabilities, and losses, including but not limited to penalties,
interest, court costs, and attorneys' fees, arising out of or in connection with
any breach of a representation or warranty of the Indemnifying Party contained
in this Agreement.
5.2 NOTICE OF CLAIM. Promptly after the receipt by the
Indemnified Party of any notice of a claim or the commencement of any action,
suit, or proceeding, the Indemnified Party shall give the Indemnifying Party
written notice of such claim or the commencement of such action, suit, or
proceeding. The written notice shall include the nature, amount, and cause of
any claim for indemnification in reasonable detail.
5.3 DEFENSE. Upon receipt of a written notice of a claim from
the Indemnified Party, the Indemnifying Party shall provide a defense of the
claim to the Indemnified Party, including legal counsel selected by the Company
and reasonably acceptable to the Purchaser. The Indemnified Party may employ
separate legal counsel, but such separate legal counsel shall be at the
Indemnified Party's own cost and expense, unless the Indemnifying Party fails or
refuses to provide a defense. The Indemnifying Party shall have the exclusive
authority to settle any claim, so long as such compromise or settlement does not
adversely affect the Indemnified Party. The Indemnifying Party shall have no
liability for any settlement made without its prior written consent. The
Indemnified Party shall use its best efforts to assist the Indemnifying Party is
the defense of the claim and shall make available all information and assistance
that the Indemnifying Party may reasonably request in connection with such
defense.
<PAGE>
6. GENERAL PROVISIONS.
6.1 AMENDMENT. All amendments or modifications of this
Agreement shall be in writing and shall be signed by each of the parties hereto.
6.2 WAIVER. Any waiver of any right, power, or privilege
hereunder must be in writing and signed by the party being charged with the
waiver. No delay on the part of any party hereto in exercising any right, power,
or privilege hereunder shall operate as a waiver of any other right, power, or
privilege hereunder, nor shall any single or partial exercise of any right,
power, or privilege hereunder preclude any other or further exercise thereof or
the exercise of any other right, power, or privilege.
6.3 NOTICES. All notices or other communications required or
permitted to be given pursuant to this Agreement shall be in writing and shall
be delivered personally or sent by overnight courier, by telecopier with
confirmation by first class mail, or by certified mail, return receipt
requested. Notices delivered personally or sent by overnight courier or
telecopier with confirmation by first class mail shall be effective on the date
first received, while notices sent by certified mail, return receipt requested,
shall be deemed to have been received and to be effective three (3) business
days after deposit into the mails. Notices shall be given to the parties at the
following respective addresses, or to such other addresses as any party shall
designate in writing:
If to the Company: Mr. Alex Kanakaris
President
Kanakaris Communications, Inc.
3303 Harbor Boulevard
Suite F-3
Costa Mesa, California 90265
Telephone: (714) 444-0560
Telecopier: (714) 549-8970
With a copy to: Gerard N. Casale, Jr., Esq.
Casale Coffee Nojima, LLP
11755 Wilshire Boulevard
Suite 1200
Los Angeles, California 90025
Telephone: (310) 312-1860
Telecopier: (310) 477-3481
If to the Purchaser:
President
Alliance Equities
1915 Merion Lane
Coral Springs, Florida 33071
Telephone: (954) 753-0904
Telecopier: (954) 341-4263
<PAGE>
6.4 SUCCESSORS AND ASSIGNS. This Agreement and each of its
provisions shall be binding upon and shall inure to the benefit of the parties
hereto and their respective admini-strators, successors, and assigns.
Notwithstanding the immediately preceding sentence, neither party may assign any
of its rights or obligations hereunder without the prior written consent of the
other party, which consent the other party may withhold in its sole and absolute
discretion.
6.5 LAW GOVERNING. This Agreement has been negotiated,
executed, and deli-vered and shall be performed in the State of California and
shall be governed by and construed and enforced in accordance with the laws of
the State of California, without regard for its conflict of laws rules. The
parties hereby irrevocably submit to the exclusive jurisdiction of the courts of
the State of California and any United States District Court situated in the
State of California for the purposes of construing and enforcing this Agreement.
6.6 ATTORNEYS' FEES. Should a lawsuit be commenced to
interpret or enforce the terms of this Agreement, the prevailing party shall be
entitled to recover costs and attorneys' fees in addition to any other recovery
to which such party may be entitled.
6.7 COUNTERPARTS. This Agreement may be executed in two or
more counterparts, including by facsimile transmission, all of which together
shall constitute a single instrument.
6.8 SEVERABILITY OF PROVISIONS. In the event any one or more
of the provisions of this Agreement shall for any reason be held to be invalid,
illegal, or unenforceable in any respect, such invalidity, illegality, or
unenforceability shall not affect any other provision hereof, and this Agreement
shall be construed as if such invalid, illegal, or unenforceable provision had
never been contained herein.
6.9 INTEGRATION. This Agreement constitutes the entire
understanding and agreement between the parties with respect to the transactions
contemplated herein and super-sedes all previous communications,
representations, or understandings, either oral or written, between the parties
relating to the subject matter hereof, all of which are merged herein.
6.10 EXPENSES. Except as otherwise set forth herein, each
party shall bear all of its own expenses incurred in negotiating and performing
this Agreement.
6.11 CONSTRUCTION. The headings in the sections and paragraphs
of this Agreement are for convenience only and shall not constitute a part
hereof. Whenever the context so requires, the masculine shall include the
feminine and the neuter, the singular shall include the plural, and conversely.
The terms and all parts of this Agreement shall in all cases be interpreted
simply and according to their plain meaning and neither for nor against any
party hereto.
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed and delivered this
Agreement as of the date first written above.
Alliance Equities Kanakaris Communications, Inc.
By: /S/ Richard Epstein By: /S/ Alex Kanakaris
--------------------------- ----------------------------
Richard Epstein Alex Kanakaris
President President
Exhibit 4.6
DEBENTURE PURCHASE AGREEMENT
This Debenture Purchase Agreement (the "Agreement") is made and entered
into as of this 29th day of September, 1999, by and between the parties
indicated herein ATTACHMENT "A" ("the Purchaser"), and Kanakaris Communications,
Inc., a Nevada corporation (the "Company").
RECITALS
A. In order to provide working capital and financing for the Company's
expansion, the Purchaser will purchase $550,000.00 of the Company's 10%
Convertible Subordinated Debentures (the "Debentures").
B. The Company desires to issue and sell the Debentures to the
Purchaser and the Purchaser desires to purchase the Debentures from the Company
on the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the foregoing, the mutual promises
and covenants contained herein, and for other good and valuable consideration,
the receipt and adequacy of which are hereby acknowledged, the parties hereby
agree as follows:
AGREEMENT
1. PURCHASE OF THE DEBENTURES.
1.1 FUNDING. Upon execution hereof, Purchaser shall deposit up
to Five Hundred and Fifty Thousand Dollars ($550,000.00) with the Company, which
shall be used by the Company as provided for herein.
1.2 PURCHASE OF THE DEBENTURES. Subject to the terms and
conditions of this Agreement, and subject to compliance with all applicable
federal and state securities laws, the Purchaser hereby purchases from the
Company and the Company hereby issues and sells, in substantially the form as
set forth in Exhibit B attached hereto, in the aggregate amount of up to Five
Hundred and Fifty Thousand Dollars ($550,000). Concurrent with the execution and
delivery of this Agreement, the Purchaser shall purchase and the Company shall
issue and sell a Debenture in the amount of Five Hundred and Fifty Thousand
Dollars ($550,000.00). Thereafter, whenever the Company accepts funds and issues
additional Debentures, the Company shall give the Purchaser at least five (5)
business days prior written notice, and shall issue and deliver to the Purchaser
a Debenture in the face amount of the amount to be drawn.
1.3 REGISTRATION RIGHTS AGREEMENT. Concurrent with the
execution and delivery of this Agreement, the parties will execute and deliver
the Registration Rights Agreement in substantially the form as set forth in
Exhibit C attached hereto
2. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER. The Purchaser
hereby represents and warrants to the Company as follows:
1
<PAGE>
2.1 ORGANIZATION, STANDING, AND POWER. The Purchaser is duly
organized, validly existing, and in good standing under the laws of the
jurisdiction under which it operates, and has all requisite power and authority
to enter into this Agreement and to perform its obligations hereunder.
2.2 EXECUTION, DELIVERY, AND PERFORMANCE. The execution,
delivery, and performance of this Agreement by the Purchaser and the
consummation of the transactions contemplated herein have been approved by all
requisite action by the Purchaser. This Agreement has been duly and validly
executed and delivered on behalf of the Purchaser and constitutes a valid and
binding obligation of the Purchaser.
2.3 NO VIOLATION. The execution, delivery, and performance of
this Agreement and the consummation of the transactions contemplated herein will
not violate any provision of the organizational documents of the Purchaser,
violate any statute, law, or any judgment, decree, order, regulation, or rule of
any court or governmental authority, or cause a breach of or default under, with
or without any notice or the lapse of time or both, any provision of any
agreement or instrument to which the Company is a party or by which any of its
properties are affected.
2.4 SECURITIES LAWS REPRESENTATIONS.
(a) The Purchaser is an "Accredited Investor," as
such term is defined in Rule 501(a) of Regulation D, promulgated under the
Securities Act of 1933, as amended (the "Securities Act").
(b) The Purchaser is acquiring the Debentures solely
for the Purchaser's own account and not as a nominee or agent for any third
party, for investment purposes only, and not with a view to or for sale in
connection with any distribution. The Purchaser does not have any contract,
undertaking, agreement, or arrangement with any person to sell or transfer the
Debentures or grant participations in the Debentures to such person or to any
third person.
(c) The Purchaser understands that the sale of the
Debentures, and the issuance of shares (the "Shares") of the Company's common
stock (the "Common Stock") on conversion of the Debentures, has not been
registered under the Securities Act, or registered or qualified under the
securities laws of any (collectively, the "Securities Laws"), in reliance upon
exemptions from such registration and qualification requirements, and that such
exemptions are dependent in part on the representations made herein. The
Purchaser understands that any subsequent resale of the Debentures or the Shares
must either be registered and/or qualified pursuant to the Securities Laws or be
pursuant to an exemption from registration and qualification contained in the
Securities Laws or the rules and regulations thereunder.
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<PAGE>
(d) The Purchaser understands that since the sale of
the Debentures has not been registered or qualified under the Securities Laws,
the Purchaser must bear the economic risk of an investment in the Debentures for
an indefinite period of time. The Purchaser understands that the Company has no
obligation to register or qualify the Debentures for resale under the Securities
Laws or to take any action (including but not limited to the filing of reports
or the publication of information required by Rule 144 under the Securities Act)
that would make available any exemption from such registration and/or
qualification requirements. The Purchaser further understands that while the
Company has an obligation to register the Shares for resale, there are certain
restrictions on such obligation and further restrictions and delays in the
registration process, such that timely registration of the Shares for resale may
not be available when the Purchaser desires.
(e) The Purchaser understands that the purchase of
the Debentures involves certain risks, and the Purchaser has taken full
cognizance of and understand all the risks related to the purchase of the
Debentures. The Purchaser has the knowledge, sophistication, and experience in
financial and business matters to be capable of fully evaluating the merits and
risks of the purchase of the Debentures, to be capable of fully understanding
the information provided by the Company, and to be able to protect the
Purchaser's interests in connection with the purchase of the Debentures. The
Purchaser is capable of bearing the economic risk of a complete loss of the
Purchaser's investment in the Debentures. The Purchaser was not formed for the
purpose of purchasing the Debentures.
(f) The Purchaser has undertaken an independent
investigation of the investment in the Debentures and of the business potential
of the Company as a prudent, sophisticated investor would deem appropriate for
an investment in the Debentures. The Purchaser believes that the Purchaser has
received all the information the Purchaser considers necessary or appropriate
for deciding whether to purchase the Debentures. The Purchaser has had the
opportunity to ask questions and receive answers from the Company concerning its
businesses and financial condition and the terms and conditions of the purchase
of the Debentures and to obtain additional information (to the extent the
Company possessed such information or could acquire it without unreasonable
effort or expense) necessary to verify the accuracy of any information furnished
to the Purchaser or to which the Purchaser had access. The Purchaser has a
pre-existing business or personal relationship with the Company or its officers,
directors, or controlling persons, which is of such a nature and duration as has
enabled the Purchaser, as a reasonably prudent investor, to be aware of the
character, business acumen, and general business and financial circumstances of
the Company or such persons connected with the Company.
(g) The Purchaser understands that neither the
Securities and Exchange Commission (the "SEC") nor the securities administrator
of any state has issued any finding or determination relating to the fairness of
an investment in the Debentures and that neither the SEC nor the securities
administrator of any state has or will recommend or endorse any such investment.
2.5 INVESTMENT REPRESENTATIONS.
(a) The Purchaser understands that the Debentures are
speculative and that an investment in the Company involves a high degree of
risk.
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(b) The Purchaser understands that the Company has
experienced operating losses in the last two years, and that the Company may
experience operating losses in the future. There are no assurances that the
Company will achieve profitability and report net income.
(c) The Purchaser understands that the Company has
only a limited operating history upon which the Purchaser may evaluate its
performance. The Company's prospects must be considered in light of the risks,
difficulties, expenses, and delays encountered in a company with limited
operating history. The Purchaser understands that there are no assurances that
the Company will be successful or achieve profitability.
(d) The Purchaser understands that the Company is in
the growth stage of its development, and its operations are subject to all of
the risks inherent in a growing business enterprise, including the likelihood of
operating losses. The likelihood of the success of the Company must be
considered in light of the problems, expenses, difficulties, complications, and
delays frequently encountered in connection with the growth of an existing
business, the implementation of the Company's business plan, and the competitive
environment in which the Company operates.
(e) The Purchaser understands that the financial
projections included in the materials presented to the Purchaser represent the
manager's estimates as to the future financial performance of the Company based
upon certain assumptions and courses of action that the Company plans to
undertake. Among the material assumptions are that the Company will receive the
funding at the times and in the amounts indicated, achieve the projected sales
revenues, and control costs as indicated. However, there will usually be
differences between the financial projections and the actual results experienced
because events and circumstances frequently do not occur as expected, and those
differences may be material. In addition, the further the projections are for
the future, the greater the likelihood that actual results will differ
materially from the projections. There are no assurances that the Company will
perform as set forth in the financial projections, or that the assumptions on
which the projections are based will occur or will occur at the times indicated.
(f) The Purchaser understands that there is no
trading market for the Debentures and that the Company does not anticipate that
a trading market will develop, or if developed, will continue. If no market
develops, it may be difficult or impossible for the Purchaser to resell the
Debentures should the Purchaser desire to do so. There are no assurances that
the Purchaser will be able to resell the Debentures, or if the Purchaser is able
to resell, that the Purchaser will be able to resell the Debentures at the
purchase price.
(g) The Purchaser understands that there is only a
thin trading market for the Common Stock and that there are no assurances that a
trading market will develop with sufficient volume to enable the Purchaser to
easily sell the Shares, or if developed, will continue. If no market with
sufficient trading volume develops, it may be difficult or impossible for the
Purchaser to resell the Shares should the Purchaser desire to do so. There are
no assurances that the Purchaser will be able to resell the Shares, or if the
Purchaser is able to resell, that the Purchaser will be able to resell the
Shares at the purchase price.
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3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
represents and warrants to the Purchaser as follows:
3.1 ORGANIZATION, STANDING, AND POWER. The Company is a
corporation duly organized, validly existing, and in good standing under the
laws of the State of Nevada, and has all requisite power and authority to enter
into this Agreement and to perform its obligations hereunder.
3.2 EXECUTION, DELIVERY, AND PERFORMANCE. The execution,
delivery, and performance of this Agreement by the Company and the consummation
of the transactions contemplated herein have been approved by all requisite
action by the Company. This Agreement has been duly and validly executed and
delivered on behalf of the Company and constitutes a valid and binding
obligation of the Company.
3.3 NO VIOLATION. The execution, delivery, and performance of
this Agreement and the consummation of the transactions contemplated herein will
not violate any provision of the organizational documents of the Company,
violate any statute, law, or any judgment, decree, order, regulation, or rule of
any court or governmental authority, or cause a breach of or default under, with
or without any notice or the lapse of time or both, any provision of any
agreement or instrument to which the Company is a party or by which any of its
properties are affected.
4. CONDITIONS TO THE ISSUANCE OF THE DEBENTURES. Other than the
issuance of the Debenture concurrent with the execution and delivery of this
Agreement, each draw upon funds and issuance of a Debenture therefor shall be
subject to the following conditions, unless waived in writing by the party that
is the beneficiary of such condition:
4.1 REPRESENTATIONS AND WARRANTIES TRUE. All of the
representations and warranties of the Company contained in Section 3 of this
Agreement shall be true and correct as of the date of the draw, and the Company
shall deliver to the Purchaser a certificate executed by the Company's President
attesting thereto. All of the representations and warranties of the Purchaser
contained in Section 2 of this Agreement shall be true and correct as of the
date of the draw, and all such representations and warranties shall be deemed to
be correct and the Company shall have the right to rely upon them unless the
Purchaser shall have notified the Company in writing prior to the draw.
4.2 DELIVERY TO THE PURCHASER. The Company shall have delivered to
the Purchaser a duly executed Debenture in an amount equal to the draw.
4.3 NO DEFAULT. The Company shall not be in default under the
Debentures.
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5. INDEMNIFICATION.
5.1 INDEMNIFICATION. Each party (the "Indemnifying Party")
shall indemnify, save, defend, and hold the other party (the "Indemnified
Party") harmless from and against any and all claims, demands, expenses,
lawsuits, liabilities, and losses, including but not limited to penalties,
interest, court costs, and attorneys' fees, arising out of or in connection with
any breach of a representation or warranty of the Indemnifying Party contained
in this Agreement.
5.2 NOTICE OF CLAIM. Promptly after the receipt by the
Indemnified Party of any notice of a claim or the commencement of any action,
suit, or proceeding, the Indemnified Party shall give the Indemnifying Party
written notice of such claim or the commencement of such action, suit, or
proceeding. The written notice shall include the nature, amount, and cause of
any claim for indemnification in reasonable detail.
5.3 DEFENSE. Upon receipt of a written notice of a claim from
the Indemnified Party, the Indemnifying Party shall provide a defense of the
claim to the Indemnified Party, including legal counsel selected by the Company
and reasonably acceptable to the Purchaser. The Indemnified Party may employ
separate legal counsel, but such separate legal counsel shall be at the
Indemnified Party's own cost and expense, unless the Indemnifying Party fails or
refuses to provide a defense. The Indemnifying Party shall have the exclusive
authority to settle any claim, so long as such compromise or settlement does not
adversely affect the Indemnified Party. The Indemnifying Party shall have no
liability for any settlement made without its prior written consent. The
Indemnified Party shall use its best efforts to assist the Indemnifying Party is
the defense of the claim and shall make available all information and assistance
that the Indemnifying Party may reasonably request in connection with such
defense.
6. GENERAL PROVISIONS.
6.1 AMENDMENT. All amendments or modifications of this
Agreement shall be in writing and shall be signed by each of the parties hereto.
6.2 WAIVER. Any waiver of any right, power, or privilege
hereunder must be in writing and signed by the party being charged with the
waiver. No delay on the part of any party hereto in exercising any right, power,
or privilege hereunder shall operate as a waiver of any other right, power, or
privilege hereunder, nor shall any single or partial exercise of any right,
power, or privilege hereunder preclude any other or further exercise thereof or
the exercise of any other right, power, or privilege.
6.3 NOTICES. All notices or other communications required or
permitted to be given pursuant to this Agreement shall be in writing and shall
be delivered personally or sent by overnight courier, by telecopier with
confirmation by first class mail, or by certified mail, return receipt
requested. Notices delivered personally or sent by overnight courier or
telecopier with confirmation by first class mail shall be effective on the date
first received, while notices sent by certified mail, return receipt requested,
shall be deemed to have been received and to be effective three (3) business
days after deposit into the mails. Notices shall be given to the parties at the
following respective addresses, or to such other addresses as any party shall
designate in writing:
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If to the Company: Mr. Alex Kanakaris
President
Kanakaris Communications, Inc.
3303 Harbor Boulevard
Suite F-3
Costa Mesa, California 90265
Telephone: (714) 444-0560
Telecopier: (714) 549-8970
With copy to: Gerard N. Casale, Jr., Esq.
Casale Coffee Nojima, LLP
11755 Wilshire Boulevard
Suite 1200
Los Angeles, California 90025
If to the Purchaser: AS INDICATED IN ATTACHMENT "A"
6.4 SUCCESSORS AND ASSIGNS. This Agreement and each of its
provisions shall be binding upon and shall inure to the benefit of the parties
hereto and their respective administrators, successors, and assigns.
Notwithstanding the immediately preceding sentence, neither party may assign any
of its rights or obligations hereunder without the prior written consent of the
other party, which consent the other party may withhold in its sole and absolute
discretion.
6.5 LAW GOVERNING. This Agreement has been negotiated,
executed, and delivered and shall be performed in the State of California and
shall be governed by and construed and enforced in accordance with the laws of
the State of California, without regard for its conflict of laws rules. The
parties hereby irrevocably submit to the exclusive jurisdiction of the courts of
the State of California and any United States District Court situated in the
State of California for the purposes of construing and enforcing this Agreement.
6.6 ATTORNEYS' FEES. Should a lawsuit be commenced to
interpret or enforce the terms of this Agreement, the prevailing party shall be
entitled to recover costs and attorneys' fees in addition to any other recovery
to which such party may be entitled.
6.7 COUNTERPARTS. This Agreement may be executed in two or
more counterparts, including by facsimile transmission, all of which together
shall constitute a single instrument.
6.8 SEVERABILITY OF PROVISIONS. In the event any one or more
of the provisions of this Agreement shall for any reason be held to be invalid,
illegal, or unenforceable in any respect, such invalidity, illegality, or
unenforceability shall not affect any other provision hereof, and this Agreement
shall be construed as if such invalid, illegal, or unenforceable provision had
never been contained herein.
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6.9 INTEGRATION. This Agreement along with the Kanakaris
Communications, Inc., 10% Convertible Subordinated Debenture, dated September
29, 1999, the Registration Rights Agreement, dated September 29, 1999, and a
Stock Escrow and Security Agreement, if any, constitutes the entire
understanding and agreement between the parties with respect to the transactions
contemplated herein and supersedes all previous communications, representations,
or understandings, either oral or written, between the parties relating to the
subject matter hereof, all of which are merged herein.
6.10 EXPENSES. Except as otherwise set forth herein, each
party shall bear all of its own expenses incurred in negotiating and performing
this Agreement.
6.11 CONSTRUCTION. The headings in the sections and paragraphs
of this Agreement are for convenience only and shall not constitute a part
hereof. Whenever the context so requires, the masculine shall include the
feminine and the neuter, the singular shall include the plural, and conversely.
The terms and all parts of this Agreement shall in all cases be interpreted
simply and according to their plain meaning and neither for nor against any
party hereto.
IN WITNESS WHEREOF, the parties have duly executed and delivered this
Agreement as of the date first written above.
___________________________________ Kanakaris Communications, Inc.
By: see Attachment "A" By: /s/ Alex Kanakaris
------------------------------- ----------------------------
Alex Kanakaris
President
<PAGE>
Attachment A
HOLDERS:
AJW PARTNERS, LLC
By: /s/ Corey S. Ribotsky
-----------------------------
Corey S. Ribotsky
Manager
Address:
1670 Old Country Road, Suite 112
Plainview, New York 11803
NEW MILLENIUM CAPITAL PARTNERS II, LLC
By: /s/ Glenn A. Arbeitman
-----------------------------
Glenn A. Arbeitman
Authorized Signatory
Address:
1670 Old Country Road, Suite 112
Plainview, New York 11803
Debenture Purchase Agreement
<PAGE>
ATTACHMENT "A" CONTINUED
HOLDERS:
BANK INSINGER DE BEAUFORT
By:
----------------------------
Name:
---------------------------
Its: Authorized Signatory
----------------------------
Address:
Herengtecht 551
1017 BW Amsterdam
Netherlands
Debenture Purchase Agreement
Exhibit 4.7
KANAKARIS COMMUNICATIONS, INC.
10% CONVERTIBLE SUBORDINATED DEBENTURE
DUE AUGUST 4, 2000
Kanakaris Communications, Inc., a corporation organized and existing
under the laws of the State of Nevada (the "Company"), for value received,
hereby promises to pay to Alliance Equities (the "Payee") at the address set
forth in the books and records of the Company or at such other address as the
Payee or any registered assign (collectively, the "Holder") may designate in
writing, the principal sum of Five Hundred and Twenty Thousand Dollars
($520,000.00) in lawful money of the United States, together with interest
thereon from the date hereof at the interest rate hereinafter set forth until
payment in full of the outstanding principal balance.
This Debenture is one of a duly authorized issue of Debentures of the
Company designated as its 10% Convertible Subordinated Debentures, limited in
the aggregate principal amount to $1,200,000.00 and issued and sold pursuant to
that certain Debenture Purchase Agreement (the "Purchase Agreement") dated as of
August 5, 1999, by and between the Company and the Payee. The Holder is subject
to certain restrictions and is entitled to certain rights and privileges as set
forth in the Purchase Agreement. This Debenture is unsecured, and is subject to
the subordination provisions set forth in Paragraph 5 of this Debenture.
1. MATURITY. This Debenture shall mature and the outstanding principal
balance and all accrued and unpaid interest shall be due and payable on the
first anniversary of the date hereof.
2. INTEREST.
(a) The outstanding principal balance of this Debenture shall
bear interest at the rate of ten percent (10%) per annum. Interest shall accrue
on the actual number of days elapsed based upon a 365-day year. Interest through
the last day of each calendar quarter shall be due and payable in arrears on the
first business day of the month immediately following the end of such calendar
quarter.
(b) Notwithstanding anything else to the contrary, the
interest rate provided for herein shall not exceed the maximum rate of interest
allowed under applicable usury law. Any payment paid in excess of this maximum
rate of interest shall be deemed to be a prepayment of principal.
3. PREPAYMENT. At its option, the Company may prepay all or any portion
of the outstanding principal balance of this Debenture at any time or from time
to time without penalty or premium by giving the Holder not less than thirty
(30) days advance written notice and paying one hundred percent (100%) of the
principal amount being prepaid plus all accrued and unpaid interest thereon. All
principal amounts prepaid shall cease to bear interest on the date of payment.
If the Debentures are held by more than one person and the Company elects to
prepay less than all of the outstanding principal balance, then the Company
shall prepay the same percentage of the outstanding principal balance of the
Debentures held by each such person. Prior to the date of payment, the Holder
shall retain full conversion rights with respect to any amount of this Debenture
called for prepayment.
<PAGE>
4. TRANSFER. The Holder may offer, sell, transfer, assign, pledge,
hypothecate, or otherwise dispose of or encumber this Debenture, in person or by
duly authorized attorney, at the offices of the Company upon surrender of this
Debenture and on presentation of a duly executed written instrument of transfer,
together with a written opinion of the Holder's legal counsel, reasonably
satisfactory to the Company and its legal counsel, to the effect that this
Debenture may be lawfully offered, sold, transferred, assigned, pledged,
hypothecated, or otherwise disposed of or encumbered without registration and/or
qualification under all applicable federal and state securities laws then in
effect or in reliance upon an applicable exemption from such registration and/or
qualification requirements. Thereupon, the Company shall issue a new Debenture
or Debentures of the same aggregate principal amount and in authorized
denominations. The Company may issue stop transfer instructions to its transfer
agent in connection with such securities laws restrictions. Any offer to sell,
sale, transfer, assignment, pledge, hypothecation, or other disposition or
encumbrance of this Debenture, or any interest therein, effected in violation of
the foregoing transfer restrictions, is unlawful and shall not be consummated on
the books and records of the Company or otherwise be recognized as valid by the
Company, and the Company shall not have any liability therefor.
5. SUBORDINATION.
(a) This Debenture shall be considered as "Subordinated Debt."
It shall be subordinated or junior in right of payment of principal and interest
to all present and future indebtedness that the Company owes or has guaranteed
to any bank, savings and loan, investment company, insurance company, other
licensed financial or lending institution, or accounts receivable or factoring
lender ("Senior Debt"), and it shall rank PARI PASSU in right of payment of
principal and interest on all other Debentures.
(b) The Company shall not pay any payment of the outstanding
principal balance or accrued but unpaid interest on this Debenture if the
Company is in default under any Senior Debt and the holder of such Senior Debt
prohibits the Company from paying any such payment while the Company is in
default under such Senior Debt. Upon any distribution to the creditors of the
Company in a liquidation or dissolution of the Company or in a bankruptcy,
reorganization, receivership, or similar proceeding relating to the Company or
its property, the holders of all Senior Debt shall be entitled to receive
payment in full of the outstanding principal balance and all accrued but unpaid
interest on such Senior Debt before the Holder shall be entitled to receive any
payment of principal or interest on this Debenture.
(c) For the benefit of the holder of any Senior Debt (a
"Senior Lender"), the Holder agrees to execute and deliver an intercreditor or
subordination agreement in favor of the Senior Lender containing the provisions
set forth in subparagraph 5(b) of this Debenture, and any or all of the
following provisions as may be required by the Senior Lender:
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(i) In the event that the Holder receives notice from
the Senior Lender that the Company is in default of its obligations under the
Senior Debt, any payment of money or property in satisfaction of the Company's
obligations under this Debenture, including without limitation payments received
from the Company or anyone on behalf of the Company, and distributions from any
bankruptcy or reorganization proceeding or from any liquidator or receiver of
any nature whatsoever, shall be promptly delivered to the Senior Lender in
precisely the form received, and until so delivered to the Senior Lender, the
same shall be held in trust by the Holder as the property of the Senior Lender.
Any evidence of payment shall be endorsed by the Holder to the Senior Lender and
in the event that the Holder fails to do so, the Holder shall make, constitute,
and appoint the Senior Lender as its true and lawful attorney-in-fact to endorse
the Holder's name on any such evidence of payment;
(ii) A Senior Lender may, at any time and without
notice to the Holder, exercise all rights and remedies as provided for in its
security agreements with the Company or granted to it by law, with respect to
enforcing its security interest in any collateral. In liquidating or disposing
of such collateral, the Senior Lender need only use its reasonable efforts with
respect thereto and shall not be liable to the Holder for any act or omission
with respect to the liquidation, disposition, realization, or collection of such
collateral or that the proceeds realized from such action could, under other
circumstances, have been greater. The Senior Lender shall account to the Holder
for any surplus in excess of the amount of the Senior Debt received from a
liquidation or disposition of such collateral; and
(iii) Such other customary representations,
warranties, agreements, and indemnifications.
(d) The Company shall not pay any distribution or return of
capital to any holder of its equity securities if the Company is in default
under this Debenture. Upon any distribution to the creditors of the Company in a
liquidation or dissolution of the Company or in a bankruptcy, reorganization,
receivership, or similar proceeding relating to the Company or its property, the
Holder shall be entitled to receive payment in full of the outstanding principal
balance and all accrued but unpaid interest on this Debenture before any holder
of any equity securities of the Company receives any distribution or return of
capital.
6. CONVERSION.
(a) The "Market Price" of a share of the Company's common
stock (the "Common Stock") shall mean the average of the closing prices of the
Common Stock as reported on Nasdaq or, if such security bid is not listed or
admitted to trading on the Nasdaq System, on the principal national security
exchange or quotation system on which such security is quoted or listed or
admitted to trading, or, if not quoted or listed or admitted to trading on any
national securities exchange or quotation system, the closing bid price of such
security on the over-the-counter market on the day in question as reported by
the National Quotation Bureau Incorporated, or a similar generally accepted
reporting service, or if not so available, in such manner as furnished by any
Nasdaq member firm of the National Association of Securities Dealers, Inc.
selected from time to time by the Board of Directors of the Company for that
purpose, as the case may be, for the twenty (20) trading days immediately
preceding the date in question.
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<PAGE>
(b) At the option of the Holder at any time after the date of
issuance, or automatically on the earlier of (i) the effective date of the
registration statement for a public offering of the Company's Common Stock, if
such offering results in an offering of at least Five Million Dollars
($5,000,000) of Common Stock, (ii) the date on which the Common Stock is listed
for sale on a national stock exchange or has its sales or bid price quoted on
NASDAQ with a sales/bid price of at least Five Dollars and No Cents ($5.00) per
share, as adjusted for stock splits, subdivisions, and combinations of the
outstanding shares of Common Stock after the date hereof, or (iii) the
securities into which this Debenture would be convertible as a result of a
merger, consolidation, or sale of assets as set forth in subparagraph 6(i) of
this Debenture, at the time of such merger, consolidation, or sale or
subsequently, meet the criteria set forth in either clause (i) or (ii) of this
subparagraph 6(b), this Debenture shall be convertible into that number of fully
paid and nonassessable shares of Common Stock (or other securities in the event
of clause (iii) of this subparagraph 6(b)), rounded to the nearest whole share,
computed by dividing the outstanding principal amount of this Debenture, plus
all accrued but unpaid interest, by the Conversion Price (as defined in
subparagraph 6(f) of this Debenture).
(c) Before the Holder shall be entitled to exercise the option
to convert this Debenture into shares of Common Stock, the Holder shall
surrender this certificate, duly endorsed, at the office of the Company, shall
give written notice to the Company at its principal corporate office of the
election to convert, and shall provide the Company with an investor
representation letter containing such representations as are customary in a
private placement of securities and as may be reasonably requested by the
Company. The Company shall issue and deliver to the Holder a certificate or
certificates for the number of shares of Common Stock to which the Holder shall
be entitled. The conversion shall be deemed to have been made immediately prior
to the close of business on the date that the Company receives the surrender of
this Debenture to be converted, the written notice of election to convert, and
the investor representation letter, and the Holder shall be treated for all
purposes as the record holder of such shares of Common Stock as of that date.
(d) In the event of the mandatory conversion of this Debenture
into shares of Common Stock, the Company shall give written notice of the intent
to so convert at least fifteen (15) days prior to such conversion, and shall
request that the Holder surrender this Debenture to the Company. On the
conversion date, the Company shall cancel this Debenture and so annotate its
books and records, and shall issue a certificate for the shares of Common Stock
and deliver such certificate to the Holder; provided that the Company shall have
no obligation to deliver the certificate for the shares of Common Stock until
the Holder shall have surrendered this Debenture or shall have notified the
Company that this Debenture has been lost, stolen, or destroyed and shall have
complied with the provisions of Paragraph 14 of this Debenture. On the
conversion date, the Holder shall have no more rights under this Debenture and
shall be treated for all purposes as the record holder of shares of Common Stock
as of that date.
(e) No fractional shares of Common Stock shall be issued on
the conversion of this Debenture. If any fractional interest in a share of
Common Stock would, except for the provisions of this subparagraph 6(e), be
deliverable on the conversion of this Debenture, the Company shall, in lieu of
delivering the fractional share for that fractional interest, adjust the
fractional interest by payment to the Holder an amount in cash (computed to the
nearest cent) equal to the Market Price of the fractional interest.
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<PAGE>
(f) The Conversion Price shall initially be $0.60. The
Conversion Price will be subject to adjustment pursuant to this Section 6.
(g) In the event of a stock split, subdivision, or combination
of shares of Common Stock, the Conversion Price shall be adjusted, rounded to
the nearest cent, such that this Debenture will be convertible into the same
number of shares of Common Stock after such event as the Holder would have if
this Debenture had been converted into shares of Common Stock immediately prior
to such event.
(h) In the event of a capital reorganization,
reclassification, exchange, or substitution of the Common Stock (other than a
subdivision or combination of shares or a merger, consolidation, or sale of
assets), this Debenture shall thereafter be convertible into the kind of
securities or property that a holder of Common Stock would have been entitled to
receive on such reorganization, reclassification, exchange, or substitution. The
Conversion Price shall be adjusted, rounded to the nearest cent, such that this
Debenture will be convertible into the same amount of securities or property
after such event as the Holder would have if this Debenture had been converted
into shares of Common Stock immediately prior to such event.
(i) In the event the Company shall merge or consolidate into
another company where the Company is not the surviving entity, or sell all or
substantially all of its assets to another person, this Debenture shall
thereafter be convertible into the kind of securities or property that a holder
of Common Stock would have been entitled to receive on such merger,
consolidation, or sale. The Conversion Price shall be adjusted, rounded to the
nearest cent, such that this Debenture will be convertible into the same amount
of securities or property after such event as the Holder would have if this
Debenture had been converted into shares of Common Stock immediately prior to
such event. In any such case, an appropriate adjustment (as determined by the
Board of Directors) shall be made in the application of the provisions of this
Debenture with respect to the rights and interests thereafter of the Holder such
that the provisions of this Debenture (including provisions with respect to
changes in and other adjustments of the Conversion Price) shall thereafter be
applicable, as nearly as reasonably may be, in relation to any shares or other
property thereafter deliverable on conversion of this Debenture.
(j) In the event that the Company shall issue shares of Common
Stock, whether directly or on the exercise of an option, warrant, or other right
to purchase shares of Common Stock or on the conversion of any convertible
security, for a sales price that is less than both the then Conversion Price and
the Market Price (1) pursuant to any stock split, stock dividend, or
subdivision, (2) on the exercise or conversion of any option, warrant, or
convertible security outstanding on the date hereof, or (3) pursuant to any
employee stock or stock option plan approved by the Company's shareholders), the
Conversion Price shall be adjusted, rounded to the nearest cent, to be an amount
equal to the Market Price multiplied by a fraction, the numerator of which is
the sum of the number of shares of Common Stock on a fully diluted basis
outstanding immediately prior to the issuance plus the number of shares of
Common Stock that the total consideration received by the Company (as set forth
in subparagraph 6(k) of this Debenture) would purchase at the then Conversion
Price, and the denominator of which is the number of shares of Common Stock on a
fully diluted basis outstanding immediately after the issuance.
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(k) For the purposes of subparagraph 6(j) of this Debenture,
the total consideration received by the Company for any issuance of shares of
Common Stock shall be the sum of all cash and the fair market value of all
property other than cash, as determined by the Company's Board of Directors in
good faith, received or applied to the benefit of the Company, including for
options, warrants, rights, and convertible securities the amount, if any,
received on the issuance of such option, warrant, right, or convertible
security. When equity securities are issued in connection with debt securities,
the allocation of the purchase price shall be as determined by the parties
thereto, or if not so determined, then as determined by the Company's Board of
Directors in good faith.
(l) Upon any adjustment of the Conversion Price, the Company
shall maintain at its principal executive office a statement, signed by its
President, any Vice President, or Chief Financial Officer, showing in reasonable
detail the facts requiring the adjustment and the Conversion Price after the
adjustment.
(m) In the event that the Company shall set a record date for
the purpose of entitling the holders of the Common Stock to receive a dividend
or other distribution payable in shares of Common Stock or other securities or
rights convertible into or entitling the holder thereof to receive, directly or
indirectly, additional shares of Common Stock, or in the event the Company shall
reorganize or reclassify its capital stock (other than a subdivision or
combination of its outstanding shares), merge or consolidate into another
company, or sell of all or substantially all of its assets to another company,
or in the event of the voluntary or involuntary dissolution, liquidation, or
winding up of the Company, then the Company shall send a written notice, in the
form described below, to the Holder. The notice shall state the date that has
been set as the record date for the purpose of such dividend or distribution, or
on which the reclassification, reorganization, merger, consolidation, sale,
dissolution, liquidation, or winding up is to take place and the record date as
of which holders of record of shares of Common Stock shall be entitled to
exchange such shares for securities or other property deliverable on
reclassification, reorganization, merger, consolidation, sale, dissolution,
liquidation, or winding up. The notice shall be mailed at least ten (10) days
prior to the date specified in the notice, as determined pursuant to the
provisions of the preceding sentence.
(n) The Company shall at all times reserve and keep available,
out of its authorized but unissued or treasury shares of Common Stock, solely
for the purpose of effecting conversion of this Debenture, the full number of
shares of Common Stock deliverable on conversion of this Debenture. The Company
shall, from time to time, in accordance with Nevada law, increase the authorized
number of shares of Common Stock if at any time the authorized number of shares
of Common Stock remaining unissued shall not be sufficient to permit the
conversion of this Debenture.
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(o) The Company shall pay any and all issue and other taxes
that may be payable in respect of any issue or delivery of shares of Common
Stock on conversion of this Debenture. The Company shall not, however, be
required to pay any tax that may be payable in respect of any transfer involved
in the issue and delivery of shares of Common Stock in a name other than that of
the Holder, and no such issue or delivery shall be made unless and until the
Holder has paid to the Company the amount of any such tax or has established to
the satisfaction of the Company that such tax has been paid.
7. DEFAULT. Upon the occurrence of any of the following (a "Default"),
the Holder may declare the entire unpaid principal balance of this Debenture and
all accrued but unpaid interest thereon immediately due and payable, by giving
written notice to the Company:
(a) the Company fails to make any payment of the principal or
interest on this Debenture within thirty (30) days of the date such payment was
due and payable;
(b) the Company breaches any provision of this Debenture and
such breach remains uncured for thirty (30) days after written notice thereof
from the Holder, unless such breach is of such a nature that it cannot be cured
within thirty (30) days and the Company commences a cure within thirty (30) days
after receipt of written notice of the breach and diligently proceeds to
complete the cure as soon as possible but in no event greater than one hundred
eighty (180) days after receipt of such notice;
(c) the Company is in default under any Senior Debt that gives
the Senior Lender the right to accelerate such Senior Debt, and the Senior
Lender in fact accelerates the maturity of such Senior Debt, but only if such
default and acceleration would have a material adverse effect on the Company;
(d) the Company is in Default under any other Debenture, and
the holder thereof accelerates the maturity of such Debenture; or
(e) the Company elects to dissolve, dissolves, or is the
subject of any order, judgment, or decree of any court or governmental authority
dissolving or ending the existence of the Company.
8. AUTOMATIC DEFAULT. Upon the occurrence of any of the following (an
"Automatic Default"), the entire unpaid principal balance of this Debenture and
all accrued but unpaid interest thereon shall immediately become due and
payable, without the requirement for any notice from the Holder:
(a) the Company files or consents to any voluntary or
involuntary petition for bankruptcy, insolvency, reorganization, liquidation, or
other similar form of debtor relief, or petitions for or consents to the
appointment of a receiver, trustee, or liquidate on its behalf for all or a
substantial portion of its assets, or makes a general assignment for the benefit
of creditors; or
(b) the Company is the subject of any involuntary petition for
bankruptcy, insolvency, reorganization, liquidation, or other similar form of
debtor relief, or has a receiver, trustee, or liquidate appointed on its behalf
for all or a substantial portion of its assets, unless such petition or
appointment is set aside, withdrawn, or ceases to be in effect within ninety
(90) days from the date of any such petition or appointment.
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9. COLLECTION. In the event of a Default or an Automatic Default, the
Holder may place this Debenture in the hands of an attorney for collection and
the Company shall pay all costs of collection, including but not limited to
court costs and attorneys' fees.
10. WAIVER. The Company hereby waives diligence, presentment, protest,
notice of protest, notice of dishonor, and notice of nonpayment of this
Debenture, and specifically consents to and waives notice of any renewal or
extension of this Debenture. The Company hereby waives the benefits of the
statute of limitations to the maximum extent allowed by law. No delay by the
Holder in exercising any power or privilege hereunder, nor the single or partial
exercise of any power or privilege hereunder, shall preclude any other or
further exercise thereof, or the exercise of any other power or privilege
hereunder.
11. AMENDMENT. This Debenture may be waived, changed, modified, or
amended only with the written consent of the Company and those persons holding a
majority of the outstanding principal balance of all of the Debentures. Any such
waiver, change, modification, or amendment approved by those persons holding a
majority of the outstanding principal balance of all of the Debentures shall be
binding on the Holder and this Debenture, even if the Holder did not consent
thereto.
12. NOTICES. All notices or other communications required or permitted
to be given pursuant to this Debenture shall be in writing and shall be
delivered personally or sent by overnight courier, by telecopier with
confirmation by firstclass mail, or by certified mail, return receipt requested.
Notices delivered personally or sent by overnight courier or telecopier with
confirmation by firstclass mail shall be effective on the date first received,
while notices sent by certified mail, return receipt requested, shall be deemed
to have been received and to be effective three (3) business days after deposit
into the mails. Notices shall be given to the Company at the following address,
to the Holder at the address set forth in the books and records of the Company,
or to such other addresses as either party shall designate in writing:
If to the Company: Mr. Alex Kanakaris
President
Kanakaris Communications, Inc.
3303 Harbor Boulevard
Suite F-3
Costa Mesa, California 90265
Telephone: (714) 444-0560
Telecopier: (714) 549-8970
13. ASSIGNMENT. Subject to the restrictions on transfer described in
Paragraph 4 of this Debenture, the rights and obligations of the Company and the
Holder shall be binding upon and inure to the benefit their successors, assigns,
heirs, executors, administrators, and transferees.
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14. REPLACEMENT OF THIS DEBENTURE. On receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction, or mutilation of
this Debenture, and, in the case of loss, theft, or destruction, on delivery of
an indemnity agreement reasonably satisfactory in form and substance to the
Company or, in the case of mutilation, on surrender and cancellation of this
Debenture, the Company at its expense shall execute and deliver, in lieu of this
Debenture, a new Debenture of like tenor and amount.
15. LAW GOVERNING. This Debenture is deemed to be negotiated, executed,
and delivered and to be performed in the State of California, and shall be
governed by and construed and enforced in accordance with the laws of the State
of California, except for its conflict of laws rules. The parties hereby
irrevocably submit to the exclusive jurisdiction of the courts of the State of
California and any United States District Court situated in the State of
California, for any suit or proceeding arising out of or based upon this
Debenture.
16. CONSTRUCTION. The headings in the Paragraphs of this Debenture are
for convenience only and shall not constitute a part hereof. Whenever the
context so requires, the masculine shall include the feminine and the neuter,
the singular shall include the plural, and conversely. The terms and all parts
of this Debenture shall in all cases be interpreted simply and according to
their plain meaning and neither for nor against any party hereto.
17. TIME OF THE ESSENCE. Time is hereby expressly declared to be of the
essence of this Debenture and of every provision hereof.
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IN WITNESS WHEREOF, the Company has caused this Debenture to be issued
on the date first written above.
Kanakaris Communications, Inc.
By: /s/ Alex Kanakaris
-----------------------------
Alex Kanakaris
President
10
Exhibit 4.8
KANAKARIS COMMUNICATIONS, INC.
10% CONVERTIBLE SUBORDINATED DEBENTURE
DUE SEPTEMBER 29, 2000
Kanakaris Communications, Inc., a corporation organized and existing
under the laws of the State of Nevada (the "Company"), for value received,
hereby promises to pay to those parties identified in ATTACHMENT "A" exhibited
hereto (the "Payee") at the address set forth in the books and records of the
Company or at such other address as the Payee or any registered assign
(collectively, the "Holder") may designate in writing, the principal sum of Five
Hundred and Fifty Thousand Dollars ($550,000.00) in lawful money of the United
States, together with interest thereon from the date hereof at the interest rate
hereinafter set forth until payment in full of the outstanding principal
balance.
This Debenture is one of a duly authorized issue of Debentures of the
Company designated as its 10% Convertible Subordinated Debentures, limited in
the aggregate principal amount to $1,070,000.00 and issued and sold pursuant to
that certain Debenture Purchase Agreement (the "Purchase Agreement") dated as of
September 29, 1999, by and between the Company and the Payee. The Holder is
subject to certain restrictions and is entitled to certain rights and privileges
as set forth in the Purchase Agreement. This Debenture is unsecured, and is
subject to the subordination provisions set forth in Paragraph 4 of this
Debenture.
1. MATURITY. This Debenture shall mature and the outstanding principal
balance and all accrued and unpaid interest shall be due and payable on the
first anniversary of the date hereof.
2. INTEREST.
(a) The outstanding principal balance of this Debenture shall bear
interest at the rate of ten percent (10%) per annum. Interest shall accrue on
the actual number of days elapsed based upon a 365-day year. Interest through
the last day of each calendar quarter shall be due and payable in arrears on the
first business day of the month immediately following the end of such calendar
quarter.
(b) Notwithstanding anything else to the contrary, the interest rate
provided for herein shall not exceed the maximum rate of interest allowed under
applicable usury law. Any payment paid in excess of this maximum rate of
interest shall be deemed to be a prepayment of principal.
3. PREPAYMENT PREMIUM. If the Company prepays all or any portion of the
outstanding principal balance of this Debenture at any time, the Company will
also pay an amount equal to one hundred and twenty percent (120%) of the value
of the outstanding principal balance and accrued interest of the Debenture not
previously converted into Company stock. All principal amounts prepaid shall
cease to bear interest on the date of payment. If the Debentures are held by
more than one person and the Company elects to prepay less than all of the
outstanding principal balance, then the Company shall prepay the same percentage
of the outstanding principal balance of the Debentures held by each such person
subject to the prepayment penalty. Prior to the date of payment, the Holder
shall retain full conversion rights with respect to any amount of this Debenture
called for prepayment.
<PAGE>
4. TRANSFER. The Holder may offer, sell, transfer, assign, pledge,
hypothecate, or otherwise dispose of or encumber this Debenture, in person or by
duly authorized attorney, at the offices of the Company upon surrender of this
Debenture and on presentation of a duly executed written instrument of transfer,
together with a written opinion of the Holder's legal counsel, reasonably
satisfactory to the Company and its legal counsel, to the effect that this
Debenture may be lawfully offered, sold, transferred, assigned, pledged,
hypothecated, or otherwise disposed of or encumbered without registration and/or
qualification under all applicable federal and state securities laws then in
effect or in reliance upon an applicable exemption from such registration and/or
qualification requirements. Thereupon, the Company shall issue a new Debenture
or Debentures of the same aggregate principal amount and in authorized
denominations. The Company may issue stop transfer instructions to its transfer
agent in connection with such securities laws restrictions. Any offer to sell,
sale, transfer, assignment, pledge, hypothecation, or other disposition or
encumbrance of this Debenture, or any interest therein, effected in violation of
the foregoing transfer restrictions, is unlawful and shall not be consummated on
the books and records of the Company or otherwise be recognized as valid by the
Company, and the Company shall not have any liability therefor.
5. SUBORDINATION.
(a) This Debenture shall be considered as "Subordinated Debt." It
shall be subordinated or junior in right of payment of principal and interest to
all present and future indebtedness that the Company owes or has guaranteed to
any bank, savings and loan, investment company, insurance company, other
licensed financial or lending institution, or accounts receivable or factoring
lender ("Senior Debt"), and it shall rank PARI PASSU in right of payment of
principal and interest on all other Debentures.
(b) The Company shall not pay any payment of the outstanding
principal balance or accrued but unpaid interest on this Debenture if the
Company is in default under any Senior Debt and the holder of such Senior Debt
prohibits the Company from paying any such payment while the Company is in
default under such Senior Debt. Upon any distribution to the creditors of the
Company in a liquidation or dissolution of the Company or in a bankruptcy,
reorganization, receivership, or similar proceeding relating to the Company or
its property, the holders of all Senior Debt shall be entitled to receive
payment in full of the outstanding principal balance and all accrued but unpaid
interest on such Senior Debt before the Holder shall be entitled to receive any
payment of principal or interest on this Debenture.
(c) For the benefit of the holder of any Senior Debt (a "Senior
Lender"), the Holder agrees to execute and deliver an intercreditor or
subordination agreement in favor of the Senior Lender containing the provisions
set forth in subparagraph 5(b) of this Debenture, and any or all of the
following provisions as may be required by the Senior Lender:
(i) In the event that the Holder receives notice from the Senior
Lender that the Company is in default of its obligations under the Senior Debt,
any payment of money or property in satisfaction of the Company's obligations
under this Debenture, including without limitation payments received from the
Company or anyone on behalf of the Company, and distributions from any
bankruptcy or reorganization proceeding or from any liquidator or receiver of
any nature whatsoever, shall be promptly delivered to the Senior Lender in
precisely the form received, and until so delivered to the Senior Lender, the
same shall be held in trust by the Holder as the property of the Senior Lender.
Any evidence of payment shall be endorsed by the Holder to the Senior Lender and
in the event that the Holder fails to do so, the Holder shall make, constitute,
and appoint the Senior Lender as its true and lawful attorney-in-fact to endorse
the Holder's name on any such evidence of payment;
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(ii) A Senior Lender may, at any time and without notice to the
Holder, exercise all rights and remedies as provided for in its security
agreements with the Company or granted to it by law, with respect to enforcing
its security interest in any collateral. In liquidating or disposing of such
collateral, the Senior Lender need only use its reasonable efforts with respect
thereto and shall not be liable to the Holder for any act or omission with
respect to the liquidation, disposition, realization, or collection of such
collateral or that the proceeds realized from such action could, under other
circumstances, have been greater. The Senior Lender shall account to the Holder
for any surplus in excess of the amount of the Senior Debt received from a
liquidation or disposition of such collateral; and
(iii) Such other customary representations, warranties,
agreements, and indemnifications.
(d) The Company shall not pay any distribution or return of capital
to any holder of its equity securities if the Company is in default under this
Debenture. Upon any distribution to the creditors of the Company in a
liquidation or dissolution of the Company or in a bankruptcy, reorganization,
receivership, or similar proceeding relating to the Company or its property, the
Holder shall be entitled to receive payment in full of the outstanding principal
balance and all accrued but unpaid interest on this Debenture before any holder
of any equity securities of the Company receives any distribution or return of
capital.
6. CONVERSION.
(a) The "Market Price" of a share of the Company's common stock (the
"Common Stock") shall mean the average of the closing bid prices of the Common
Stock as reported on Nasdaq or, if such security bid is not listed or admitted
to trading on the Nasdaq System, on the principal national security exchange or
quotation system on which such security is quoted or listed or admitted to
trading, or, if not quoted or listed or admitted to trading on any national
securities exchange or quotation system, the closing bid price of such security
on the over-the-counter market on the day in question as reported by the
National Quotation Bureau Incorporated, or a similar generally accepted
reporting service, or if not so available, in such manner as furnished by any
Nasdaq member firm of the National Association of Securities Dealers, Inc.
selected from time to time by the Board of Directors of the Company for that
purpose, as the case may be, for the twenty (20) trading days immediately
preceding the date in question.
(b) At the option of the Holder at any time after the date of
issuance, or automatically on the earlier of (i) the effective date of the
registration statement for a public offering of the Company's Common Stock, if
such offering results in an offering of at least Five Million Dollars
($5,000,000) of Common Stock, (ii) the date on which the Common Stock is listed
for sale on a national stock exchange or has its sales or bid price quoted on
NASDAQ with a sales/bid price of at least Five Dollars and No Cents ($5.00) per
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<PAGE>
share, as adjusted for stock splits, subdivisions, and combinations of the
outstanding shares of Common Stock after the date hereof, (iii) the securities
into which this Debenture would be convertible as a result of a merger,
consolidation, or sale of assets as set forth in subparagraph 6b (i) of this
Debenture, at the time of such merger, consolidation, or sale or subsequently,
meet the criteria set forth in either clause (i) or (ii) of this subparagraph
6(b), this Debenture shall be convertible into that number of fully paid and
nonassessable shares of Common Stock (or other securities in the event of clause
(iii) of this subparagraph 6(b)), rounded to the nearest whole share, computed
by dividing the outstanding principal amount of this Debenture, plus all accrued
but unpaid interest, by the Conversion Price (as defined in subparagraph 6(f) of
this Debenture) or (iv) March 1, 2000, if any registration statement filed or
amended subsequent to this Agreement has not become effective and to which any
portion of this Debenture is converted to shares and registered for resale.
(c) Before the Holder shall be entitled to exercise the option to
convert this Debenture into shares of Common Stock, the Holder shall surrender
this certificate, duly endorsed, at the office of the Company, shall give
written notice to the Company at its principal corporate office of the election
to convert, and shall provide the Company with an investor representation letter
containing such representations as are customary in a private placement of
securities and as may be reasonably requested by the Company. The Company shall
issue and deliver to the Holder a certificate or certificates for the number of
shares of Common Stock to which the Holder shall be entitled. The conversion
shall be deemed to have been made immediately prior to the close of business on
the date that the Company receives the surrender of this Debenture to be
converted, the written notice of election to convert, and the investor
representation letter, and the Holder shall be treated for all purposes as the
record holder of such shares of Common Stock as of that date.
(d) On the conversion date, the Company shall cancel this Debenture
and so annotate its books and records, and shall issue a certificate for the
shares of Common Stock and deliver such certificate to the Holder; provided that
the Company shall have no obligation to deliver the certificate for the shares
of Common Stock until the Holder shall have surrendered this Debenture or shall
have notified the Company that this Debenture has been lost, stolen, or
destroyed and shall have complied with the provisions of Paragraph 14 of this
Debenture. On the conversion date, the Holder shall have no more rights under
this Debenture and shall be treated for all purposes as the record holder of
shares of Common Stock as of that date.
(e) No fractional shares of Common Stock shall be issued on the
conversion of this Debenture. If any fractional interest in a share of Common
Stock would, except for the provisions of this subparagraph 6(e), be deliverable
on the conversion of this Debenture, the Company shall, in lieu of delivering
the fractional share for that fractional interest, adjust the fractional
interest by payment to the Holder an amount in cash (computed to the nearest
cent) equal to the Market Price of the fractional interest.
(f) The Conversion Price shall initially be $0.60. The Conversion
Price will be subject to adjustment pursuant to this Section 6.
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(g) In the event of a stock split, subdivision, or combination of
shares of Common Stock, the Conversion Price shall be adjusted, rounded to the
nearest cent, such that this Debenture will be convertible into the same number
of shares of Common Stock after such event as the Holder would have if this
Debenture had been converted into shares of Common Stock immediately prior to
such event.
(h) In the event of a capital reorganization, reclassification,
exchange, or substitution of the Common Stock (other than a subdivision or
combination of shares or a merger, consolidation, or sale of assets), this
Debenture shall thereafter be convertible into the kind of securities or
property that a holder of Common Stock would have been entitled to receive on
such reorganization, reclassification, exchange, or substitution. The Conversion
Price shall be adjusted, rounded to the nearest cent, such that this Debenture
will be convertible into the same amount of securities or property after such
event as the Holder would have if this Debenture had been converted into shares
of Common Stock immediately prior to such event.
(i) In the event the Company shall merge or consolidate into another
company where the Company is not the surviving entity, or sell all or
substantially all of its assets to another person, this Debenture shall
thereafter be convertible into the kind of securities or property that a holder
of Common Stock would have been entitled to receive on such merger,
consolidation, or sale. The Conversion Price shall be adjusted, rounded to the
nearest cent, such that this Debenture will be convertible into the same amount
of securities or property after such event as the Holder would have if this
Debenture had been converted into shares of Common Stock immediately prior to
such event. In any such case, an appropriate adjustment (as determined by the
Board of Directors) shall be made in the application of the provisions of this
Debenture with respect to the rights and interests thereafter of the Holder such
that the provisions of this Debenture (including provisions with respect to
changes in and other adjustments of the Conversion Price) shall thereafter be
applicable, as nearly as reasonably may be, in relation to any shares or other
property thereafter deliverable on conversion of this Debenture.
(j) In the event that the Company shall issue shares of Common
Stock, whether directly or on the exercise of an option, warrant, or other right
to purchase shares of Common Stock or on the conversion of any convertible
security, for a sales price that is less than both the then Conversion Price and
the Market Price (1) pursuant to any stock split, stock dividend, or
subdivision, (2) on the exercise or conversion of any option, warrant, or
convertible security outstanding on the date hereof, or (3) pursuant to any
employee stock or stock option plan approved by the Company's shareholders), the
Conversion Price shall be adjusted, rounded to the nearest cent, to be an amount
equal to the Market Price multiplied by a fraction, the numerator of which is
the sum of the number of shares of Common Stock on a fully diluted basis
outstanding immediately prior to the issuance plus the number of shares of
Common Stock that the total consideration received by the Company (as set forth
in subparagraph 6(k) of this Debenture) would purchase at the then Conversion
Price, and the denominator of which is the number of shares of Common Stock on a
fully diluted basis outstanding immediately after the issuance.
(k) For the purposes of subparagraph 6(j) of this Debenture, the
total consideration received by the Company for any issuance of shares of Common
Stock shall be the sum of all cash and the fair market value of all property
other than cash, as determined by the Company's Board of Directors in good
faith, received or applied to the benefit of the Company, including for options,
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<PAGE>
warrants, rights, and convertible securities the amount, if any, received on the
issuance of such option, warrant, right, or convertible security. When equity
securities are issued in connection with debt securities, the allocation of the
purchase price shall be as determined by the parties thereto, or if not so
determined, then as determined by the Company's Board of Directors in good
faith.
(l) Upon any adjustment of the Conversion Price, the Company shall
maintain at its principal executive office a statement, signed by its President,
any Vice President, or Chief Financial Officer, showing in reasonable detail the
facts requiring the adjustment and the Conversion Price after the adjustment.
(m) In the event that the Company shall set a record date for the
purpose of entitling the holders of the Common Stock to receive a dividend or
other distribution payable in shares of Common Stock or other securities or
rights convertible into or entitling the holder thereof to receive, directly or
indirectly, additional shares of Common Stock, or in the event the Company shall
reorganize or reclassify its capital stock (other than a subdivision or
combination of its outstanding shares), merge or consolidate into another
company, or sell of all or substantially all of its assets to another company,
or in the event of the voluntary or involuntary dissolution, liquidation, or
winding up of the Company, then the Company shall send a written notice, in the
form described below, to the Holder. The notice shall state the date that has
been set as the record date for the purpose of such dividend or distribution, or
on which the reclassification, reorganization, merger, consolidation, sale,
dissolution, liquidation, or winding up is to take place and the record date as
of which holders of record of shares of Common Stock shall be entitled to
exchange such shares for securities or other property deliverable on
reclassification, reorganization, merger, consolidation, sale, dissolution,
liquidation, or winding up. The notice shall be mailed at least ten (10) days
prior to the date specified in the notice, as determined pursuant to the
provisions of the preceding sentence.
(n) The Company shall place the conversion shares in Escrow
according to the terms and conditions of the "Stock Escrow and Security
Agreement" in Attachment "B." The total number of Conversion Shares shall equal
916,667 shares subject to adjustment for stock split, stock dividends and
similar events. The Shares held in Escrow shall be reserved solely for the
Holder. The Escrow shall terminate and the Shares held in Escrow shall be
returned to the Company upon the earlier of (a) the receipt by the Holder of the
Conversion Shares upon conversion of the entire outstanding principal balance of
the Debenture or (b) the Company's payment of the entire outstanding principal
balance of the Debenture. The Company shall, from time to time, in accordance
with Nevada law, increase the authorized number of shares of Common Stock if at
any time the authorized number of shares of Common Stock remaining unissued
shall not be sufficient to permit the conversion of this Debenture.
(o) The Company shall pay any and all issue and other taxes that may
be payable in respect of any issue or delivery of shares of Common Stock on
conversion of this Debenture. The Company shall not, however, be required to pay
any tax that may be payable in respect of any transfer involved in the issue and
delivery of shares of Common Stock in a name other than that of the Holder, and
no such issue or delivery shall be made unless and until the Holder has paid to
the Company the amount of any such tax or has established to the satisfaction of
the Company that such tax has been paid.
6
<PAGE>
7. ISSUANCE OF SHARES
(a) An amount of the Company Shares issuable to the Holder shall be
determined from time to time as described herein (the "Share Issuance") and if
necessary, Shares of Common Stock (the "Shares") will be issued and delivered to
the Holder as provided herein. In reference to this Section 7, the Conversion
Price will be used, in connection with determining any Shares, if any, to be
issued to investors upon certain conditions.
(b) The Issuance of Shares shall be determined on the first market
trading day of each calendar month commencing October 1, 1999 ("Issuance Date")
and shall be applied only to 25% of the total Purchase Price ("Designated
Portion"), at the Holder's written election ("Election Date") at any time during
each quarter per Issuance Date.
(c) If, on the Issuance Date or any of them, the Company's Common
Stock Market Price, as defined in Section 6, hereof, is less than 150% of the
Conversion Price (subject to adjustment for stock split, stock dividends and
similar events), then Shares shall be issued to the Holder according to this
Section 7. The Shares issued, if any, will be calculated for the Designated
Portion only and shall be based on a total Holder Market Value for the
Designated Portion equal to an Expected Share Value of 150% of the Designated
Conversion Price Shares. Should Shares be issuable hereunder to the Holder, then
such Share amount shall be calculated by dividing the Expected Share Value by
the Common Stock Market Price and then subtracting 25% of the Conversion Price
Shares from the result thereof.
(d) Share Issuance rights described herein shall end on the sooner
to occur of one year after the Effective Date of the registration statement or
upon the Holder having realized proceeds from sales of the Company Shares equal
to 150% of the Purchase Price actually paid by the Holder, of which occurrence
the Holder shall notify the Company in writing.
(e) In no event will the Holder be required to return any Shares to
the Company. Each Share Issuance calculation shall be made independent of all
other Share Issuance calculations.
(f) The Company agrees to deliver the Shares to the Holder in hand
no later than ten (10) business days from the Election Date.
(g) Nothing contained herein or in any document referred to herein
or delivered in connection herewith shall be deemed to establish or require the
payment of a rate of interest or other charges in excess of the maximum
permitted by applicable law. In the event that the rate of interest required to
be paid or other charges hereunder exceed the maximum permitted by such law, any
payments in excess of such maximum shall be credited against amounts owed by the
Company to the Holder and thus refunded to the Company.
8. DEFAULT. Upon the occurrence of any of the following (a "Default"),
the Holder may declare the entire unpaid principal balance of this Debenture and
all accrued but unpaid interest thereon immediately due and payable, by giving
written notice to the Company:
7
<PAGE>
(a) the Company fails to make any payment of the principal or
interest on this Debenture within thirty (30) days of the date such payment was
due and payable;
(b) the Company breaches any provision of this Debenture other than
a Default as described in subparagraph 8(a) of this Debenture and such breach
remains uncured for thirty (30) days after written notice thereof from the
Holder, unless such breach is of such a nature that it cannot be cured within
thirty (30) days and the Company commences a cure within thirty (30) days after
receipt of written notice of the breach and diligently proceeds to complete the
cure as soon as possible but in no event greater than one hundred eighty (180)
days after receipt of such notice;
(c) the Company is in default under any Senior Debt that gives the
Senior Lender the right to accelerate such Senior Debt, and the Senior Lender in
fact accelerates the maturity of such Senior Debt, but only if such default and
acceleration would have a material adverse effect on the Company;
(d) the Company is in Default under any other Debenture, and the
holder thereof accelerates the maturity of such Debenture; or
(e) the Company elects to dissolve, dissolves, or is the subject of
any order, judgment, or decree of any court or governmental authority dissolving
or ending the existence of the Company.
9. AUTOMATIC DEFAULT. Upon the occurrence of any of the following (an
"Automatic Default"), the entire unpaid principal balance of this Debenture and
all accrued but unpaid interest thereon shall immediately become due and
payable, without the requirement for any notice from the Holder:
(a) the Company files or consents to any voluntary or involuntary
petition for bankruptcy, insolvency, reorganization, liquidation, or other
similar form of debtor relief, or petitions for or consents to the appointment
of a receiver, trustee, or liquidate on its behalf for all or a substantial
portion of its assets, or makes a general assignment for the benefit of
creditors; or
(b) the Company is the subject of any involuntary petition for
bankruptcy, insolvency, reorganization, liquidation, or other similar form of
debtor relief, or has a receiver, trustee, or liquidate appointed on its behalf
for all or a substantial portion of its assets, unless such petition or
appointment is set aside, withdrawn, or ceases to be in effect within ninety
(90) days from the date of any such petition or appointment.
10. COLLECTION. In the event of a Default or an Automatic Default, the
Holder may place this Debenture in the hands of an attorney for collection and
the Company shall pay all costs of collection, including but not limited to
court costs and attorneys' fees.
11. WAIVER. The Company hereby waives diligence, presentment, protest,
notice of protest, notice of dishonor, and notice of nonpayment of this
Debenture, and specifically consents to and waives notice of any renewal or
extension of this Debenture. The Company hereby waives the benefits of the
statute of limitations to the maximum extent allowed by law. No delay by the
Holder in exercising any power or privilege hereunder, nor the single or partial
exercise of any power or privilege hereunder, shall preclude any other or
further exercise thereof, or the exercise of any other power or privilege
hereunder.
8
<PAGE>
12. AMENDMENT. This Debenture may be waived, changed, modified, or
amended only with the written consent of the Company and those persons holding a
majority of the outstanding principal balance of all of the Debentures. Any such
waiver, change, modification, or amendment approved by those persons holding a
majority of the outstanding principal balance of all of the Debentures shall be
binding on the Holder and this Debenture, even if the Holder did not consent
thereto.
13. NOTICES. All notices or other communications required or permitted
to be given pursuant to this Debenture shall be in writing and shall be
delivered personally or sent by overnight courier, by telecopier with
confirmation by firstclass mail, or by certified mail, return receipt requested.
Notices delivered personally or sent by overnight courier or telecopier with
confirmation by firstclass mail shall be effective on the date first received,
while notices sent by certified mail, return receipt requested, shall be deemed
to have been received and to be effective three (3) business days after deposit
into the mails. Notices shall be given to the Company at the following address,
to the Holder at the address set forth in the books and records of the Company,
or to such other addresses as either party shall designate in writing:
If to the Company: Mr. Alex Kanakaris
President
Kanakaris Communications, Inc.
3303 Harbor Boulevard
Suite F-3
Costa Mesa, California 90265
Telephone: (714) 444-0560
Telecopier: (714) 549-8970
With Copy To: Gerard Casale
Casale Coffee Nojima, LLP
11755 Wilshire Boulevard, Suite 1200
Los Angeles, California 90025
14. ASSIGNMENT. Subject to the restrictions on transfer described in
Paragraph 3 of this Debenture, the rights and obligations of the Company and the
Holder shall be binding upon and inure to the benefit their successors, assigns,
heirs, executors, administrators, and transferees.
15. REPLACEMENT OF THIS DEBENTURE. On receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction, or mutilation of
this Debenture, and, in the case of loss, theft, or destruction, on delivery of
an indemnity agreement reasonably satisfactory in form and substance to the
Company or, in the case of mutilation, on surrender and cancellation of this
Debenture, the Company at its expense shall execute and deliver, in lieu of this
Debenture, a new Debenture of like tenor and amount.
16. LAW GOVERNING. This Debenture is deemed to be negotiated, executed,
and delivered and to be performed in the State of California, and shall be
governed by and construed and enforced in accordance with the laws of the State
9
<PAGE>
of California, except for its conflict of laws rules. The parties hereby
irrevocably submit to the exclusive jurisdiction of the courts of the State of
California and any United States District Court situated in the State of
California, for any suit or proceeding arising out of or based upon this
Debenture.
17. CONSTRUCTION. The headings in the Paragraphs of this Debenture are
for convenience only and shall not constitute a part hereof. Whenever the
context so requires, the masculine shall include the feminine and the neuter,
the singular shall include the plural, and conversely. The terms and all parts
of this Debenture shall in all cases be interpreted simply and according to
their plain meaning and neither for nor against any party hereto.
18. TIME OF THE ESSENCE. Time is hereby expressly declared to be of the
essence of this Debenture and of every provision hereof.
IN WITNESS WHEREOF, the Company has caused this Debenture to be issued
on the date first written above.
KANAKARIS COMMUNICATIONS, INC.
By: /s/ Alex Kanakaris
-----------------------------
Alex Kanakaris
President
10
<PAGE>
Attachment "A"
10% CONVERTIBLE SUBORDINATED DEBENTURE DUE SEPTEMBER 29, 2000
Debenture
Payee Amount
- ----- ------
AJW PARTNERS, LLC $250,000
1670 Old Country Road, Suite 112
Plainview, New York 11803
NEW MILLENIUM CAPITAL
PARTNERS II, LLC $150,000
1670 Old Country Road, Suite 112
Plainview, New York 11803
BANK INSINGER DE BEAUFORT $150,000
Herengtecht 551
1017 BW Amsterdam
Netherlands
Exhibit 4.9
STOCK ESCROW AND SECURITY AGREEMENT
(Attachment "B")
THIS STOCK ESCROW AND SECURITY AGREEMENT (this "Agreement") is dated as
of November 1, 1999, by and between Kanakaris Communications, Inc. (the
"Company"), the party or parties designated in Attachment "A" exhibited hereto
(the "Holder"), and Owen Naccarato, a duly licensed attorney who practices law
in the State of California, as Escrow Agent (the "Escrow Agent").
W I T N E S S E T H
WHEREAS, the Holder and the Company have entered into a Debenture
Purchase Agreement dated as of September 29, 1999 (including all Exhibits and
Addenda thereto, the "Purchase Agreement"), pursuant to which the Holder has
agreed to purchase from the Company, in accordance with the terms hereof and of
the Purchase Agreement, one or more convertible Debentures ("Debentures") as
stated in the Purchase Agreement, which Debentures are convertible in accordance
with their terms into shares of non-restricted common stock ("Common Stock") of
the Company (capitalized terms used herein and not otherwise defined herein
shall have the meanings ascribed to them in the Purchase Agreement); and
WHEREAS, the Holder has requested certain additional security as
partial consideration for Holder's undertakings as described in the Purchase
Agreement; and
WHEREAS, it is a condition of the Holder's and the Company's respective
obligations to execute the Purchase Agreement, that this Agreement be executed
and delivered by all of the parties named above, and that the undertakings
described herein be performed; and
WHEREAS, the Escrow Agent is willing to act hereunder on the terms and
conditions set forth herein;
NOW, THEREFORE, in consideration of the mutual covenants and
obligations set forth below, the parties hereto hereby agree as follows:
1. ESCROW ACCOUNT.
1.1 ACCOUNT DEPOSIT. The transaction(s) described in the Purchase
Agreement shall be entered into and commenced at a closing (the "Closing"). On
or before the date of the Closing, the Company shall place 916,667 shares of
restricted Common Stock (the "Shares"), subject to adjustment for stock split,
stock dividends and similar events, in escrow (the "Escrow" or the "Escrow
Account") with the Escrow Agent. The certificate(s) representing the Shares
shall be issued in the name of, and shall be delivered to the Escrow Agent at
the office address for the Escrow Agent shown on the signature page to this
Agreement. The parties acknowledge that the Escrow Agent shall hold the Shares
in trust, for the purposes set forth herein, and shall in no event be (or be
deemed to be) the beneficial owner of the Shares.
<PAGE>
2. DISBURSEMENT OF SHARES.
2.1 DISBURSEMENT. None of the Shares shall be disbursed other than in
accordance with the terms hereof, or in accordance with the written instructions
of at least two (2) of the three (3) parties hereto (i.e., any two (2) of the
Holder, the Company and the Escrow Agent) delivered to the Escrow Agent. Except
as herein stated, in no event shall the Escrow Agent release or transfer any
Shares to any party other than to the Company in accordance with this Agreement.
The Shares (or such portion as may be applicable) shall be disbursed by the
Escrow Agent on the parties' behalf under the following circumstances.
(a) The Company is bound under the terms of the Purchase Agreement to
register the Common Stock underlying the Debentures, along with the Shares. Both
the Debentures and the Purchase Agreement require that, upon conversion of all
or a portion of the Debentures into Common Stock in accordance with the terms of
the Debentures, the Company shall deliver to the Holder the Common Stock
deliverable upon such conversion (the "Conversion Shares") within certain
specified time limits. If the Company at the time of any conversion does not
deliver the Conversion Shares in accordance with the terms of the Purchase
Agreement and the Debentures, then the Holder may instruct the Escrow Agent to
deliver the Shares to the Holder, who shall have the right, subject to the 1933
Act and applicable state securities laws, to sell such number of Shares as would
equal the number of Conversion Shares to have been delivered by the Company less
such number of Conversion Shares actually delivered by the Company. If the
Escrow Agent delivers to the Holder a certificate representing more Shares than
are necessary to satisfy the Company's obligations pursuant to the terms of the
Purchase Agreement and the Debentures, the Holder shall return any Shares to the
Escrow Agent.
(b) Once the Debentures have been converted or redeemed by the Company
or otherwise repaid to the Holder in full, the Escrow Agent shall be notified of
such fact by the Holder, and the Escrow Agent shall release the remaining Shares
to or at the direction of the Company. The Company shall give written notice
providing instructions with respect to the return of all remaining Shares held
in the Escrow Account (if any) to the Company.
2.2 CONTROVERSIES. If any controversy arises between two or more of the
parties hereto, or between any of the parties hereto and any person not a party
hereto, as to whether or not or whom the Escrow Agent shall deliver the Shares
or any portion thereof or as to any other matter arising out of or relating to
this Escrow Agreement, the Escrow Agent shall not be required to determine the
same and need not make any delivery of the Escrow concerned or any portion
thereof but may retain the same until the rights of the parties to the dispute
shall have been finally determined by agreement or by final judgment of a court
of competent jurisdiction after all appeals have been finally determined (or the
2
<PAGE>
time for further appeals has expired without an appeal having been made)
(notwithstanding the above, the provisions of the paragraph next above this one
shall apply in all events without exception). The Escrow Agent shall deliver
that portion of the Escrow concerned covered by such agreement or final order,
if any is then held by the Escrow Agent, within five (5) days after the Escrow
Agent receives a copy thereof. The Escrow Agent shall assume that no such
controversy has arisen unless and until it receives written notice from the
Holder and/or the Company that such controversy has arisen, which refers
specifically to this Agreement and identifies the adverse claimants to the
controversy.
2.3 NO OTHER DISBURSEMENTS. No portion of the Shares shall be disbursed
or otherwise transferred except in accordance with this Section 2, Section 4 or
Section 5.1 (b).
2.4 TITLE AND OWNERSHIP OF THE SHARES. The parties hereto acknowledge
and agree that ownership of and legal title to the Escrow Account and the
contents thereof shall be in the Company, until and unless delivery of Shares is
called for under this Agreement, in which case the terms of the Purchase
Agreement, the Debentures and this Agreement with respect thereto shall control.
3. ESCROW AGENT. The acceptance by the Escrow Agent of his duties
hereunder is subject to the following terms and conditions, which the parties to
this Agreement hereby agree shall govern and control with respect to the rights,
duties, liabilities and immunities of the Escrow Agent:
3.1 The Escrow Agent shall not be responsible or liable in any manner
whatever for the sufficiency, correctness, genuineness or validity of any cash,
Shares, certificates, investments or other amounts deposited with or held by it.
3.2 The Escrow Agent shall be protected in acting upon any written
notice, certificate, instruction, request or other paper or document believed by
it to be genuine and to have been signed or presented by the proper party or
parties.
3.3 The Escrow Agent shall no be liable for any act done hereunder
except in the case of its reckless or willful misconduct or actions taken in bad
faith.
3.4 The Escrow Agent shall not be obligated or permitted to investigate
the correctness or accuracy of any document or to determine whether or not the
signatures contained in said documents are genuine or to require documentation
or evidence substantiating any such document or signature.
3.5 The Escrow Agent shall have no duties as Escrow Agent except those
which are expressly set forth herein, and in any modification or amendment
hereof; provided, however, that no such modification or amendment hereof shall
affect its duties unless it shall have given its written consent thereto. The
Escrow Agent shall not be prohibited from owning an equity interest in the
Company, the Holder, another Holder, any of their respective subsidiaries or any
third party that is in any way affiliated with or conducts business with either
the Company, the Holder or another Holder.
3
<PAGE>
3.6 The Company and the Holder specifically acknowledge that the Escrow
Agent is a practicing attorney, and may have worked with the Company, the
Holder, or affiliates of either of them on other unrelated transactions, and
that they and each of them has specifically requested that the Escrow Agent
draft some or all of the documents for the said transactions and act as Escrow
Agent with respect to the said transactions. Each party represents that it has
retained legal and other counsel of its choosing with respect to the
transactions contemplated herein and in the Purchase Agreement, and is satisfied
in its sole discretion with the form and content of the documentation drafted by
the Escrow Agent. The Escrow Agent may purchase an equity interest in the
Company and/or may become an equity owner of the Holder or another Holder, and
may increase or sell any such interest, so long as in accordance with any and
all applicable law. The said parties hereby waive any objection to the Escrow
Agent so acting based upon conflict of interest or lack of impartiality. The
Escrow Agent agrees to act impartially and in accordance with the terms of this
Agreement and with the parties' respective instructions, so long as they are not
in conflict with the terms of this Agreement.
4. TERMINATION. This Agreement shall terminate upon the earlier of (a)
the receipt by the Holder of the Conversion Shares upon the conversion of the
entire outstanding principal balance of the Debenture or (b) the Company's
payment of the entire outstanding principal balance of the Debenture. Upon
termination of the Escrow agreement, the Shares held in Escrow shall be returned
to the Company.
5. MISCELLANEOUS.
5.1 INDEMNIFICATION OF ESCROW AGENT.
(a) The Company and Holder each agree, jointly and severally, to
indemnify the Escrow Agent for, and to hold him harmless against, any loss
incurred without willful misconduct or bad faith on the Escrow Agent's part,
arising out of or in connection with the administration of this Agreement,
including the costs and expenses of defending himself against any claim or
liability in connection with the exercise or performance of any of its powers or
duties hereunder. This indemnification shall not apply to a party with respect
to a direct claim against the Escrow Agent by such party alleging in good faith
a willful breach of this Agreement or act of bad faith by the Escrow Agent,
which claim results in a final non-appealable judgment against the Escrow Agent
with respect to such claim.
(b) In the event of any dispute as to the nature of the rights or
obligations of the Holder, the Company or the Escrow Agent hereunder, the Escrow
Agent may at any time or from time to time interplead, deposit and/or pay all or
any part of the Shares with or to a court of competent jurisdiction sitting in
California or in any appropriate federal court, in accordance with the
procedural rules thereof. The Escrow Agent shall give notice of such action to
the Company and the Holder. Upon such interpleader, deposit or payment, the
Escrow Agent shall immediately and automatically be relieved and discharged from
all further obligations and responsibilities hereunder, including the decision
to interplead, deposit or pay such funds.
4
<PAGE>
5.2 AMENDMENTS. This Agreement may be modified or amended only by a
written instrument executed by each of the parties hereto.
5.3 NOTICES. All communications required or permitted to be given under
this Agreement to any party hereto shall be sent by first class mail or
facsimile to such party at the address, of such party set forth on the signature
page of this Agreement.
5.4 SUCCESSORS AND ASSIGNS. This Agreement shall bind and inure to the
benefit of the parties hereto and their respective successors and assigns;
provided, however, that the Escrow Agent shall not assign it's duties under this
Agreement.
5.5 GOVERNING LAW. This Agreement shall be governed by and construed
and interpreted in accordance with the laws of the State of California.
5.6 COUNTERPARTS. This Agreement may be executed in three or more
counterparts, each of which shall be an original, and all of which together
shall constitute one and the same agreement.
5.7 FACSIMILE. This Agreement may be accepted via facsimile, and a
facsimile transmission of the executed signature page hereof shall make this
Agreement legally binding upon the party so executing and faxing such signature
page to the Escrow Agent.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
KANAKARIS COMMUNICATIONS, INC. HOLDER
/S/ Alex Kanakaris see Attachment "A"
- ------------------------------ ------------------------------------
ALEX KANAKARIS, PRESIDENT
OWEN NACCARATO
- ------------------------------
OWEN NACCARATO, ESCROW AGENT
<PAGE>
Attachment "A"
HOLDERS:
AJW PARTNERS, LLC
By: /s/ Corey S. Ribotsky
---------------------------------
Corey S. Ribotsky
Manager
Address:
1670 Old Country Road, Suite 112
Plainview, New York 11803
NEW MILLENIUM CAPITAL PARTNERS II, LLC
By: /s/ Glenn A. Arbeitman
---------------------------------
Glenn A. Arbeitman
Authorized Signatory
Address:
1670 Old Country Road, Suite 112
Plainview, New York 11803
Stock Escrow and Security Agreement
<PAGE>
ATTACHMENT "A" CONTINUED
HOLDERS:
BANK INSINGER DE BEAUFORT
By:
---------------------------------
Name:
-------------------------------
Its: Authorized Signatory
--------------------------------
Address:
Herengtecht 551
1017 BW Amsterdam
Netherlands
Stock Escrow and Security Agreement
Exhibit 4.10
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (the "Agreement") is made and
entered into as of this 5th day of August, 1999, by and between Alliance
Equities, a Florida corporation ("AE"), and Kanakaris Communications, Inc., a
Nevada corporation (the "Company").
RECITAL
AE is purchasing Debentures from the Company that are convertible into
shares of the Company's common stock. The Company hereby grants AE certain
demand and incidental registration rights in connection with such shares.
NOW, THEREFORE, in consideration of the foregoing, the mutual promises
and covenants contained herein, and for other good and valuable consideration,
the receipt and adequacy of which are hereby acknowledged, the parties hereby
agree as follows:
AGREEMENT
1. DEFINITIONS. Unless the context requires otherwise, the
following underlined terms shall have the following respective meanings:
1.1 AGREEMENT. This Registration Rights Agreement.
1.2 AE. Alliance Equities, a Florida corporation.
1.3 COMMON STOCK. The Company's common stock.
1.4 COMPANY. Kanakaris Communications, Inc., a Nevada
corporation.
1.5 DEBENTURES. The Company's 10% Convertible
Subordinated Debentures issued to AE pursuant to that certain Debenture Purchase
Agreement of even date herewith.
1.6 EXCHANGE ACT. The Securities Exchange Act of 1934, as
amended.
1.7 HOLDER. A holder of Shares.
1.8 REGISTRATION EXPENSES. All expenses of registration,
including but not limited to registration and filing fees, including filing fees
for NASDAQ and all stock exchanges on which the Common Stock is traded, fees and
expenses of complying with the Securities Laws, printing expenses, transfer
agent fees, and the fees and expenses of the Company's independent certified
public accountants, the Company's investment banker and underwriter, and the
Company's legal counsel, but excluding the Selling Holder's brokerage fees,
underwriting fees and discounts, transfer taxes, if any, and the fees and
expenses of the Selling Holder's legal counsel and other advisors.
1.9 SEC. The United States Securities and Exchange
Commission.
1.10 SECURITIES ACT. The Securities Act of 1933, as
amended.
<PAGE>
1.11 SECURITIES LAWS. The Securities Act, the Exchange
Act, and all applicable state securities laws, and all rules and regulations
promulgated thereunder.
1.12 SELLING HOLDER. With respect to any registration
statement, any Holder whose Shares are included therein.
1.13 SHARES. Shares of Common Stock issued on conversion
of the Debentures.
2. GRANT OF REGISTRATION RIGHTS.
2.1 REGISTRATION RIGHTS. The Company hereby grants the
Holders unlimited incidental registration rights with respect to the Shares on
the terms and conditions set forth in Section 4 of this Agreement. The Company
hereby grants the Holders as a group four (4) demand registration rights on the
terms and conditions set forth in Section 3 of this Agreement.
2.2 EXPENSES. The Company shall pay all Registration
Expenses. The Selling Holders shall pay all brokerage fees, underwriting fees
and discounts, transfer taxes, if any, and the fees and expenses of the
Selling Holder's legal counsel in connection with the registration and sale
of the Shares. Except as provided in Section 5.2 of this Agreement, the
Selling Holders shall pay all Registration Expenses if they withdraw all
Shares from registration; provided that the Selling Holders shall retain all
registration rights under this Agreement.
2.3 TERM. The registration rights granted under this
Agreement shall terminate on the earliest of (i) the sale of all of the Shares
by the Holders, (ii) the receipt by the Holders of the written opinion of legal
counsel for the Company that the Shares may be publicly sold without the need
for compliance with the registration provisions of the Securities Laws, whether
under Rule 144 or otherwise, or (iii) the tenth (10th) anniversary of the date
hereof.
3. DEMAND REGISTRATION RIGHTS.
3.1 NOTICE OF DEMAND. If the Company receives a written
notice from Holders beneficially owning at least a majority of the outstanding
Shares, including Shares issuable on conversion of any unconverted portion of
the Debentures, demanding that the Company register such Holders' Shares, then
the Company shall give written notice of such demand to all Holders and will use
its commercial best efforts to include in a registration statement all Shares
requested to be so included by all Holders upon written notice to the Company
within fifteen (15) days after the date of the notice by the Company to the
Holders, as long as the total of all Shares for which registration is demanded
represents at least twenty percent (20%) of the total Shares issuable under the
Debentures.
3.2 REGISTRATION. Promptly after receipt of a demand for
registration as set forth in Section 3.1 of this Agreement, the Company shall
prepare and file with the SEC a registration statement, on the applicable form
deemed most appropriate by the Company, for all Shares for which registration is
demanded, and the Company shall use its commercial best efforts to cause such
registration statement to become effective as soon as practicable.
3.3 DEFERRAL OF REGISTRATION. If the Holders demand a
registration hereunder, the Company may defer filing such registration statement
with the SEC (i) for up to six (6) months after the effective date of a
registration statement that the Company had filed with the
-2-
<PAGE>
SEC or had been declared effective prior to the demand by the Holders, (ii)
for up to six (6) months if the Company is advised in writing by the lead
underwriter in an underwritten offering for the issuance and sale of shares
of Common Stock by the Company that in the reasonable judgment of such
underwriter the registration demanded hereunder will impair the ability to
complete the underwritten offering (the grounds for which shall be
confidentially disclosed to a Holder if requested and if the Holder agrees to
maintain the confidentiality of such disclosure), or (iii) for up to ninety
(90) days if the Company reasonably determines that a registered offering
would be detrimental to the Company (the grounds for which shall be
confidentially disclosed to a Holder if requested and if the Holder agrees to
maintain the confidentiality of such disclosure), provided that the Company
may not filed any registration statement with the SEC during such period.
4. INCIDENTAL REGISTRATION RIGHTS.
4.1 NOTICE OF REGISTRATION; REGISTRATION. Whenever the
Company proposes to file (but without any obligation to so file) a registration
statement under the Securities Act in connection with a public offering of
shares of Common Stock for cash (other than in connection with any merger,
acquisition, or other transaction under Rule 145 of the Securities Act, exchange
offer, dividend reinvestment plan, employee benefit plan, or stock option plan),
the Company shall give all Holders written notice of such intention at least
thirty (30) days prior to the anticipated filing date. The Company shall
include in such registration statement all Shares requested to be so included by
Selling Holders upon written notice to the Company within fifteen (15) days of
the Company's notice, and shall use its commercial best efforts to cause such
registration statement to become effective as soon as practicable. The Selling
Holders shall be required to sell the Shares on the same terms and conditions as
all other shares of Common Stock being offered in such registration statement.
4.2 HOLDBACK. If the Company is advised in writing by the
lead underwriter in an underwritten offering that in the reasonable judgment of
such underwriter the number of shares of Common Stock for which incidental
registration is requested pursuant to this Agreement or any other grant of
incidental registration rights by the Company cannot be sold without impairing
the ability to complete the pre-established plan for distribution of the shares
of Common Stock whose registration gave rise to the registration statement (the
grounds for which shall be confidentially disclosed to a Selling Holder if
requested and if the Selling Holder agrees to maintain the confidentiality of
such disclosure), then the number of Shares to be sold by each Selling Holder
shall be reduced by a number that is the product of the number of Shares
requested to be sold by such Selling Holder multiplied by a fraction, the
numerator of which is the total number of shares of Common Stock by which the
registration statement is to be reduced, and the denominator of which is the
total number of shares of Common Stock requested to be sold by the Selling
Holders and all other persons exercising incidental registration rights pursuant
to any grant of incidental registration rights by the Company. If the number of
Shares of a Selling Holder is reduced, then such Selling Holder may withdraw all
Shares from registration, and shall retain incidental registration rights for
all Shares so withdrawn or reduced.
4.3 UNDERWRITING AGREEMENT. In any underwritten offering,
the Company and the Selling Holders shall enter into an underwriting agreement
with the underwriter, reasonably satisfactory to the Company and the Selling
Holders, consistent with the provisions of this Agreement, and containing
customary terms, conditions, and indemnifications.
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4.4 WITHDRAWAL BY THE COMPANY. The Company shall retain
the absolute right to withdraw any registration statement prior to the effective
date thereof, even if the Company has given notice to the Holders pursuant to
Section 4.1 of this Agreement and the Selling Holders have requested inclusion
of Shares therein.
5. REGISTRATION PROCEDURES.
5.1 SELLING HOLDER INFORMATION. The Selling Holders shall
provide the Company with such information about the Selling Holders and their
intended manner of distribution of the Shares, and shall otherwise cooperate
with the Company and the underwriters as may be needed or helpful in the
reasonable opinion of the Company to complete the obligations of the Company
hereunder. If any Selling Holder fails to comply with this requirement for more
than ten (10) business days after the Company gives written notice of such
failure to comply to such Selling Holder, then the Company shall have no further
obligation to include such Selling Holder's Shares in the registration
statement.
5.2 CONSULTATION. The Company shall supply copies of any
registration statement and any amendment thereto to the Selling Holders prior
to filing the registration statement with the SEC, and shall reasonably consult
with the Selling Holders and their legal counsel with respect to the form and
content of such filing. The Company shall promptly amend such registration
statement to include such reasonable changes as a Selling Holder and its legal
counsel agree should be included therein. A Selling Holder may withdraw the
Selling Holder's Shares from the registration statement and retain all
registration rights under this Agreement in the event a requested change is
unreasonably refused by the Company.
5.3 PROVISION FOR PROSPECTUSES. The Company shall furnish
the Selling Holders with the number of copies of a summary prospectus or other
prospectus, including a preliminary prospectus in conformity with the
requirements of the Securities Act, and such other documents as the Selling
Holders may reasonably request in order to facilitate the public sale or other
disposition of the Shares.
5.4 STATE SECURITIES LAWS COMPLIANCE. The Company shall
register or qualify the Shares covered by the registration statement under the
Securities Laws of such states as the Selling Holders may reasonably request in
light of the costs of such registration or qualification for the Company
(provided that the Company shall not be required to either qualify to do
business in any state where it is not then so qualified, or consent to the
general service of process for all purposes in any state where it is not then
qualified to do business), and shall perform all other acts that may be
reasonably necessary or advisable to enable the Selling Holders to consummate
the public sale or other disposition of the Shares in such states.
5.5 AMENDMENTS. The Company shall prepare and file
promptly with the SEC such amendments and supplements to the registration
statement filed with the SEC in connection with such registration and the
prospectus used in connection therewith, as may be necessary to keep such
registration statement continuously effective and in compliance with the
Securities Act for up to nine (9) months, or until all Shares registered in such
registration statement have been sold, whichever is earlier.
5.6 PROSPECTUS DELIVERY. At any time when a sale or other
public disposition of shares of Common Stock pursuant to a registration
statement is subject to a prospectus delivery requirement, the Company shall
immediately notify the Selling Holders of the occurrence of
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any event as a result of which the prospectus included in such registration
statement, as then in effect, includes an untrue statement of a material fact
or omits to state a material fact required to be stated therein or necessary
to make the statements therein not misleading in light of the circumstances
then existing. Upon receipt of such a notice, the Selling Holders shall
immediately discontinue sales or other dispositions of Shares pursuant to
such registration statement. The Selling Holders may resume sales only upon
receipt of an amended prospectus or after the Selling Holders have been
advised by the Company that use of the previous prospectus may be legally
resumed.
5.7 OPINIONS. At the request of a Selling Holder, the
Company shall furnish on the date that the Shares are delivered to the
underwriter for sale in connection with an underwritten offering registration
pursuant to this Agreement (i) a letter from the legal counsel representing the
Company for the purposes of such registration giving the Selling Holders the
right to rely upon the opinion of such legal counsel delivered to the
underwriters acting on behalf of the Company in connection with such
registration insofar as such opinion relates to the Selling Holders, and (ii) a
letter from the independent certified public accountants of the Company giving
the Selling Holders the right to rely on the letter of such accountants
delivered to the underwriters acting on behalf of the Company in connection with
such registration.
5.8 STOP ORDERS. The Company shall immediately notify the
Selling Holders of the issuance by the SEC of any stop order or order suspending
the effectiveness of any registration statement, the issuance by any state
regulatory authority of any order suspending the registration or qualification
of the Shares for sale in such jurisdiction, or the initiation of any proceeding
for such purposes. The Company, with the reasonable cooperation of the Selling
Holders, shall use its commercial best efforts to contest any such proceeding or
to obtain the withdrawal of any such order at the earliest possible date.
5.9 REVIEW OF RECORDS. The Company shall make available
all financial and other records, pertinent corporate documents, and properties
of the Company for inspection by the Selling Holders or their legal counsel or
accountants may reasonably request, and shall cause the Company's officers,
directors, and employees to supply all information reasonably requested by any
such person in connection with any registration statement filed or to be filed
hereunder, so long as such person agrees to keep confidential all records,
information, or documents designated by the Company in writing as confidential.
5.10 COMPLIANCE WITH SECURITIES LAWS. In all actions taken
under this Agreement, the Company and the Selling Holders shall comply with all
provisions of the Securities Laws.
5.11 MARKET STAND-OFF. If requested by the Company, the
Holders will not sell or otherwise transfer any Shares, other than those Shares
included in a registration statement, during the one hundred eighty (180)-day
period following the effective date of a registration statement filed by the
Company under the Securities Act. The Company will make such request only if so
advised by its investment banking firm, or by the underwriter in an underwritten
offering. The Company may impose stop transfer instructions with respect to the
Shares subject to the foregoing restrictions until the end of such one hundred
eighty (180)-day period.
6. REPORTS UNDER THE EXCHANGE ACT. With the view to making the
benefits of Rule 144 under the Securities Act available to the Holders, the
Company shall:
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6.1 PUBLIC INFORMATION. Ensure that there is adequate
current public information (as set forth in Rule 144(c)) available with respect
to the Company;
6.2 TIMELY FILING. Timely file with the SEC all reports
and other documents required to be filed by the Company under the Securities
Act, the Exchange Act, and the rules and regulations promulgated thereunder; and
6.3 DELIVERIES UPON REQUEST. Promptly furnish to a Holder
upon request (i) a written statement by the Company that it has complied with
these covenants, (ii) a copy of the most recent annual or quarterly report of
the Company, and (iii) such other reports and documents filed by the Company as
may be reasonably requested by such Holder.
7. INDEMNIFICATION.
7.1 THE COMPANY'S INDEMNIFICATION. The Company shall
indemnify, defend, save, and hold each Selling Holder harmless from and against
any and all liabilities, claims, damages, demands, expenses, and losses,
including but not limited to interest, penalties, court costs, reasonable
attorneys' fees, and settlements approved by the Company, which approval shall
not be unreasonably withheld, resulting from any untrue statement of a material
fact contained in any registration statement or in any other document filed with
the SEC pursuant to this Agreement, or any omission to state therein a material
fact required to be stated therein or necessary to make the statements therein
not misleading, except insofar as the same may have been based upon (i)
information furnished in writing to the Company by such Selling Holder, any
agent for such Selling Holder, an underwriter, or another selling shareholder
for inclusion in such registration statement or other document, or (ii) the
circumstances set forth in Section 7.2(b) of this Agreement.
7.2 THE SELLING HOLDER'S INDEMNIFICATION. Each Selling
Holder shall indemnify, defend, save, and hold the Company and its officers,
directors, and controlling persons (within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act) harmless from and against any
and all liabilities, claims, damages, demands, expenses, and losses, including
but not limited to interest, penalties, court costs, reasonable attorneys' fees,
and settlements approved by such Selling Holder, which approval shall not be
unreasonably withheld, resulting from (a) any untrue statement of a material
fact contained in any registration statement or in any other document filed with
the SEC pursuant to this Agreement, or any omission to state therein a material
fact required to be stated therein or necessary to make the statements therein
not misleading, based upon or arising from any information furnished in writing
to the Company by such Selling Holder or any agent for such Selling Holder for
inclusion in the registration statement or other document, or (b) any untrue
statement of a material fact contained in any prospectus, or any omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, if (1) a later prospectus shall correct
the untrue statement or omission that is the basis of the liability, claim,
damage, demand, expense, or loss for which indemnification is sought, (2) a copy
of the later prospectus had not been sent or given to the purchaser at or prior
to confirmation of sale to such purchaser and the Selling Holder shall have been
under an obligation to deliver such later prospectus, (3) there would have been
no liability but for such failure to deliver such later prospectus by the
Selling Holder, and (4) the Company had notified the Selling Holder prior to the
confirmation of sale that the earlier prospectus had been or would be replaced
by the later prospectus.
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7.3 CONTRIBUTION. If the indemnification provided for in
this Section 7 from an indemnifying party is unavailable to an indemnified party
hereunder in respect to any liability, claim, damage, demand, expense, or loss
referred to herein, then the indemnifying party in lieu of indemnifying such
indemnified party, shall contribute to the amount paid or payable by such
indemnified party as a result of such liability, claim, damage, demand, expense,
or loss in such proportion as is appropriate to reflect the relative fault of
the indemnifying party and the indemnified party in connection with the
statements or omissions that resulted in such liability, claim, damage, demand,
expense, or loss, as well as any other relevant equitable consideration. The
relative fault of such indemnifying party and indemnified party shall be
determined by reference to, among other things, whether the untrue statement of
a material fact or the omission to state a material fact relates to information
supplied by such indemnifying party or indemnified party and the parties'
relative intent, knowledge, access to information, and opportunity to correct or
prevent such untrue statement or omission. The amount paid or payable by a party
as a result of the liabilities, claims, damages, demands, expenses, and losses
referred to above shall be deemed to include any court costs, attorneys' fees,
and other expenses reasonably incurred by such party in connection with
investigating or defending any action, suit, or proceeding. The parties hereto
agree that it would not be just and equitable if contribution pursuant to this
Section 7.3 were determined by pro rata allocation or by any other method of
allocation that does not take into account the equitable considerations referred
to in this Section 7.3. No person guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who is not also guilty of such fraudulent
misrepresentation.
8. GENERAL PROVISIONS.
8.1 AMENDMENT. All amendments, modifications, or waivers
of this Agreement shall be in writing and shall be made only with the written
consent of the Company and the Holders of a majority of the outstanding Shares.
Any amendment, modification, or waiver effected in accordance with this Section
8.1 shall be binding upon AE and all Holders.
8.2 WAIVER. Any waiver of any right, power, or privilege
hereunder must be in writing and signed by the party or parties being charged
with the waiver. No delay on the part of any party or parties hereto in
exercising any right, power, or privilege hereunder shall operate as a waiver of
any other right, power, or privilege hereunder, nor shall any single or partial
exercise of any right, power, or privilege hereunder preclude any other or
further exercise thereof or the exercise of any other right, power, or
privilege.
8.3 NOTICES. All notices or other communications required
or permitted to be given pursuant to this Agreement shall be in writing and
shall be delivered personally or sent by overnight courier, by telecopier with
confirmation by first class mail, or by certified mail, return receipt
requested. Notices delivered personally or sent by overnight courier or
telecopier with confirmation by first class mail shall be effective on the date
first received, while notices sent by certified mail, return receipt requested,
shall be deemed to have been received and to be effective three (3) business
days after deposit into the mails. Notices shall be given to the parties at the
following respective addresses, or to such other addresses as any party shall
designate in writing:
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If to the Company: Mr. Alex Kanakaris
President
Kanakaris Communications, Inc.
3303 Harbor Boulevard
Suite F-3
Costa Mesa, California 90265
Telephone: (714) 444-0560
Telecopier: (714) 549-8970
With a copy to: Gerard N. Casale, Jr., Esq.
Casale Coffee Nojima, LLP
11755 Wilshire Boulevard
Suite 1200
Los Angeles, California 90025
Telephone: (310) 312-1860
Telecopier: (310) 477-3481
If to any Holder: at the address set forth in the Company's records.
8.4 SUCCESSORS AND ASSIGNS. This Agreement and each of
its provisions shall be binding upon and shall inure to the benefit of the
parties hereto and their respective administrators, successors, and assigns.
Notwithstanding the immediately preceding sentence, no Holder may assign any of
its rights or obligations hereunder without the prior written consent of the
Company, which consent the Company may not unreasonably withhold.
8.5 LAW GOVERNING. This Agreement has been negotiated,
executed, and delivered and shall be performed in the State of California and
shall be governed by and construed and enforced in accordance with the laws of
the State of California, without regard for its conflict of laws rules. The
parties hereby irrevocably submit to the exclusive jurisdiction of the courts of
the State of California and any United States District Court situated in the
State of California for the purposes of construing and enforcing this Agreement.
8.6 ATTORNEYS' FEES. In any suit to interpret or enforce
the terms and provisions of this Agreement, the prevailing party shall be
entitled to recover court costs and attorneys' fees, in addition to any other
remedy or recovery to which such party may be entitled.
8.7 COUNTERPARTS. This Agreement may be executed in two
or more counterparts, including by facsimile transmission, all of which together
shall constitute a single instrument.
8.8 SEVERABILITY OF PROVISIONS. In the event any one or
more of the provisions of this Agreement shall for any reason be held to be
invalid, illegal, or unenforceable in any respect, such invalidity, illegality,
or unenforceability shall not affect any other provision hereof, and this
Agreement shall be construed as if such invalid, illegal, or unenforceable
provision had never been contained herein.
8.9 CONSTRUCTION. The headings in the sections and
paragraphs of this Agreement are for convenience only and shall not constitute a
part hereof. Whenever the context so requires, the masculine shall include the
feminine and the neuter, the singular shall include the plural, and conversely.
The terms and all parts of this Agreement shall in all cases be interpreted
simply and according to their plain meaning and neither for nor against any
party hereto.
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IN WITNESS WHEREOF, the parties have duly executed and delivered
this Agreement as of the date first written above.
Alliance Equities Kanakaris Communications, Inc.
By /s/ Richard Epstein By /s/ Alex Kanakaris
--------------------------- -------------------------
Richard Epstein Alex Kanakaris
President President
Exhibit 4.11
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (the "Agreement") is made and
entered into as of this 29th day of September, 1999, by and between the party or
parties designated in Attachment "A" exhibited hereto ("Holder"), and Kanakaris
Communications, Inc., a Nevada corporation (the "Company").
RECITAL
PURCHASER is purchasing Debentures from the Company that are
convertible into shares of the Company's common stock. The Company hereby grants
PURCHASER certain demand and incidental registration rights in connection with
such shares.
NOW, THEREFORE, in consideration of the foregoing, the mutual promises and
covenants contained herein, and for other good and valuable consideration, the
receipt and adequacy of which are hereby acknowledged, the parties hereby agree
as follows:
AGREEMENT
1. DEFINITIONS. Unless the context requires otherwise, the following
underlined terms shall have the following respective meanings:
1.1 AGREEMENT. This Registration Rights Agreement.
1.2 PURCHASER. The parties designated in Attachment "A" as
purchasers of 10% Debentures of the Company and holders of the rights conferred
in this Agreement.
1.3 COMMON STOCK. The Company's common stock.
1.4 COMPANY. Kanakaris Communications, Inc., a Nevada
corporation.
1.5 DEBENTURES. The Company's 10% Convertible Subordinated
Debentures issued to PURCHASER pursuant to that certain Debenture Purchase
Agreement incorporated by referenced hereto and of even date herewith.
1.6 EXCHANGE ACT. The Securities Exchange Act of 1934, as
amended.
1.7 HOLDER. A holder of Shares.
1.8 REGISTRATION EXPENSES. All expenses of registration,
including but not limited to registration and filing fees, including filing fees
for NASDAQ and all stock exchanges on which the Common Stock is traded, fees and
expenses of complying with the Securities Laws, printing expenses, transfer
agent fees, and the fees and expenses of the Company's independent certified
public accountants, the Company's investment banker and underwriter, and the
Company's legal counsel, but excluding the Selling Holder's brokerage fees,
underwriting fees and discounts, transfer taxes, if any, and the fees and
expenses of the Selling Holder's legal counsel and other advisors.
<PAGE>
1.9 SEC. The United States Securities and Exchange Commission.
1.10 SECURITIES ACT. The Securities Act of 1933, as amended.
1.11 SECURITIES LAWS. The Securities Act, the Exchange Act,
and all applicable state securities laws, and all rules and regulations
promulgated thereunder.
1.12 SELLING HOLDER. With respect to any registration
statement, any Holder whose Shares are included therein.
1.13 SHARES. Shares of Common Stock issued on conversion of
the Debentures.
2. GRANT OF REGISTRATION RIGHTS.
2.1 REGISTRATION RIGHTS. The Company hereby grants the Holders
unlimited incidental registration rights with respect to the Shares on the terms
and conditions set forth in Section 4 of this Agreement. The Company hereby
grants the Holders as a group four (4) demand registration rights on the terms
and conditions set forth in Section 3 of this Agreement.
2.2 EXPENSES. The Company shall pay all Registration Expenses.
The Selling Holders shall pay all brokerage fees, underwriting fees and
discounts, transfer taxes, if any, and the fees and expenses of the Selling
Holder's legal counsel in connection with the registration and sale of the
Shares. Except as provided in Section 5.2 of this Agreement, the Selling Holders
shall pay all Registration Expenses if they withdraw all Shares from
registration; provided that the Selling Holders shall retain all registration
rights under this Agreement.
2.3 TERM. The registration rights granted under this Agreement
shall terminate on the earliest of (i) the sale of all of the Shares by the
Holders, (ii) the receipt by the Holders of the written opinion of legal counsel
for the Company that the Shares may be publicly sold without the need for
compliance with the registration provisions of the Securities Laws, or (iii) the
tenth (10th) anniversary of the date hereof.
3. DEMAND REGISTRATION RIGHTS.
3.1 NOTICE OF DEMAND. If the Company receives a written notice
from Holders beneficially owning at least a majority of the outstanding Shares,
including Shares issuable on conversion of any unconverted portion of the
Debentures, demanding that the Company register such Holders' Shares, then the
Company shall give written notice of such demand to all Holders and will use its
commercial best efforts to include in a registration statement all Shares
requested to be so included by all Holders upon written notice to the Company
within fifteen (15) days after the date of the notice by the Company to the
Holders, as long as the total of all Shares for which registration is demanded
represents at least twenty percent (20%) of the total Shares issuable under the
Debentures.
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3.2 REGISTRATION. Promptly after receipt of a demand for
registration as set forth in Section 3.1 of this Agreement, the Company shall
prepare and file with the SEC a registration statement, on the applicable form
deemed most appropriate by the Company, for all Shares for which registration is
demanded, and the Company shall use its commercial best efforts to cause such
registration statement to become effective as soon as practicable. The parties
agree that it is the intent of this Agreement that upon conversion and shortly
thereafter, shares will be issued to Holders in the amount subject to conversion
and in a form which will be free of any restrictive legend upon effective
registration by the Company in any registration statement and resale by Holders.
3.3 DEFERRAL OF REGISTRATION. If the Holders demand a
registration hereunder, the Company may defer filing such registration statement
with the SEC for up to thirty (30) days after the effective date of a
registration statement that the Company had filed with the SEC or had been
declared effective prior to the demand by the Holders if market conditions do
not warrant the sale of shares under registration at the time of the effective
date.
4. INCIDENTAL REGISTRATION RIGHTS.
4.1 NOTICE OF REGISTRATION; REGISTRATION. Whenever the Company
proposes to file (but without any obligation to so file) a registration
statement under the Securities Act in connection with a public offering of
shares of Common Stock for cash (other than in connection with any merger,
acquisition, or other transaction under Rule 145 of the Securities Act, exchange
offer, dividend reinvestment plan, employee benefit plan, or stock option plan),
the Company shall give all Holders written notice of such intention at least
thirty (30) days prior to the anticipated filing date. The Company shall include
in such registration statement all Shares requested to be so included by Selling
Holders upon written notice to the Company within fifteen (15) days of the
Company's notice, and shall use its commercial best efforts to cause such
registration statement to become effective as soon as practicable. The Selling
Holders shall be required to sell the Shares on the same general terms and
conditions as all other shares of Common Stock being offered in such
registration statement.
4.2 WITHDRAWAL BY THE COMPANY. The Company shall retain the
absolute right to withdraw any registration statement prior to the effective
date thereof, even if the Company has given notice to the Holders pursuant to
Section 4.1 of this Agreement and the Selling Holders have requested inclusion
of Shares therein.
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5. REGISTRATION PROCEDURES.
5.1 SELLING HOLDER INFORMATION. The Selling Holders shall
provide the Company with such information about the Selling Holders and their
intended manner of distribution of the Shares, and shall otherwise cooperate
with the Company and the underwriters as may be needed or helpful in the
reasonable opinion of the Company to complete the obligations of the Company
hereunder. If any Selling Holder fails to comply with this requirement for more
than ten (10) business days after the Company gives written notice of such
failure to comply to such Selling Holder, then the Company shall have no further
obligation to include such Selling Holder's Shares in the registration
statement.
5.2 CONSULTATION. The Company shall supply copies of any
registration statement and any amendment thereto to the Selling Holders prior to
filing the registration statement with the SEC, and shall reasonably consult
with the Selling Holders and their legal counsel with respect to the form and
content of such filing. The Company shall promptly amend such registration
statement to include such reasonable changes as a Selling Holder and its legal
counsel agree should be included therein. A Selling Holder may withdraw the
Selling Holder's Shares from the registration statement and retain all
registration rights under this Agreement in the event a requested change is
unreasonably refused by the Company.
5.3 PROVISION FOR PROSPECTUSES. The Company shall furnish the
Selling Holders with the number of copies of a summary prospectus or other
prospectus, including a preliminary prospectus in conformity with the
requirements of the Securities Act, and such other documents as the Selling
Holders may reasonably request in order to facilitate the public sale or other
disposition of the Shares.
5.4 STATE SECURITIES LAWS COMPLIANCE. The Company shall
register or qualify the Shares covered by the registration statement under the
Securities Laws of such states as the Selling Holders may reasonably request in
light of the costs of such registration or qualification for the Company
(provided that the Company shall not be required to either qualify to do
business in any state where it is not then so qualified, or consent to the
general service of process for all purposes in any state where it is not then
qualified to do business), and shall perform all other acts that may be
reasonably necessary or advisable to enable the Selling Holders to consummate
the public sale or other disposition of the Shares in such states.
5.5 AMENDMENTS. The Company shall prepare and file promptly
with the SEC such amendments and supplements to the registration statement filed
with the SEC in connection with such registration and the prospectus used in
connection therewith, as may be necessary to keep such registration statement
continuously effective and in compliance with the Securities Act for up to nine
(9) months, or until all Shares registered in such registration statement have
been sold, whichever is earlier.
5.6 PROSPECTUS DELIVERY. At any time when a sale or other
public disposition of shares of Common Stock pursuant to a registration
statement is subject to a prospectus deli-very requirement, the Company shall
immediately notify the Selling Holders of the occurrence of any event as a
result of which the prospectus included in such registration statement, as then
in effect, includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading in light of the circumstances then existing. Upon receipt
of such a notice, the Selling Holders shall immediately discontinue sales or
other dispositions of Shares pursuant to such registration statement. The
Selling Holders may resume sales only upon receipt of an amended prospectus or
after the Selling Holders have been advised by the Company that use of the
previous prospectus may be legally resumed.
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5.7 OPINIONS. At the request of a Selling Holder, the Company
shall furnish on the date that the Shares are delivered to the underwriter for
sale in connection with an underwritten offering registration pursuant to this
Agreement (i) a letter from the legal counsel representing the Company for the
purposes of such registration giving the Selling Holders the right to rely upon
the opinion of such legal counsel delivered to the underwriters acting on behalf
of the Company in connection with such registration insofar as such opinion
relates to the Selling Holders, and (ii) a letter from the independent certified
public accountants of the Company giving the Selling Holders the right to rely
on the letter of such accountants delivered to the underwriters acting on behalf
of the Company in connection with such registration.
5.8 STOP ORDERS. The Company shall immediately notify the
Selling Holders of the issuance by the SEC of any stop order or order suspending
the effectiveness of any registration statement, the issuance by any state
regulatory authority of any order suspending the registration or qualification
of the Shares for sale in such jurisdiction, or the initiation of any proceeding
for such purposes. The Company, with the reasonable cooperation of the Selling
Holders, shall use its commercial best efforts to contest any such proceeding or
to obtain the withdrawal of any such order at the earliest possible date.
5.9 REVIEW OF RECORDS. The Company shall make available all
financial and other records, pertinent corporate documents, and properties of
the Company for inspection by the Selling Holders or their legal counsel or
accountants may reasonably request, and shall cause the Company's officers,
directors, and employees to supply all information reasonably requested by any
such person in connection with any registration statement filed or to be filed
hereunder, so long as such person agrees to keep confidential all records,
information, or documents designated by the Company in writing as confidential.
5.10 COMPLIANCE WITH SECURITIES LAWS. In all actions taken
under this Agreement, the Company and the Selling Holders shall comply with all
provisions of the Securities Laws.
6. REPORTS UNDER THE EXCHANGE ACT. With the view to making the benefits
of Rule 144 under the Securities Act available to the Holders, the Company
shall:
6.1 PUBLIC INFORMATION. Ensure that there is adequate current
public information (as set forth in Rule 144(c)) available with respect to the
Company;
6.2 TIMELY FILING. Timely file with the SEC all reports and
other documents required to be filed by the Company under the Securities Act,
the Exchange Act, and the rules and regulations promulgated thereunder; and
6.3 DELIVERIES UPON REQUEST. Promptly furnish to a Holder upon
request (i) a written statement by the Company that it has complied with these
covenants, (ii) a copy of the most recent annual or quarterly report of the
Company, and (iii) such other reports and documents filed by the Company as may
be reasonably requested by such Holder.
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7. INDEMNIFICATION.
7.1 THE COMPANY'S INDEMNIFICATION. The Company shall
indemnify, defend, save, and hold each Selling Holder harmless from and against
any and all liabilities, claims, damages, demands, expenses, and losses,
including but not limited to interest, penalties, court costs, reasonable
attorneys' fees, and settlements approved by the Company, which approval shall
not be unreasonably withheld, resulting from any untrue statement of a material
fact contained in any registration statement or in any other document filed with
the SEC pursuant to this Agreement, or any omission to state therein a material
fact required to be stated therein or necessary to make the statements therein
not misleading, except insofar as the same may have been based upon (i)
information furnished in writing to the Company by such Selling Holder, any
agent for such Selling Holder, an underwriter, or another selling shareholder
for inclusion in such registration statement or other document, or (ii) the
circumstances set forth in Section 7.2(b) of this Agreement.
7.2 THE SELLING HOLDER'S INDEMNIFICATION. Each Selling Holder
shall indemnify, defend, save, and hold the Company and its officers, directors,
and controlling persons (within the meaning of Section 15 of the Securities Act
or Section 20 of the Exchange Act) harmless from and against any and all
liabilities, claims, damages, demands, expenses, and losses, including but not
limited to interest, penalties, court costs, reasonable attorneys' fees, and
settlements approved by such Selling Holder, which approval shall not be
unreasonably withheld, resulting from (a) any untrue statement of a material
fact contained in any registration statement or in any other document filed with
the SEC pursuant to this Agreement, or any omission to state therein a material
fact required to be stated therein or necessary to make the statements therein
not misleading, based upon or arising from any information furnished in writing
to the Company by such Selling Holder or any agent for such Selling Holder for
inclusion in the registration statement or other document, or (b) any untrue
statement of a material fact contained in any prospectus, or any omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, if (1) a later prospectus shall correct
the untrue statement or omission that is the basis of the liability, claim,
damage, demand, expense, or loss for which indemnification is sought, (2) a copy
of the later prospectus had not been sent or given to the purchaser at or prior
to confirmation of sale to such purchaser and the Selling Holder shall have been
under an obligation to deliver such later prospectus, (3) there would have been
no liability but for such failure to deliver such later prospectus by the
Selling Holder, and (4) the Company had notified the Selling Holder prior to the
confirmation of sale that the earlier prospectus had been or would be replaced
by the later prospectus.
7.3 CONTRIBUTION. If the indemnification provided for in this
Section 7 from an indemnifying party is unavailable to an indemnified party
hereunder in respect to any liability, claim, damage, demand, expense, or loss
referred to herein, then the indemnifying party in lieu of indemnifying such
indemnified party, shall contribute to the amount paid or payable by such
indemnified party as a result of such liability, claim, damage, demand, expense,
or loss in such proportion as is appropriate to reflect the relative fault of
the indemnifying party and the indemnified party in connection with the
statements or omissions that resulted in such liability, claim, damage, demand,
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<PAGE>
expense, or loss, as well as any other relevant equitable consideration. The
relative fault of such indemnifying party and indemnified party shall be
determined by reference to, among other things, whether the untrue statement of
a material fact or the omission to state a material fact relates to information
supplied by such indemnifying party or indemnified party and the parties'
relative intent, knowledge, access to information, and opportunity to correct or
prevent such untrue statement or omission. The amount paid or payable by a party
as a result of the liabilities, claims, damages, demands, expenses, and losses
referred to above shall be deemed to include any court costs, attorneys' fees,
and other expenses reasonably incurred by such party in connection with
investigating or defending any action, suit, or proceeding. The parties hereto
agree that it would not be just and equitable if contribution pursuant to this
Section 7.3 were determined by pro rata allocation or by any other method of
allocation that does not take into account the equitable considerations referred
to in this Section 7.3. No person guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who is not also guilty of such fraudulent
misrepresentation.
8. GENERAL PROVISIONS.
8.1 AMENDMENT. All amendments, modifications, or waivers of
this Agreement shall be in writing and shall be made only with the written
consent of the Company and the Holders of a majority of the outstanding Shares.
Any amendment, modification, or waiver effected in accordance with this Section
8.1 shall be binding upon PURCHASER and all Holders.
8.2 WAIVER. Any waiver of any right, power, or privilege
hereunder must be in writing and signed by the party or parties being charged
with the waiver. No delay on the part of any party or parties hereto in
exercising any right, power, or privilege hereunder shall operate as a waiver of
any other right, power, or privilege hereunder, nor shall any single or partial
exercise of any right, power, or privilege hereunder preclude any other or
further exercise thereof or the exercise of any other right, power, or
privilege.
8.3 NOTICES. All notices or other communications required or
permitted to be given pursuant to this Agreement shall be in writing and shall
be delivered personally or sent by overnight courier, by telecopier with
confirmation by first class mail, or by certified mail, return receipt
requested. Notices delivered personally or sent by overnight courier or
telecopier with confirmation by first class mail shall be effective on the date
first received, while notices sent by certified mail, return receipt requested,
shall be deemed to have been received and to be effective three (3) business
days after deposit into the mails. Notices shall be given to the parties at the
following respective addresses, or to such other addresses as any party shall
designate in writing:
If to the Company: Mr. Alex Kanakaris
President
Kanakaris Communications, Inc.
3303 Harbor Boulevard
Suite F-3
Costa Mesa, California 90265
Telephone: (714) 444-0560
Telecopier: (714) 549-8970
With a copy to: Gerard N. Casale, Jr., Esq.
Casale Coffee Nojima, LLP
11755 Wilshire Boulevard
Suite 1200
Los Angeles, California 90025
If to any Holder: at the address set forth in Attachment "A".
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<PAGE>
8.4 SUCCESSORS AND ASSIGNS. This Agreement and each of its
provisions shall be binding upon and shall inure to the benefit of the parties
hereto and their respective administrators, successors, and assigns.
Notwithstanding the immediately preceding sentence, no Holder may assign any of
its rights or obligations hereunder without the prior written consent of the
Company, which consent the Company may not unreasonably withhold.
8.5 LAW GOVERNING. This Agreement has been negotiated,
executed, and delivered and shall be performed in the State of California and
shall be governed by and construed and enforced in accordance with the laws of
the State of California, without regard for its conflict of laws rules. The
parties hereby irrevocably submit to the exclusive jurisdiction of the courts of
the State of California and any United States District Court situated in the
State of California for the purposes of construing and enforcing this Agreement.
8.6 ATTORNEYS' FEES. In any suit to interpret or enforce the
terms and provisions of this Agreement, the prevailing party shall be entitled
to recover court costs and attorneys' fees, in addition to any other remedy or
recovery to which such party may be entitled.
8.7 COUNTERPARTS. This Agreement may be executed in two or
more counterparts, including by facsimile transmission, all of which together
shall constitute a single instrument.
8.8 SEVERABILITY OF PROVISIONS. In the event any one or more
of the provisions of this Agreement shall for any reason be held to be invalid,
illegal, or unenforceable in any respect, such invalidity, illegality, or
unenforceability shall not affect any other provision hereof, and this Agreement
shall be construed as if such invalid, illegal, or unenforceable provision had
never been contained herein.
8.9 CONSTRUCTION. The headings in the sections and paragraphs
of this Agreement are for convenience only and shall not constitute a part
hereof. Whenever the context so requires, the masculine shall include the
feminine and the neuter, the singular shall include the plural, and conversely.
The terms and all parts of this Agreement shall in all cases be interpreted
simply and according to their plain meaning and neither for nor against any
party hereto.
IN WITNESS WHEREOF, the parties have duly executed and delivered this
Agreement as of the date first written above.
_________________________ KANAKARIS COMMUNICATIONS, INC.
By see Attachment "A" By: /s/ Alex Kanakaris
--------------------------- --------------------------
Alex Kanakaris
President
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<PAGE>
Attachment "A"
HOLDERS:
AJW PARTNERS, LLC
By: /s/ Corey S. Ribotsky
---------------------------------
Corey S. Ribotsky
Manager
Address:
1670 Old Country Road, Suite 112
Plainview, New York 11803
NEW MILLENIUM CAPITAL PARTNERS II, LLC
By: /s/ Glenn A. Arbeitman
---------------------------------
Glenn A. Arbeitman
Authorized Signatory
Address:
1670 Old Country Road, Suite 112
Plainview, New York 11803
Registration Rights Agreement
<PAGE>
ATTACHMENT "A" CONTINUED
HOLDERS:
BANK INSINGER DE BEAUFORT
By:
---------------------------------
Name:
-------------------------------
Its: Authorized Signatory
--------------------------------
Address:
Herengtecht 551
1017 BW Amsterdam
Netherlands
Registration Rights Agreement
Exhibit 10.1
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "AGREEMENT") dated as of October 10,
1997 is entered into by and between Christel H. Uittenbogaart, the sole
shareholder of Desience Corporation, a California corporation ("DES")
(collectively the "Seller"), and Kanakaris Internetworks, a Delaware corporation
("KIW").
RECITALS
--------
A. Seller owns 100% of the issued and outstanding common stock of DES.
B. Seller desire to sell, assign and transfer to KIW all of its DES
common stock representing 100% of the total issued and outstanding common stock
of DES ("DES Shares"); and KIW desires to purchase the DES Shares by way of
granting a royalty on future DES sales and other valuable consideration to
Seller upon, and subject to, the terms and conditions of this Agreement.
This transaction shall be called the "Purchase" herein.
NOW, THEREFORE, the parties hereto agree as follows:
SECTION 1.
- ----------
1. PURCHASE AND SALE. Upon and subject to all the terms and conditions
of this Agreement, Seller agree to sell, assign and. transfer the DES Shares to
KIW and KIW shall purchase the DES Shares for the consideration set forth
herein.
1.2. CONSIDERATION. In consideration of the sale of the DES Shares,
KIW, shall pay, or provide, to Seller an aggregate of the following
consideration at the Effective Date (defined in Section 1.3 below), in exchange
for all of the then issued and outstanding shares of DES Common Stock:
(a) Seller shall be entitled to receive a royalty of four percent
(4%) of the gross sales (after collection) of DES, such royalty to be paid
monthly; such royalty shall continue for as long as DES shall remain in business
or its products are sold.
(b) Seller shall receive five percent (5%) of funds allocated to
DES pursuant to KIW's next securities offering as a non-refundable advance on
the royalty described in paragraph 1.2. (a) above. Such payment shall be made
monthly upon release of offering proceeds from applicable escrow.
As additional consideration, KIW shall, at the Effective Date, release,
waive, and hold harmless Seller, and her affiliates and assigns from any claims,
causes of action, costs, expenses, and liability of whatsoever nature in
connection with any monies, costs, or expenses advanced to or incurred on behalf
of Seller by DES prior to the Effective Date, including the sum of $387,000
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denominated as "Shareholder Advances" on a DES balance sheet as of September 30,
1996 disclosed to KIW, and any subsequent "Advances."
The parties understand that KIW is anticipating commencing a private
placement of its securities to raise funds to pay KIW's obligations pursuant to
this Agreement, to provide working capital for KIW's and DES's combined
operations.
1.3 DATE AND PLACE OF CLOSING. The closing of the delivery and transfer
of the DES Shares (the "Closing") shall occur at the offices of KIW or at a
location mutually agreed upon by the parties on a date ("Effective Date") to be
mutually agreed upon by KIW and Seller after (i) exchange of all books, records,
financial information, documents, and other materials deemed necessary to
completion of the transaction contemplated under this Agreement and (ii)
completion of all review periods provided for in this Agreement. Exchange of
documents under this Agreement shall begin as soon as possible after execution.
In any case, the Effective Date shall be no later than November l, 1997.
1.4. TRANSACTIONS AND DOCUMENT EXCHANGE AT CLOSING. At the Closing, the
following transactions shall occur and documents shall be exchanged, all of
which shall be deemed to occur simultaneously:
A. By BIW. KIW will deliver, or cause to be delivered, to Seller:
(1) the opinion of counsel as set forth in Section 5.2(c).
B. By Seller. Seller will deliver, or cause the following to be
delivered, to KIW:
(1) Stock certificates for the DES Shares to be sold and
transferred to KIW pursuant to this Agreement, in proper form
for transfer and duly endorsed to KIW or its designee with
stock powers duly executed in favor of KIW or its designee,
transferring all right, title, and interest in and to the DES
Shares to KIW and its designee;
(2) A certificate dated at or about the Closing Date from the
Secretary of State of California to the effect that DES is a
corporation duly organized, validly existing, and in good
standing under the laws of California;
(3) The opinion of counsel as set forth in Section 5.1(e) and
5.2(c);
(4) Such other documents, instruments, and/or certificates, if
any, as are required to be delivered pursuant to the
provisions of this Agreement, or which are reasonably
determined by the parties to be required to effectuate the
transactions contemplated in this Agreement, or as otherwise
may be reasonably requested by KIW in furtherance of the
intent of this Agreement.
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C. Notwithstanding anything to the contrary herein, all items to
be delivered to either party pursuant to paragraphs 1.4.A. and
1.4.B. above shall be placed in escrow at the law offices of
Gary L. Blum prior to the Closing.
1.5. POST CLOSING DOCUMENTS. From time to time after the Closing, upon
the reasonable request of any party, the party to whom the request is made shall
deliver such other and further documents, instruments, and/or certificates as
may be necessary to more fully vest in the requesting party the consideration
provided for in this Agreement or to enable the requesting party to obtain the
rights and benefits contemplated by this Agreement.
SECTION 2. REPRESENTATIONS, WARRANTIES AND COVENANTS OF KIW
- -----------------------------------------------------------
KIW represents, warrants and covenants, as of the date of this
Agreement and as of the Effective Date, as follows:
2.1. AUTHORIZATION OF AGREEMENT. The execution and delivery and the
performance of this Agreement by KIW have been duly and validly authorized and
approved by the Board of Directors of KIW, and KIW has taken all action required
by law, its Articles of Incorporation and Bylaws to authorize the execution,
delivery and performance of the Purchase Documents.
2.2. BROKERS' OR FINDERS' FEES, ETC. No agent, broker, investment
banker, person or firm acting on behalf of KIW is or will be entitled to any
brokers' or finders' fee or any other commission or similar fee directly or
indirectly from KIW in connection with any of the transactions contemplated
herein.
SECTION 3. REPRESENTATIONS, WARRANTIES AND COVENANTS OF SELLER.
- ---------------------------------------------------------------
Seller represents, warrants, and covenants, as of the date of this
Agreement, and as of the Effective Date, as follows:
3.1. ORGANIZATION, ETC. DES is a corporation duly organized, validly
existing and in good standing under the laws of California. DES has the
corporate power to own its properties and carry on its business as now being
conducted, execute and deliver this Agreement and consummate the transactions
contemplated hereby and thereby. DES is duly qualified to do business and is in
good standing as a foreign corporation in each state where it conducts business
as set forth in Schedule 3.1, constituting each state in which such
qualification is required in order to do business, except for states in which
the failure to be so qualified will not materially and adversely affect DES.
3.2. CAPITAL STOCK OF DES. As of the date hereof, the authorized
capital stock of DES consists of 5, 000, 000 shares of common stock, $.01 par
value, of which ___________ shares are issued and outstanding; and no other
classes of stock are authorized, issued or outstanding. There are no outstanding
options, warrants or other rights to subscribe for or purchase from DES any
capital stock of DES or securities convertible into or exchangeable for capital
stock of DES. All issued shares of DES Common Stock are duly authorized, validly
issued, fully paid and nonassessable and have not been issued in violation of
any preemptive rights. DES has no wholly owned subsidiary, and does not own any
of the issued and outstanding stock of any other corporation.
3
<PAGE>
3.3. DISCLOSURE OF DES. DES has delivered to KIW its disclosure
schedules which contained true and correct copies of its Articles of
Incorporation, Bylaws, and Minutes certified by its secretary as well as its
schedule of current officers and directors and its shareholder list.
3.4. FINANCIAL STATEMENTS. DES has previously furnished a true and
complete copy of its unaudited balance sheet as of September 30, 1996, and the
statement of operations, for the year ended September 30, 1996, (the "DES
Financial Statements"), and the unaudited balance sheet and the unaudited
consolidated statement of operations for the period ended September 30, 1997.
3.5. TAX AND OTHER RETURNS AND REPORTS. Except as set forth in Schedule
3.5 attached hereto:
(a) All federal, state, local and foreign tax returns and tax
reports, domestic or foreign, required to be filed by DES have been
filed on a timely basis with the appropriate governmental agencies in
all jurisdictions in which such returns and reports are required to be
filed and where failure to file would materially and adversely effect
DES.
(b) All significant federal, state, local and foreign income,
franchise, property and other taxes (including interest and penalties)
due from DES have been fully paid or adequately provided for on the
books and financial statements of DES
(c) No issues have been raised or are currently pending by the IRS
or any other taxing authority in connection with any of the returns.
and reports referred to in the foregoing clause which, individually or
in the aggregate, might have a material, adverse effect on DES, nor
does DES have any knowledge of circumstances under which such a claim
could be made. DES has not filed any tax returns on a unitary basis or
consolidated basis with another entity and has not entered into any
other tax-sharing agreement.
(d) All taxes, levies and other assessments which DES is required
by law to withhold or to collect have been duly withheld and collected
and have been paid over to the proper governmental authorities or held
by DES for such payment.
(e) The amounts reserved for taxes on the interim balance sheets
will be sufficient for the payment of all respective federal, state,
provincial, county and local taxes, domestic or foreign of any kind of
DES, including interest and penalties in respect thereof whether
disputed or not and whether accrued, due, absolute, contingent or
otherwise payable by DES attributable to all periods ended on or before
the effective date.
3.6. TITLE TO PROPERTIES: LIENS AND ENCUMBRANCES. DES has good and
marketable title to the assets and properties (real and personal, tangible and
intangible) which it owns and on which operations are conducted and which are
used in its business, other than property sold or otherwise disposed of in the
ordinary course of business subsequent to the Effective Date, free and clear of
all mortgages, security interests, liens, charges or encumbrances of any nature
4
<PAGE>
whatsoever, except for taxes not yet due and payable and except for those listed
liens and encumbrances described in Schedule 3.6, none of which materially
impairs the present use and occupation of the premises. Except as disclosed in
Schedule 3.6, all such assets and properties are in good and serviceable
condition, ordinary wear and tear excepted. DES has not received any notice that
any of the real properties, or the plants, structures or appurtenances thereto,
or any leasehold improvements by DES are in violation of any applicable
ordinances or regulations or building, zoning, environmental or other laws. A11
leases to which DES is a party (as either a lessee or lessor)are in full force
and effect, and, to the best knowledge of DES , no event of default has occurred
(whether with or without notice, lapse of time or the happening or occurrence of
any other event) which would constitute a default thereunder. Except as
disclosed in Schedule 3.6, DES enjoys peaceful and undisturbed possession under
all of its leases wherein it is the lessee.
3.7. AGREEMENTS, CONTRACTS AND COMMITMENTS.
(a) Schedule 3.7 attached hereto contains an accurate and
complete list of all agreements, contracts and leases to which DES is a
party and which are material to the condition (financial or other),
business, prospects or operations of DES, excepting only such
agreements, contracts and leases that incur or cause less than 5% of
annual revenues or financial obligations to DES. Except as set forth in
Schedule 3.7, DES does not have in effect:
(i) any collective bargaining agreements;
(ii) any bonus, deferred compensation, pension,
profit-sharing, restricted stock or employee stock purchase
plans;
(iii) any employment or consulting agreement, contract or
commitment with an employee or consultant having more than one
year to run from the date hereof or containing an obligation to
pay or accrue more than $5,000 per annum;
(iv) any lease which involves a potential liability to DES as
lessee of more than $5,000 or any agreement of guarantee or
indemnification running to any person or entity which involves,
singly or in the aggregate, a potential liability of more than
$5,000;
(v) any agreement or contract relating to capital
expenditures which obligates DES to make future payments which,
together with future payments under all other agreements and
contracts relating to the same capital project, exceed $5,000; or
(vi) any agreement or contract relating to the disposition or
acquisition of assets or any interest in any business enterprise
with a book value of or for a price of $5, 000 or more, except as
contemplated hereby.
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(b) Except as set forth in Schedule 3.7, DES has not
breached any of the terms or conditions of (i) any agreement or
contract set forth in Schedule 3.7 in such a manner as would permit any
other party to cancel or terminate the same or (ii) any agreement or
contract (including those referred to in clause (i) if any such breach
or breaches singly or in the aggregate would require the payment of an
amount in excess of $5,000.
3.8. NO BREACH OF STATUTE OR CONTRACT; GOVERNMENTAL AUTHORIZATIONS;
REQUIRED CONSENTS.
(a) Neither the execution and delivery of this Agreement by
DES nor consummation of the transactions contemplated hereby or thereby
by DES will:
(i) conflict with or result in a breach of any of the terms,
conditions or provisions of the Articles of Incorporation, bylaws
or other governing instruments of DES or any judgment, order,
injunction or decree of any court or governmental authority to
which DES is subject or of any agreement or contract listed on
Schedule 3.7, or constitute a material default thereunder; or
(ii) except as provided in Section 4.2. hereof, require the
consent or approval of any person.
(b) To the best knowledge of DES after due inquiry, DES is
not in violation of any applicable law, statute, order, rule or
regulation promulgated by any federal, state, local or foreign
governmental, authority relating to the operation, conduct or ownership
of the property or business of DES.
(c) Neither the execution and delivery of this Agreement,
nor the consummation of the Stock Purchase contemplated hereby, are
events which of themselves or with the giving of notice or the passage
of time or both, would constitute a violation of or conflict with or
result in any breach of, or default under the terms, conditions or
provisions of, any judgment, law or regulation, or DES's Articles of
Incorporation or Bylaws of any lease, contract, mortgage, deed of
trust, indenture, agreement or instrument to which DES is a party or by
which it is bound, or would result in the creation or imposition of any
lien, charge or encumbrance of, any nature whatsoever on the property
or assets of DES and no such event of itself or with the giving of
notice or the passage of time or both will result in the acceleration
of the due date of any obligation to which DES is bound.
3.9. LITIGATION. DES is not party to any action, suit, claim,
proceeding or investigation either pending or, to the best knowledge of its
officers and directors, threatened against, respectively, DES or any of its
officers or directors in their capacities as such, at law or in equity, or by or
before any federal, state, provincial, municipal or other governmental
department, commission, board, agency or instrumentality, domestic or foreign.
Except as set forth in Schedule 3.9, DES is not the subject of any outstanding
judgment, or operating under, subject to, or in default with respect to, any
6
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order, writ, injunction or decree of any court or federal, state, provincial,
municipal or other governmental department, commission, board, agency or
instrumentality, domestic or foreign, which impairs or could impair the conduct
of its business in any material way.
3.10. AUTHORITY. This Agreement has been duly executed by Seller, and
the execution and performance of this Agreement will not violate, or result in a
breach of, or constitute a default in any agreement, instrument, judgment, order
or decree to which Seller are a party or to which Seller are subject, nor will
such execution and performance constitute a violation of or conflict with any
fiduciary to which Seller are subject.
3.11. LIENS AND ENCUMBRANCES. Other than as set forth on Schedule 3.11
hereof, all of the real and personal property of DES is free and clear of all
liens, security interests and encumbrances.
3.12. BROKERS' OR FINDERS' FEES, ETC. No agent, broker, investment
banker, person or firm acting on behalf of the Seller or DES or under their
authority is or will be entitled to any broker's or finder's fee or any other
commission or similar fee directly or indirectly from the Seller or DES in
connection with any of the. transactions contemplated herein.
3.13. NAMES, PATENTS, TRADEMARKS, ETC. Schedule 3.14 sets forth all
copyrights, patents, trademarks and trade names, federal, state or provincial,
domestic or foreign, registration of which has been obtained or applied for by
DES, all of which are valid, in good standing, and uncontested. DES possesses
all rights, licenses, or other authority to use all such copyrights, patents,
inventions, formulas, processes (secret or otherwise), trademarks and trade
names necessary to conduct its businesses as presently conducted or presently
proposed to be conducted. DES has not received any notice with respect to any
claim of alleged infringement or unlawful or improper use of any copyright,
patent, trademark, trade name, process, invention, formula or other intangible
property right owned or alleged to be owned by others, which claim, if decided
adversely, could have a material adverse effect on the business or operations of
DES.
3.14. COMPLIANCE WITH LAWS. DES is not in violation of any, term or
provision of its Articles of Incorporation or Bylaws, or of any term or
provision of any judgment, decree, order, statute, injunction, rule, ordinance
or governmental regulation (including building, zoning,; or environmental)
applicable to it, its properties, or of any agreement or instrument applicable
to it; DES has maintained in full force and effect any license or permit
material to the conduct of its business, and has not received any notification
that any revocation or limitation thereof is threatened or pending.
3.15. INSURANCE. Schedule 3.16 contains a true, correct and complete
description of all policies of fire, casualty and extended coverage, public
liability, worker's compensation, life and other forms of insurance owned or
held, respectively, by DES. All such policies are in full force and effect and
will remain so through the Effective Date. All buildings, plants and properties,
including but not limited to leasehold interests, machinery, equipment,
billboards and inventories of DES are adequately insured against loss or damage
by fire and all other hazards and risks of the character usually insured against
by persons operating similar properties in the localities where such properties
are located (including use and occupancy insurance) under valid and enforceable
policies issued by insurers of recognized responsibility. Such insurance
coverage will be continued in full force and effect through the Effective Date.
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3.16. ABSENCE OF UNDISCLOSED LIABILITIES; ADVERSE CHANGES IN CONDITION.
(a) DES has no liabilities or obligations which, individually or
in the aggregate, are material to DES and which have not been:
(i) reflected in the unaudited balance sheet of DES as of
September 30, 1996 referred to in Section 3.4 (the "DES
Balance Sheet") or the unaudited balance sheet as of September
30, 1997; or
(ii) incurred in the ordinary course of business since September
30, 1997.
(b) Except as set forth in Section 3.4, since September 30, 1997,
whether or not in the ordinary course of business, there has not been,
occurred or arisen:
(i) any material adverse change in the consolidated .financial
condition or in the operations of the business of DES from
that shown on the DES Balance Sheet; or
(ii) any damage or destruction in the nature of a casualty loss,
whether covered by insurance or not, materially and adversely
affecting any property or business of DES which is material to
the financial condition of the operations of the business of
DES; or
(iii) any actual or, to the knowledge of Seller, threatened, strike
or other labor trouble or dispute which materially adversely
affects, or which insofar as DES knows might materially
adversely affect the business or prospects of DES.
SECTION 4. CONDUCT AND TRANSACTIONS PRIOR TO EFFECTIVE DATE
- -----------------------------------------------------------
4.1. STOCKHOLDER APPROVAL. If required by law, DES shall submit and
recommend this Agreement to its stockholder for approval at a meeting of its
stockholder to be held at the earliest practicable date for the purpose of
considering and voting upon a proposal to approve the Purchase.
SECTION 5. CONDITIONS TO PURCHASE
- ---------------------------------
5.1. CONDITIONS TO OBLIGATION OF KIW. The obligation of KIW to effect
the Purchase shall be subject to each of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES OF SELLER TO BE TRUE. The
representations and warranties of Seller herein contained shall be true
in all material respects at the Effective Date with the same effect as
though made at such time, except to the extent waived hereunder or
affected by the schedules delivered hereunder; Seller shall have
performed in all material respects all obligations and complied in all
material respects with all covenants and conditions required by this
Agreement to be performed or complied with by it at or prior to the
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Effective Date; and Seller shall have delivered to KIW a certificate of
DES in form and substance satisfactory to KIW dated the Effective Date
and Signed by its principal financial officer, to all such effects.
(b) SHAREHOLDER APPROVAL. The shareholder of DES shall have
approved this Agreement, if required by law.
(c) NO LEGAL PROCEEDINGS. No injunction or restraining order
shall be in effect prohibiting the Purchase, and no action or
proceeding shall have been instituted and, at what would otherwise have
been the Effective Date, remain pending before a court to restrain or
prohibit the transactions contemplated by this Agreement.
(d) STATUTORY REQUIREMENTS. All statutory requirements for the
valid consummation by DES of the transactions contemplated by this
Agreement shall have been fulfilled, including the shareholder approval
described in Section 4.2; all authorizations, consents and approvals of
all federal, state and local governmental agencies and authorities
required to be obtained in order to permit consummation by DES of the
transactions contemplated by this Agreement, and to permit the
businesses presently carried on by KIW and DES to continue unimpaired
in all material respects immediately following the Effective Date shall
have been obtained.
(e) OPINION OF COUNSEL FOR SELLER. KIW shall have received from
counsel to DES or Seller, an opinion dated the Effective Date, in form
and substance satisfactory to KIW's counsel, substantially to the
effect that:
(i) DES is a corporation duly incorporated and validly existing
and in good standing under the laws of the State of
California;
(ii) DES is duly qualified to do business as a foreign corporation
and in good standing in each state set forth in Schedule 3.1;
(iii) DES has the corporate power to carry on its existing business;
(iv) the authorized capital stock of DES consists of 5,000,000
shares of common stock and 1,000,000 shares of preferred
stock, each of $.0l par value, and the number of issued and
outstanding shares of capital stock of DES is _________ common
shares;
(v) each of this Agreement and the Purchase Documents has been
duly authorized, executed and delivered by DES and is the
valid and binding obligation of DES. All corporate action by
DES and its shareholder required to authorize the Purchase has
been taken and DES has the corporate power to effect the
Purchase provided for in this Agreement;
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(vi) all of the outstanding capital stock of DES has been duly and
validly authorized and issued, is fully paid and nonassessable
and is as described in Schedule 3.2 hereof; and
(vii) to the best knowledge of such counsel, neither the execution
and delivery by Seller of this Agreement, nor consummation of
the transactions contemplated hereby or thereby, will conflict
with or result in a breach of any of the terms, conditions or
provisions of any judgment, order, injunction, decree,
regulation or ruling of any court or governmental authority,
domestic or foreign, to which DES is subject, or constitute a
material default thereunder.
In rendering such opinion such counsel may rely, to the extent such
counsel deems such reliance necessary or appropriate, upon opinions of local
counsel as to matters of law and, as to matters of fact, upon certificates of
public officials and of officers of DES.
(f) REQUIRED CONSENTS. KIW and Seller shall have obtained the
consents or approvals of each person and governmental agency whose
consents or approval is required in connection with the execution,
delivery and performance of this Agreement except for such consents or
approvals the failure of which to obtain would not in the aggregate
have a material adverse effect on KIW or Seller.
5.2. CONDITIONS TO OBLIGATION OF SELLER. The obligations of Seller to
effect the Purchase shall be subject to the following conditions:
(a) REPRESENTATIONS AND WARRANTIES OF KIW TO BE TRUE. The
representations and warranties of KIW herein contained shall be true in
all material respects at the Effective Date with the same effect as
though made at such time, except to the extent waived hereunder or
affected by the transactions contemplated herein; KIW shall have
performed in all material respects all obligations and complied in all
material respects with all covenants and conditions required by this
Agreement to be performed or complied with by it prior to the Effective
Date; and KIW shall have delivered to DES a certificate of KIW in form
and substance satisfactory to KIW, dated the Effective Date and signed
by its principal executive officer and principal financial officer to
all such effects.
(b) STATUTORY REQUIREMENTS. All statutory requirements for the
valid consummation by KIW and Seller of the transactions contemplated
by this Agreement shall have been fulfilled; all authorizations,
consents and approvals of each person and all federal, state and local
governmental agencies and authorities required to be obtained in order
to permit consummation by KIW and Seller of the transaction
contemplated by this Agreement, and to permit the businesses presently
carried on by KIW and DES to continue unimpaired in all material
respects immediately following the Effective Date shall have been
obtained.
(c) OPINION OF COUNSEL FOR KIW. Seller shall have received from
counsel for KIW an opinion, dated the Effective Date, in form and
substance satisfactory to Seller's counsel, substantially to the effect
that:
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(i) to the best knowledge of such counsel, neither the execution
and delivery by KIW of this Agreement, nor consummation of the
transactions contemplated hereby or thereby, will conflict
with or result in a breach of any of the terms, conditions or
provisions of any judgment, order, injunction, decree,
regulation or ruling of any court or governmental authority,
domestic or foreign, to which KIW is subject or constitute a
material default thereunder.
In rendering such, opinion, counsel may rely, to the extent
such counsel deems such reliance necessary or appropriate, upon
opinions of local counsel as to matters of law and, as to matters of
fact, upon certificates of public officials and officers of KIW.
SECTION 6. CERTAIN UNDERSTANDINGS AND AGREEMENTS
- ------------------------------------------------
6.1. EMPLOYMENT AGREEMENTS. Upon consummation of the Purchase KIW shall
assume all existing DES employment agreements, if any.
SECTION 7. TERMINATION OF OBLIGATIONS AND WAIVERS OF CONDITIONS; PAYMENT OF
- ---------------------------------------------------------------------------
EXPENSES
--------
7.1. TERMINATION OF AGREEMENT AND ABANDONMENT OF PURCHASE. Anything
herein to the contrary notwithstanding, this Agreement and the Purchase
contemplated hereby may be terminated at any time before the Effective Date,
whether before or after approval of this Agreement by the shareholder of KIW
and/or DES, as follows, and in no other manner:
(a) MUTUAL CONSENT. By mutual consent of Seller and of the Board
of Directors of KIW.
(b) EXPIRATION DATE. By Seller or by the Board of Directors of
KIW if the Purchase shall not have become effective by November 1,
1997, which date may be extended by mutual agreement of the Board of
Directors of DES and by Seller.
7.2. PAYMENT OF EXPENSES; WAIVER OF CONDITIONS. In the event that this
Agreement shall be terminated pursuant to Section 7.1, all obligations of the
parties under this Agreement shall terminate and there shall be no liability of
any party to the other. Each party hereto will pay. all costs and expenses
incident to its negotiation and preparation of this Agreement and to its
performance of and compliance with all agreements and conditions contained
herein or therein on its part to be performed or complied with, including the
fees, expenses and disbursements of its counsel; provided that the obligations
of Seller and KIW contained in Sections 2.14 and 3.13 hereof, and the
confidentiality obligations of the parties contained in Section. 4.1(a) hereof,
shall survive any such termination. If any of the conditions specified in
Section 5.1 hereof has not been satisfied, KIW may nevertheless at its election
Proceed with the transactions contemplated hereby and if any of the Conditions
specified in Section 5.2 hereof has not been satisfied, DES may nevertheless at
its election proceed with the transactions contemplated hereby. Any such
election to proceed shall be evidenced by a certificate executed on behalf of
the electing party by an authorized officer or representative. In the event that
the Purchase shall be consummated, each party hereto will pay all of its own
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costs and expenses in connection therewith, except that Seller shall be
reimbursed by DES or KIW for all of their costs and expenses incident to the
transactions contemplated herein.
SECTION 8. GENERAL
- ------------------
8.1. AMENDMENTS. Subject to applicable law, this Agreement and any
schedule, list or exhibit attached hereto may be amended only by an instrument
in writing signed by an officer or authorized representative of each of the
parties hereto upon authorization by Seller or by the Board of Directors of KIW
before or after the meeting of shareholder referred to in Section 6.1 hereof at
any time prior to the Effective Date, except that no such amendment shall affect
the rate of exchange provided for in the Agreement of Purchase.
8.2. NO ASSIGNMENT. This Agreement may not be assigned by either party,
by operation of law or otherwise.
8.3. NO SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Except as provided
in Section 2.14, and 3.13 hereof, the respective representations and warranties
of KIW and Seller contained herein shall expire and be terminated and
extinguished at the Effective Date or the termination hereof, as the case may
be.
8.4. GOVERNING LAW. Except where the laws of another jurisdiction are
mandatorily applicable, this Agreement and the legal relations among the parties
hereto shall be governed by and construed in accordance with the laws (except
for conflict of laws provisions) of the State of California.
8.5. NOTICES. Any, notice or other communications required or permitted
hereunder shall be sufficiently given if sent by registered mail or certified
mail, postage prepaid and addressed as follows:
If to KIW, to:
Alex Kanakaris, Chief Executive Officer
Kanakaris InternetWorks
29350 Pacific Coast Highway
Malibu, California 90265
If to Seller, to:
Christel H. Uittenbogaart
% Desience
29350 Pacific Coast Highway, #1
Malibu, California 90265
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with copies to:
Gary L. Blum, Esq.
3278 Wilshire Blvd., #603
Los Angeles, California 90010
8.6. HEADINGS. The descriptive headings of the sections and subsections
of this Agreement are inserted for convenience only and do not constitute a part
of this Agreement.
8.7. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement.
8.8. RELIANCE UPON REPRESENTATIONS AND WARRANTIES. Notwithstanding any
right of any party hereto to fully investigate the affairs of any other party,
the parties hereto may rely upon the representations, warranties and covenants
made to it in this Agreement and on the accuracy of any certificate, any
schedule attached hereto (collectively, the "Disclosure Schedules"), exhibit or
other document given or delivered to it pursuant to this Agreement. Further,
knowledge by an agent of any party hereto of any facts not otherwise disclosed
in this Agreement, the Disclosure Schedules or any other Purchase Document,
shall not constitute a defense to any claim for misrepresentation breach of any
warranty, agreement, or covenant under this Agreement, the Disclosure Schedules
or any other Purchase Document. No representations or warranties have been made
by or on behalf of any person to induce any party to enter into this Agreement
or to abide by or consummate the transactions contemplated by this Agreement,
except representations and warranties expressly set forth herein, in the
Disclosure Schedules or in any other Purchase Document.
8.9. WAIVER. No purported waiver by any party of any default by any
other party of any term, covenant or condition contained herein shall be deemed
to be a waiver of such term, covenant or condition unless the waiver is in
writing and signed by the waiving party. No such waiver shall in any event be
deemed a waiver of any subsequent default under the same or any other term,
covenant or condition contained herein.
8.10. ENTIRE AGREEMENT. This Agreement, together with the schedules
attached hereto and any certificate, exhibit or other document given or
delivered pursuant hereto, sets forth the entire understanding among the parties
concerning the subject matter of this Agreement and incorporates all prior
negotiations and understandings. There are no covenants, promises, agreements,
conditions or understandings, either oral or written, between them relating to
the subject matter of this Agreement other than those set forth herein. No
alteration, amendment, change or addition to this Agreement shall be binding
upon any party unless in writing and signed by the party to be charged.
8.11. NO PARTNERSHIP. Nothing contained in this Agreement will be
deemed or construed by the parties hereto or by any third person to create the
relationship of principal and agent or partnership or joint venture.
8.12. PARTIAL INVALIDITY. If any term, covenant or condition in this
Agreement or the application thereof to any person, party or circumstance shall
be invalid or unenforceable, the remainder of this Agreement or the application
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of such term, covenant or condition to persons or circumstances, other than
those as to which it is held invalid, shall be unaffected thereby and each term,
covenant or condition of this Agreement shall be valid and enforced to the
fullest extent permitted by law.
8.13. JOINT PREPARATION. This Agreement is to be deemed to have been
prepared jointly by the parties hereto and any uncertainty or ambiguity existing
herein, if any, shall not be interpreted against, any party, but shall be
interpreted according to the application of the rules of interpretation for
arm's length agreements.
8.14. ARBITRATION. Any controversy or claim arising out of, or relating
to, this contract or the breach thereof, shall be settled by arbitration (if
permissible under applicable law) in accordance with the rules of the American
Arbitration Association, and judgment upon the award rendered may be entered in
any court having jurisdiction thereof.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed by their authorized officers as of the date and year first above
written.
Seller: Kanakaris InternetWorks
/S/ CHRISTEL H. UITTENBOGAART By: /S/ ALEX KANAKARIS
- ----------------------------- ---------------------------------------
Christel H. Uittenbogaart Alex Kanakaris, Chief Executive Officer
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QUITCLAIM AND ASSIGNMENT OF ALL RIGHTS
FOR GOOD AND VALUABLE CONSIDERATION, the receipt and adequacy of which
is hereby acknowledged, the undersigned, Christel H. Uittenbogaart
("Assignor"),does hereby quitclaim, assign, transfer, set over and convey to
Kanakaris InternetWorks ("KIW"), exclusively and perpetually, one hundred
percent (100%) of all right, title and interest in and to Assignor's ownership
interest in Desience Corporation, a New York corporation formed on November 1,
1976, and which is inactive and not in good standing in New York (the
"Corporation").
Assignor represents and warrants that it owns all (100%) of the issued
and outstanding shares of stock of any kind in the Corporation: that it has
unencumbered right, title and interest in and to the shares and the Corporation
that is purported to be assigned and transferred herein; that it has the power
and authority to assign and transfer the rights herein assigned and transferred;
that it has not made and will not make, any grant or assignment that will, or
might, conflict with or impair, the complete enjoyment of the rights and
privileges assigned and transferred hereunder; that the transfer herein is made
free and clear of any liens, claims and encumbrances. Assignor warrants and
represents that it has not authorized and will not authorize any party to
exercise any right or take any action which would derogate or impair the rights
herein quitclaimed to KIW or which would require KIW to make payments of any
kind in order to exercise those rights; and that Assignor knows of no claim,
action, suit or proceeding relating to the rights pending or threatened before
any court, administrative or governmental body. Assignor shall indemnify KIW for
all costs, fees, and expenses (including attorney's fees) incurred by KIW in
connection with any breach (or purported breach) of Assignor's representations,
warranties, or agreements herein.
This Quitclaim and Assignment of All Rights ("Assignment") shall be
binding upon the officers, directors, heirs, administrators, executors,
successors or assigns of each party hereto.
IN WITNESS WHEREOF, this Assignment is executed as of the 10 day of
October, 1997.
ASSIGNOR KANAKARIS INTERNETWORKS
/s/ Christel H. Uittenbogaart By: /s/ Alex Kanakaris
- ------------------------------- ---------------------------------------
CHRISTEL H. UITTENBOGAART Alex Kanakaris, Chief Executive Officer
15
ACQUISITION AGREEMENT
Agreement dated as of 11/25/97 between Big Tex Enterprises, Inc., a Nevada
corporation ("Buyer") on behalf of its shareholders, and Kanakaris Internet
Works, a Delaware corporation ("Seller") on behalf of its shareholders.
The parties wish to provide for Seller's sale of the Shares to Buyer and Buyer's
purchase of the Shares from Seller on the terms and conditions of this
Agreement.
The parties agree as follows:
1. The Acquisition.
1.1 Purchase and Sale Subject to the terms and conditions
of this Agreement, at the Closing to be held as
provided in Section 2, Seller shall sell the Shares
to Buyer, and Buyer shall purchase the Shares from
Seller, free and clear of all encumbrances. Buyer
shall change it's name to .
1.2 Purchase Price. Purchaser will exchange 7,000,000
shares of its restricted stock for all of the
outstanding capital stock of Kanakaris. 3,000,000 of
the shares will be provided by Nelson Vasquez, the
current President, along with medalion guaranteed
stock powers, and the other 4 million shall be issued
from treasury. 1 million of the 4 million shares to
be issued from treasury shall be preferred stock
which is convertible to common stock with 3 to 1
voting rights over all common stock. The authorized
common stock of the corporation consists of
100,000,000 shares.
1.3 At the time of the closing, which is to occur prior
to 12-17-97, Big Tex will have available to it
$50,000.00 which is to be arranged by its current
investors for the benefit of Kanakaris.
1.4 Following the closing, the current investors of Big
Tex will use their best efforts to generate an
additional $450,000.00 in investment in the company
over a 12 month period from closing.
2. The Closing.
2.1 Place and Time. The closing of the sale and purchase
of the Shares (the "Closing") shall take place at the
offices of Shawn Hackman, Esq. 1600 E. Desert Inn Rd.
#206-A, Las Vegas, NV 89109 no later than the close
of business (Las Vegas time) on 12/17/97, or at such
other place, date and time as the parties may agree
in writing.
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2.2 Deliveries by Seller. Seller shall deliver the
following to Buyer:
(a) Within 3 months following the closing Seller
shall deliver Certificates representing the
Shares, duly endorsed for transfer to buyer
and accompanied by any applicable stock
transfer tax stamps; Seller shall cause Big
Tex Enterprises, Inc. to change those
certificates for, and to deliver to Buyer at
the Closing, a certificate representing the
Shares registered in the name of Buyer
(without any legend or other reference to
any Encumbrance).
(b) At closing, the Seller shall deliver the
documents contemplated by Section 3.
(c) At Closing, Seller shall deliver all other
documents, instruments and writings required
by this Agreement to be delivered by Seller
at the Closing and any other documents or
records relating to Kanakaris's business
reasonably requested by Buyer in connection
with this Agreement.
2.3 Deliveries by Buyer. At the Closing, Buyer shall
deliver the following to Seller:
(a) The shares as contemplated by section 1.
(b) The documents contemplated by Section 4.
(c) All other documents, instruments and
writings required by this Agreement to be
delivered by Buyer at the Closing.
3. Conditions to Buyer's Obligations.
The obligations of Buyer to effect the Closing shall be subject to the
satisfaction at or prior to the Closing of the following conditions, any one or
more of which may be waived by Buyer:
3.1 Representations, Warranties and Agreements.
(a) The representations and warranties of Seller
set forth in this Agreement shall be true
and complete in all material respects as of
the Closing Date as though made at such
time, (b) Seller shall have performed and
complied in all material respects with the
agreements contained in this Agreement
required to be performed and complied with
by it at or prior to the Closing and (c)
Buyer shall have received a certificate to
that effect signed by an authorized
representative of Seller.
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3.2 Resignations of Director. Resignations have hereby
been requested of all directors of Big Tex
Enterprises, Inc. and its Subsidiaries and such
directors shall have submitted their resignations or
been removed effective as of the Closing Date.
3.3 The new Board will be appointed on closing, and shall
consist of such Board members as are appointed by
Seller.
4. Conditions to Seller's Obligations.
The obligations of Seller to effect the Closing shall be subject to the
satisfaction at or prior to the Closing of the following conditions, any one or
more of which may be waived by Seller:
4.1 Representations, Warranties and Agreements.
(a) The representations and warranties of Buyer set forth
in this Agreement shall be true and complete in all
material respects as of the Closing Date as though
made at such time, (b) Buyer shall have performed and
complied in all material respects with the agreements
contained in this Agreement required to be performed
and complied with by it prior to or at the Closing
and (c) Seller shall have received a certificate to
that effect signed by an officer of Buyer.
5. Representations and Warranties of Seller.
Seller represents and warrants to Buyer that, to the Knowledge of Seller (which
limitation shall not apply to Section 5.3) and except as set forth in the
Disclosure Letter:
5.1 Organization of Seller; Authorization. Seller is a
corporation duly organized, validly existing and in
good standing under the laws of Delaware with full
corporate power and authority to execute and deliver
this Agreement and to perform its obligations
hereunder. The execution, delivery and performance of
this Agreement have been duly authorized by all
necessary corporate action of Seller and this
Agreement constitutes a valid and binding obligation
of Seller, enforceable against it in accordance with
its terms.
5.2 No Conflict as to Seller. Neither the execution and
delivery of this Agreement nor the consummation of
the sale of the Shares to Buyer will (a) violate any
provision of the certificate of incorporation or
by-laws of Seller or (b) violate, be in conflict
with, or constitute a default (or an event which,
with notice or lapse of time or both, would
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constitute a default) under any agreement to which
Seller is a party or (c) violate any statute or law
or any judgment, decree, order, regulation or rule of
any court or other Governmental Body applicable to
Seller.
(b) an unaudited consolidated summary balance
sheet of Kanakaris and its Subsidiaries as
at 9/30/97 (the "Balance Sheet"), as well as
consolidated summary statements of operating
results and cash generation for the three
months ending thereon. Such financial
statements and notes fairly present the
consolidated financial condition and results
of operations of Kanakaris and its
Subsidiaries as at the respective dates
thereof and for the periods therein referred
to, all in accordance with generally
accepted United States accounting principles
consistently applied throughout the periods
involved, except as set forth in the notes
thereto, except, in the case of the Balance
Sheet and the accompanying statements, for
audit adjustments and the absence of
footnotes.
5.5 Title to Properties. Either Kanakaris or one of its
Subsidiaries owns all of the material properties and
assets that they purport to own (real, personal and
mixed, tangible and intangible), including, without
limitation, all the material properties and assets
reflected in the Balance Sheet (except for property
sold since the date of the balance Sheet in the
ordinary course of business or leased under
capitalized leases), and all the material properties
and assets purchased or otherwise acquired by
Kanakaris or any of its Subsidiaries since the date
of the Balance Sheet.
5.6 Buildings, Plants and Equipment. The buildings,
plants, structures and material items of equipment
and other personal property owned or leased by
Kanakaris or its Subsidiaries are, in all respects,
material to the business or financial condition of
Kanakaris and its Subsidiaries, taken as a whole, in
good operating condition and repair (ordinary wear
and tear excepted) and are adequate in all such
respects for the purposes for which they are being
used.
5.7 Litigation. There is no action, suit, inquiry,
proceeding or investigation by or before any court or
Governmental Body pending or threatened in writing
against or involving Kanakaris or any of its
Subsidiaries which is likely to have a material
adverse effect on the business or financial condition
of Big Tex and its Subsidiaries, taken as whole, or
which would require a payment by Big Tex or its
Subsidiaries in excess of $2000 in the aggregate or
which questions or challenges the validity of this
Agreement. Neither Kanakaris nor any or its
Subsidiaries is subject to any judgment, order or
decree that is likely to have a material adverse
effect on the business or financial condition of Big
Tex and its Subsidiaries, taken as a whole, or which
would require a payment by Big Tex or its
Subsidiaries in excess of $2000 in the aggregate.
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5.8 Absence of Certain Changes. Since the date of the
Balance Sheet, neither Kanakaris nor any of its
Subsidiaries has:
(a) suffered the damage or destruction of any of
its properties or assets (whether or not
covered by insurance) which is materially
adverse to the business or financial
condition of Kanakaris and its Subsidiaries,
taken as a whole, or made any disposition of
any of its material properties or assets
other than in the ordinary course of
business;
(b) made any change or amendment in its
certificate of incorporation or by-laws, or
other governing instruments;
(c) issued or sold any Equity Securities or
other securities, acquired, directly or
indirectly, by redemption or otherwise, any
such Equity Securities, reclassified,
split-up or otherwise changed any such
Equity Security, or granted or entered into
any options, warrants, calls or commitments
of any kind with respect thereto;
(d) borrowed any funds (other than from Seller
or Big Tex or one of its Subsidiaries) or
incurred, or assumed or become subject to,
whether directly or by way of guarantee or
otherwise, any obligation or liability with
respect to any such indebtedness for
borrowed money;
(e) paid, discharged or satisfied any material
claim, liability or obligation (absolute,
accrued, contingent or otherwise), other
than in the ordinary course of business;
(f) prepaid any material obligation having a
maturity of more than 90 days from the date
such obligation was issued or incurred;
(g) cancelled any material debts or waived any
material claims or rights, except in the
ordinary course of business;
(h) made any capital expenditures or additions
to property, plant or equipment or acquired
any other property or assets (other than raw
materials and supplies) at a cost in excess
of $2000 in the aggregate;
(i) written off or been required to write off
any notes or accounts receivable in an
aggregate amount in excess of $2000;
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(j) other than the ordinary course of business,
incurred any liability required by generally
accepted accounting principles to be
reflected on a balance sheet and material to
the business or financial condition of
Kanakaris and its Subsidiaries taken as a
whole.
5.9 No Material Adverse Change. Since the date of the
Balance Sheet, there has not been any material
adverse change in the business or financial condition
of Kanakaris and its Subsidiaries taken as a whole,
other than changes resulting from economic conditions
prevailing in the United States.
5.10 Brokers or Finders. Seller has not employed any
broker or finder or incurred any liability for any
brokerage or finder's fees or commissions or similar
payments in connection with the sale of the shares to
Buyer.
5.11 Transactions with Directors and Officers. Kanakaris
and its Subsidiaries do not engage in business with
any Person (other than Seller) in which any of
Kanakaris's directors or officers has a material
equity interest. No director or officer of Kanakaris
owns any property, asset or right which is material
to the business of Kanakaris and its Subsidiaries,
taken as a whole.
5.12 Borrowing and Guarantees. Except for advances from
Buyer, Kanakaris and its Subsidiaries (a) do not have
any indebtedness for borrowed money, (b) are not
lending or committed to lend any money (except for
advances to employees in the ordinary course of
business), and (c) are not guarantors or sureties
with respect to the obligations of any Person.
6. Representations and Warranties of Buyer.
Buyer represents and warrants to Seller as follows:
6.1 Organization of Buyer; Authorization. Buyer is a
corporation duly organized, validly existing and in
good standing under the laws of Nevada, with full
corporate power and authority to execute and deliver
this Agreement and to perform its obligations
hereunder. The execution, delivery and performance of
this Agreement have been duly authorized by all
necessary corporate action of Buyer and this
Agreement constitutes a valid and binding obligation
of Buyer, enforceable against it in accordance with
its terms.
6.2 Conflict as to Buyer. Neither the execution and
delivery of this Agreement nor the performance of
Buyer's obligations hereunder will (a) violate any
provision of the certificate of incorporation or
by-laws of Buyer, (b) violate, be in conflict with,
or constitute a default (or an event which, with
notice of lapse of time or both, would constitute a
default) under any agreement or commitment to which
6
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Buyer is party or (c) violate any statue or law or
any judgment, decree, order, regulation or rule of
any court or other Governmental Body applicable to
Buyer.
6.3 Brokers or Finders. Buyer has not employed any broker
or finder or incurred any liability for any brokerage
or finder's fees or commissions or similar payments
in connection with any of the transactions
contemplated hereby.
6.4 Purchase for Investment. Buyer is purchasing the
shares solely for its own account for the purpose of
investment and not with a view to, or for sale in
connection with, any distribution of any portion
thereof in violation of any applicable securities
law.
7. Access and Reporting; Filings With Governmental Authorities.
7.1 Access. Between the date of this Agreement and the
Closing Date, Seller shall, and shall cause Kanakaris
to, (a) give Buyer and its authorized representatives
reasonable access to all plants, offices, warehouse
and other facilities and properties of Kanakaris and
its Subsidiaries and to the books and records of
Kanakaris and its Subsidiaries, (b) permit Buyer to
make inspections thereof, and (c) cause its officers
and its advisors to furnish Buyer with such financial
and operating data and other information with respect
to the business and properties of Kanakaris and its
Subsidiaries and to discuss with Buyer and its
authorized representatives the affairs of Kanakaris
and its Subsidiaries, all as Buyer may from time to
time reasonably request.
7.2 Exclusivity. From the date hereof until the earlier
of the Closing or the termination of this Agreement,
Seller shall not solicit or negotiate or enter into
any agreement with any other Person with respect to
or in furtherance of any proposal for a merger or
business combination involving, or acquisition of any
interest in, or (except in the ordinary course of
business) sale of assets by, Kanakaris, except for
the acquisition of the Shares by Buyer.
7.3 Publicity. Between the date of this Agreement and the
Closing Date, Seller and Buyer shall, and Seller and
buyer shall cause Big Tex to, discuss and coordinate
with respect to any public filing or announcement or
any internal or private announcement (including any
general announcement to employees) concerning the
contemplated transaction.
7.4 Confidentiality. Prior to the closing Date (or at any
time if the Closing does not occur) buyer shall keep
confidential and not disclose to any Person (other
than its employees, attorneys, accountants and
advisors) or use (except in connection with the
transactions contemplated hereby) all nonpublic
7
<PAGE>
information obtained by Buyer pursuant to Section
7.1. Following the Closing, Seller shall keep
confidential and not disclose to any Person (other
than its employees, attorneys, accountants and
advisors) or use (except in connection with preparing
Tax Returns and conducting proceeds relating to
Taxes) any nonpublic information relating to Big Tex
and its Subsidiaries. This Section 7.7 shall not be
violated by disclosure pursuant to court order or as
otherwise required by law, on condition that notice
of the requirement for such disclosure is given to
other party prior to making any disclosure and the
party subject to such requirement cooperates as the
other may reasonably request in resisting it. If the
Closing does not occur, Buyer shall return to Seller,
or destroy all information it shall have received
from Seller or Kanakaris in connection with this
Agreement and the transactions contemplated hereby,
together with any copies or summaries thereof or
extracts therefrom. Seller and Buyer shall use their
best efforts to cause their respective
representatives, employees, attorneys, accountants
and advisors to whom information is disclosed
pursuant to Section 7.1 and 7.6 to comply with the
provisions of this Section 7.7.
8. Conduct of Kanakaris's Business Prior to the Closing.
8.1 Operation in Ordinary Course. Between the date of
this Agreement and the Closing Date, Seller shall
cause Kanakaris and its Subsidiaries to conduct their
business in all material respects in the ordinary
course.
8.2 Business Organization. Between the date of this
Agreement and the Closing Date, Seller shall use its
reasonable efforts, and shall cause Kanakaris and
each of its Subsidiaries to use its respective
reasonable efforts, to (a) preserve substantially
intact the business organization of Kanakaris and
each of its Subsidiaries and keep available the
services of the present officers and employees of
Kanakaris and each of its Subsidiaries, and (b)
preserve in all material respects the present
business relationships and good will of Kanakaris and
each of its Subsidiaries.
8.3 Corporate Organization. Between the date of this
Agreement and the Closing Date, Seller shall not
cause or permit any amendment of the certificate of
incorporation or by-laws (or other governing
instrument) of Kanakaris or any of its Subsidiaries,
and shall cause Kanakaris and each of its
Subsidiaries not to:
(a) issue, sell or otherwise dispose of any of
its Equity Securities, or create, sell or
otherwise dispose of any options, rights,
conversion rights or other agreements or
commitments of any kind relating to the
issuance, sale or disposition of any of its
Equity Securities;
8
<PAGE>
(b) sell or otherwise dispose of any Equity
Securities of Kanakaris or any of its
Subsidiaries, or create or suffer to be
created any Encumbrance thereon, or create,
sell or otherwise dispose of any options,
rights, conversion rights or other
agreements or commitments of any kind
relating to the sale or disposition of any
Equity Securities of Kanakaris or any of its
Subsidiaries;
(c) reclassify, split up or otherwise change any
of its Equity Securities;
(d) be party to any merger, consolidation or
other business combination;
(e) sell, lease, license or otherwise dispose of
any of its properties or assets (including,
but not limited to rights with respect to
patents and registered trademarks and
copyrights or other proprietary rights), in
an amount which is material to the business
or financial condition of Kanakaris and its
Subsidiaries, taken as a whole, except in
the ordinary course of business.
8.4 Other Restrictions. Between the date of this
Agreement and the Closing Date, Seller shall cause
Kanakaris and each of its Subsidiaries not to:
(a) borrow any funds or otherwise become subject
to, whether directly or by way of guarantee
or otherwise, any indebtedness for borrowed
money other than borrowings from Seller, Big
Tex or another of its Subsidiaries;
(b) create any material Encumbrance on any of
its material properties or assets;
(c) except in the ordinary course of business,
increase in any manner the compensation of
any director or officer or increase in any
manner the compensation of any class of
employees;
(d) make any capital expenditure or acquire any
property or assets (other than raw materials
and supplies) for a cost in excess of $2,000
in any one case or $5,000 in the aggregate;
(e) enter into any agreement that materially
restricts Kanakaris or any of its
Subsidiaries from carrying on its business;
(f) pay, discharge or satisfy any material
claim, liability or obligation, absolute,
accrued, contingent or otherwise, other than
the payment, discharge or satisfaction in
the ordinary course of business of
liabilities or obligations reflected in the
Balance Sheet or incurred in the ordinary
course of business and consistent with past
practice since the date of the Balance
sheet; or
(g) cancel any material debts or waive any
material claims or rights.
9
<PAGE>
9. Survival of Representations and Warranties; Indemnification.
9.1 Survival. No representation or warranty contained in
this Agreement or in any certificate of document
delivered pursuant hereto shall survive the Closing,
except for those contained in Sections 5.1, 5.2, 5.3
(only as to Seller), 5.10, 6.1, 6.2, 6.3, 6.4 (the
"Surviving Representations and Warranties").
9.2 Indemnification by Seller. Seller shall indemnify and
hold harmless Buyer and Big Tex and shall reimburse
Buyer and Big Tex for any loss, liability, damage or
expense (including reasonable attorneys fees)
(collectively, "Damages") arising from or in
connection with (a) any inaccuracy in any of the
Surviving Representations and Warranties of Seller in
this Agreement or (b) any failure by Seller to
perform or comply with any agreement in this
Agreement.
9.3 Indemnification by Buyer. Buyer shall indemnify and
hold harmless Seller and shall reimburse Seller for
any Damages arising from or in connection with (a)
any inaccuracy in any of the Surviving
representations and Warranties of Buyer in this
Agreement, (b) any failure by Buyer to perform or
comply with any agreement in this Agreement, except
that after the Closing, no claim shall be made with
respect to the failure to perform or comply with any
agreement required to have been performed or complied
with prior to the Closing Date, (c) any claims
arising from the conduct of the business of Kanakaris
and the Subsidiaries after the Closing and (d) any
payments made by Seller after the Closing pursuant to
any guaranty by Seller of any obligation of Big Tex
or any of its Subsidiaries (other than as
contemplated by Section 2.4). Buyer shall use its
best efforts to obtain Seller's release from any such
guaranties.
10. Termination.
10.1 Termination. This Agreement may be terminated before
the Closing occurs only as follows:
(a) By written agreement of Seller and Buyer at
any time.
(b) By Seller, by notice to Buyer at any time,
if one or more of the conditions specified
in Section 4 is not satisfied at the time at
which the Closing (as it may be deferred
pursuant to Section 2.1) would otherwise
occur or if satisfaction of such a condition
is or becomes impossible.
(c) By Buyer, by notice to Seller at any time,
if one or more of the conditions specified
in Section 3 is not satisfied at the time at
which the Closing (as it may be deferred
pursuant to Section 2.1), would otherwise
occur or if satisfaction of such a condition
is or becomes impossible.
10
<PAGE>
(d) By Buyer or Seller, by notice to the other
at any time after 12-17-97.
10.2 Effect of Termination. If this Agreement is
terminated pursuant to Section 12.1, this Agreement
shall terminate without any liability or further
obligation of any party to another.
11. Notices.
All notices, consents, assignments and other communications under this Agreement
shall be in writing and shall be deemed to have been duly given when (a)
delivered by hand, (b) sent by telex or telecopier (with receipt confirmed),
provided that a copy is mailed by registered mail, return receipt requested, or
(c) received by the delivery service (receipt requested), in each case to the
appropriate addresses, telex numbers and telecopier numbers set forth below (or
to such other addresses, telex numbers and telecopier numbers as a party may
designate as to itself by notice to the other parties).
(a) If to Buyer or Big Tex: (b) If to Seller:
c/o Shawn F. Hackman, Esq. Kanakaris Communications
1600 E. Desert Inn Rd. #206-A 29350 Pacific Coast Highway Suite 12
Las Vegas, NV 89109 Zuma Beach Terrace, Malibu, CA 90265
Telecopier No.: 702-732-2253 Telecopier No.: 310-589-2632
Attention: Shawn F. Hackman Attention: Alex Kanakaris
12. Miscellaneous.
12.1 Expenses. Each party shall bear its own expenses
incident to the preparation, negotiation, execution
and delivery of this Agreement and the performance of
its obligations hereunder.
12.2 Captions. The captions in this Agreement are for
convenience of reference only and shall not be given
any effect in the interpretation of this agreement.
12.3 No Waiver. The failure of a party to insist upon
strict adherence to any term of this Agreement on any
occasion shall not be considered a waiver or deprive
that party of the right thereafter to insist upon
strict adherence to that term or any other term of
this Agreement. Any waiver must be in writing.
12.4 Exclusive Agreement; Amendment. This Agreement
supersedes all prior agreements among the parties
with respect to its subject matter, including the
Letter of Intent (but shall not effect the provisions
of the letter dated November 19, 1997 between Seller
and Big Tex, which shall be terminated upon the
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<PAGE>
Closing), and is intended (with the documents
referred to herein) as a complete and exclusive
statement of the terms of the agreement among the
parties with respect thereto and cannot be changed or
terminated orally.
12.5 Counterparts. This Agreement may be executed in two
or more counterparts, each of which shall be
considered an original, but all of which together
shall constitute the same instrument.
12.6 Governing Law. This Agreement and (unless otherwise
provided) all amendments hereof and waivers and
consents hereunder shall be governed by the internal
law of the State of Nevada, without regard to the
conflicts of law principles thereof.
12.7 Binding Effect. This Agreement shall inure to the
benefit of and be binding upon the parties hereto and
their respective successors and assigns, provided
that neither party may assign its rights hereunder
without the consent of the other except that buyer
may assign its rights (but not its obligations) under
this Agreement to its wholly-owned Subsidiary without
the consent of Seller, provided that, after the
Closing, no consent of Seller shall be needed in
connection with any merger or consolidation of Buyer
with or into another entity.
Big Tex Enterprises, Inc.
-------------------------
/S/ DOUGLAS ANSELL
--------------------------------
By Douglas Ansell-Vice President
Kanakaris Communications
------------------------
/S/ ALEX KANAKARIS
---------------------------------
By Alex Kanakaris-President & CEO
12
WINDOWS MEDIA TECHNOLOGY PROMOTION AGREEMENT
The purpose of this agreement (the "AGREEMENT") is to set forth the terms upon
which Microsoft Corporation ("MICROSOFT") will promote certain of your company's
web content in consideration of your company's adoption of specified Microsoft
Windows Media Technology for your web content and promotion of such technology.
This Agreement refers to your company as "ICP."
This Agreement is entered into with reference to the following information ("ICP
Table") and incorporates Microsoft's Standard Terms and Conditions attached
hereto as Attachment B ("STANDARD TERMS AND CONDITIONS") and all other schedules
and attachments referenced herein:
<TABLE>
<CAPTION>
<S> <C>
ICP INFORMATION: Corporate Name: Kanakaris Communications, Inc.
Place of Incorporation: Nevada
Address for Notices: 3303 Harbor Blvd., Suite F3
Costa mesa, CA 92626
- ------------------------------------------------- ----------------------------------------------------
ICP CONTACT: ICP Contact/Title: Alex Kanakaris
Telephone Number: (714) 444-0530
Facsimile Number: (714) 549-8970
E-mail: [email protected]
- ------------------------------------------------- ----------------------------------------------------
ICP CONTENT MODULE MANAGER AND ICP Content Module Manager: John McKay
STREAMING CONTENT MANAGER: Telephone Number: (323) 655-1978
(2 technical contacts required) E-mail: [email protected]
ICP Streaming Content Manager: Lisa Lawrence
Telephone Number: (714) 444-0530
E-mail: [email protected]
- ------------------------------------------------- ----------------------------------------------------
ICP NAME AND ICP SERVICE NAME ICP Name: Kanakaris Communications
(as requested for press release): ICP Service Name(s): KKRS.NET
- ------------------------------------------------- ----------------------------------------------------
"ICP SITE LINK" (includes successors KKRS.NET, NetBooks.com, Cyberpop.com, ILSN.com
thereto):
- ------------------------------------------------- ----------------------------------------------------
"ICP SITE PAGE(S)" KKRS.NET/windowsmedia, NetBooks.com/windowsmedia,
(includes successors thereto): Cyberpop.com/windowsmedia, ILSN.com/windowsmedia
- ------------------------------------------------- ----------------------------------------------------
"FEATURED TECHNOLOGY" _x_ Windows Media Player
(only the checked options apply): ___ Windows Radio toolbar
Attachment A relating to the Featured Technology is also
referred to as the "FEATURED TECHNOLOGY SCHEDULE".
- ------------------------------------------------- ----------------------------------------------------
"PROMOTION START DATE": August 30, 1999 on two of the four sites and September 30,
1999 on the remaining sites.
- ------------------------------------------------- ----------------------------------------------------
"TERRITORY": United States of America
- ------------------------------------------------- ----------------------------------------------------
"TERM": Beginning August 9,1999 and continuing through December
30, 2001 unless earlier terminated in accordance with Section
3.
- ------------------------------------------------- ----------------------------------------------------
</TABLE>
MICROSOFT OBLIGATIONS
a. WINDOWS MEDIA/RADIO STATION GUIDE. Microsoft will use commercially
reasonable efforts during the Term, and consistent with Microsoft's
localization schedule for the applicable web site for the Territory, to
include a link (e.g., icon, text link and/or descriptive text) for the
ICP Site Link and, if provided, brief summaries of the content
available via such ICP Site Link ("CONTENT MODULES") in the following:
(only the checked options apply)
_x_ Microsoft WindowsMedia.com: a Microsoft web site at URL
http://windowsmedia.com, and successors thereto ("MWM") in an appropriate
category and version of MWM designed for use in
Kanakaris Com Final Page 1 of 16
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WindowsMedia.com & Windows Media Technology Promotion Agreement
February 18, 1999
the Territory. Microsoft will determine, in its sole discretion, the placement
of any ICP Site Links and Content Modules within the MWM.
___ RADIO STATION GUIDE: a Microsoft web site at URL
http://windowsmedia.com/radiobar.asp, and successors thereto ("RSG") in an
appropriate category and version of RSG designed for use in the Territory.
Microsoft will determine, in its sole discretion, the placement of any ICP Site
Links and Content Modules within the RSG.
Attachment D provides a representation of one manner in which the ICP Site Link
and Content Modules may appear.
The foregoing obligations will be subject to Microsoft's right to remove any ICP
Site Link and/or Content Modules immediately upon receiving a claim from any
source that the ICP Site or a Content Module includes or has included any
content which violates any applicable law or which would expose Microsoft, in
its reasonable estimation, to potential civil or criminal liability.
b. NO LICENSE. Nothing in this Agreement grants ICP any rights to any
Microsoft software, technology or other intellectual property rights.
Microsoft retains all right, title and interest in and to the Featured
Technology, MWM and RSG.
c. REPORTS. For each month during the Term, Microsoft will use commercially
reasonable efforts to report to ICP the referrals from MWM and/or RSG to
ICP Site Pages.
1. ICP OBLIGATIONS
a. PROMOTION OF FEATURED TECHNOLOGY. Throughout the Term, ICP will use and
promote the Featured Technology as follows:
(1) FEATURED TECHNOLOGY PROMOTION. Beginning no later than the Promotion
Start Date (or, if later, the Effective Date), ICP will include a
prominent, "Above the fold" promotion of each Featured Technology on
all ICP Site Pages and will include other promotions, as may be
designated in the Featured Technology Schedule (collectively, the
"FEATURED TECHNOLOGY PROMOTION"). For purposes of this Section 2a.,
"ABOVE THE FOLD" means the placement of content (including an icon
and/or link) or other material on an ICP Site Page such that the
material is viewable on a computer screen at a 800 x 600 pixels
resolution when the user first accesses such web page and without
having to scroll down to view more of the web page. The Featured
Technology Promotion shall be carried out by ICP in accordance with the
specifications set forth in the Featured Technology Schedule and as
follows:
(a) If under Section 1.a the ICP Site Link and Content Modules will
be included in MWM, ICP will use commercially reasonable efforts
to provide the following on ICP Site Pages: i) a link to ICP's
Windows Media Player-compatible streaming media with text
describing the technology for playing it such as "View/Listen
using Windows Media Player", and ii) a link and/or logo for
downloading the Windows Media Player (as shown in version 1 of the
page layout diagrams in Attachment E). To enhance the user
experience, if the ICP is providing headlines for the main page of
MWM, the ICP will display only that content compatible with, and
only those webcast media player logos for, the Windows Media
Player on ICP Site Pages linked directly from the ICP Site Links
and Content Modules on the MWM main page. To enhance the user
experience, if the ICP is providing headlines for pages other than
the main page of MWM, the ICP will use commercially reasonable
efforts to, within sixty (60) days of Effective Date, display only
that content compatible with, and only those webcast media player
logos for, the Windows Media Player on ICP Site Pages linked
directly from the ICP Site Links and Content Modules on MWM pages
other than the MWM main page.
Kanakaris Com Final Page 2 of 16
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WindowsMedia.com & Windows Media Technology Promotion Agreement
February 18, 1999
(b) If under Section l.a the ICP Site Link and Content Modules will be
included in RSG, ICP will use commercially reasonable efforts to
provide the following on ICP Site Pages: i) links to ICP's Windows
Media Player-compatible streaming media with text describing the
technology for playing it such as "Listen using Windows Radio
toolbar," and "Listen using Windows Media Player," and ii) a link
and/or logo for downloading the Windows Media Player (as shown in
version 2 of the page layout diagrams in Attachment E).
(2) DAILY LINKS. ICP will use commercially reasonable efforts to provide
Microsoft with ICP Site Links and Content Modules, on a daily basis,
that meet the Content Guidelines, as defined in the Featured Technology
Schedule and as reasonably updated by Microsoft and provided to ICP
from time to time, for use in accordance with this Agreement.
b. TRADEMARK PERMISSION. To the extent the ICP Site Link contains or
constitutes a trademark, service mark or other similar intellectual
property ("mark"), ICP hereby grants to Microsoft a non-exclusive,
non-transferable, royalty-free, perpetual, worldwide right and license to
use and display such mark solely for purposes of inclusion in MWM, RSG,
other Microsoft web sites, and as part of the favorites or comparable
sections of Internet Explorer and/or Windows Media Player.
c. CONTENT MODULES. To the extent containing any information protected by
copyright or other intellectual property, ICP hereby grants Microsoft a
non-exclusive, non-transferable, royalty-free, perpetual, worldwide right
and license to use, copy, publicly perform and display, transmit and
distribute Content Modules solely for purposes of inclusion of such Content
Modules on MWM, RSG, other Microsoft web sites, and as part of the
favorites or comparable sections of Internet Explorer and/or Windows Media
Player.
d. DEMONSTRATION RIGHTS. ICP hereby further grants Microsoft a non-exclusive,
non-transferable, royalty-free, perpetual, worldwide right and license to
use and publicly perform and display the ICP Name, ICP Service Name,
Content Modules, screen shots and/or interactive versions of the ICP Site
solely for the purposes of demonstrating ICP's use of the Featured
Technology at trade shows or other industry or press events and other
advertising and promotional activities concerning Internet Explorer, the
Featured Technology and/or MWM and RSG.
e. REPORTS. By the tenth (10th) day of each calendar month during the Term
(other than the month in which the Effective Date falls), ICP will provide
a report to Microsoft in the format of, and with all information concerning
the previous calendar month as described in the Featured Technology
Schedule in Attachment A and as reasonably updated by Microsoft and
provided to ICP from time to time. In the event that ICP has failed to
provide a report as described in the preceding sentence on or before the
fifteenth (15th) day of the relevant calendar month, then Microsoft will be
entitled to suspend its performance under this Agreement until such report
has been received. All information provided pursuant to this section will
be deemed to be Confidential Information (as defined in the Standard Terms
and Conditions) of ICP and, in addition to Microsoft's obligations with
respect to Confidential Information under the Standard Terms and
Conditions, such Confidential Information shall not be disclosed to
Microsoft employees or contractors outside of its
platforms/systems/applications groups; in addition, within those groups,
Microsoft shall use reasonable efforts to limit disclosure to employees or
contractors with a reasonable "need to know" to further Microsoft's
performance under this Agreement and its performance of general NetShow and
Windows Media Player marketing activities.
3. RENEWAL
This Agreement will be automatically extended for additional ninety (90) day
period(s) unless either party suspends performance and/or terminates this
Agreement upon written notice thirty (30) days before the end of the original
Term or an extended Term.
4. TERMINATION
a. Either party may suspend performance and/or terminate this Agreement
immediately upon written notice at any time if the other party is in
material breach of any material warranty, term, condition or covenant of
Kanaris Com Final Page 3 of 16
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WindowsMedia.com & Windows Media Technology Promotion Agreement
February 18, 1999
this Agreement, and fails to cure that breach within thirty (30) days after
written notice thereof, or, in the case of a material breach of Section A
of the Standard Terms and Conditions regarding confidentiality, immediately
upon written notice at any time without providing initial notice or an
opportunity to cure. Termination of this Agreement shall be the sole remedy
for a party for failure of the other party to provide the guaranteed
minimum impressions as set forth in this Agreement.
b. Neither party will be liable to the other for damages of any sort resulting
solely from terminating this Agreement in accordance with its terms.
Termination of this Agreement will not affect any other agreement between
the parties. In the event of termination or expiration of this Agreement
for any reason, Section 1.b, 2.b-d, and the Standard Terms and Conditions
in Attachment B will survive (or, where separately specified in each such
section, will survive in accordance with the terms in such section).
IN WITNESS WHEREOF, the parties have entered into this Agreement, including all
schedules and attachments referenced herein, as of the Effective Date.
COMPANY MICROSOFT CORPORATION
By: /s/ Alex Kanakaris By: /s/ Kurt Beucheuel
Name (print): Alex Kanakaris Name (print): Kurt Buecheuel
Title: CEO Title: Director Bus. Dev.
Date: 8/23/99 Date: 9/2/99
Kanakaris Com Final Page 4 of 16
<PAGE>
WindowsMedia.com & Windows Media Technology Promotion Agreement
February 18, 1999
ATTACHMENT A
FEATURED TECHNOLOGY SCHEDULE
I. RELEVANT TECHNOLOGY (check all that apply)
_x_ Windows Media Player
__ Windows Radio toolbar
II. IMPLEMENTATION REQUIREMENTS FOR WINDOWS MEDIA PLAYER AND/OR WINDOWS RADIO
TOOLBAR
a. ICP SITE PAGES: The parties agree that the primary focus of the ICP Site
Pages will be to make available high quality streaming media that is useful
and interesting in and of itself to end users of both the ICP Site and MWM
and/or RSG. ICP will use and promote the Featured Technology in accordance
with this Agreement and, in addition, at least as favorably as ICP uses and
promotes any third party streaming media technology, including without
limitation with respect to: (i) quality of user experience, (ii) encoding
rates, (iii) bandwidth allocation, and (iv) promotion of the Featured
Technology. ICP shall include on the home page of ICP Site a direct link to
ICP Site Pages. ICP shall ensure that the ICP Site Pages have an
architecture optimized for high quality streaming media performance, with
at least one hundred (100) simultaneous connections and a maximum peak
bandwidth use of no more than two (2) hours in any twenty-four (24) hour
period. In the event that peak bandwidth use exceeds two (2) hours in any
twenty-four (24) hour period, ICP shall increase the bandwidth allocated
for use by the Featured Technology to a commercially reasonable degree in
order to offer a reasonable user experience. ICP shall offer end users high
quality streaming media, including by complying with the following:
1) FM stations are to be encoded in at least 16 kbit (e.g. Voxware AC
16-16000 mono) and/or
2) AM stations are to be encoded in at least 8 kbit (e.g. Voxware AC
8-11025 mono).
3) All on-demand videos are to be encoded in multiple data rates (at
least 22 kbit & 37 kbit streams).
4) All streaming media must use either MPEG 4 v.2 video codec,
Voxware Metasound audio codec, ACELP.net audio codec or Sipro's
ACELP codec instead of the Voxware Metasound codec if the content
is speech.
5) All streaming media must demonstrate correct selection of audio
codecs and, if video, appropriate video output parameter settings
(frame size/ frame rate etc), all based on content type and total
data rate for the file.
6) ICP must offer some streaming media in Windows Media
Player-compatible format without charge to MWM and/or RSG end
users on ICP Site Pages. In addition, ICP must offer the most
popular streaming media, in ICP's reasonable estimation, in
Windows Media Player-compatible format within the ICP Site Pages.
7) All streaming media must be updated at least five (5) times per
week.
8) All radio stations should stream content twenty-four (24) hours
per day.
b. The parties agree that ICP will control in its sole discretion all data,
text, audio, video, graphics, photographs, artwork and other technology and
materials on the ICP Site Pages ("ICP CONTENT"). Notwithstanding the
preceding sentence, ICP will comply with all obligations with respect to
such ICP Content set forth in this Featured Technology Schedule or
otherwise set forth in this Agreement.
Kanakaris Com Final Page 5 of 16
<PAGE>
WindowsMedia.com & Windows Media Technology Promotion Agreement
February 18, 1999
III. TECHNOLOGY IMPLEMENTATION SCHEDULE/TIMETABLE
<TABLE>
DATE (no later than) OBLIGATION
- ---- ----------
<CAPTION>
<S> <C>
As soon as possible ICP shall provide Microsoft with alpha versions of (i)
the ICP Site Pages (i.e. provide the URLs), (ii) the
Content Modules and, (iii) if applicable, the URL for the
streaming media to be listed in the RSG
- --------------------------- ----------------------------------------------------------
ICP shall commence daily updates of (i) the beta version
of the ICP Site Pages, (ii) the Content Modules and, (iii)
if applicable, the streaming media to be listed in the
RSG
- --------------------------- ----------------------------------------------------------
ICP Site Pages, Content Modules and, if applicable, the
streaming media listed in the RSG shall be available live
on the Web, all as in compliance with this Agreement,
including this Featured Technology Schedule
- --------------------------- ----------------------------------------------------------
</TABLE>
IV. FEATURED TECHNOLOGY PROMOTION
Display on the main page of the ICP Site, at least ten thousand (10,000) ad
impressions per month
V. CONTENT MODULE EDITORIAL GUIDELINES
a. General Requirements
--------------------
1. To provide Content Modules under this Agreement, ICP shall follow
these general requirements:
(A) Each headline, schedule and event should have a separate
page and URL so Read/Unread behavior works properly.
(B) ICP will provide a URL location to retrieve ICP's CDF files
in accordance with the following guidelines:
o The subdirectory on ICP's Site for staging the CDF file(s)
should be denoted "webevents."
o The CDF file names for headlines, events, and schedule
content should be denoted as headlines.cdf, event.cdf, and
schedule.cdf, respectively.
2. The Content Modules must work on Internet Explorer 3.x, 4.x and 5.x
and Netscape Communicator 3.x and 4.x. ICP must also ensure that Content Modules
work with new versions of each such browser within one (1) week of such new
version's post-beta commercial release to the Web.
3. Updates to these requirements, detailed technical specifications and
web-based support on how to provide Content Modules is provided on
partners.microsoft.com. Technical questions should be directed to
[email protected].
Kanakaris Com Final Page 6 of 16
<PAGE>
WindowsMedia.com & Windows Media Technology Promotion Agreement
February 18, 1999
b. Editorial Requirements
----------------------
To provide a Content Module under this Agreement, ICP shall follow these
editorial requirements:
1. All headlines should not exceed fifty (50) characters.
2. All headlines should be underlined up through (but not beyond) the
last character of the headline. This can be prevented by not
having an additional space character at the very end.
3. All headlines should end without a period.
4. All headlines should have only the initial word and any proper
nouns capitalized (sentence-style capitalization not
headline-style capitalization).
5. All links should go directly to the specific article or ICP
Content, i.e., "deep" link, using anchor tags. It is an
unacceptable user experience to link (i) to the top of page when
the article is further down, (ii) to home pages that do not
contain the applicable ICP Content, or (iii) to a table of
contents instead of directly to the specific ICP Content.
6. All headlines and events should be updated at least once each week
day (weekend days at ICP's option), or more frequently, depending
on mutual agreement.
c. Testing
-------
Microsoft may in its discretion test Content Modules in the MWM and RSG test
environment prior to posting in production environment. No testing or other
quality control efforts of Microsoft in connection with activities contemplated
by this Agreement will be deemed to modify ICP's obligations to comply with the
Agreement, including the guidelines set forth in this Featured Technology
Schedule, and Microsoft will have no responsibility for identifying or
addressing any errors in ICP Content Modules.
d. Escalation Procedures
---------------------
In the event ICP's Content produces a critical error, Microsoft reserves the
right to pull the applicable Content Module within thirty (30) minutes of
discovery. A critical error is defined as:
1. A Content Module which includes a link that produces an HTTP error,
2. A Content Module which causes other Content Modules to be corrupt or to
malfunction,
3. A Content Module which is empty.
In the event a Content Module needs to be pulled from the Microsoft Internet web
site, Microsoft will notify ICP immediately and will use commercially reasonable
efforts to communicate with ICP to facilitate ICP's determination of the cause
of the error.
ICP will provide two (2) technical contacts for technical staff working on MWM
and RSG to use in the event of any Content Module problems. If ICP encounters
any problems on MWM or RSG, one of such technical contacts should email
[email protected].
VI. ICP REPORTING GUIDELINES
In accordance with Section 2.e of this Agreement, ICP shall provide a report to
Microsoft setting forth the following information:
(a) The URL and number of page views for the ICP Site Pages;
(b) The number of referrals of end users from ICP Site to ICP's and/or
Microsoft's Windows Media Player download site(s);
(c) The number of referrals received by ICP as a result of Web users'
clicking on the ICP links displayed on the Microsoft Web Sites;
(d) Web browsing software share and Streaming Media player share
information for ICP Site Pages; include version information;
Kanakaris Com Final Page 7 of 16
<PAGE>
WindowsMedia.com & Windows Media Technology Promotion Agreement
February 18, 1999
(e) The number of streams served, including the total number of ASX and ASF
format files served, by bit rate;
(f) The average length of user stream for a single connection;
(g) The number of streams of pages with feature/streaming technology; and
(h) The average number of .asx files on site.
ICP shall provide all reports hereunder to Microsoft via Microsoft's web
reporting system located at windowsmedia.com/report.asp web site, and successors
thereto.
Kanakaris Com Final Page 8 of 16
<PAGE>
WindowsMedia.com & Windows Media Technology Promotion Agreement
February 18, 1999
ATTACHMENT B
STANDARD TERMS AND CONDITIONS
A. CONFIDENTIALITY
1. CONFIDENTIALITY OBLIGATIONS. Each party will protect the other's
Confidential Information (as defined below) disclosed in connection
with this Agreement from unauthorized dissemination and use with the
same degree of care that such party uses to protect its own like
information. Neither party will use the other's Confidential
Information for purposes other than those necessary to directly further
the purposes of this Agreement. Neither party will disclose to third
parties the other's Confidential Information without the prior written
consent of the other party. Except as expressly provided in this
Agreement, no ownership or license rights are granted in any
Confidential Information. The other provisions of this Agreement
notwithstanding, either party will be permitted to disclose the
Confidential Information to its outside legal and financial advisors;
and to the extent required by applicable law, provided however that
before making any such required filing or disclosure, the disclosing
party will first give written notice of the intended disclosure to the
other party, within a reasonable time prior to the time when disclosure
is to be made, and the disclosing party will exercise best efforts, in
cooperation with and at the expense of the other party, consistent with
reasonable time constraints, to obtain confidential treatment for all
non-public and sensitive provisions of this Agreement, including
without limitation dollar amounts and other numerical information.
2. DEFINITION. As used herein, "Confidential Information" means: (a) any
source code of software; (b) any trade secrets and/or other proprietary
non-public information not generally known relating to either party's
product plans, designs, costs, prices and names, finances, marketing
plans, business opportunities, personnel, research, development or
know-how; and (c) the terms and conditions of this Agreement.
"Confidential Information" does not include information that: (i) is or
becomes generally known or available by publication, commercial use or
otherwise through no fault of the receiving party; (ii) is known and
has been reduced to tangible form by the receiving party at the time of
disclosure and is not subject to restriction; (iii) is independently
developed by the receiving party; (iv) is lawfully obtained from a
third party that has the right to make such disclosure; or (v) is made
generally available by the disclosing party without restriction on
disclosure.
3. LIMITATIONS. The parties' obligations of confidentiality under this
Agreement will not be construed to limit either party's right to
independently develop or acquire products without use of the other
party's Confidential Information. Further, either party will be free to
use for any purpose the residuals resulting from access to or work with
such Confidential Information, provided that such party will maintain
the confidentiality of the Confidential Information as provided herein.
The term "residuals" means information in non-tangible form, which may
be retained by persons who have had rightful and good faith access to
the Confidential Information, including ideas, concepts, know-how or
techniques contained therein. Neither party will have any obligation to
limit or restrict the assignment of such persons or to pay royalties
for any work resulting from the use of residuals. However, the
foregoing will not be deemed to grant to either party a license under
the other party's copyrights or patents.
B. WARRANTIES
Each party warrants and covenants that it has the full power and authority to
enter into and perform according to the terms of this Agreement.
C. DISCLAIMER OF FURTHER WARRANTIES
ANY AND ALL SOFTWARE, CONTENT, SERVICES, OTHER MATERIALS AND CONFIDENTIAL
INFORMATION PROVIDED BY EITHER PARTY TO THE OTHER HEREUNDER ARE PROVIDED "AS
IS," WITHOUT WARRANTY OF ANY KIND. EXCEPT AS EXPRESSLY SET FORTH IN SECTION B
ABOVE, EACH PARTY DISCLAIMS ALL WARRANTIES, EITHER EXPRESS OR IMPLIED, INCLUDING
BUT NOT LIMITED TO THE IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS FOR A
PARTICULAR
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<PAGE>
WindowsMedia.com & Windows Media Technology Promotion Agreement
February 18, 1999
PURPOSE, TITLE AND NON-INFRINGEMENT, WITH RESPECT TO ANY MATERIALS OR
INFORMATION PROVIDED HEREUNDER.
D. INDEMNITY
1. INDEMNITY. ICP will, at its expense and Microsoft's request, defend any
claim or action brought by a third party against Microsoft, or
Microsoft's subsidiaries, affiliates, directors, officers, employees,
agents and independent contractors, to the extent it is based upon a
claim that any ICP Site, ICP Site Page, ICP Content, ICP Content
Modules or ICP Site Link (i) infringes or violates any patent,
copyright, trademark, trade secret, right of publicity, or other
intellectual property, proprietary or contractual right of a third
party, or (ii) contains defamatory or libelous material or material
which illegally discloses private or personal matters concerning any
person; or (iii) permits to appear or be uploaded any messages, data,
images or programs which are illegal, contain nudity or sexually
explicit content or are, by law, obscene, profane or pornographic; or
(iv) permits to appear or be uploaded any messages, data, images or
programs that would knowingly or intentionally (which includes imputed
intent) violate the property rights of others, including unauthorized
copyrighted text, images or programs, trade secrets or other
confidential proprietary information, or trademarks or service marks
used in an infringing fashion (such claims or actions being referred to
hereinafter as "ICP Claims"). ICP will indemnify and hold Microsoft
harmless from and against any costs, damages and reasonable fees
reasonably incurred by Microsoft, including but not limited to fees of
outside attorneys and other professionals, that are attributable to
such ICP Claims. Microsoft will: (a) provide ICP reasonably prompt
notice in writing of any such ICP Claims and permit ICP, through
counsel chosen by ICP and reasonably acceptable to Microsoft, to answer
and defend such ICP Claims; and (b) provide the entity defending such
claim information, assistance and authority, at such entity's expense,
to help defend such ICP Claims. ICP will not be responsible for any
settlement made by Microsoft without ICP's written permission, which
permission will not be unreasonably withheld or delayed. LCP will
consult with Microsoft on the choice of any counsel under this Section
D.
2. SETTLEMENT. Unless ICP obtains for Microsoft a complete release of all
ICP Claims thereunder, ICP may not settle any ICP Claim under this
Section D on Microsoft's behalf without first obtaining Microsoft's
written permission, which permission will not be unreasonably withheld
or delayed. Reasonable withholding of permission may be based upon,
among other factors, the ability for Microsoft to ship any product. In
the event ICP and Microsoft agree to settle an ICP Claim, ICP agrees
not to publicize the existence of or disclose terms of the settlement
without first obtaining Microsoft's written permission, which
permission will not be unreasonably withheld or delayed.
E. LIMITATION OF LIABILITIES
IN NO EVENT SHALL EITHER PARTY BE LIABLE FOR ANY CONSEQUENTIAL. INDIRECT,
INCIDENTAL, PUNITIVE OR SPECIAL DAMAGES WHATSOEVER, INCLUDING WITHOUT LIMITATION
DAMAGES FOR LOSS OF BUSINESS PROFITS, BUSINESS INTERRUPTION, LOSS OF DATA OR
BUSINESS INFORMATION, AND THE LIKE, ARISING OUT OF THIS AGREEMENT OR THE USE OF
OR INABILITY TO USE ANY MICROSOFT SOFTWARE OR SERVICES, OR EITHER PARTY'S
CONFIDENTIAL INFORMATION OR CONTENT, EVEN IF A PARTY HAS BEEN ADVISED OF THE
POSSIBILITY OF SUCH DAMAGES.
THIS SECTION SHALL NOT APPLY TO SECTION A OF THESE STANDARD TERMS AND CONDITIONS
REGARDING CONFIDENTIALITY, NOR TO ICP'S INDEMNITY OBLIGATIONS WITH RESPECT TO
THIRD PARTY CLAIMS AS PROVIDED IN SECTION D OF THESE STANDARD TERMS AND
CONDITIONS.
F. LOGO USE PROVISIONS
All use by ICP of the logos for the Featured Technology is subject to compliance
with Microsoft's guidelines and/or license provisions relating to the use of
logos and branding for such Featured Technology, including without limitation
the Get Windows Media Player Logo Program under the terms set forth in
Attachment C hereto.
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<PAGE>
WindowsMedia.com & Windows Media Technology Promotion Agreement
February 18, 1999
G. GENERAL TERMS
1. NOTICES. All notices and requests in connection with this Agreement
will be deemed given as of the day they are received either by
messenger, delivery service, or in the United States of America mails,
postage prepaid, certified or registered, return receipt requested, and
addressed as follows:
<TABLE>
To ICP: see ICP Table
<CAPTION>
- -------------------------------------------------------- -----------------------------------------------------
To Microsoft: Copy to:
<S> <C>
Microsoft Corporation, One Microsoft Way Redmond, Microsoft Corporation, One Microsoft Way Redmond,
WA 98052-6399 WA 98052-6399
Attention: Senior Director of Business Development, Attention: Law & Corporate Affairs
Personal and Business Systems Division
- -------------------------------------------------------- -----------------------------------------------------
Phone: (425) 882-8080 Phone: (425) 882-8080
Fax: (425) 936-7329 Fax: (425) 936-7409
- -------------------------------------------------------- -----------------------------------------------------
</TABLE>
or to such other address as a party may designate pursuant to this
notice provision.
2. INDEPENDENT PARTIES. Nothing in this Agreement will be construed as
creating an employer-employee relationship, a partnership, an agency
relationship, or a joint venture between the parties.
3. GOVERNING LAW. This Agreement will be governed by the laws of the State
of Washington, without reference to the conflict of law principles
thereof. Any action or litigation concerning this Agreement will take
place in the federal or state courts in King County, Washington, and
the parties expressly consent to jurisdiction of and venue in such
courts and waive all defenses of lack of personal jurisdiction and
forum non conveniens with respect to such courts. ICP hereby agrees to
service of process by mail or other method acceptable under the laws of
the State of Washington.
4. ATTORNEYS' FEES. In any action or suit to enforce any right or remedy
under this Agreement or to interpret any provision of this Agreement,
the prevailing party will be entitled to recover its costs, including
reasonable attorneys' fees.
5. ASSIGNMENT. This Agreement and any rights or obligations hereunder may
be assigned by Microsoft, but may not be assigned by ICP without
Microsoft's prior written approval. Any attempted assignment,
sublicense, transfer, encumbrance or other disposal without such
consent will be void and will constitute a material default and breach
of this Agreement. Except as otherwise provided, this Agreement will be
binding upon and inure to the benefit of the parties' successors and
lawful assigns.
6. FORCE MAJEURE. Neither party will be liable to the other under this
Agreement for any delay or failure to perform its obligations under
this Agreement if such delay or failure arises from any cause(s) beyond
such party's reasonable control, including by way of example labor
disputes, strikes, floods, fire, lightning, utility or communications
failures, earthquakes, vandalism, war, acts of terrorism, riots,
insurrections, embargoes, or laws, regulations or orders of any
governmental entity.
7. CONSTRUCTION. If for any reason a court of competent jurisdiction finds
any provision of this Agreement, or portion thereof, to be
unenforceable, that provision of the Agreement will be enforced to the
maximum extent permissible so as to effect the intent of the parties,
and the remainder of this Agreement will continue in full force and
effect. Failure by either party to enforce any provision of this
Agreement will not be deemed a waiver of future enforcement of that or
any other provision. This Agreement has been negotiated by the parties
and their respective counsel and will be interpreted fairly in
accordance with its terms and without any strict construction in favor
of or against either party.
8. NOT EXCLUSIVE. Nothing in this Agreement will be deemed to restrict
either party's ability to license, develop, sub-license, manufacture,
deploy, support, promote, or distribute software, content, streaming
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<PAGE>
WindowsMedia.com & Windows Media Technology Promotion Agreement
February 18, 1999
media or any other technology, whether or not similar to the Featured
Technology, nor to preclude ICP from creating and supporting mirrored
versions of the ICP Site that are not subject to this Agreement.
9. ENTIRE AGREEMENT. This Agreement does not constitute an offer by
Microsoft and it will not be effective until signed by both parties.
This Agreement, including all schedules and attachments referenced
herein, constitutes the entire agreement between the parties with
respect to the subject matter hereof, and merges all prior and
contemporaneous communications with respect to such subject matter. It
will not be modified except by a written agreement dated subsequent to
the date of this Agreement and signed on behalf of ICP and Microsoft by
their respective duly authorized representatives.
Kanakaris Com Final Page 12 of 16
<PAGE>
WindowsMedia.com & Windows Media Technology Promotion Agreement
February 18, 1999
ATTACHMENT C
GET WINDOWS(R) MEDIA PLAYER
LOGO PROGRAM
Get Windows(R) Media Player logo usage instructions
- ---------------------------------------------------
To put the logo and link on your Web site, follow these easy steps:
1. Read our policy below on using the Get Windows Media Player logo.
2. Copy the Get Windows Media Player logo.gif file image to your desktop.
[picture of Windows Media Player logo here]
3. Move the Get Windows Media Player logo.gif file from your desktop to
your Web server.
4. Insert the following HTML code on your Web page. Be sure to point the
(IMG SRC) to the location of the Get Windows Media Player logo.gif file
on your server:
<TABLE>
<CAPTION>
<S> <C>
(BR)(CENTER)
(A HREF="http://www.microsoft.com/windows/mediaplayer/download/default.asp">
<IMG SRC="type path to logo image here" WIDTH="65"
HEIGHT="57" BORDER="0"
ALT="Get Windows Media Player" VSPACE="7"></A)
(/CENTER><BR)
5. You can modify this HTML code to fit your formatting as long as you
follow the guidelines outlined below.
</TABLE>
Get Windows(R) Media Player logo usage Guidelines
- -------------------------------------------------
1. Except as Microsoft may authorize elsewhere, non-Microsoft Web sites may
display only the Get Windows(R) Media Player logo provided above ("Logo").
By downloading the Logo to your Web site, you agree to be bound by these
Policies.
2. You may only display the Logo on your Web site, and not in any other
manner. It must always be an active link to the download page for the
Windows Media Player at
http://www.microsoft.com/windows/mediaplayer/download/default.asp.
3. The Logo GIF image includes the words "Get Windows Media Player" describing
the significance of the Logo on your site (that the Logo is a link to the
download page for the Microsoft Windows Media Player, not an endorsement of
your site). You may not remove or alter any element of the Logo.
4. The Logo may be displayed only on Web pages that make accurate references
to Microsoft or its products or services or as otherwise authorized by
Microsoft. Your Web page title and other trademarks and logos must appear
at least as prominently as the Logo. You may not display the Logo in any
manner that implies sponsorship, endorsement, or license by Microsoft
except as expressly authorized by Microsoft.
5. The Logo must appear by itself, with a minimum spacing (30 pixels) between
each side of the Logo and other distinctive graphic or textual elements on
your page. The Logo may not be displayed as a feature or design element of
any other logo.
6. You may not alter the Logo in any manner, including size, proportions,
colors, elements, or animate, morph, or otherwise distort its perspective
or appearance, except in the event expressly authorized by Microsoft.
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<PAGE>
WindowsMedia.com & Windows Media Technology Promotion Agreement
February 18, 1999
7. You may not display the Logo on any site that infringes any Microsoft
intellectual property or other rights, or violates any state, federal, or
international law.
8. These Policies do not grant a license or any other right to Microsoft's
logos or trademarks. Microsoft reserves the right at its sole discretion to
terminate or modify permission to display the Logo at any time. Microsoft
reserves the right to take action against any use that does not conform to
these Policies, infringes any Microsoft intellectual property or other
right, or violates other applicable law.
9. MICROSOFT DISCLAIMS ANY WARRANTIES THAT MAY BE EXPRESS OR IMPLIED BY LAW
REGARDING THE LOGO, INCLUDING WARRANTIES AGAINST INFRINGEMENT.
(C)1997 Microsoft Corporation. All rights reserved. Terms of Use.
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<PAGE>
WindowsMedia.com & Windows Media Technology Promotion Agreement
February 18, 1999
ATTACHMENT D
Examples of WindowsMedia.com and Radio Station Guide Pages with ICP Content
Modules
[GRAPHIC OMITTED] < Example of ICP listing on left side of page
[GRAPHIC OMITTED] < Example of ICP headline on right side of page
Kanakaris Com Final Page 15 of 16
<PAGE>
WindowsMedia.com & Windows Media Technology Promotion Agreement
February 18, 1999
ATTACHMENT E
Example pages of ICP Site Pages with logo or text link
for Windows Media Player Download and Windows Radio toolbar
ICP should design ICP Site Pages according to at least one of the two versions
below.
<TABLE>
<CAPTION>
ICP SITE PAGE VERSION 1: ICP SITE PAGE VERSION 2:
If ICP only if MWM if ICP in RSG
<S> <C>
(whatever else ICP wants on top page) (whatever else ICP wants on top of page)
View / Listen using Windows Media Player Listen using Windows Media Player (link)
(link)
Get Windows Media Player (link or logo) Listen using Windows Radio toolbar (link)
Get Windows Media Player (link or logo)
(above the fold 600 x 800 pixel resolution) (above the fold 600 x 800 pixel resolution)
(whatever else ICP wants on bottom page) (whatever else ICP wants on bottom page)
</TABLE>
Kanakaris Com Final Page 16 of 16
Exhibit 10.4
GEO PUBLISHING, INC. WebRadio(TM) Webcasting Service Agreement -
LIVE 24/7 AUDIO STREAMING
This agreement ("Agreement") made between GEO Publishing, Inc., ("GEO"), a
Delaware corporation, with its main office at 21110 Oxnard St., Woodland Hills,
California 91367, U.S.A., and the Client identified below, effective as of the
date identified below.
1. SERVICES: GEO will provide the Client the necessary services to facilitate
digitally encoding a live audio broadcast to play 24 hours a day, 7 days a week
and make it available over the Internet during the Client's scheduled
programming. The content for the live broadcast will be one (1) hour of audio
provided on Compact Disc music format and will be played in a loop for each 24
hours. The Client will provide GEO five (5) hours of audio content weekly for
GEO to facilitate the broadcasting each week. GEO will provide Client with the
necessary technical support and maintenance during the broadcast, Domain Name
Service for use by Client in connection with Client's designated sub-domain name
(as described in Paragraph 6) and:
(i) a broadcast page served from GEO Media Servers;
(ii) access to many streams, subject to the constraints of network limitations
and per the terms listed below in this Agreement;
(iii) discounted rates for dedicated Internet access for uploading the Client's
content stream, if not already in place at the Client content streaming location
(affiliated expenses to be a direct cost to the Client). The obligations of GEO
pursuant to this paragraph in this Agreement are individually and collectively
referred to herein as the "Service."
2. INTELLECTUAL PROPERTY RIGHTS AND OTHER RIGHTS: The Client retains all
intellectual property rights and other rights it may own concerning the content
as it is made available to GEO and the public through the GEO Service. GEO
retains its ownership of all such rights concerning any software or hardware GEO
provides, and the GEO media player web sites, their format and presentation, and
the symbols and indicia of their source.
Under this Agreement, "intellectual property rights" include, worldwide, rights
under copyright, trademark and patent laws, rights in domain and sub domain
names, and rights against misappropriation of databases, trade secrets and
confidential information.
3. GEO SERVICE LEVELS AND CLIENT SUPPORT:
(a) GEO SERVICE LEVELS
(i) GEO will use commercially reasonable best efforts: to provide uninterrupted
Service to its Clients at performance levels consistent with GEO's standard
procedures, which are published on the GEO web site at
http://www.webradio.com/Clients/terms.htm (GEO "Website") and are amended from
time to time are incorporated by reference into this Agreement; to inform the
Client in advance of any scheduled interruption in Service required by the
performance of scheduled maintenance; and to repair or otherwise remedy as
quickly as possible any system failure causing interruption of Service to the
Client.
(ii) Neither the Client nor GEO will be liable, however, for any loss or delay
resulting from any force majeure event, including acts of God, fire, natural
disaster, labor stoppage, power outage, third-party service interruption, or
inability of carriers to make scheduled deliveries. Any date for payment or
delivery, or for performance of any other obligation under this Agreement, shall
be extended to the extent of any delay resulting from any force majeure event.
(iii) GEO will have the right to remove, or disable access to, the content of
the Client's signal if material is claimed, or appears to be, in violation of
the Client's warranties under this Agreement. No act of omission or commission
will be required under this Agreement which may deprive GEO, under 17 U.S.C. SS.
512 or any other laws, of limitations thereunder of any liability of GEO, nor
shall any provision of this agreement be construed so as to preclude or limit
GEO's entitlement to such limitation of liability.
(b) CLIENT INTERNET ACCESS AND FACILITIES: Client will at its own expense
provide power and an appropriate location for GEO's encoding equipment at
Clients location. It will provide Internet access on site to FTP the digitally
encoded signal from the encoding system to the GEO broadcast server center.
(c) PROMOTIONS OF THE WEBCAST: Client will use its best efforts to promote the
webcast throughout the Client's listenership, organization, and other
environments. Client will participate in the preparation and authorization of
press releases regarding the GEO Services as it relates to the Client's
broadcast signal, and will not unreasonably withhold or delay approval of such
press releases.
<PAGE>
(d) CLIENT'S OWN WEB SITE: REFERENCES IN OTHER WEB SITES. Client will provide a
direct link and logo placement of WebRadio on any web site it may have of its
own and, to the greatest extent possible within its control and authority, will
do the same on any other web site that refers to the Client. Client will not
utilize any other streaming media technology on their web site that requires no
plug-ins similar to the technology offered through the GEO service. It is
understood that any individual web site of the Client will not be operated in
such a way as to interfere with the rights Client is granting to GEO under this
Agreement.
4. WARRANTIES AND INDEMNITIES: In making its content available to the public
worldwide through the GEO Service, the Client warrants:
(a) its content will not be defamatory, indecent or obscene; violate any privacy
right, publicity right or community standard; or violate any intellectual
property right or any other personal or proprietary right.
(b) it is authorized and empowered to make this Agreement, and fulfilling it
will not breach any Client obligation. All necessary permissions and licenses
for the broadcast and public performance of the content have been secured and
will be maintained by the Client; and the Client complies and will remain in
compliance, with all applicable governmental (including federal, state and
local) laws, rules and regulations.
(c) it will safeguard from loss or damage any software, hardware or other GEO
property on its premises with a level of care no less than that afforded to
Client's own most valuable property.
(d) it will indemnify and hold harmless GEO, its directors, officers, employees
and agents, against any claim, demand, loss, damage or liability, including
reasonable fees of GEO's attorneys, court costs and other legal expenses, if the
basis of the claim or demand, if true, would constitute a breach of any of the
Client's warranties or arise out of the negligence or willful misconduct of the
Client. Client will use its best efforts to secure and maintain errors and
omissions insurance in an amount consistent with good business practice.
5. SERVICE STATISTICS: GEO will provide Client with a password which will enable
Client to view Service statistics compiled by GEO. Such Service statistics will
contains information on usage statistics, listener profiles, direct feedback to
the Client, advertising impression statistics, commerce transaction statistics,
and downloadable monthly summary reports.
All rights to any Service statistics compiled by GEO will remain its property.
GEO will provide the Client with reasonable access to any such statistics in
accordance with GEO's standard procedures.
6. ACCOUNT SUB-DOMAIN NAME: GEO will designate a sub-domain name under the
"webradio.com" domain to be used to access the GEO media server. GEO will
provide domain name service for the "(username). webradio.com" sub-domain. The
Client can display the designated sub-domain page within the Client's own web
site, if any, under a frame window, in addition to the display under
www.webradio.com at the sub-domain designated for the Client. In the space
provided at the end of this Agreement, the Client may request the username which
it wishes to be designated.
Any account name designated is exclusively for use in connection with this
Agreement, and the Client must relinquish it to GEO upon any termination. GEO
does not guarantee that any desired account name will be available, but will use
its commercially reasonable best efforts to secure the desired account name.
7. FEES: (a) If applicable, all setup fees are due as of the effective date of
the contract and must be received by GEO prior to any Services rendered by GEO.
All subsequent monthly recurring fees will be billed thirty (30) days in advance
and are due and payable on the first day of the Service month. GEO reserves the
right to adjust monthly fees on sixty (60) days written notice, as it may deem
necessary during the term of this Agreement. Payments for any additional
services that are not included in the Services provided by GEO according to this
Agreement, shall be invoiced and are due upon receipt, which is to be deemed for
this purpose five (5) days after postmark ("Invoice Due Date"). (b) GEO will pay
Client fifty (50%) percent of any net revenues actually received by GEO in
connection with GEO's sale of advertising banners, audio advertisements and
commerce transactions placed, heard or conducted at the designated sub-domain
broadcast page of the Client hosted by GEO. GEO will make such payments monthly
within 30 days after the end of the month in which it receives such revenues
and, consistent with GEO's standard procedures, will be net of expenses such as,
but not limited to, direct costs of bandwidth charges, other direct costs
attributable to Client's sub-domain, programming and maintenance costs and
applicable taxes other than income taxes.
8. TERM: This Agreement will be effective as of the date first above written,
and remain in effect for twelve (12) months, unless earlier terminated as
otherwise provided.
<PAGE>
9. TERMINATION: (a) GEO may disconnect Service if at any time the Client's
account is more than 45 days delinquent from the Invoice Due Date. In that
event, the Client may reinstate its Service upon payment of GEO's current
reconnection fee and a security deposit equal to two installments of monthly
Service fees. If the Client's account is more than ninety (90) days delinquent,
or should the Client's content appear to GEO to be in violation of this
Agreement, GEO may immediately terminate this Agreement. (b) GEO may terminate
this Agreement without any cause upon 30 days written notice to Client. (c)
Termination by either party will not extinguish Client's responsibilities under
this Agreement, including, but not limited to, its obligations through the date
of the termination and, except for termination under sub-Paragraph (b) of this
Section, for the remainder of the unexpired term of the Agreement.
10. LIMITATION: GEO'S REPRESENTATIONS AND OBLIGATIONS CONTAINED HEREIN ARE IN
LIEU OF ALL WARRANTIES OR CONDITIONS, EXPRESS OR IMPLIED, INCLUDING, WITHOUT
LIMITATION, THOSE OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. IN NO
EVENT SHALL GEO BE LIABLE FOR DAMAGES, DIRECT OR INDIRECT, INCLUDING INCIDENTAL
OR CONSEQUENTIAL DAMAGES, SUFFERED BY THE CLIENT OR ANY THIRD PARTY.
11. MISCELLANEOUS: (a) This Agreement binds and will benefit the parties and
their respective successors and assigns. This Agreement constitutes the entire
understanding of the parties, supersedes all prior oral or written agreements
between the parties, and may be modified only in writing by signature of the
parties. (b) Except for an assignment as part of a single assignment of all or
substantially all the assets of the assignor relating to the subject matter of
this agreement, neither party may assign this Agreement without prior written
consent of the other party, which will not be unreasonably withheld. (c) This
Agreement shall be governed and enforced in accordance with the laws of the
State of California and the United States in all respects concerning its
construction, interpretation and performance. Venue for resolution of any
dispute in respect to this agreement shall be in Los Angeles County, California.
If a dispute arises out of or relates to this Agreement, or a claim of breach
thereof, and cannot be settled through negotiation, the parties agree to binding
arbitration in Los Angeles County under the commercial rules of the American
Arbitration Association by a three-arbitrator panel, each of whom shall have
experience in the subject matter of this Agreement. Judgment upon any
arbitration award maybe entered in any court of competent jurisdiction in the
United States or elsewhere in the world. (d) If a court of competent
jurisdiction holds any provision of the Agreement invalid or unenforceable, such
invalidity shall not affect the validity or operation of any other provision,
and such invalid provision shall be deemed to be severed from this Agreement.
(e) Any notice under this Agreement shall be deemed given either (i) when
transmitted by facsimile or (ii) two business days after depositing the notice
in the U.S. mail, certified return receipt requested, first class postage
prepaid, addressed to the party as set forth in this Agreement. The parties
agree to provide written notification to the other party within ten (10) days of
any change of address during the term of this Agreement. (f) The paragraph
headings in this Agreement have been inserted merely for convenience, are not a
part of the Agreement, and shall not affect the rights and obligations of the
parties or the meaning of the language in the Agreement. (g) The sub-domain name
requested by the Client under Paragraph 6 is: Account Name (username):
kana.webradio.com (e.g. kcba.wcbradio.com) (must be lower case alphanumeric
characters and dashes only). (h) The fees to be paid by the Client under
Paragraph 7 are $7,500.00, a monthly fee, to be paid on the first day of each
month during the Agreement.
Please sign below to indicate your understanding and acceptance of the terms of
this Agreement.
Client (Type or Print Full Customer Name): /S/ Kanakaris Communication
-------------------------------------
Print Name: Alex F. Kanakaris Title: CEO
----------------------- ---------------------------------
Authorized Representative (print)
Signature: /S/ Alex F. Kanakaris Date: 4/20/99
------------------------ ----------------------------------
/S/ Michael Wein 6/15/99
Exhibit 10.5
SUBLEASE AGREEMENT
------------------
This Sublease is entered into as of the 8th day of October, 1998, by
and between Belfiore-Fizgerald (hereinafter "Tenant") and Kanakaris
Communications, Inc. (hereinafter "Subtenant").
In relation to Tenant's lease of three thousand three hundred
seventy-nine (3,379) rentable square feet located at 3303 Harbor Boulevard,
Suite F-2 Costa Mesa, California 92626 (hereinafter the "Premises"), Tenant and
Subtenant hereby express their mutual desire and intent to enter into a sublease
whereby Subtenant will be subletting a portion of the Premises leased to Tenant
in a total amount of one thousand seven hundred seventy-nine (1,779) rentable
square feet of the Premises (hereinafter the "Subleased Premises"). Subtenant
will lease from Tenant the Subleased Premises commencing on October 15, 1998,
through and including the end of the original term of Tenant's lease of the
Premises, which is August 20, 2000. Subtenant will pay to Tenant on the 1st day
of each month a total of One Thousand Five Hundred Twelve Dollars and Fifteen
Cents ($1,512.15), which equals Eighty-Five Cents ($.85) per square foot for the
Subleased Premises. If the Subtenant does not pay the monthly rent due by the
10th day of each month, a $150.00 late charge will be assessed. The amount of
rent Subtenant must pay Tenant on a monthly basis will increase to $1,579.15 as
of August 21, 1999 due to the increases in Tenant's rent for the Premises. If
Subtenant fails to pay rent due by the 10th day of any month that such rent is
due, Tenant may declare a default under this Sublease and give Subtenant 30
(thirty) days notice to vacate the Subleased Premises by delivering written
notice to anyone at the Subleased Premises. Subtenant will pay to Tenant one
month's security deposit equal to One Thousand Five Hundred Twelve Dollars and
Fifteen Cents ($1,512.15). If any items are missing or damaged at the Subleased
Premises, Subtenant hereby agrees to replace or reimburse said items. Subtenant
acknowledges and agrees that Subtenant is subject to all the terms and
provisions of the lease under which Tenant is occupying the Premises.
IN WITNESS WHEREOF, Tenant and Subtenant have executed this Sublease
Agreement as of the day and year first set forth above.
"Subtenant" "Tenant"
/s/ Alex Kanakaris /s/ Belfiore-Fitzgerald
------------------------- --------------------------
Alex Kanakaris Belfiore-Fitzgerald
CEO
Kanakaris Communications
Exhbit 10.6
LICENSE AGREEMENT
-----------------
THIS AGREEMENT is entered into and made effective as of February 18,
1999, by and between KANAKARIS COMMUNICATIONS, INC., a Nevada corporation
("Kanakaris"), and ION SYSTEMS, INC., a Missouri corporation ("ION").
IN CONSIDERATION of the mutual covenants contained in this Agreement,
the parties agree as follows:
1. RULES OF INTERPRETATION.
1.1 In addition to other terms defined herein, the capitalized terms
identified below (in alphabetical order) shall have the respective meanings set
forth below when used in this Agreement.
"AFFILIATE" means, as to any referenced Person, any other Person
that directly or indirectly (through one or more intermediaries) Controls, is
Controlled by or is under common Control with such Person, including (in the
case of Persons that are entities) the Person's owners, shareholders, members,
partners, trustees, directors, officers, managers, employees and agents.
"BOOK" means information or data consisting primarily of text
(which may also include graphics or illustrations associated with the text),
having the same author or source, and grouped together for a single publication.
"BOOK CONVERSION" means the conversion, formatting and encoding of
a single Book, and the delivery to Kanakaris through the posting of the Book on
a Kanakaris Web Site, so that the Book may be used for Book Sales or Product
Sales, using the Products.
"BOOK SALE" means any transaction through a Kanakaris Web Site
generating revenue based on the publishing, displaying, viewing, subscribing,
selling, renting, downloading or other use of a Book or any portion of a Book.
"BUSINESS DAY" means any day other than (i) a Saturday or Sunday
and (ii) a day on which national banks in the United States are required or
permitted by applicable law to be closed for banking business.
"COMMISSION" means the U.S. Securities and Exchange Commission or
any successor agency thereto.
"CONTROL" means the possession, direct or indirect, of the power
to direct or cause the direction of the management and policies of a Person,
whether through the ownership of voting securities, by contract or otherwise. A
Person owning more than fifty percent of the capital stock or other equity
interests of another Person shall be presumed to Control such other Person.
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"DOLLARS" or "$" shall mean lawful currency of the united States
of America.
"E* WEB" means the computer software developed and owned by ION
that permits the viewing of Books on Web Sites while protecting the security of
the data.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended, together with the rules and regulations promulgated thereunder by the
Commission.
"EXCLUSIVE LICENSE OPTION" has the meaning given to such term in
SECTION 2.3.
"FIELD" means the use of the Products solely for the purpose of
engaging in the for-profit businesses of (i) publishing, displaying, promoting,
marketing, offering and selling, directly to customers and end users using the
facilities of a Web Site, the following specific categories of Books, to be
viewed on the Web Site or downloaded from the Web Site by the customers and end
users for a fee: vanity Books, direct author Books, publisher-owned Books, Books
consisting of technical manuals and documentation, and Books that may be read by
a voice synthesizer; and (ii) publishing and displaying Books on a Web Site for
the purpose of promoting, marketing, offering and selling, directly to customers
and end users for a fee using the facilities of the Web Site, products or
services (other than Books) listed or identified in the Books published or
displayed on the Web Site. The Field shall not include (A) any uses of the
Products for any purposes not specifically included within the foregoing
description, or (B) any categories of Books not included in the foregoing
specific categories. By way of explanation and without intending to limit the
generality of the foregoing: (1) the following uses of the Products are not
included in the Field: rentals of Books intended to be used as text books for
students, secure e-mail messages or other information and documents delivered
through the internet, publishing, displaying and delivering subscription Books
(e.g. newsletters and periodicals), use of the technology underlying the
Products in connection with other applications (e.g. databases and browsers),
other non-revenue generating uses (e.g. businesses or organizations publishing
their own information and documents electronically through internal systems or
the internet), stand alone publishing software, and downloading movies and other
information or data consisting primarily of video; and (2) the following
specific categories of Books are not included within the Field: Books intended
to be used as textbooks for students, and subscription Books (e.g. newsletters
and periodicals).
"KANAKARIS COMMON STOCK" means the authorized shares of common
stock, par value $.OO1 per share, of Kanakaris, together with any securities
issuable after the date hereof with respect to the shares thereof that are
currently outstanding.
"KANAKARIS PREFERRED STOCK" means the authorized shares of
preferred stock, par value $.OOl per share, of Kanakaris.
"KANAKARIS WEB SITE" means one or more Web Sites that are owned,
sponsored and operated by Kanakaris, or an Affiliate of Kanakaris that is under
the Control of Kanakaris, through which Books may be viewed for a fee or
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purchased by customers or end users directly from the Web Site for electronic
delivery through the internet, including the Web Site currently operated by
Kanakaris under the name "NetBooks" (having a world wide web address of
www.netbooks.com), or through which products or services (other than Books) may
be purchased by customers or end users using the facilities of the Web Site. A
Person shall be deemed to own, sponsor and operate a Web Site when such Person
controls the content of the Web Site and collects the revenue payable using the
facilities of the Web Site.
"LICENSE" means the license granted by ION to Kanakaris pursuant
to SECTION 2.1.
"OPTION SHARES" means 100,000 shares of Kanakaris Common Stock.
"PERSON" means any individual or entity, including a joint
venture, partnership, trust, company, limited liability company or corporation,
together with the permitted successors and assigns of any such Person.
"PRODUCTS" means collectively the E*Web and X*Maker computer
software, together with all related documents and manuals, and together with any
Product Upgrades.
"PRODUCT SALE" means any transaction through a Kanakaris Web Site
generating revenue based on the subscribing, selling, renting or downloading of
a product or service (other than a Book) identified in a Book published,
displayed or viewed on a Kanakaris Web Site.
"PRODUCT UPGRADE" means any upgrade to a Product that adds
features or capabilities but is dependent on the same underlying technology.
"SECURITIES ACT" means the Securities Act of 1933, as amended,
together with the rules and regulations promulgated thereunder by the
Commission.
"WEB SITE" means a location on the world wide web accessible
electronically by computers through the internet.
"X*MAKER" means the computer software developed and owned by ION
that enables the downloading of Books from Web Sites while protecting the
security of the data.
1.2 Unless the context clearly requires otherwise, this Agreement
shall be construed in accordance with the following rules: (i) the Section
numbers and headings preceding text have been inserted for convenient reference
only and shall not affect the meaning, construction or effect of this Agreement;
(ii) references to Sections and Exhibits are references to Sections of this
Agreement and Exhibits attached to this Agreement, respectively, which Exhibits
are hereby incorporated by reference and made a part of this Agreement; (iii)
words in the singular include the plural and words in the plural include the
singular; (iv) the word "INCLUDING" means by way of illustration or example but
without limitation; (v) the word "OR"is not exclusive; (vi) any calculations
required to be made pursuant to this Agreement shall be made in accordance with
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<PAGE>
generally accepted accounting principles to the extent applicable thereto; and
(vii) any payment of money that becomes due on a day that is not a Business Day
shall be due and payable on the next Business Day.
2. LICENSE GRANT.
2.1 Subject to the terms and conditions set forth in this Agreement,
ION grants to Kanakaris, and Kanakaris accepts, a license during the term of
this Agreement to use the Products solely within the Field, and solely for or in
connection with Kanakaris Web Sites, but without any geographic or territorial
restrictions. Neither the License nor any right, title or interest thereunder
shall be assignable or transferable by Kanakaris, and Kanakaris shall not have
the right to grant sublicenses under the License; PROVIDED, that Kanakaris may
authorize the use of the License by any Affiliate of Kanakaris that owns,
sponsors and operates a Kanakaris Web Site, which Affiliate is under the Control
of Kanakaris, but Kanakaris shall require any such Affiliate to comply with all
the terms and conditions of the License, Kanakaris warrants and guarantees such
compliance to ION, and Kanakaris shall immediately notify ION of any such
Affiliate that Kanakaris has authorized to use the License. ION reserves to
itself any right, title and interests in and to the Products not expressly
granted to Kanakaris herein. Without limiting the generality of the foregoing
reservation of rights to ION, ION shall have the right, and Kanakaris shall not
have any right, to use the Products for all purposes and uses, and all
categories of Books, outside of the Field.
2.2 The License with respect to E*Web shall be exclusive to Kanakaris
within the Field from the date of this Agreement until August 30, 1999. If the
Exclusive License Option is not exercised by Kanakaris pursuant to SECTION 2.3,
then from and after August 30, 1999, the License with respect to E*Web shall be
non-exclusive to Kanakaris within the Field and shall continue for the term of
this Agreement, and thereafter ION shall not be restricted from using E*Web for
any purpose and granting other licenses with respect to E*Web to any other
Person, both within and outside of the FIELD; PROVIDED, that for so long as the
License with respect to E*Web is exclusive to Kanakaris within the Field, ION
shall not exercise for itself or grant to any third Person any right, title or
interests with respect to E*Web within the Field. The License with respect to
X*Maker shall be non-exclusive to Kanakaris for the term of this Agreement, and
ION shall not be restricted from using X*Maker for any purpose and granting
other licenses with respect to X*Maker to any other Person, both within and
outside of the Field.
2.3 Subject to SECTION 2.3(a), Kanakaris shall have the right,
exercisable at the option of Kanakaris in its sole discretion (the "EXCLUSIVE
LICENSE OPTION"), to extend the exclusivity to Kanakaris of the License with
respect to E*Web within the Field for the entire term of this Agreement, on and
subject to the following terms and conditions:
(a) Kanakaris' shall not have the right to exercise the Exclusive
License Option unless, prior to the exercise thereof, ION shall have approved a
business and marketing plan (the "BUSINESS PLAN") prepared by Kanakaris for the
use of the Product and the promotion of the Kanakaris Web Sites in a manner
intended to maximize ION's return through the payment of fees and royalties to
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<PAGE>
ION by Kanakaris as contemplated by SECTION 3, which approval by ION shall be
undertaken by ION in good faith promptly after the proposed Business Plan is
provided to ION.
(b) The license fee for exercising the Exclusive License Option
shall be $1,000,000.00 (the "EXCLUSIVE LICENSE FEE"), which shall be payable in
the manner provided herein.
(c) The Exclusive License Option, if exercised by Kanakaris, shall
be exercised by Kanakaris delivering notice of the exercise thereof to ION (the
"OPTION EXERCISE NOTICE"). To be valid and effective, the Option Exercise Notice
must be received by ION by not later than the close of business on August 30,
1999, and must be accompanied by cash, or a certified check or electronic wire
transfer of immediately available funds to an account designated by ION, in the
amount of $100,000.00 as partial payment of the Exclusive License Fee. The
balance of the Exclusive License Fee shall bear interest at the fixed rate of
five percent per annum, and shall be payable in nine monthly installment
payments, each in the amount of $100,000.00 plus accrued and unpaid interest
thereon, and each monthly installment payment shall be due and payable each
successive month after the Option Exercise Notice (on or before the same day of
the month as the date the Option Exercise Notice was delivered to ION), until
the entire Exclusive License Fee and all accrued interest thereon has been paid
in full. Each monthly installment payment shall paid to ION in cash, or by a
certified check or electronic wire transfer of immediately available funds to an
account designated by ION.
(d) From and after the date of ION's receipt of the Option
Exercise Notice, and continuing for the term of this Agreement, the License with
respect to E*Web shall be exclusive to Kanakaris within the Field, subject
however to forfeiture of exclusivity as provided in SECTION 2.4.
2.4 Upon the occurrence of any of the following events, the
exclusivity of the License with respect to E*Web shall immediately be forfeited
(as ION's sole and exclusive remedy with respect to the occurrence of such
event) and then and thereafter the License with respect to E*Web shall be
non-exclusive to Kanakaris within the Field, and thereafter ION shall not be
restricted from using E*Web for any purpose and granting other licenses with
respect to E*Web to any other Person, both within and outside of the Field:
(a) Any failure by Kanakaris to pay the Exclusive License Fee, or
any portion thereof, or any interest accrued thereon, to ION on or before the
date on which payment is due. In any such event, ION shall not be required to
refund to Kanakaris any previous payments of the Exclusive License Fee paid by
Kanakaris.
(b) Any failure by Kanakaris to supply ION with at least 1,000
Books for Book Conversions in each of the calendar years ending December 31,
1999, 2000, 2001, 2002, and 2003; PROVIDED, that if for any of such calendar
years Kanakaris has supplied ION with fewer than 1,000 Books for Book
Conversions, then Kanakaris shall have the right to pay to ION, by not later
than December 31 of such calendar year, an amount equal to the price payable by
Kanakaris for each Book Conversion multiplied by the difference between 1,000
Book Conversions and the actual number of Books supplied to ION for Book
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Conversions during such calendar year, and upon ION's receipt of such amount the
exclusivity of the License with respect to E*Web shall not be forfeited and
shall remain in effect.
2.5 After ION's initial approval of the Business Plan as contemplated
by SECTION 2.3(a), Kanakaris shall use its best efforts to execute, comply with
and follow the Business Plan substantially as stated therein. Kanakaris shall
provide a written report (in reasonable detail) to ION within ninety days after
the end of each calendar year during the term of this Agreement as to the
progress of Kanakaris under the Business Plan. The Business Plan may be modified
from time to time, but any material modifications to the Business Plan shall be
subject to ION's prior approval. In connection with a proposed modification of
the Business Plan, Kanakaris may propose to modify the specific uses of the
Products and the specific categories of Books included within the Field, but any
such modifications to the Field shall be subject to ION's prior approval in each
instance, which approval may be withheld in ION's sole discretion.
2.6 The parties acknowledge that the technology, know-how, inventions
and works of authorship included within the Products or on which they are based
may be protected by patents and copyrights, and that ION is preparing or has
prepared one or more patent applications and may prepare further patent or
copyright applications, and is pursuing and may further pursue patent or
copyright protections, for such technology, know-how, inventions and works of
authorship. All patent or copyright applications and patents or copyrights
issuable or claimed with respect to any technology, know-how, inventions and
works of authorship included within the Products or on which they are based
shall be the exclusive property of ION, and ION shall have the exclusive right
to apply for, pursue and claim any such patents and copyrights, in all domestic
and foreign jurisdictions; PROVIDED, that the License shall include the right of
Kanakaris to utilize the technology, know-how, inventions and works of
authorship and to practice the art covered by any such patent or copyrights
applications or patents or copyrights. Kanakaris shall not oppose any such
patent or copyright applications filed by ION and shall not challenge the
validity of any patent or copyright issued to or asserted by ION or any claims
made in any such patents. Kanakaris shall display or publish any notices of
patent or copyright claims as reasonably required by ION.
2.7 Upon request by Kanakaris, ION shall deliver one copy of the
Products to Kanakaris, including all related documents and manuals. Kanakaris
shall not copy or use the Products (including but not limited to the
documentation and manuals) except as expressly permitted by this Agreement.
Kanakaris may copy the Products solely for archival or backup purposes. All
archival and backup copies and any other permitted copies of the Products are
subject to the terms and conditions of this Agreement. Kanakaris shall not cause
or permit the reverse engineering, disassembly or decompilation of the Products.
2.8 ION shall notify Kanakaris in the event any Product Upgrades are
developed by ION; PROVIDED, that ION shall not have any duty to develop any
Product Upgrades. Any Product Upgrades shall be provided to Kanakaris and shall
become a part of the related Product and shall be included in the License for
such Product. Kanakaris or its Affiliates may from time to time request ION to
develop Product Upgrades, and in such event if ION is agreeable to undertaking
such development, the cost of such development shall be paid by Kanakaris on
terms and conditions to be mutually agreed to by the parties.
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2.9 Notwithstanding anything to the contrary contained herein,
Kanakaris shall not be required to exclusively use the Products in connection
with the Kanakaris Web Sites, and Kanakaris shall have the right to use other
computer software programs on or in connection with the Kanakaris Web Sites for
any purpose.
2.10 If during the term of this Agreement ION develops and desires to
commercialize technology to enable the secure downloading from the internet of
movies and other information or data consisting primarily of video ("VIDEO
TECHNOLOGY"), whether by modifications to the Products or otherwise, then prior
to granting any licenses to third Persons with respect to the Video Technology
or selling the Video Technology to third Persons, ION shall disclose the
existence of the Video Technology to Kanakaris and permit Kanakaris a reasonable
opportunity to make a proposal for the acquisition of the Video Technology or a
license with respect thereto, and the parties shall in good faith negotiate with
each other for a reasonable time with respect to such proposal by Kanakaris.
Notwithstanding anything to the contrary contained herein, Kanakaris shall have
no expressed or implied obligation to acquire or license the Video Technology
from ION or to make any proposal with respect thereto, and ION shall have no
expressed or implied obligation to sell or license the Video Technology to
Kanakaris on the terms as proposed by Kanakaris or on any other terms.
3. FEES AND ROYALTIES.
3.1 During the term of this Agreement, ION shall have the exclusive
right to perform Book Conversions for all Books for the Kanakaris Web Sites, on
the following terms and conditions:
(a) The price for each Book Conversion shall be $100.00 for each
Book supplied to ION in accordance with ION's standard specifications for Book
Conversions; PROVIDED, that effective as of January 1, 2000, and as of the first
day of each calendar year thereafter, ION shall have the right to increase the
price for each Book Conversion, by not more than five percent each year, by
giving Kanakaris notice of such price increase not later than the December 15
prior to the effective date of the price increase. For each Book supplied to ION
for a Book Conversion that does not comply with ION's standard specifications
for Book Conversions, ION may also charge additional fees at ION's then
applicable standard rates.
(b) ION will issue invoices to Kanakaris for all Books delivered
by ION to Kanakaris as to which ION has performed a Book Conversion, and all
such invoices shall be due and payable in full within thirty days after the date
of ION's invoice.
(c) ION shall use its best efforts to diligently and promptly
complete Book Conversions as soon as possible after Books are supplied to ION.
The parties will reasonably cooperate with each other to establish mutually
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agreeable procedures and working arrangements to implement and administer the
Book Conversions. Any failure or delay by ION in performing any Book Conversion
shall not constitute a breach or default by ION to the extent and for so long as
such failure or delay is caused by or results from or in connection with any
cause or event beyond ION's reasonable control, including any act of God, fire,
flood, epidemic, quarantine restriction, war, riot, work stoppage, worker
shortage, breakdown, interruption in power, governmental regulation or action,
or order of any court or governmental body.
(d) During the term of this Agreement, Kanakaris shall not
directly or indirectly perform Book Conversions, either itself or through any
Affiliate, and Kanakaris shall not engage any third Person to perform Book
Conversions.
3.2 In consideration of the License granted to Kanakaris by ION
herein, and without regard to whether any rights thereunder are exclusive or
non-exclusive, Kanakaris shall pay royalties to ION, on and subject to following
terms and conditions:
(a) "ROYALTY FEE" means (i) in the case of a Book Sale, an amount
equal to the gross revenue to Kanakaris from the Book Sale, less the amount of
any commission, fee or royalty payable by Kanakaris to the publisher or author
of the Book involved in the Book Sale, multiplied by twelve percent, and (ii) in
the case of a Product Sale, an amount equal to the gross revenue to Kanakaris
from the Product Sale, multiplied by five percent; PROVIDED, that if the Product
Sale is based on a Book for which the Book Conversion was performed by ION, then
the Royalty Fee on such gross revenue shall be determined by multiplying by ten
percent instead of five percent.
(b) ION shall earn a Royalty Fee on each Book Sale or Product Sale
at the time the Book Sale or Product Sale is transacted through a Kanakaris Web
Site, without regard to whether any Product was used or involved in connection
with the Book Sale or Product Sale or whether the related Book was the result of
a Book Conversion by ION. All Royalty Fees earned in a calendar month shall be
due and payable to ION within thirty days after the end of the month in which
they are earned.
(c) Each Royalty Fee payment shall be accompanied by a statement
setting forth in reasonable detail Kanakaris's calculation of the amount of the
Royalty Fee payment. Delivery of such statement to ION shall constitute a
representation and warranty by Kanakaris to ION that the statement is true,
complete and accurate. Kanakaris shall create, maintain and retain, for at least
five years after the date of the related Royalty Fee payment to ION, reasonable
books and records to establish the accuracy of Kanakaris' statement accompanying
each Royalty Fee payment. Such books and records shall be subject to inspection
by ION or its designated representatives, upon reasonable prior notice by ION to
Kanakaris, at reasonable times during Kanakaris' regular business hours and
without unreasonably interfering with Kanakaris' operations. In the event ION's
inspection results in the discovery of any inaccurate payment, an adjustment
shall be made promptly by the parties to correct such inaccurate payment. All
such inspections shall be at ION's own cost and expense; PROVIDED, that if a
material inaccuracy is discovered that results in Kanakaris being required to
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make an adjusting payment to ION, then Kanakaris shall promptly reimburse ION
for any reasonable costs and expenses incurred in discovering such inaccuracy.
All information that comes to the attention of ION or its designated
representatives while taking the actions permitted by this SECTION 3.2(c) is
designated to be Kanakaris' Restricted Information that is subject to the
confidentiality restrictions of SECTION 8.
3.3 If ION procures for or introduces to Kanakaris any publisher or
author of a Book that is then published, displayed or viewed on a Kanakaris Web
Site, then Kanakaris shall pay to ION, in addition to any other amounts payable
to ION pursuant to SECTIONS 3.1 AND 3.2, the amount of any commission, fee or
royalty payable by Kanakaris to its sales agents at the standard rates as then
in effect.
3.4 The parties may from time to time by mutual agreement increase,
decrease or otherwise modify the amounts payable under SECTIONS 3.1. 3.2 OR 3.3
on a case-by-case basis; PROVIDED, that neither party shall have any obligation
to agree to any such modification.
4. STOCK OPTION.
4.1 Subject to SECTION 4.5, ION shall have the right, exercisable at
the option of ION in its sole discretion one time at any time on or after June
1, 1999, and on or before December 31, 2005 (the "STOCK OPTION"), to purchase
from Kanakaris all or any portion of the Option Shares, for an aggregate
purchase price equal to $.30 per share multiplied by the number of Option Shares
as to which the Stock Option is being exercised, on and subject to the terms and
conditions in this SECTION 4.
4.2 The Stock Option, if exercised by ION, shall be exercised by ION
delivering notice of the exercise thereof to Kanakaris (the "STOCK OPTION
EXERCISE NOTICE"). To be valid and effective, the Stock Option Exercise Notice
must be received by Kanakaris by not later than the close of business on
December 31, 2005, and must be accompanied by cash, or a certified check or
electronic wire transfer of immediately available funds to an account designated
by Kanakaris, in the full amount of the aggregate purchase price for the Option
Shares being purchased. Upon giving the Stock Option Exercise Notice, ION shall
be deemed for all purposes to be the owner of the Option Shares being purchased
from and after the date of the Stock Option Exercise Notice. Prior to the
exercise of the Stock Option by ION, ION shall not have any rights as a
shareholder of Kanakaris or with respect to any of the Option Shares issuable
upon the exercise of the Stock Option, except such rights as are expressly
provided herein.
4.3 Upon receipt of the Stock Option Exercise Notice from ION,
Kanakaris shall promptly issue a stock certificate to represent the Option
Shares being purchased, duly registered in the name of ION on the books and
records of Kanakaris regarding its capital stock and duly executed on behalf of
Kanakaris, and deliver such stock certificate to ION; PROVIDED, that at the
request of ION, Kanakaris shall deliver the Option Shares being purchased to a
brokerage account designated by ION. Delivery to ION of the Option Shares being
purchased in the manner contemplated herein shall constitute a representation
and warranty by Kanakaris to ION that the Option Shares purchased by ION are
validly authorized and issued, fully paid and non-assessable.
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4.4 For so long as the Stock Option remains exercisable by ION, the
following covenants shall be in effect:
(a) Kanakaris shall reserve a sufficient number of shares of
authorized but unissued shares of Kanakaris Common Stock for issuance to ION
pursuant to the Stock Option.
(b) Kanakaris shall provide to ION copies of all reports, notices
and other documents provided to the shareholders of Kanakaris.
(c) In the event of any restructuring of the capital stock or
capitalization of Kanakaris, including any stock split or stock dividend, the
terms of the Stock Option (including the number of shares of Kanakaris Common
Stock subject to the Stock Option and the price per share for the shares to be
purchased thereunder) shall be modified so as to preserve the rights of ION
under the Stock Option and the intentions of the parties hereunder; PROVIDED,
that ION shall not be protected from any dilution of its interests under the
Stock Option as a result of the issuance of additional shares of the authorized
shares of Kanakaris Common Stock subsequent to the date of this Agreement, and
ION shall not have any preemptive rights with respect to the issuance of any
capital stock of any class by Kanakaris.
4.5 Kanakaris shall give ION notice not less than forty-five days
prior to the consummation of any of the following events (each a "SALE EVENT"):
a merger, consolidation or other reorganization of Kanakaris in which Kanakaris
is not the surviving entity; the sale or other transfer of all or substantially
all of Kanakaris' property or assets; the purchase or other acquisition of fifty
percent or more of Kanakaris' outstanding equity interests; or any other change
in the Control of Kanakaris. If ION does not deliver to Kanakaris a Stock Option
Exercise Notice within thirty days after ION's receipt of such notice from ION,
then Kanakaris shall have the right to cancel the Stock Option at any time prior
to the consummation of such Sale Event by paying $30,000.00 to ION; PROVIDED,
that if the Sale Event as to which notice was given to ION is not consummated
within ninety days after the notice to ION, then Kanakaris shall then again be
required to give the notice to ION as contemplated herein; and PROVIDED FURTHER,
that if Kanakaris exercises the right to cancel the Stock Option and such Sale
Event is not consummated within sixty days after such payment is made to ION,
then ION shall have the right to reinstate the Stock Option by refunding such
amount to Kanakaris, whereupon the Stock Option shall be reinstated and shall
continue to be exercisable by ION.
4.6 Subject to SECTION 4.7, after the exercise of the Stock Option by
ION, ION shall have the right, exercisable at the option of ION in its sole
discretion by giving notice to Kanakaris at any time after the expiration of
ninety days after ION's exercise of the Stock Option, to require Kanakaris (at
the expense of Kanakaris) to promptly take all such actions (including
registration under the Securities Act, if such is required) as may be necessary
under applicable federal and state laws to enable and permit ION to sell the
Option Shares, then or at any time thereafter, in the public markets or on the
stock exchanges where the Kanakaris Common Stock is then publicly traded,
without any holding periods or other restrictions.
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4.7 Kanakaris shall have the right, exercisable at the option of
Kanakaris in its sole discretion by paying to ION (in cash, or by a certified
check or electronic wire transfer of immediately available funds to an account
designated by ION), at any time prior to the expiration of fifteen days after
Kanakaris receives the notice from ION pursuant to SECTION 4.6, an amount equal
to the number of Option Shares purchased by ION multiplied by $.30 per share,
for Kanakaris to be permitted a one year period after the date on which ION
exercises its right under SECTION 4.6 in which to satisfy the requirements of
SECTION 4.6, and during such one year period or until an earlier date when
Kanakaris satisfies such requirements the Option Shares purchased by ION may be
subject to restrictions on their transferability unless the registration
requirements of the Securities Act or the requirements of the Commission's Rule
144 thereunder are satisfied.
5. ADDITIONAL COVENANTS.
5.1 Kanakaris shall use its best efforts to utilize the Products and
to actively promote the sale of Books through the Kanakaris Web Site so as to
maximize the fees and royalties that may be earned by ION as contemplated by
this Agreement.
5.2 Kanakaris shall absorb all accounting costs associated with the
Products and their implementation on Kanakaris Web Sites.
5.3 Kanakaris shall be responsible for design and maintenance of all
Kanakaris Web Sites.
5.4 Kanakaris shall be responsible for server hosting for Kanakaris
Web Sites (with adequate bandwidth so as to not impede the performance of ION
software or user access). ION shall have the option to propose other hosting
solutions to Kanakaris, and shall compare costs and services (e.g. if Kanakaris'
band width is too small).
5.5 Kanakaris shall be responsible for all programming costs.
Kanakaris shall facilitate the ability on Kanakaris Web Sites to allow users to
rent Books by the hour as well as buy permanent copies or access.
5.6 ION shall have access to all the Books contained within the
Kanakaris Web Sites as search material for a database. Kanakaris and publishers
or authors shall receive a mutually agreeable (yet-to-be-determined) percentage
of revenues generated off of Books from Kanakaris Web Sites to which access was
achieved through a database search. ION shall assume all expenses for creating
this database.
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5.7 ION reserves the right to publish public domain Books with the
Products through Kanakaris Web Sites with ION receiving author or publisher
revenues. Kanakaris shall not charge ION a posting fee.
5.8 KANAKARIS and ION shall reasonably cooperate with each other to
demonstrate and market the unique aspects of the Products and ION's underlying
technology. ION shall send ION employees to a limited number of meetings, trade
shows or other sales opportunities, if Kanakaris pays all direct expenses other
than their salaries.
5.9 KANAKARIS and ION each shall retain sole ownership of their
respective names and trademarks.
5.10 Some mutually agreeable method and fee structure needs to be
determined by the parties for users who convert their Book using the Products
and wish to publish the Book on their own Web Site. (ION has suggested at least
double the fee).
6. KANAKARIS' REPRESENTATIONS AND WARRANTIES.
As an inducement for ION to enter into this Agreement, Kanakaris
hereby represents and warrants to ION, as of the date of this Agreement, as
follows:
6.1 Kanakaris has been duly incorporated and organized and is validly
existing and in good standing as a corporation under the laws of the State of
Nevada, and has been duly qualified and is in good standing to transact business
as a foreign corporation under the laws of the State of California and each
other jurisdiction in which the nature of Kanakaris' business, properties or
operations requires such qualification, with the full right, power and authority
to enter into, execute, deliver and perform this Agreement.
6.2 The authorized, issued and outstanding capital stock of Kanakaris
is as follows: (i) 1,000,000 authorized shares of preferred stock, par value
$.00l per share, of which on the date of this Agreement all 1,000,000 shares are
outstanding; and (ii) 100,000,000 authorized shares of common stock, par value
$.00l per share, of which on the date of this Agreement 23,000,000 shares are
outstanding, no shares are held in treasury, and less than 500,000 shares are
reserved for or subject to issuance pursuant to options, warrants, conversions,
privilege or other similar rights. All shares of the Kanakaris Preferred Stock
and Kanakaris Common Stock currently outstanding are validly authorized and
issued, fully paid and non-assessable.
6.3 All necessary proceedings and consents, corporate or otherwise,
have been duly taken or obtained to authorize the execution, delivery and
performance of this Agreement by Kanakaris.
6.4 This Agreement has been duly authorized, executed and delivered by
Kanakaris, constitutes a legal, valid and binding obligation of Kanakaris and is
enforceable against Kanakaris in accordance with its terms.
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6.5 The execution, delivery and performance of this Agreement by
Kanakaris do not and will not (i) conflict with or violate any provision of
Kanakaris' articles of incorporation or bylaws, (ii) with or without the giving
of notice or the passage of time or both, conflict with, violate or constitute a
breach or default under, or result in the creation or imposition of any lien,
charge or encumbrance on any property or assets of Kanakaris pursuant to, any
terms or provisions of (A) any indenture, mortgage, loan agreement, note, lease
or other agreement or instrument to which Kanakaris is a party or by which it
may be bound or to which any of its properties or assets may be subject
(including any agreements with Michael Horn regarding NetBooks) or (B) any
existing applicable law, rule, regulation, judgment, order or decree of any
governmental authority, court or other tribunal having jurisdiction over
Kanakaris or any of its properties or assets.
6.6 No litigation, arbitration, governmental or other proceeding or
investigation is pending or, to Kanakaris' knowledge, threatened with respect to
Kanakaris or its properties, assets or business that can reasonably be expected
to materially interfere with the execution, delivery and performance of this
Agreement by Kanakaris (including any such litigation, arbitration, governmental
or other proceeding or investigation arising with respect to agreements with
Michael Horn regarding NetBooks), and Kanakaris does not have actual knowledge
of any fact that could reasonably be expected to be the basis for any such
litigation, arbitration, governmental or other proceeding.
6.7 No consent, authorization, order, license, certificate or permit
of or from, notice to, or declaration or filing with, any governmental
authority, court or other tribunal, or any third party (including members), is
required for Kanakaris to execute, deliver and perform this Agreement.
6.8 Kanakaris has timely filed all statements and reports required to
be filed under the Securities Act and the Exchange Act (the "PUBLIC FILINGS")
true, correct and complete copies of all such Public Filings filed since January
1, 1998, have been provided to ION by Kanakaris; and none of the Public Filings
provided to ION by Kanakaris includes any untrue statement of a material fact or
omits to state any material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading.
6.9 The foregoing representations and warranties by Kanakaris,
together with the information previously disclosed to ION by Kanakaris in
connection with this Agreement, are accurate in all material respects and do not
omit any statements necessary to make such representations or information, in
light of the circumstances in which they were made or disclosed, not misleading.
7. ION'S REPRESENTATION AND WARRANTIES.
As an inducement for Kanakaris to enter into this Agreement, ION
hereby represents and warrants to Kanakaris, as of the date of this Agreement,
as follows:
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7.1 ION has been duly incorporated and organized and is validly
existing and in good standing as a corporation under the laws of the State of
Missouri, with the full right, power and authority to enter into, execute,
deliver and perform this Agreement.
7.2 All necessary proceedings and consents, corporate or otherwise,
have been duly taken or obtained to authorize the execution, delivery and
performance of this Agreement by ION.
7.3 This Agreement has been duly authorized, executed and delivered by
ION, constitutes a legal, valid and binding obligation of ION and is enforceable
against ION in accordance with its terms.
7.4 The execution, delivery and performance of this Agreement by ION
do not and will not (i) conflict with or violate any provision of ION's articles
of incorporation or bylaws, (ii) with or without the giving of notice or the
passage of time or both, conflict with, violate or constitute a breach or
default under, or result in the creation or imposition of any lien, charge or
encumbrance on any property or assets of ION pursuant to, any terms or
provisions of (A) any indenture, mortgage, loan agreement, note, lease or other
agreement or instrument to which ION is a party or by which it may be bound or
to which any of its properties or assets may be subject or (B) any existing
applicable law, rule, regulation, judgment, order or decree of any governmental
authority, court or other tribunal having jurisdiction over ION or any of its
properties or assets.
7.5 No litigation, arbitration, governmental or other proceeding or
investigation is pending or, to ION's knowledge, threatened with respect to ION
or its properties, assets or business that can reasonably be expected to
materially interfere with the execution, delivery and performance of this
Agreement by ION, and ION does not have actual knowledge of any fact that could
reasonably be expected to be the basis for any such litigation, arbitration,
governmental or other proceeding.
7.6 No consent, authorization, order, license, certificate or permit
of or from, notice to, or declaration or filing with, any governmental
authority, court or other tribunal, or any third party (including shareholders),
is required for ION to execute, deliver and perform this Agreement.
7.7 ION is the sole and exclusive owner of the Products, free and
clear of any adverse lien, security interest, encumbrance or interest of any
third Person (except for non-exclusive licenses with respect to X*Maker), and to
the knowledge of ION (i) ION has not misappropriated or infringed the trade
secret, patent, copyright or trademark rights of any third Person, and (ii) no
litigation, arbitration, governmental or other proceeding or investigation is
pending or threatened that alleges that the Products misappropriate or infringe
on any third Person's trade secret, patent, copyright or trademark rights, and
ION does not know of any fact that could reasonably be expected to be the basis
for any such litigation, arbitration, governmental or other proceeding or
investigation.
7.8 The foregoing representations and warranties by ION, together with
the information previously disclosed to Kanakaris by ION in connection with this
Agreement, are accurate in all material respects and do not omit any statements
necessary to make such representations or information, in light of the
circumstances in which they were made or disclosed, not misleading.
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8. CONFIDENTIALITY.
8.1 "RESTRICTED INFORMATION" means any information designated by a
party (at the time of disclosure or within a reasonable time thereafter) as
being confidential or proprietary to the party, PROVIDED, that if such
designation is not made in writing, then the designation must be confirmed in
writing within a reasonable time thereafter; "DISCLOSING PARTY" means the party
(either ION or Kanakaris), or any of its Affiliates, disclosing its Restricted
Information to the Receiving Party; and "RECEIVING PARTY" means the party
(either ION or Kanakaris), together with its Affiliates, receiving Restricted
Information from the Disclosing Party. The Products and all technology,
know-how, inventions and works of authorship included in the Products or on
which they are based, including any source code, documents and manuals, are
designated as ION's Restricted Information.
8.2 Each Receiving Party shall, and it shall require its Affiliates
to, protect and maintain in strict confidence and secrecy any Restricted
Information that it may receive from the Disclosing Party and shall use such
Restricted Information solely for the purpose for which it was disclosed to the
Receiving Party, and the Receiving Party shall not otherwise use or disclose or
permit any use or disclosure of such Restricted Information without the
Disclosing Party's prior consent, except as follows:
(a) Any use or disclosure of Restricted Information required to be
made by or under applicable law or regulation or by order of a court or
governmental authority acting within its jurisdiction, PROVIDED, that the
Receiving Party has given the Disclosing Party prior notice and a reasonable
opportunity to contest such requirement. ION acknowledges that Kanakaris has
filed a registration statement under the Securities Act and is subject to the
public reporting requirements of the Exchange Act, and pursuant to the
requirements of the Securities Act and the Exchange Act Kanakaris is required to
make certain public disclosures. ION authorizes Kanakaris to make any
disclosures regarding ION, the Products and this Agreement to the extent
required by the Securities Act or the Exchange Act; PROVIDED, that Kanakaris
shall provide ION with a copy of any such disclosures within a reasonable time
prior to any public filing or release thereof. Kanakaris, and not ION, shall be
solely responsible for the preparation, filing and release of any such
disclosures.
(b) Any use or disclosure of Restricted Information that the
Receiving Party can establish was (i) already known to or in the possession of
the Receiving Party at the time of disclosure by the Disclosing Party, (ii) in
the public domain other than by means of any use or disclosure in violation of
this Agreement by the Receiving Party, (iii) obtained by the Receiving Party
from an independent source that to the knowledge of the Receiving Party has not
violated a confidentiality agreement with the Disclosing Party, or (iv)
developed independently by the Receiving Party or an Affiliate without any
reliance on the Restricted Information.
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The Receiving Party shall give the Disclosing Party prior notice of
any anticipated use (other than a use for the purpose for which the Restricted
Information was disclosed to the Receiving Party) or disclosure of Restricted
Information pursuant to this SECTION 8.2, and the Receiving Party shall have the
burden of proving the basis for any use or disclosure of Restricted Information
claimed to be permitted by this SECTION 8.2. Upon any termination or expiration
of this Agreement, each party shall return to the other party or destroy, in
accordance with the reasonable instructions of the other party, the originals
and all copies, extracts or other tangible or intangible forms or records of any
Restricted Information of the other party.
8.3 Each Receiving Party acknowledges that any use or disclosure of
Restricted Information by the Receiving Party or its Affiliates in a manner
inconsistent with this SECTION 8 will cause the Disclosing Party irreparable
harm, and that the Disclosing Party shall have the right to obtain equitable and
injunctive relief to prohibit such use or disclosure, in addition to all other
rights and remedies that may be available to the Disclosing Party at law, in
equity or by statute. The provisions of this SECTION 8 shall survive for ten
years after the last disclosure of Restricted Information pursuant to this
Agreement.
9. ARBITRATION.
9.1 "DISPUTE" means any controversy, dispute or claim arising out of or
relating to this Agreement or the performance or interpretation hereof that
cannot be resolved by mutual agreement of the parties; "ARBITRABLE DISPUTE"
means any Dispute, except as provided in SECTION 9.4 and except for any Dispute
that is prohibited by law from being arbitrated; "AAA" means the American
Arbitration Association; "AAA RULES" means commercial arbitration rules and
procedures of the AAA.
9.2 Any Arbitrable Dispute shall be resolved by submitting it to
binding arbitration under the AAA Rules, except that if the provisions of this
SECTION 9 conflict with any provisions of the AAA Rules, then the provisions of
this SECTION 9 shall control to the extent permitted by the AAA Rules. Such
arbitration shall be the sole and exclusive means for resolving Arbitrable
Disputes. The submission of an Arbitrable Dispute to arbitration shall not be
cause for the delay or suspension of the performance of any duty or obligation
under this Agreement.
9.3 An Arbitrable Dispute may be submitted to arbitration by either
party, at any time prior to the expiration of the time within which a lawsuit
over the Arbitrable Dispute may be filed, by giving prompt written notice of
demand of arbitration to the other party and to the AAA. No person who has been
employed by or had any business relationship with any party to such arbitration
may serve as an arbitrator. The arbitration shall be conducted at such location
as may be mutually agreeable to the parties or, if not mutually agreed, then as
determined by the arbitrators. The arbitrators shall render their award in
writing, accompanied by a written opinion specifying any findings of fact and
other conclusions as a basis for such award, within sixty days after the close
of the parties' presentation of evidence. The arbitrators may award any
appropriate relief, including an award for damages, specific performance or
other equitable relief, but the arbitrators may not award any punitive or
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exemplary damages. The decision and award of the arbitrators shall be final and
binding on the parties and judgment on the award may be entered in any court
having jurisdiction. Each party shall bear its own fees, costs and expenses in
connection with any arbitration, except that any fees, costs and expenses of the
AAA and the arbitrators shall be assessed against the non-prevailing party as
determined by the arbitrators.
9.4 If any party asserts against the other party an alleged violation
of any federal or state statute, including securities laws, anti-trust laws,
consumer protection laws and Racketeer Influenced and Corrupt Organizations Law,
then the party against whom the violation is alleged may opt to have such
alleged violation determined by lawsuit in a court having jurisdiction rather
than by arbitration by so notifying the other party, the arbitrators (if already
selected) and the AAA in writing within thirty days after the allegation of such
violation is made. Upon receipt of such notice, the AAA and the arbitrators
shall have no further jurisdiction with respect to such alleged violation, but
the party alleging such violation shall be free to allege such violation by
lawsuit. No such notice or lawsuit shall be cause for delay or suspension of the
arbitration of any other Arbitrable Disputes under this SECTION 9.
10. TERM AND TERMINATION.
10.1 Subject to SECTION 10.2, the initial term of this Agreement shall
commence on the effective date of this Agreement first indicated above and shall
remain in effect until December 31, 2004, and thereafter the term of this
Agreement shall automatically renew for successive additional renewal terms of
five years each, ending on December 31 of each fifth year. This Agreement may be
terminated only as provided in SECTION 10.2. Any termination of this Agreement
also shall constitute a termination of the License.
10.2 (a) In the event of any failure by Kanakaris to make full payment
to ION of any amount required to be paid by Kanakaris to ION by this Agreement,
on or before the date such payment is required to be made (a "PAYMENT DEFAULT"),
ION shall have the right (then or at any time thereafter for so long as such
Payment Default is continuing) to give Kanakaris notice of default in writing
specifying the payment that was not made (and the amount thereof if known to
ION). If Kanakaris does not make such payment in full within a period of five
Business Days after the date such notice is delivered to Kanakaris, then ION
shall have the right at any time after such period, for so long as such Payment
Default is continuing, to terminate this Agreement, effective immediately upon
giving notice of termination to Kanakaris. The occurrence of an event as
described in SECTION 2.4(a) shall not constitute a Payment Default under this
SECTION 10.2(a).
(b) In the event of any material breach or default, other than a
Payment Default, under the terms of this Agreement by either party (the
"DEFAULTING PARTY"), the other party (the "NON-DEFAULTING Party") shall have the
right to give the Defaulting Party notice of default in writing specifying in
reasonable detail the nature of such breach or default. If the Defaulting Party
does not cure the breach or default so specified to the reasonable satisfaction
of the Non-Defaulting Party within thirty days after delivery of such notice of
default, or (in the case of a breach or default that cannot be cured within such
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thirty-day period) commence the cure of such breach or default and thereafter
diligently prosecute the cure to completion to the reasonable satisfaction of
the Non-Defaulting Party, then the Non-Defaulting Party shall have the right
within thirty days after such thirty-day period to terminate this Agreement,
effective immediately upon giving notice of termination to the Defaulting Party.
The occurrence of an event as described in SECTION 2.4(a) shall not constitute a
breach or default under this SECTION 10.2(b).
(c) Subject to the last sentence of this SECTION 10.2(c), this
Agreement shall terminate automatically, without any notice or other action by
either party being required, effective upon the occurrence of any of the
following events with respect to either of the parties (the "TERMINATING
PARTY"): (i) the liquidation or dissolution of the Terminating Party; (ii) an
assignment for the benefit of the Terminating Party's creditors, the Terminating
Party's insolvency or inability to pay debts as they mature, the filing by or
against the Terminating Party of a petition, or any answer or consent thereto,
seeking liquidation, receivership, reorganization or readjustment of the
Terminating Party's property, assets or liabilities under bankruptcy or other
insolvency laws or the appointment of a conservator, sequestrator, receiver or
trustee for all or substantially all of the Terminating Party's property or
assets or liabilities under bankruptcy or other insolvency laws; (iii) a merger,
consolidation or other reorganization of the Terminating Party in which the
Terminating Party is not the surviving entity and the surviving entity does not
expressly assume the obligations of the Terminating Party hereunder, the sale or
other transfer of all or substantially all of the Terminating Party's property
or assets to, or the purchase or other acquisition of fifty percent or more of
the Terminating Party's outstanding equity interests by, any person or group
that does not expressly assume the obligations of the Terminating Party
hereunder; or (iv) the taking of any corporate or other action for the purpose
of effecting any of the foregoing. The party other than the Terminating Party
(the "NON-TERMINATING PARTY") shall have the right to affirm this Agreement, in
which case it shall remain in full force and effect, by so notifying the
Terminating Party within thirty days after the Non-Terminating Party first has
actual knowledge of any of the foregoing events.
10.3 Upon termination of this Agreement and the License, (i) Kanakaris
shall not have the right to use, and shall immediately discontinue using, the
Products and any technology, know-how, inventions and works of authorship
included within the Products or on which they are based, for any purpose within
or outside the Field, (ii) Kanakaris shall immediately discontinue effecting any
Book Sales of, or Product Sales based on, Books viewed or downloaded using the
Products or any technology, know-how, inventions or works of authorship on which
the Products are based, and (iii) Kanakaris shall immediately return to ION or
destroy in accordance with ION's instructions all copies (including archived and
backup copies) of the Products.
10.4 The following provisions of this Agreement shall survive any
termination of this Agreement: (i) the previously accrued obligation of either
party to pay any amounts to the other party; (ii) SECTIONS 2.6, 2.7, 4, 8, 9 AND
10.7 and (iii) any provisions of this Agreement affecting the construction,
interpretation or enforcement of the foregoing surviving provisions of this
Agreement.
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11. MISCELLANEOUS.
Except as otherwise expressly provided in a particular provision of
this Agreement, the provisions of this SECTION 11 shall apply generally to all
provisions of this Agreement.
11.1 Neither party may assign or delegate any rights or duties under
this Agreement without the other party's prior consent, which consent may be
withheld in the other party's sole discretion; PROVIDED, that either party may
assign this Agreement to its successor in interest in the circumstances referred
to in SECTION 10.2(c)(iii) if the successor in interest expressly assumes the
obligations under this Agreement. This Agreement shall be binding on, inure to
the benefit of and be enforceable by and against the successors and permitted
assigns of the parties.
11.2 This Agreement constitutes the entire understanding of the
parties with respect to the subject matter hereof. This Agreement may be
modified, amended or otherwise altered only in writing signed by both parties.
11.3 The delay or failure in the exercise of any right, remedy or power
shall not operate as a waiver thereof, nor shall any single or partial exercise
or waiver thereof preclude or limit any other or future exercise thereof. All
rights and remedies provided herein are cumulative in addition to any other
rights and remedies available herein or at law, in equity or by statute. The
prevailing party (as determined by the tribunal having jurisdiction) in any
action to enforce this Agreement shall be entitled to recover from the other
parties all fees, costs and expenses (including reasonable attorneys' fees)
incurred by the prevailing party in connection with such action. Any amount due
and payable hereunder shall not be deemed to have been paid until actual receipt
of full payment by the payee in cleared funds available to be drawn on by the
payee. Any amount not paid at the time it becomes due and payable under this
Agreement shall bear interest until paid at a per annum rate equal to the lesser
of the prime rate of interest as reported on the due date in the Midwest edition
of THE WALL STREET JOURNAL plus four percent, or the maximum rate permitted by
applicable law. All payments shall be made in Dollars.
11.4 All notices, requests, approvals, consents or other
communications required or permitted to be given herein shall be in writing and
shall be sufficiently given if delivered personally, forwarded by certified U.S.
mail with proper postage prepaid and return receipt requested (or by other
prepaid commercial delivery service that documents delivery) or transmitted by
facsimile with receipt promptly acknowledged by the receiving party, in each
case to the party to which directed at its address indicated after the
signatures to this Agreement below. Such communications shall be effective upon
delivery to the address of the party to which directed (notwithstanding any
acceptance, rejection or acknowledgment of such delivery). Either party may from
time to time designate any other address to which such communications shall be
sent.
11.5 Neither party shall be, nor shall it hold itself out as being, an
agent, joint venturer or partner of the other party or of any entity directly or
indirectly controlling, controlled by, under common control with or otherwise
affiliated with the other party. Neither party shall have any authority to act
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on behalf of or bind the other party. This Agreement is solely for the benefit
of the parties to this Agreement and, to the extent provided herein, their
respective Affiliates, and no provision of this Agreement shall be deemed to
confer any rights to any other third Persons.
11.6 Each party shall reasonably cooperate with the other, execute and
deliver such further documents and instruments and do such further acts as
reasonably necessary to give effect to the intent of the parties expressed
herein. All approvals or consents required to be obtained from a party shall not
be unreasonably withheld or delayed, but any provision herein permitting a party
to exercise a right in its "SOLE DISCRETION" means that the party is not
required to act reasonably in exercising such right.
11.7 If any court of competent jurisdiction declares invalid or
unenforceable any provision of this Agreement, then such invalidity or
unenforceability shall have no effect on the other provisions hereof, which
shall remain valid, binding and enforceable and in full force and effect, and
such invalid or unenforceable provision shall be construed in a manner so as to
give the maximum valid and enforceable effect to the intent of the parties
expressed therein.
11.8 This Agreement shall be governed by and construed in accordance
with the laws of the State of Missouri, without regard to its principles of
conflicts of laws.
11.9 This Agreement may be executed in multiple counterparts, all of
which together shall constitute one and the same agreement. This Agreement shall
become effective only upon execution and delivery of this Agreement on behalf of
both parties, whereupon it shall be effective as of the date first above written
with the same effect as if both parties had executed and delivered this
Agreement on such date. Signature pages to this Agreement (and any other
documents contemplated herein), duly executed by the respective authorized
representative of the parties, may be exchanged by facsimile transmission and
shall be treated for all purposes with the same effect as if such signature
pages were duly executed originals attached to the documents to which they
relate, and promptly thereafter the parties shall cooperate to exchange the
originals of all signature pages exchanged by facsimile transmission (but the
failure to so exchange such originals shall not affect the validity of the
documents to which they relate).
[The remainder of this page is intentionally left blank.]
20
<PAGE>
THIS CONTRACT CONTAINS A BINDING ARBITRATION PROVISION
WHICH MAY BE ENFORCED BY THE PARTIES
___________________
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed and delivered by their respective duly authorized officers as of the
date first indicated above.
KANAKARIS COMMUNICATIONS, INC.
By /S/ Alex Kanakaris
----------------------------
Alex Kanakaris, President
3310 Harbor Boulevard, Suite F3
Costa Mesa, California 92626
Telephone: (714) 444-0560
Facsimile: (714) 549-8970
ION SYSTEMS, INC.
By /S/ Jill Thomas
----------------------------
Jill Thomas, President
107 Mississippi Avenue
Crystal City, Missouri 63019
Telephone: (314) 937-9094
Facsimile: (314) 937-1828
21
[GS&S Draft of March 22, 1999]
FIRST AMENDMENT TO LICENSE AGREEMENT
------------------------------------
THIS AMENDMENT is entered into and made effective as of March 22,
1999, by and between KANAKARIS COMMUNICATIONS, INC., a Nevada corporation
("KANAKARIS"), and ION SYSTEMS, INC., a Missouri corporation ("ION"), to the
License Agreement, dated February 18, 1999, between Kanakaris and ION (the
"LICENSE AGREEMENT"). Capitalized used in this Amendment that are not otherwise
defined herein shall have the respective meanings given to such terms in the
License Agreement.
1. ENGAGEMENT FOR SERVICES.
1.1 Kanakaris engages ION, and ION accepts the engagement by
Kanakaris, to perform the following services (collectively the "SERVICES") for
Kanakaris:
(a) Prepare for the use of Kanakaris the Business Plan referred to
in SECTION 2.3(a) of the License Agreement.
(b) Prepare for the use of Kanakaris a presentation (the "ANALYST
PRESENTATION") for a conference by Kanakaris with investment analysts expected
to be held on or about ________ 1999 (the "ANALYST MEETING"), and assist
Kanakaris in Kanakaris' delivery of the Analyst Presentation at the Analyst
Meeting.
1.2 ION shall have the right to delegate all or any portion of the
duty to perform the Services to one or more other Persons as ION shall designate
in ION's sole discretion. If Kanakaris approves any such delegation of the duty
to perform all or any of the Services, then Kanakaris shall release any rights
or claims against ION for any failure to perform the Services to the full extent
of such delegation and shall look solely to the Person to whom the Services were
delegated by ION for the full performance of the delegated Services. In the
event of any such delegation, ION shall reasonably cooperate with Kanakaris and
the Person to whom the performance of the Services is delegated and shall
encourage and facilitate communications between Kanakaris and such Persons with
regard to the Services.
1.3 ION and any other Person to whom the performance of the Services
are delegated by ION shall perform the Services as an independent contractor to
Kanakaris. Neither ION nor any such other Person is an agent or representative
of Kanakaris and has no authority to act for or to bind Kanakaris or any of its
Affiliates. Kanakaris is not an agent or representative of ION or any such other
Person and has no authority to act for or to bind ION or any such other Person.
1
<PAGE>
1.4 ION designates Ronald M. Swartz, an individual residing in
Pennsylvania ("SWARTZ"), and such other Persons as may be engaged by Swartz to
assist Swartz in the performance of the Services, to perform all of the Services
for Kanakaris. Kanakaris approves ION's delegation of the duty to perform all of
the Services to Swartz and such other Persons as may be engaged by Swartz.
2. COMPENSATION FOR SERVICES.
2.1 For purposes of this Amendment: "SERVICES OPTION SHARES" means
175,000 shares of Kanakaris Common Stock (the Services Option Shares are in
addition to and separate from, and are not a part of, the Option Shares under
the License Agreement); "SERVICES STOCK OPTION" means the right to purchase all
or any of the Services Option Shares as granted pursuant to this SECTION 2;
"SHARES DESIGNEE" means the Person or Persons designated by ION to receive the
Services Option Shares pursuant to Section 2.3; "WEEKLY AVERAGE STOCK PRICE"
means, for any calendar week period, the sum of either the average of the bid
and asked prices per share for the Kanakaris Common Stock or the closing trading
price per share for the Kanakaris Common Stock, whichever is applicable to the
exchange or other facility on which the Kanakaris Common Stock is publicly
traded, for each day during such calendar week for which such exchange or other
facility was open for trading, divided by the number of days during such
calendar week for which such exchange or other facility was open for trading;
and "UNRESTRICTED STOCK DATE" means date on which all the Services Option Shares
issued or issuable pursuant to the exercise of the Services Stock Option are
permitted to be publicly traded without any holding periods or other
restrictions under applicable federal and state laws.
2.2 As compensation for the Services (and in addition to the Stock
Option granted pursuant to SECTION 4 of the License Agreement), Kanakaris grants
to ION the right, exercisable in whole or in part at `the option of ION in ION's
sole discretion, at any time and from time to time, for so long as the Services
Stock Option is exercisable and all of the Services Option Shares have not been
purchased pursuant to the exercise thereof, to purchase from Kanakaris all or
any portion of the Services Option Shares, for an aggregate purchase price equal
to $.01 per share multiplied by the number of Services Option Shares as to which
the Services Stock Option is being exercised, on and subject to the terms and
conditions in this SECTION 2.
2.3 ION shall have the right in its sole discretion to designate that
all or any part of the Services Option Shares being purchased pursuant to any
exercise of the Services Stock Option shall be issued to Swartz and any other
Persons as may be engaged by Swartz to assist Swartz in the performance of the
Services, instead of being issued to ION. Such designation shall be accomplished
by so notifying Kanakaris in writing at the time the Services Stock Option is
being exercised by ION, which designation shall state the Shares Designee to
whom the Services Option Shares shall be issued and the number of Services
Option Shares to be issued to such Shares Designee. Unless so designated by ION,
all Services Option Shares shall be issued to ION upon exercise of the Services
Stock Option. ION and each Shares Designee shall be solely responsible for all
income tax consequences (if any) to them resulting from the grant of the
Services Stock Option, the exercise of the Services Stock Option, and any sale
of the Services Option Shares.
2
<PAGE>
2.4 The right to exercise any portion of the Services Stock Option is
subject to the following terms and conditions (in addition to the other terms
and conditions in this Section 2):
(a) The Services Stock Option as to 43,750 shares of the Services
Option Shares shall not be exercisable until the Weekly Average Stock Price has
exceeded $2.00 per share for two consecutive calendar week periods. (The
remaining 87,500 shares of the Services Option Shares that are not subject to
the restriction in this SECTION 2.4(a) or the restriction in SECTION 2.4(b)
shall be exercisable as provided herein without regard to the public trading
price of the Kanakaris Common Stock in any period of time.)
(b) The Services Stock Option as to 43,750 shares of the Services
Option Shares shall not be exercisable until the Weekly Average Stock Price has
exceeded $2.50 per share for three consecutive calendar week periods.
(c) ION may not exercise any portion of the Services Stock Option
prior to the earlier to occur of (i) the Unrestricted Stock Date, or (ii)
September 30, 1999.
(d) The Services Stock Option shall expire and shall no longer be
exercisable to the extent it is not exercised on or before March 31, 2001.
2.5 Subject to SECTION 2.4, the Services Stock Option, if, when and to
the extent exercised by ION, shall be exercised by ION delivering notice of the
exercise thereof to Kanakaris (the "SERVICES STOCK OPTION EXERCISE NOTICE")
along with any related designation of a Shares Designee pursuant to SECTION 2.3.
To be valid and effective, the Services Stock Option Exercise Notice must be
accompanied by payment of the full amount of the aggregate purchase price for
the Services Option Shares being purchased. Upon giving the Services Stock
Option Exercise Notice, ION or the related Shares Designee shall be deemed for
all purposes to be the owner of the Services Option Shares being purchased from
and after the date of the Services Stock Option Exercise Notice. Upon receipt of
a valid Services Stock Option Exercise Notice, Kanakaris shall promptly issue a
stock certificate to represent the Services Option Shares being purchased, duly
registered in the name of ION or the related Shares Designee on the books and
records of Kanakaris regarding its capital stock and duly executed on behalf of
Kanakaris, and deliver such stock certificate to ION or the related Shares
Designee; PROVIDED, that at the request of ION or the related Shares Designee,
Kanakaris shall deliver the Services Option Shares being purchased to a
brokerage account designated by ION or the related Shares Designee, as the case
may be. Delivery to ION or the related Shares Designee of the Services Option
Shares being purchased in the manner contemplated herein shall constitute a
representation and warranty by Kanakaris to ION or the related Shares Designee
that such Services Option Shares are validly authorized and issued, fully paid
and non-assessable. Prior to the exercise of the Services Stock Option, ION
shall not have any rights as a shareholder of Kanakaris or with respect to any
of the Services Option Shares issuable upon the exercise of the Services Stock
Option, except such rights as are expressly provided herein.
3
<PAGE>
2.6 For so long as any portion of the Services Stock Option remains
exercisable, the following covenants shall be in effect:
(a) Kanakaris shall reserve a sufficient number of shares of
authorized but unissued shares of Kanakaris Common Stock for issuance pursuant
to the Services Stock Option.
(b) Kanakaris shall provide to ION copies of all reports, notices
and other documents provided to the shareholders of Kanakaris.
(c) In the event of any restructuring of the capital stock or
capitalization of Kanakaris, including any stock split or stock dividend, the
terms of the Services Stock Option (including the number of shares of Kanakaris
Common Stock subject to the Services Stock Option and the price per share for
the shares to be purchased thereunder) shall be modified so as to preserve the
rights of ION under the Services Stock Option and the intentions of the parties
hereunder; PROVIDED, that ION shall not be protected from any dilution of ION's
interests under the Services Stock Option as a result of the issuance of
additional shares of the authorized shares of Kanakaris Common Stock subsequent
to the date of this Amendment, and ION shall not have any preemptive rights with
respect to the issuance of any capital stock of any class by Kanakaris.
(d) Kanakaris shall give ION notice not less than forty-five days
prior to the consummation of any Sale Event. Any portion of the Services Stock
Option as to which ION does not deliver to Kanakaris a Services Stock Option
Exercise Notice within thirty days after receipt of such notice from Kanakaris
shall be canceled; PROVIDED, that if the Sale Event as to which notice was given
is not consummated within ninety days after the notice, then any canceled
portion of the Services Stock Option shall be reinstated and ION shall have the
right to rescind the exercise thereof and to have the exercised Services Stock
Option reinstated.
2.7 Kanakaris shall (at the expense of Kanakaris) take all such actions
(including registration under the Securities Act, if such is required, and
filing reports under the Exchange Act, if such is required) as may be necessary
under applicable federal and state laws to enable and permit ION and any Shares
Designee to whom Kanakaris has issued Services Option Shares to sell their
Services Option Shares in the public markets or on the exchange or other
facility on which the Kanakaris Common Stock is then publicly traded, without
any holding periods or other restrictions under applicable federal and state
laws, by not later than March 31, 2000. Until Kanakaris satisfies such
requirements, any Services Option Shares issued by Kanakaris may be subject to
restrictions on their transferability unless the registration requirements of
the Securities Act or the requirements of the Commission's Rule 144 thereunder
are satisfied.
2.8 ION and all Shares Designees to whom Kanakaris has issued Services
Option Shares shall not, as a group, in the aggregate sell more than 30,000
shares of the Services Option Shares they own in any period of one calendar
month; PROVIDED, that this limitation shall expire and no longer be in effect on
March 31, 2001.
4
<PAGE>
2.9 Kanakaris represents and warrants to ION and each Shares Designee
that the grant of the Services Stock Option, and the issuance and delivery of
the Services Option Shares upon any exercise of the Services Stock Option, are
on the date hereof and will be on the date of any such issuance and delivery in
compliance with all applicable requirements of the Securities Act, the Exchange
Act and any applicable state securities laws.
3. ANALYST PRESENTATION.
3.1 Notwithstanding the Services to be provided with respect to the
Analyst Presentation and the Analyst Meeting, Kanakaris shall have the sole
right and responsibility to review and approve the Analyst Presentation prior to
the Analyst Meeting, and Kanakaris shall have the sole control over the Analyst
Meeting and the information to be provided or presented by or on behalf of
Kanakaris at the Analyst Meeting. Upon the approval by Kanakaris of the Analyst
Presentation, the Analyst Presentation shall be deemed to have been prepared by
Kanakaris (and not by ION or any other Person) for all purposes. In the
preparation of the Analyst Presentation, and in connection with the Analyst
Meeting, Kanakaris (and not ION or any other Person) shall be solely responsible
for determining that the Analyst Presentation and the Analyst Meeting comply
with the Securities Act, the Exchange ACT, and any applicable state securities
laws.
3.2 Kanakaris indemnifies and shall hold harmless ION, any other Person
to whom duties are delegated by ION, and their respective Affiliates
(collectively the "SERVICE PERSONS"), from and against any and all claims,
actions, suits or proceedings, any losses, damages or liabilities incurred in
connection therewith, and any fees, costs or expenses (including reasonable
attorneys' fees) incurred in connection therewith, based on, caused by or
arising as a result of or in connection with the Analyst Presentation or the
Analyst Meeting (including any violations or alleged violations of the
Securities Act, the Exchange Act, or any applicable state securities laws),
except such as are based solely on the gross negligence or intentional
misconduct by the Service Person claiming indemnification hereunder.
4. LICENSE AGREEMENT.
4.1 The provisions of SECTIONS 1 AND 11 of the License Agreement are
incorporated by reference and made a part of this Amendment with the same effect
as if fully set forth herein, and as if references therein to the Agreement were
references to this Amendment.
4.2 Kanakaris and ION hereby make and restate all the representations
and warranties made and stated by Kanakaris and ION in SECTION 6 and SECTION 7,
respectively, of the License Agreement, with the same effect as if they were
made and stated on the date of this Amendment, and with the same effect as if
all references therein to the Agreement were references to the License Agreement
as amended by this Amendment.
4.3 The License Agreement, as amended by this Amendment, shall remain
in full force and effect in accordance with the terms of the License Agreement
as amended by this Amendment.
5
<PAGE>
Hereafter, all references to the License Agreement shall be interpreted as
references to the License Agreement as amended by this Amendment.
IN WITNESS WHEREOF, the parties have caused this Amendment to be duly
executed and delivered by their respective duly authorized officers as of the
date first indicated above.
KANAKARIS COMMUNICATIONS, INC.
By /S/ Alex Kanakaris
---------------------------
Alex Kanakaris, President
ION SYSTEMS, INC.
By /S/ Jill Thomas
----------------------------
Jill Thomas, President
6
Exhibit 10.8
Agreement
---------
This agreement states that eConnect and Kanakaris Communications do hereby enter
into a joint venture and strategic alliance to be ceded Internet Cash
Programming and the following terms and conditions shall apply:
Definitions:
- ------------
Internet Cash Programming: A Service offered by Kanakaris Communications and
eConnect which shall enable the consumer with the
ability to purchase programming by Same-as-Cash, or by
Enhanced Credit Card.
Same-as-Cash: The payment of programming by ATM card and PIN and
effected by the ePIN or like devices.
Enhanced Credit Card: The payment of programming by; credit card that is read
by the ePIN or like devices and is therefore considered
as a safer transaction for the consumer and results in a
lower bank fee for the recipient merchant.
ePIN: The present hardware device that will be distributed
into homes and will effect either a Same-as-Cash or
Enhanced Credit Card transaction.
SafeTpay: The name of the web site button that the consumer clicks
in order to begin either a Same-as-Cash or Enhanced
Credit Card Transaction.
Internet Cash Programming: The name of the service offered to the Entertainment
Industry that will enable them to receive either a
Same-as-Cash or Enhanced Credit Card payment for their
programming.
Recitals:
- ---------
1.0: eConnect and Kanakaris Communications shall enter into a strategic alliance
to form the Internet Service that shall be named Internet Cash Programming.
2.0: That eConnect shall provide the SafeTpay support service for Internet Cash
Pay Per Play.
3.0: That Kanakaris Communications shall provide the delivery to the internet
consumer of video streaming programming from either Kanakaris
Communications own inventory base or shall act as a distributor of video
streaming programming from other entertainment providers.
4.0: That ICP shall be jointly owned by eConnect and Kanakaris Communications.
4.1: That ICP shall be a Nevada corporation and shall authorize 1,000,000 shares
of stock and that Kanakaris Communications shall receive 400,000 shares of
stock and eConnect shall receive 400,000 shares of stock and that 200,000
shares of stock shall remain in the ICP Treasury.
4.2: That Kanakaris Communications shall retain the managing control of ICP and
shall appoint officers to manage ICP.
/s/ TSH
<PAGE>
2
4.3: That all profits of ICP shall be equally split between eConnect and
Kanakaris Communications.
5.0: That eConnect shall enjoy exclusive global rights to drive or process all
originating ICP transactions whether transacted by an ePIN or by a
competitive hardware devices that are effecting either a Same-as-Cash or
Enhanced Credit Card programming purchase.
5.1: That eConnect shall charge ICP a flat fee per ICP processed transaction.
5.2: That eConnect shall purchase this exclusive global ICP processing with a
payment of 3,000,000 shares of free trading stock to Kanakaris
Communications.
6.0: That it is the stated purpose of eConnect and Kanakaris Communications to
bring ICP public by September 2000.
(signed) /s/ Thomas S. Hughes (signed) /s/ Alex Kanakaris
Thomas S. Hughes Alex Kanakaris
Chairman and CEO Chairman and CEO
eConnect Kanakaris Communications
Dated: 10/9/99 Dated: 10/21/99
ADDENDUM:
eConnect will bear the responsibility for payments of any finders fee or
brokerage commission if any.
/s/ TSH 10/21/99
Exhibit 10.9
MEMORANDUM OF UNDERSTANDING
It is hereby agreed that SyCoNet.com Inc. and Kanakaris Communications, Inc.
will endeavor to work together. SyCoNet.com Inc. will make available all
properties which it has Internet online distribution rights to, both now and in
the future, for direct over-the internet delivery by Kanakaris. Kanakaris will
charge access fees which are agreed to by SyCoNet and/or solicit ad revenue
related to these properties. Kanakaris will incur encoding and bandwidth charges
for those properties which it exercises its option to deliver over the Internet,
and will pay PsyCoNet.com 70% of the online access gross fees and 25% of the
product specific gross advertising fees pertaining to this product. General site
advertising revenue will not be shared.
SyCoNet.com Inc is a distributor of Ahime Japanese animated movies, including
Pokemon (R) video series, live action cult films, multimedia games and software,
DVD's toys, apparel, and related merchandise to over 1,000 wholesale and retail
accounts nationwide through two high traffic websites, a catalog, and direct
sales campaign.
Kanakaris Communications, Inc. provides full-screen online motion pictures and
secure direct over-the-Internet book delivery at the KKRS.NetWork(www.KKRS.net)
as part of its eCommerce "World Downloadable Content Leader".
Agreed,
/s/ Sy Picon
/s/ Alex Kanakaris CEO
CEO
Kanakaris Communications, Inc. SyCoNet.com
Date: 11-1-99 Date:
Exhibit 10.10
CUSTOM CONTENT SERVICE AGREEMENT
This Agreement is made on this 23rd day of August, 1999 between
ScreamingMedia.Net, Inc., headquartered at 601 West 26th Street, 13th Floor, New
York, NY 10001 (the Company) and Kanakaris Communications at 3303 Harbor
Boulevard/F-3, Costa Mesa, CA 92626 (the Client).
DEFINITIONS
A. "Information Service Providers" are news agencies that license and
supply news and information to the Company for distribution.
B. "Custom Content" is the dynamic placement of custom-tailored news and
information on the Client's web site via the Company's content engine
technology.
1. CUSTOM CONTENT SERVICE: The Client's web site, located at www.kkrs.net, will
receive new custom content each day in HTML format. The Company will design and
build a customized filter for the Client. The Client acknowledges that the
Company relies on the performance of information service providers (outside the
control of the Company) in order to provide the custom content service.
2. TERM: The term of this Agreement is one year from September 1, 1999. This
agreement will automatically renew for successive terms of one year after the
expiration of the initial term, unless the Client or the Company terminates the
agreement in writing to the other party, with at least ninety days written
notice.
3. ARCHIVE: The Client has the right to archive the custom content news and
information stories on the Client's web site for thirty (30) days after
delivery. All archive rights terminate upon termination of this Agreement and
the Client will delete all custom content news and information stories on the
Client's web site, including internet, extranet and/or intranet locations.
4. OWNERSHIP: The Company and its information service providers retain all
rights, title and interests, including copyright, in all material (including but
not limited to text, images and other multimedia data) provided or made
available as part of the custom content service. The Company warrants that it
maintains the necessary licenses, rights and powers to distribute the custom
content news and information received from the Company's information service
providers as set forth herein and that the Company's custom content provided
under this agreement does not and will not violate any rights of third parties.
5. ENHANCED NEWS COVERAGE: If the Company increases the number of information
service providers after the launch date and during the effective term of this
agreement, thus increasing the breadth of news coverage available to the Client,
the Company will notify the Client and the fee schedule stated herein will be
adjusted following a review with the Client at the time of notification. Client
has the option to refuse addition(s)/increase(s) in news, content and/or
information providers(s) and/or service(s) and have the fee schedule stated in
the Agreement at the time of commencement remain the same.
6. SERVICE INTERRUPTION: The Client shall notify the Company of any interruption
in service. The Company will correct any service interruption within one
business day unless such delay is precipitated by a force majeure as defined
herein.
7. WARRANTY: The service is provided on an "as is" basis, except as otherwise
provided herein. The Company and its information providers disclaim any and all
warranties, including but not limited to the implied warranties of
merchantability and fitness for a particular purpose, relating to this
agreement, the service, the custom content or performance under this agreement.
Page 1 of 2
<PAGE>
8. PAYMENT: The Client will pay the Company the total amount of $12,000 which is
payable: one (1) payment of $3,000 for set-up (software $2,000 + filter fee (4 x
$250.00) = $3,000) and twelve (12) monthly installments of $750 for service
(twelve (12) monthly invoices due upon invoicing). Monthly service permits up to
125 stories to be published per month. Any stories published above and beyond
this initial level are subject to a per article charge of $7.50. Setup fees are
payable upon remittance of signed Agreement, but in no case will content be
delivered until setup fees are paid. Monthly content billings will begin when
SiteWare is delivered and operating normally on Client's side. Term will
commence on September 1, 1999.
9. LIMITATION OF LIABILITY: The Company and its information service providers
will not be liable to the Client or its end-users for any indirect, special,
exemplary or consequential damages, including lost profits, whether or not
foreseeable or alleged to be based on breach of warranty, contract, negligence
or strict liability, arising under this agreement or any performance under this
agreement, whether or not the Company or its information service providers had
any knowledge, actual or constructive, that such damages might be incurred.
10. RESTRICTIONS: The Client may not copy, re-license, re-sell, transfer, alter
the copyright or make available the custom content service to any entity other
than the Client's employees, subscribers or end-users on the Client's web site
or database.
11. GOVERNING LAW, JURISDICTION AND VENUE: This agreement is governed by the
laws of the State of New York without regard to principles of conflicts of laws.
The Company and the Client agree to submit to the jurisdiction of the United
States District Court for the Southern District of New York in respect of
litigation arising out of this agreement, waiving all affirmative and legal
defenses in respect of jurisdiction, forum and venue.
12. FORCE MAJEURE: Neither party shall be liable for any delay or failure to
perform under this Agreement if caused by conditions beyond its control but no
such event shall relieve the Client of its obligations to make payment to
Company. The affected performing party shall promptly notify the other party of
the nature and anticipated length of continuance of such force majeure. If such
failure continues for more than one month, either party may terminate this
agreement.
13. NOTICES: All notices under this Agreement must be made in writing and sent
via first class mail, facsimile or e-mail listed on the signature line of this
Agreement.
THE COMPANY
AGREED TO BY: /S/ ALAN ELLMAN
--------------------------
NAME/TITLE: ALAN ELLMAN/PRESIDENT
COMPANY: ScreamingMedia.net, Inc.
STREET ADDRESS 601 West 26th Street, l3th Floor
CITY, STATE ZIP New York, NY 10001
DATE: 9/30/99
THE CLIENT
AGREED TO BY: /S/ ALEX KANAKARIS
-------------------------
NAME/TITLE: Alex Kanakaris/President
COMPANY: Kanakaris Communications
STREET ADDRESS 3303 Harbor Boulevard/F-3
CITY, STATE ZIP Costa Mesa, CA 92626
DATE: 9/30/99
PAGE 2 OF 2
Exhibit 10.11
INXSYS BROADCAST NETWORKS, INC.
ON-LINE CLASSIFIEDS / ON-LINE AUCTIONS / ON-LINE PERSONALS
INTERNET CONTENT PROVIDER AGREEMENT
Effective Date: August 1, 1999
Formal Company Name: Kanakaris Communications
Informal Company Name: Kanakaris Communications _____
Contact: Alex Kanakaris _______Title: CEO _________
Street Address 3303 Harbor Blvd. Suite F3
City: Costa Mesa State: CA Zip Code: 92626
Phone:714.444.0530 Fax: 714.549.8970
E-mail Address: [email protected] & [email protected]
Web Address: www.kanakaris.com
Sales Contact:
This InXsys Network Affiliate Agreement is entered into as of ("Effective Date")
by and between InXsys Corporation. ("InXsys") a Delaware corporation, with its
principal place of business at 921 14th Ave., Longview, Washington, 98632, and
Affiliate as specified above and contains the complete terms and conditions that
apply to your participation as an affiliate web site ("Affiliate Site") in the
InXsys Affiliate Network and your earning of referral commissions from such
participation.
1. GRANT OF LICENSE. Subject to the terms and conditions of this Agreement,
InXsys grants Affiliate a non-sub-licensable, nonexclusive, nontransferable
right to incorporate InXsys' Aggregated ClassiFIND On-Line Classifieds,
BuySellBid On-Line Auctions, and DateChannel On-Line Personals Co-Branded
Services as Revenue-Generating and Traffic-Building Content within
Partner's Web Site by placement of one or more hotlinks and/or banners to
the InXsys sites.
2. OWNERSHIP. InXsys retains all proprietary rights, title and ownership of
all SOFTWARE and Listings and all modifications to the SOFTWARE, all copies
and portions thereof, whether or not incorporated into or with other
software. The Agreement does not constitute a sale of the SOFTWARE or any
portion or copy thereof. InXsys will make available its aggregated database
of listings and place incoming listings into such database which shall
remain the property of InXsys.
3. SERVICES. InXsys will provide the input services, such as inbound call
center, video capture, video encoding, photo scanning, for classified ad
and auction listings for the affiliate. InXsys will process the credit card
or other payments for the Ad Listings or other Revenue-Generating aspects
of the Services. InXsys will handle all customer service inquiries
regarding the services including billing questions and multimedia ad taking
and conversion.
4. CONSUMER PRICING MODEL. InXsys will implement its standard pricing model
for the Classified, Auction, and Personals Services which shall be managed
to maximize Revenues, Traffic, and Listings and InXsys shall retain the
control and flexibility to adjust prices in accordance with internet trends
and competition. Current Standard Listing Fees shall be as specified in
Attachment A.
5. PROMOTIONAL PERIOD. InXsys agrees that for a period of 60 days after the
inception of each site, if requested by affiliate and implemented, that
classified text-only ads will be free and that InXsys shall bear all
expenses inherent with this Promotional offer.
6. REVENUE DISTRIBUTION. InXsys shall pay Affiliate a Referral Commission
equal to a percentage of the of Net user fees collected from classified and
auction advertisers and on-line personals membership fees, as specified in
Attachment A. Net usage Fees shall be those membership, listing and/or
percent of selling price fees collected by InXsys after deducting Credit
Card Processing Fees, Consumer Refunds, taxes (if any), and any shipping,
insurance, discounts, or similar charges. The parties acknowledge that the
Credit card provider is solely responsible for the collection of funds.
Auction fees may be generated from both Listing Fees on items placed for
auction (if applicable) and Selling Fees on items actually sold. Affiliate
auction referral commissions include a percentage of the Listing fee if the
seller originated from the Affiliate's site, and/or a percentage of the
selling fee if the buyer originated from the Affiliate site. Referral
Commission Fees are as specified in Attachment A.
7. BANNER ADVERTISING. Affiliate shall retain 100% of their out-of-content
(in-frame) banners, if applicable, while InXsys shall retain the in-content
banners regardless of framing scenario. Banners used by either Partner
shall be in good taste and not promote hardcore adult sites or services.
Both Parties recognize that the utilization of third party ad agencies by
either party reduces or eliminates the ability for previewing banners and
eliminating competitive banner situations though both parties shall not
intentionally serve up banners promoting directly competing services to
either displayed content or affiliate to the reasonable extent possible.
8. REPORTING & PAYMENT. InXsys shall provide a password to allow affiliate to
track their referral activity on-line. A referral commission report will be
provided after complete implementation by the 15th of each following month
and subsequent payment shall be made the end of such month with any payment
amounts less than $50 carried over to the following month.
<PAGE>
9. LISTING RESPONSIBILITY. InXsys shall be the sole owner of the Classified
Advertisements and Auction Listings placed on the site and is solely
responsible for any legal liability arising out of or relating to such
Advertisements and Listings with the exception of such listings placed by
Affiliate Employees or representatives. InXsys and Affiliate reciprocally
agree to indemnify and to hold each others officers, directors, agents and
employees harmless from any and all liability, claims, and expenses related
to a breach by the other party of any of the foregoing representations and
warranties. InXsys reserves the right to reject any Advertisement, which is
not consistent with InXsys' standards. In addition, InXsys shall have the
right at any time, to remove any Advertisement if InXsys determines, in its
sole discretion, that Advertisement or any portion thereof violates InXsys'
then applicable advertising policy, or is otherwise objectionable to
InXsys.
10. AUDITING REFERRAL FEES. Affiliates that generate in excess of $10,000 in
annual referral fees shall have the right, upon prior and reasonable
written notice to InXsys to inspect and audit InXsys' referral commission
records relating to commission's earned from listings placed or membership
fees generated on the Internet using InXsys service promoted through
Affiliate.
11. PROMOTION. The Affiliate shall actively market and promote the services
with the intention of maximizing the referral commissions generated through
this agreement by agreeing to prominently feature one (or more) links on
Affiliate's Home Page to each of the selected services and as many
additional times throughout affiliate's sites as Affiliate desires and by
including banners promoting such services to the extent desired by
affiliate.
12. DURATION AND TERMINATION OF THE AGREEMENT. This Agreement is for a period
of 6 months and shall automatically renew in one - (1) year increments,
thereafter if not cancelled in writing ninety (90) days prior to the end of
the period. This Agreement will terminate immediately in the case of (i) if
partner ceases to do business, or otherwise terminates its business
operations; or (ii) if Partner seeks protection under any bankruptcy,
receivership, trust deed, creditors arrangement, composition or comparable
proceeding, or if any such proceeding is instituted against Partner (and
not dismissed within 120 days).
13. CONFIDENTIALITY. Neither party shall disclose Proprietary Code Information
or Proprietary Business Information of the party, including each others
business strategies, product plans, financial information, partner
information, marketing plans, personnel information, and technology
research, unless it receives explicit written permission from the other
part to do so. This clause shall extend two years past termination or
expiration of this agreement.
14. RESTRICTIONS. Partner shall not (and shall not assist any third party to):
(i) remove any product identification, copyright or other notices for the
CONTENT/SOFTWARE; (ii) provide, lease, lend or otherwise use (except as
expressly and unequivocally provided herein) the CONTENT/SOFTWARE or allow
others to use the CONTENT/SOFTWARE; or (iv) post or otherwise use any
Advertisement/Listing except as expressly and unequivocally provided
herein.
15. LIMITATION OF LIABILITY. InXsys will not be liable for any indirect,
special, or consequential damages, or any loss of revenue, profits, or
data, arising out of or relaxing to this agreement and/or the affiliate
network, however caused, even if we have been advised of, or aware of, or
should of been aware of, the possibility of such damages. Further, our
aggregate liability arising out of this agreement and/or the affiliate
network will not exceed the total referral fees payable to you under this
agreement. InXsys makes no representation that the operation of the
Affiliate Network will be uninterrupted and/or error free, and we will not
be liable for consequences of any interruptions or errors.
16. MISCELLANEOUS. This Agreement shall not to be assigned to any other party
nor is it transferable by Partner without the prior written consent of
InXsys which should not be unduly withheld. InXsys may transfer this
agreement to any party that acquires a majority interest in InXsys without
further notification. Any notice, report, approval or consent required or
permitted hereunder shall be in writing. This Agreement may not be amended
nor any notion waived without the written consent of the parties. If any
provision of this Agreement shall be adjudged by any court of competent
jurisdiction to be unenforceable or invalid, that provision shall be
limited or eliminated to the minimum extent necessary so that this
Agreement shall otherwise remain in full force and effect and enforceable.
17. GOVERNING LAW: DISPUTE RESOLUTION. This Agreement shall be deemed to have
been made in, and shall be construed pursuant to the laws of the state of
Washington and the United States. Any disagreement, dispute, or controversy
shall be settled by final and binding arbitration pursuant to and under the
then existing commercial arbitration rules of the American Arbitration
Association. The American Arbitration Association shall appoint the
arbitrator; the arbitrators award shall be final and judgment upon any
award by the arbitrator may be entered by the state or federal court having
jurisdiction.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
as of the Effective Date by their duly authorized representatives.
PARTNER
Signature: /S/ Alex Kanakaris
-------------------
Name: Alex Kanakaris
--------------------
Title: CEO
--------------------
Date: 9-16-99
--------------------
INXSYS CORPORATION
Signature: /S/ Jay S. Shepard
-------------------
Name: Jay S. Shepard
-------------------
Title: CEO
-------------------
Date: 7/20/99
-------------------
<PAGE>
ATTACHMENT A
SUGGESTED RETAIL PRICE
- ----------------------
Partner agrees to the retail prices indicated below. Partner recognizes
that InXsys has the right to adjust its retail pricing at any given time
and that InXsys will provide notification no less than 30 days prior to
adjustment. In accordance InXsys will assess all pricing structures
annually upon agreements automatic renewal.
STANDARD CLASSIFIED AD RETAIL PRICING
- -------------------------------------
a. Standard 200 word $9.95
b. Standard + audio $14.95
c. Standard + audio + photos (5) $24.95
d. Standard + audio + photos (5)+ video $59.95
STANDARD AUCTION RETAIL PRICING:
- --------------------------------
a. Listing Fee $.25 for items valued up to $14.99
$.50 for items between $15 and $29.99
$1.00 for items between $30 and $49.99
$2.00 for items over $50.00
b. Selling Fee 5% of the first $25.00 in value.
2.5% of value above $25.00.
STANDARD ON-LINE PERSONALS RETAIL PRICING:
- ------------------------------------------
a. Monthly Membership $9.95 /month
$24.95 three months
$49.95 six months
$99.95 Annual Membership
PARTNER COMMISSION
- ------------------
InXsys shall provide Partner with a 35% commission on the net classified and
auction ad listing fees, auction selling fees, and on-line personals
membership fees generated through promotion of the services (net of Credit
Card Processing Fees, Consumer Refunds, taxes (if any), and any shipping,
insurance, discounts, or similar charges).
SITES
- -----
Individual Sites to be included are as follows:
www.kanakaris.com www.3rdm.com www.cyberpop.com
www.netbooks.com www.wearablebooks.com www.ilsn.com
www.fschannel.com www.netstockexchange.com
/S/
- ------------------
Initial
Exhibit 10.12
MEMORANDUM OF UNDERSTANDING BETWEEN KANAKARIS COMMUNICATIONS,
INC. AND ALLIANCE EQUITIES
It is hereby agreed:
1) Alliance Equities will make available to Kanakaris Communications, Inc. a
five million revolving line of credit, and that indebtedness incurred by
Kanakaris in utilizing the line of credit may be paid either with cash or the
issuance of stock.
2) Alliance Equities and Kanakaris Communications, Inc. will sign mutually
acceptable final terms of the agreement within seven days. In order to
facilitate this, both parties will meet in person with Kanakaris Communications,
Inc. counsel Gerard Casale who will draft the final agreement.
3) Alliance Equities will immediately make available to the line of credit to
Kanakaris with the understanding that any money advanced to Kanakaris in the
interim of signing the final agreement will be returned if, for any reason, no
final agreement is reached.
4) Kanakaris and Alliance have had successful prior dealings which provide a
comfort level to both parties that a final agreement can be reached within the
seven day timetable. Kanakaris is satisfied as to the financial means of
Alliance Equities by virtue of its previous investments in Kanakaris.
5) Alliance Equities will continue its on-going consulting services to Kanakaris
Communications, Inc. which include, but are not limited to, strategic growth
advice and introductions, marketing advice, business ideas, etc. Alliance will
be compensated for these services at its customary rate, and Kanakaris has the
option to pay for these services, at its option, either in cash, the issuance of
stock, or credit towards to the purchase of stock by Alliance.
Agreed on February 25, 1999.
/S/ Alex Kanakaris /S/ Richard Epstein
CEO President
Kanakaris Communication, Inc. Alliance Equities
Exhibit 10.13
MEMORANDUM OF UNDERSTANDING BETWEEN KANAKARIS COMMUNICATIONS,
INC. AND ALLIANCE EQUITIES
It is hereby agreed:
1) Alliance Equities will increase the line of credit made available to
Kanakaris Communications, Inc. on February 25, 1999 by 40% to $7 million. All of
the same terms and conditions will apply as described in the Memorandum of
Understanding of February 25, 1999.
Agreed on April 7, 1999
/S/ Alex Kanakaris /S/ Richard Epstein
CEO President
Kanakaris Communications, Inc. Alliance Equities
Exhibit 10.14
Promissory Note
Kanakaris InternetWorks, Inc. (KIW)
Taxpayer ID Number: 95-4623461
Repayment Period: May 19, 1997 to May 19, 2002
Drawdown Period: May 19, 1997 to December 31, 1997
Branch Lotspeich (SS# ###-##-####) hereby promises to pay Kanakaris
Internetworks Inc. the smaller amount of $10,000.00 or the sum of the drawn
amounts* between the dates of May 19, 1997 and September 30,1997. The applicable
interest rate shall be 6-5/8% per annum. Interest payments will commence on June
30, 1998, when all simple interest then accrued, will become due and payable.
Thereafter, interest payments will become due and payable each year on June
30th, until maturity of May 19, 2002, which will also be the date when the final
interest payment is due and payable.
Principal payments will commence on December 31, 1998, when 1/5 of the Principal
Amount outstanding as of September 30, 1997 will become due and payable.
Thereafter, 1/5 of the Principal Amount outstanding as of September 30, 1997
will become due and payable on each successive annual date of December 31, until
the final principal payment is due and payable on May 19, 2002.
This note is unsecured by any collateral. All future salary paid by KIW, or its
successors, to Branch Lotspeich will be available to retire or service this note
at the discretion of KIW, with the prepayment amounts (if any) to be decided by
the Compensation Committee of the Board of the Directors of KIW.
Agreed to:
(Borrower)
/s/ Branch Lotspeich May 19, 1997
- -------------------------------------------------------------
Date
*Actual Principal Amount as of September 30, 1997 is $9,600.00.
Initialed /s/ BCL Date: 1/5/98
Exhibit 10.15
Promissory Note
Kanakaris InternetWorks, Inc. (KIW)
Taxpayer ID Number: 95-4623461
Repayment Period: February 26, 1997 to February 26, 2002
Drawdown Period: February 26, 1997 to September 30, 1997
David Valenti (SS# ###-##-####) hereby promises to pay Kanakaris Internetworks
Inc. the smaller amount of $50,000.00 or the sum of the drawn amounts* between
the dates of February 26, 1997 and September 30,1997. The applicable interest
rate shall be 6-5/8% per annum. Interest payments will commence on June 30,
1998, when all simple interest then accrued, will become due and payable.
Thereafter, interest payments will become due and payable each year on June
30th, until maturity of February 26, 2002, which will also be the date when the
final interest payment is due and payable.
Principal payments will commence on December 31, 1998, when 1/5 of the Principal
Amount outstanding as of September 30, 1997 will become due and payable.
Thereafter, 1/5 of the Principal Amount outstanding as of September 30, 1997
will become due and payable on each successive annual date of December 31, until
the final principal payment is due and payable on February 26, 2002.
This note is unsecured by any collateral. All future salary paid by KIW, or its
successors, to David Valenti will be available to retire or service this note at
the discretion of KIW, with the prepayment amounts (if any) to be decided by the
Compensation Committee of the Board of the Directors of KIW.
Agreed to:
(Borrower)
/s/ David Valenti 02/27/97
- ------------------------------------------------------------------
Date
*Actual Principal Amount as of September 30, 1997 is $49,600.00.
Initialed /s/ DV Date: 01/06/98
Exhibit 10.16
Promissory Note
Kanakaris InternetWorks, Inc. (KIW)
Taxpayer ID Number: 95-4623461
Repayment Period: February 26, 1997 to February 26, 2002
Drawdown Period: February 26, 1997 to September 30, 1997
Alex Kanakaris (SS# ###-##-####) hereby promises to pay Kanakaris Internetworks
Inc. the smaller amount of $50,000.00 or the sum of the drawn amounts* between
the dates of February 26, 1997 and September 30, 1997. The applicable interest
rate shall be 6-5/8% per annum. Interest payments will commence on June 30,
1998, when all simple interest then accrued, will become due and payable.
Thereafter, interest payments will become due and payable each year on June
30th, until maturity of February 26, 2002, which will also be the date when the
final interest payment is due and payable.
Principal payments will commence on December 31, 1998, when 1/5 of the Principal
Amount outstanding as of September 30, 1997 will become due and payable.
Thereafter, 1/5 of the Principal Amount outstanding as of September 30, 1997
will become due and payable on each successive annual date of December 31, until
the final principal payment is due and payable on February 26, 2002.
This note is unsecured by any collateral. All future salary paid by KIW, or its
successors, to Alex Kanakaris will be available to retire or service this note
at the discretion of KIW, with the prepayment amounts (if any) to be decided by
the Compensation Committee of the Board of the Directors of KIW.
Agreed to:
(Borrower)
/s/ Alex Kanakaris 2/26/97
- ----------------------------------------------------------
Date
*Actual Principal Amount as of September 30, 1997 is $49,600.00.
Initialed /s/ AK Date: 01/5/98
Exhibit 10.17
PROMISSORY NOTE
$101,915.49 Date: September 30, 1997
For value received, the undersigned Alex Kanakaris (the "Promisor") promises to
pay to the order of Kanakaris Internetworks, Inc. (the "Payee"), at 29350
Pacific Coast Highway, Suite 12, Malibu, California 90265, (or at such other
place as the Payee may designate in writing) the sum of $101,915.49 with
interest from September 30, 1997, on the unpaid principal at the rate of 8.00
percent annually.
The unpaid principal and accrued interest shall be payable in annually
installments of $38,250.03, beginning on September 30, 1998, and continuing
until September 30, 2002, (the "Due Date"), at which time the remaining unpaid
principal and interest shall be due in full. THE PROMISOR UNDERSTANDS THAT THE
PAYMENT OF THE ABOVE INSTALLMENT PAYMENTS MAY NOT FULLY AMORTIZE THE PRINCIPAL
BALANCE OF THE NOTE, AND THEREFORE, A BALLOON PAYMENT MAY BE DUE ON THE DUE
DATE. All payments on this Note shall be applied first in payment of accrued
interest and any remainder in payment of principal.
The Promisor reserves the right to prepay this Note (in whole or in part) prior
to the Due Date with no prepayment penalty.
If any one or more of the provisions of this Note are determined to be
unenforceable, in whole or in part, for any reason, the remaining provisions
shall remain fully operative.
All payments of principal and interest on this Note shall be paid in the legal
currency of the United States. Promisor waives presentment for payment,
protest, and notice of protest and nonpayment of this Note.
No renewal or extension of this Note, delay in enforcing any right of the Payee
under this Note, or assignment by Payee of this Note shall affect the liability
of the Promisor. All rights of the Payee under this Note are cumulative and may
be exercised concurrently or consecutively at the Payee's option.
This Note shall be construed in accordance with the laws of the State of
California.
Signed this 30th day of September 1998, at
Malibu, CA
Alex Kanakaris
By: /s/ Alex Kanakaris
-------------------------
Alex Kanakaris
Exhibit 10.18
Promissory Note
Kanakaris InternetWorks, Inc. (KIW)
Taxpayer ID Number: 95-4623461
Repayment Period: April 7, 1997 to April 7, 2002
Drawdown Period: April 7, 1997 to December 31, 1997
John McKay (SS# ###-##-####) hereby promises to pay Kanakaris Internetworks Inc.
the smaller amount of $18,000.00 or the sum of the drawn amounts* between the
dates of April 7, 1997 and September 30, 1997. The applicable interest rate
shall be 6-5/8% per annum. Interest payments will commence on June 30, 1998,
when all simple interest then accrued, will become due and payable. Thereafter,
interest payments will become due and payable each year on June 30th, until
maturity of April 7, 2002, which will also be the date when the final interest
payment is due and payable.
Principal payments will commence on December 31, 1998, when 1/5 of the Principal
Amount outstanding as of September 30, 1997 will become due and payable.
Thereafter, 1/5 of the Principal Amount outstanding as of September 30, 1997
will become due and payable on each successive annual date of December 31, until
the final principal payment is due and payable on April 7, 2002.
This note is unsecured by any collateral. All future salary paid by KIW, or its
successors, to John McKay will be available to retire or service this note at
the discretion of KIW, with the prepayment amounts (if any) to be decided by the
Compensation Committee of the Board of the Directors of KIW.
Agreed to:
(Borrower)
/s/ John R. McKay 4/7/97
- ------------------------------------------------------------
Date
*Actual Principal Amount as of September 30, 1997 is $16,999.20.
Initialed /s/ JM Date: 1/5/98
Exhibit 10.19
1998 Promissory Note
Kanakaris InternetWorks, Inc. (KIW)
Taxpayer ID Number: 95-4623461
Repayment Period: January 1, 1998 to January 1, 2003
Drawdown Period: January 1, 1998 to December 31, 1998
John McKay (SS# ###-##-####) hereby promises to pay Kanakaris Internetworks Inc.
the smaller amount of $50,000.00 or the sum of the drawn amounts* between the
dates of January 1, 1998 and December 31, 1998. The applicable interest rate
shall be 6-5/8% per annum. Interest payments will commence on June 30, 1999,
when all simple interest then accrued, will become due and payable. Thereafter,
interest payments will become due and payable each year on June 30th, until
maturity of January 1, 2003, which will also be the date when the final interest
payment is due and payable.
Principal payments will commence on December 31, 1999, when 1/5 of the Principal
Amount outstanding as of December 31, 1998 will become due and payable.
Thereafter, 1/5 of the Principal Amount outstanding as of December 31, 1998 will
become due and payable on each successive annual date of December 31, until the
final principal payment is due and payable on January 1, 2003.
This note is unsecured by any collateral. All future salary paid by KIW, or its
successors, to Alex Kanakaris will be available to retire or service this note
at the discretion of KIW, with the prepayment amounts (if any) to be decided by
the Compensation Committee of the Board of the Directors of KIW.
Agreed to:
(Borrower)
/s/ John R. McKay 1-8-98
- -----------------------------------------------------------
Date
*Actual Principal Amount as of December 31, 1998 is $________________
Initialed /s/ ________ Date: _____________
Exhibit 10.20
1998 Promissory Note
Kanakaris InternetWorks, Inc. (KIW)
Taxpayer ID Number: 95-4623461
Repayment Period: January 1, 1998 to January 1, 2003
Drawdown Period: January 1, 1998 to December 31, 1998
Alex Kanakaris (SS# ###-##-####) hereby promises to pay Kanakaris Internetworks
Inc. the smaller amount of $85,000.00 or the sum of the drawn amounts* between
the dates of January 1, 1998 and December 31, 1998. The applicable interest rate
shall be 6-5/8% per annum. Interest payments will commence on June 30, 1999,
when all simple interest then accrued, will become due and payable. Thereafter,
interest payments will become due and payable each year on June 30th, until
maturity of January 1, 2003, which will also be the date when the final interest
payment is due and payable.
Principal payments will commence on December 31, 1998, when 1/5 of the Principal
Amount outstanding as of September 30, 1997 will become due and payable.
Thereafter, 1/5 of the Principal Amount outstanding as of September 30, 1997
will become due and payable on each successive annual date of December 31, until
the final principal payment is due and payable on January 1, 2003.
This note is unsecured by any collateral. All future salary paid by KIW, or its
successors, to Alex Kanakaris will be available to retire or service this note
at the discretion of KIW, with the prepayment amounts (if any) to be decided by
the Compensation Committee of the Board of the Directors of KIW.
Agreed to:
(Borrower)
/s/ Alex Kanakaris 1/8/98
- -------------------------------------------------------------
Alex Kanakaris Date
*Actual Principal Amount as of December 31, 1998 is $___________
Initialed ______ Date:_______
Exhibit 10.21
1998 Promissory Note
Kanakaris InternetWorks, Inc. (KIW)
Taxpayer ID Number: 95-4623461
Repayment Period: January 1, 1998 to January 1, 2003
Drawdown Period: January 1, 1998 to December 31, 1998
Branch Lotspeich (SS# ###-##-####) hereby promises to pay Kanakaris
Internetworks Inc. the smaller amount of $30,000.00 or the sum of the drawn
amounts* between the dates of January 1, 1998 and December 31, 1998. The
applicable interest rate shall be 6-5/8% per annum. Interest payments will
commence on June 30, 1999, when all simple interest then accrued, will become
due and payable. Thereafter, interest payments will become due and payable each
year on June 30th, until maturity of January 1, 2003, which will also be the
date when the final interest payment is due and payable.
Principal payments will commence on December 31, 1998, when 1/5 of the Principal
Amount outstanding as of September 30, 1997 will become due and payable.
Thereafter, 1/5 of the Principal Amount outstanding as of September 30, 1997
will become due and payable on each successive annual date of December 31, until
the final principal payment is due and payable on January 1, 2003.
This note is unsecured by any collateral. All future salary paid by KIW, or its
successors, to Alex Kanakaris will be available to retire or service this note
at the discretion of KIW, with the prepayment amounts (if any) to be decided by
the Compensation Committee of the Board of the Directors of KIW.
Agreed to:
(Borrower)
/s/ Branch Lotspeich 1/8/98
- -------------------------------------------------------------------
Branch Lotspeich Date
*Actual Principal Amount as of December 31, 1998 is $___________
Initialed ______ Date:_______
Exhibit 10.22
1998 Promissory Note
Kanakaris InternetWorks, Inc. (KIW)
Taxpayer ID Number: 95-4623461
Repayment Period: January 1, 1998 to January 1, 2003
Drawdown Period: January 1, 1998 to December 31, 1998
David Valenti (SS# ###-##-####) hereby promises to pay Kanakaris Internetworks
Inc. the smaller amount of $85,000.00 or the sum of the drawn amounts* between
the dates of January 1, 1998 and December 31, 1998. The applicable interest rate
shall be 6-5/8% per annum. Interest payments will commence on June 30, 1999,
when all simple interest then accrued, will become due and payable. Thereafter,
interest payments will become due and payable each year on June 30th, until
maturity of January 1, 2003, which will also be the date when the final interest
payment is due and payable.
Principal payments will commence on December 31, 1998, when 1/5 of the Principal
Amount outstanding as of September 30, 1997 will become due and payable.
Thereafter, 1/5 of the Principal Amount outstanding as of September 30, 1997
will become due and payable on each successive annual date of December 31, until
the final principal payment is due and payable on January 1, 2003.
This note is unsecured by any collateral. All future salary paid by KIW, or its
successors, to Alex Kanakaris will be available to retire or service this note
at the discretion of KIW, with the prepayment amounts (if any) to be decided by
the Compensation Committee of the Board of the Directors of KIW.
Agreed to:
(Borrower)
/s/ David Valenti 1/8/98
- --------------------------------------------------------------------
Date
*Actual Principal Amount as of December 31, 1998 is $___________
Initialed ______ Date:_______
WINDOWS MEDIA(TM)
ICP BROADBAND JUMPSTART PROGRAM AGREEMENT
This Windows Media Technologies ICP Broadband Jumpstart Program
Agreement (the "Agreement") is entered into and effective as of December 7,
1999 (the "Effective Date") by and between MICROSOFT CORPORATION, a Washington
corporation located at One Microsoft Way, Redmond, WA, 98052 ("Microsoft") and
Kanakaris Communications, Inc. ("ICP").
Whereas, Microsoft is a developer of operating system technologies and
tools for the development and serving of Web content, including interactive
streaming media content; and
ICP owns and operates online content sites on the Web which include
high bit rate streaming audio and/or video content and ICP desires to employ
Windows Media Technologies to develop and deploy such content; and
Microsoft desires to assist ICP with the development of an audio/video
enhanced Web site which delivers timely and relevant audio/visual content that
offers users a unique and valuable experience of playing and/or viewing ICP
content using Windows Media Technologies in a broadband network infrastructure;
and, therefore,
For good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties agree as follows:
1. DEFINITIONS
This Agreement is entered into with reference to the following information
("ICP TABLE") as well as the definitions set forth below:
<TABLE>
<CAPTION>
- -------------------------------------------------- --------------------------------------------------------------
<S> <C>
ICP INFORMATION: Corporate Name: Kanakaris Communications
Place of Incorporation: Nevada
Address for Notices: 3303 Harbor Blvd F-3
Costa Mesa, CA 92626
- -------------------------------------------------- --------------------------------------------------------------
ICP CONTACTS: ICP Business Contact/Title: Alex Kanakaris/CEO
Telephone Number: (714) 444-0530
Facsimile Number: (714) 549-8970
Email: [email protected]
ICP Technical Contact/Title: John McKay
Telephone Number: (323) 655-1978
Facsimile Number: (323) 653-1330
Email: [email protected]
ICP Public Relations Contact/Title: Alex Kanakaris
Telephone Number: (714) 444-0530
Facsimile Number: (714) 549-8970
Email: [email protected]
ICP Advertising Sales Contact/Title (if ICP Web Site intends
to participate in Jumpstart Program components designed for
advertising-driven models): Alex Kanakaris
Telephone Number: (714) 444-0530
Facsimile Number: (714) 549-8970
Email: [email protected]
Microsoft Confidential & Proprietary Page 1 of 16
<PAGE>
- -------------------------------------------------- --------------------------------------------------------------
ICP NAME AND ICP SERVICE NAME ICP Name: Kanakaris Communications
(as requested for press release): ICP Service Name (if different):
(PROVIDE NAMES EXACTLY AS THEY
SHOULD APPEAR IN PRESS RELEASES.)
- -------------------------------------------------- --------------------------------------------------------------
ICP WEB SITE (includes any successors and new KKRS.Net
versions of such Web site created, owned or KKRS.Net/NetMovieManiahome/Netmoviemaniahome.html
controlled by ICP during the Term):
- -------------------------------------------------- --------------------------------------------------------------
TERM: Beginning December 7, 1999 ("EFFECTIVE DATE") and
continuing through June 1, 2000 unless earlier terminated
in accordance with Section 9.
- -------------------------------------------------- --------------------------------------------------------------
</TABLE>
1.1 ABOVE THE FOLD means the placement of content (including an icon and/or
link) or other material on an ICP Web Site page, as viewed via the
Microsoft Internet Explorer browser v. 4.0 or v. 5.0, such that the
material is viewable on a computer screen at a 800 x 600 pixels
resolution when the user first accesses such Web page and without
having to scroll down to view more of the Web page.
1.2 AFFILIATE means, with respect to any legally recognizable entity, any
other such entity directly or indirectly Controlling, Controlled by, or
under common Control with such entity. "Control," as used herein, means
the possession, directly or indirectly, of the power to direct or cause
the direction of the management and policies of a legally recognizable
entity, whether through the ownership of voting shares, by contract, or
otherwise. Where such entity is a partnership, limited liability
company, corporation, or similar entity and has partners, members, or
shareholders with equal ownership interests or equal control interests,
by contract or otherwise, then each such partner, member, or
shareholder will be deemed to possess, directly or indirectly, the
power to direct or cause the direction of the management and policies
of that entity.
1.3 APPLICATION SERVICES PROVIDER means a third party that provides
solutions or applications supporting content acquisition and
management, encoding, synchronized e-commerce, advertising management,
and other services with respect to high bit rate Streaming and
Downloadable Media.
1.4 BROADBAND ENCODING SERVICES PROVIDER means an Application Services
Provider designated by ICP in accordance with this Agreement to provide
Web encoding services for ICP Broadband Streaming Media.
1.5 CONFIDENTIAL INFORMATION means: (a) any source code of software
disclosed by either party to the other party; (b) any trade secrets
and/or other proprietary non-public information not generally known
relating to either party's product plans, designs, costs, prices and
names, finances, marketing plans, business opportunities, personnel,
research, development or know-how; and (c) the terms and conditions of
this Agreement. "Confidential Information" shall not include
information that: (i) is or becomes generally known or available by
publication, commercial use or otherwise through no fault of the
receiving party; (ii) is known and has been reduced to tangible form by
the receiving party prior to the time of disclosure and is not subject
to restriction; (iii) is independently developed by the receiving party
without the use of the other party's Confidential Information; (iv) is
lawfully obtained from a third party that has the right to make such
disclosure; or (v) is made generally available by the disclosing party
without restriction on disclosure.
Microsoft Confidential & Proprietary Page 2
<PAGE>
1.6 CONTENT means data, text, audio, video, animation, graphics,
photographs, artwork and other technology and materials.
1.7 CONTENT DELIVERY NETWORK means an entity that provides Content delivery
services which bypass or augment conventional Internet delivery
backbones and network access points in order to expedite delivery of
Web-based Content from Internet content providers to end users via
broadband satellite or terrestrial transmission mechanisms.
1.7 IAP or INTERNET ACCESS PROVIDER means a third party that cooperates
and/or co-locates with one or more Content Delivery Networks and
provides broadband Internet access services directly to end users in
order to enable them to receive ICP Broadband Streaming Media.
1.8 ICP BROADBAND STREAMING MEDIA means the high bit-rate (i.e., at least
64 kbps for audio Content, and at least 100 kbps for video Content,
also referred to herein as "broadband") Streaming and Downloadable
Media in Windows Media Formats that is promoted on and/or included in
the ICP Web Site, which Streaming and Downloadable Media must meet or
exceed the requirements set forth in Section 1 of Exhibit A attached
hereto.
1.9 MICROSOFT WINDOWS MEDIA PLAYER means the North American English version
6.1 of the upgrade to the Windows 95 and Windows 98 Microsoft Windows
Media Player client technology that displays Windows Media Formats,
other formats of Streaming and Downloadable Media and other multimedia
data-types, and all Updates to such technology which are commercially
released during the Term.
1.10 STREAMING AND DOWNLOADABLE MEDIA means, collectively and
interchangeably, (a) multimedia Content that is transmitted and played
or displayed via the Web incrementally, or in semi-real time, such that
it can be heard, viewed or otherwise received by an end user with
minimal download delays, if any; and (b) multimedia Content that is
downloaded by or transmitted to an end user via Internet protocols for
later playback.
1.11 UPDATES means, as to any Microsoft software, all subsequent public
releases thereof during the Term, including public maintenance
releases, error corrections, upgrades, enhancements, additions,
improvements, extensions, modifications and successor versions.
1.12 WINDOWSMEDIA.COM SITE means the Streaming and Downloadable Media guide
(including the Radio Station Guide portion thereof) which is designed
for users in the United States and is located, as of the Effective
Date, at WINDOWSMEDIA.MICROSOFT.COM, and any direct successors to such
site that Microsoft owns or operates during the Term.
1.13 WINDOWS MEDIA FORMATS means (a) the file formats for Content encoded
with Microsoft's audio and/or video codecs, including but not limited
to Windows Media Audio and Microsoft's MPEG4 video codecs; (b) Content
formats which are consistent with the proposed industry standard format
referred to as "Advanced Streaming Format" or "ASF" and that are
capable of being both streamed over the Internet and subsequently
viewed and/or played using (i) then-current versions of the Windows
Media Player, (ii) third party applications that embed Windows Media
Player technologies under license from Microsoft, and/or (iii) third
party applications that use then-current published Windows Media
Technologies SDKs and interfaces, under license from Microsoft, to
enable viewing/playing, streaming, or other operations on such Content
formats; and (c) any successors or replacements for such formats that
may be designated by Microsoft.
Microsoft Confidential & Proprietary Page 3
<PAGE>
1.14 WINDOWS MEDIA TECHNOLOGIES means, collectively and interchangeably,
Microsoft Windows Media Player, Microsoft Windows NT Server Windows
Media Services, and Windows Media Tools.
1.15 WINDOWS MEDIA TOOLS means a collection of Microsoft tools, including
without limitation Windows Media Encoder, for creating and editing
on-demand and live Streaming and Downloadable Media in Windows Media
Formats and for converting other file formats to Windows Media Formats.
All other initially capitalized terms shall have the meanings assigned to them
in this Agreement.
2. MICROSOFT OBLIGATIONS
2.1 WINDOWSMEDIA.COM SITE. Subject to ICP's compliance with the applicable
WindowsMedia.com Site participation requirements set forth in Exhibit B,
Microsoft will use commercially reasonable efforts during the Term to
include a link (an "ICP Web Site Link," which will be a text link or, at
Microsoft's discretion and subject to ICP's applicable logo usage
guidelines, an icon) for the ICP Web Site and, if provided, brief
summaries of the ICP Broadband Streaming Media available via the ICP Web
Site ("Content Modules") within appropriate categories of the broadband
section of the WindowsMedia.com Site. Microsoft will determine, in its
sole discretion, the placement of any ICP Web Site Links and Content
Modules within the broadband section of the WindowsMedia.com Site.
2.2 PRECONDITIONS FOR MICROSOFT SPONSORSHIP AND SUPPORT OBLIGATIONS. Each of
Microsoft's obligations under Sections 2.1 and 2.2 is expressly
conditioned upon ICP's performance of its obligations under Section 3
throughout the Term.
2.3 RESERVATION OF RIGHTS. Microsoft retains all right, title and interest in
and to the Microsoft Windows Media Player and any other Microsoft
software, technologies and services. Nothing in this Agreement shall be
construed, by implication, estoppel or otherwise, as granting ICP any
rights to any Microsoft software, technology, service or other
intellectual property rights.
3. ICP OBLIGATIONS
3.1 CONTENT. Throughout the Term, ICP will develop and make available to end
users Streaming and Downloadable Media that meets or exceeds the
requirements set forth in Exhibit A.
3.2 TECHNOLOGY ADOPTION AND PROMOTION. Throughout the Term, ICP will work
with Microsoft to identify and increase ICP's use and promotion of
Windows Media Technologies, including specifically the adoption and
promotion of Windows Media Technologies as a platform for ICP Broadband
Streaming Media. ICP's use and promotion of Windows Media Technologies
shall include:
Microsoft Confidential & Proprietary Page 4
<PAGE>
(a) CONTENT FORMAT. Within _____ [WEEKS/DAYS] after the Effective Date
("Trigger Date"), and continuing thereafter throughout the Term,
all ICP high bit-rate Streaming and Downloadable Media shall be
made available in Windows Media Formats; provided, however, that
nothing herein shall be deemed to limit ICP's ability to make such
Streaming and Downloadable Media available in other Streaming
Media formats. Further, the foregoing shall not apply to Content
that has been encoded in another Streaming Media format before the
Trigger Date ("Prior Content"). At ICP's option, Prior Content may
be encoded in Windows Media Formats
(b) PROMOTION. Upon the Trigger Date and continuing thereafter
throughout the Term, ICP shall encode and promote all ICP
Broadband Streaming Media and the Microsoft Windows Media Player
on the ICP Web Site in a manner and on terms no less favorable
than apply within such ICP Web Site to any other Streaming and
Downloadable Media format or player.
(c) ICP WEB SITE BROADBAND SECTION AND RELATED BANNER LINKS. Upon the
Trigger Date and continuing thereafter throughout the Term, ICP
shall provide prominent visibility to the ICP Broadband Streaming
Media, including without limitation by creating a broadband
section of the ICP Web Site which is accessible via a direct link
from the home or front page of the ICP Web Site. In addition, ICP
may create and deploy a banner notice of 82 x 30 pixels (which
ICP may do via standard .asx files, as further described in the
MSDN Online Web Workshop site currently located at
HTTP://MSDN.MICROSOFT.COM/WORKSHOP/IMEDIA/WINDOWSMEDIA/CRCONTENT/
ASX.ASP#THELOOK) which banner notice links to such broadband
section of the ICP Web Site whenever Windows Media Player plays
Content served by Windows Media Technologies. In the event ICP
does not create and deploy such a banner notice with a link to
its ICP Web Site broadband section, ICP agrees that Microsoft may
create and deploy a default banner notice that promotes the
Broadband Jumpstart Program and links to the WindowsMedia.com
Site whenever Windows Media Player plays Content from the ICP Web
Site that is served by Windows Media Technologies.
(d) NAVIGATIONAL MODEL. ICP agrees to provide navigational means for
reaching the Windows Media Format versions of all ICP Broadband
Streaming Media from the home or front page of the broadband
section of the ICP Web Site at least as easily (e.g., with respect
to the number of "clicks" required to reach Windows Media Format
versions of ICP Broadband Streaming Media) as end users can reach
other formats of ICP Broadband Streaming Media (if any) from such
home or front page of the ICP Web Site broadband section.
(e) SPONSORSHIP. Beginning on the Effective Date and continuing
thereafter throughout the Term, ICP shall include on all ICP Web
Site pages containing or providing access to the ICP Broadband
Streaming Media a prominent (i) "Get Windows Media Player"
sponsorship notice and (ii) The Broadband Logo, as defined in
Section 3.5 (the "Windows Media Sponsorship Notices") in
accordance with the following terms:
(i) The Windows Media Sponsorship Notices shall appear
prominently and Above the Fold on a non-exclusive basis on
each ICP Web Site page that contains or promotes or provides
access to the ICP Broadband Streaming Media. Notwithstanding
anything to the contrary herein, ICP may include ICP Web
Site-wide general rotation banner advertisements of other
Streaming and Downloadable Media technology vendors on such
pages without violating the foregoing provision, as long as
ICP does not sell to other Streaming and Downloadable Media
technology vendors banner ads targeted specifically at such
pages to ICP Broadband Streaming Media. The Windows Media
Sponsorship Notices at all times shall be used in accordance
with Microsoft's logo guidelines in Exhibit B and applicable
Broadband Logo guidelines, including any updates thereto
provided in writing by Microsoft to ICP.
Microsoft Confidential & Proprietary Page 5
<PAGE>
(ii) On all pages of the ICP Web Site in which ICP includes any
sponsorship notices of other Streaming and Downloadable
Media technology vendors, the Windows Media Sponsorship
Notices shall appear in positions at least as favorable in
prominence, size and positioning as any other sponsorship
notice on such page.
(iii) In all cases, the Windows Media Sponsorship Notices each
shall be a minimum of 65 by 57 pixels, and shall conform to
trademark usage standards provided by Microsoft to ICP from
time to time.
Microsoft shall be entitled to substitute different Windows Media
Sponsorship Notices, subject to the same pixel size restrictions
as are set forth in this Section 3.2(e)(iii), in place of the
foregoing notices for purposes of this Agreement, including
without limitation ICP's responsibilities under this Section
3.2(e) and 3.5, upon Microsoft's reasonable advance written notice
to ICP.
(f) ADDITIONAL PROMOTIONS. Microsoft's prior written approval will be
required with respect to any additional promotions of Windows
Media Technologies by ICP as part of the ICP Web Site or
otherwise.
3.3 PUBLICITY. ICP will work with Microsoft to develop a mutually agreeable
press release as soon as possible after the Effective Date. In such press
release, ICP shall endorse Windows Media Technologies and Windows Media
Formats as a leading platform and set of formats for the ICP Broadband
Streaming Media. Further, subject to the limitations set forth in the next
sentence hereof, ICP agrees that (a) it will not release or approve any
press releases using its name or descriptions of the ICP Broadband
Streaming Media, other than in conjunction with promotions of Windows
Media Technologies as described above, for one (1) month before the
initial announcement contemplated by the previous sentence, nor for two
(2) months following such initial announcement, and (b) at all times
during the Term, ICP shall not itself issue nor approve from third parties
press releases that are inconsistent with the spirit of this Section 3.3.
During the Term, ICP will also provide Microsoft with reasonably detailed
information on ICP's use of Microsoft technology in its business for
inclusion in a case study which ICP shall be entitled to review and
approve, with such approval not to be unreasonably withheld or delayed.
3.4 REPORTING. By the tenth (10th) day of each calendar month during the Term
(other than the month in which the Effective Date falls), ICP shall
provide a report to Microsoft setting forth the following information
concerning the previous calendar month:
(a) Total number of page hits per day for pages on the ICP Web Site
that contain ICP Broadband Streaming Media;
(b) Total number of referrals received by ICP as a result of Web
users' clicking on the ICP links displayed on the WindowsMedia.com
Site;
Microsoft Confidential & Proprietary Page 6
<PAGE>
(c) Total number of .asx, .asf and .wma files available on the ICP
Web Site, broken down by format;
(d) Total number of streams served, including the total number of
.asx, .asf and .wma format files served, broken down by bit rate
and by format; and
(e) Total number of downloadable clips available.
ICP shall provide all reports hereunder to Microsoft via Microsoft's Web
reporting system located at HTTP://WINDOWSMEDIA.MICROSOFT.COM/REPORT, or
any successor thereto. In the event that ICP has failed to provide a
report as described in this Section on or before the twenty-fifth (25th)
day of the relevant calendar month, then Microsoft will be entitled to
suspend its performance under this Agreement until such report has been
received. All information provided pursuant to this Section will be deemed
to be Confidential Information of ICP.
3.5 BROADBAND LOGO USAGE. ICP desires to use a forthcoming Microsoft logo in
connection with the Broadband Streaming Media Initiative ("BROADBAND
LOGO") and agrees to comply with the associated forthcoming logo usage
requirements. Microsoft agrees to provide ICP with reasonable advance
written notice and the ability to approve, with such approval not to be
unreasonably withheld or delayed, a proposed Broadband Logo (which will
comply with the pixel size requirements set forth in Section 3.2(e)(iii))
for use in connection with this Agreement. In the event ICP does not
approve a proposed Broadband Logo, including any revised proposed
Broadband Logo that Microsoft may submit, within thirty (30) days after
Microsoft initially submits a Broadband Logo for ICP's review, then
Microsoft will be entitled, upon written notice to ICP, to terminate this
Agreement (including without limitation Microsoft's obligations under
Sections 2.1 and 2.2). Further, in the event that ICP fails to comply with
Microsoft's then-current logo requirements for a mutually-agreed Broadband
Logo at any time during the Term, then Microsoft will be entitled, after
providing ICP with notice of breach and an opportunity to cure such breach
within thirty (30) days, to suspend its performance under this Agreement
and terminate this Agreement (including without limitation Microsoft's
obligations under Sections 2.1 and 2.2) upon further written notice to
ICP.
3.6 RESERVATION OF RIGHTS. Except as expressly licensed to Microsoft under
this Agreement, ICP retains all right, title and interest in and to the
ICP Web Site, ICP Content and ICP Broadband Streaming Media.
4. COORDINATION WITH MICROSOFT CONCERNING CONTENT DELIVERY NETWORKS
As of the Effective Date, two Content Delivery Networks (Intervu and iBEAM) have
entered into agreements with Microsoft under which they are available to provide
services to ICP. In the event ICP desires to work with a different Content
Delivery Network as part of the program, ICP may make such a proposal to
Microsoft and Microsoft agrees to consider the request in good faith, but ICP
acknowledges that Microsoft may in its sole discretion determine whether or not
it will enter into new Broadband arrangements, and on what terms, with any
Content Delivery Network and that Microsoft shall have no obligation to accept
the proposal of ICP concerning the same.
5. NON-EXCLUSIVE
Nothing in this Agreement shall be deemed to restrict either party's ability to
license, develop, sub-license, manufacture, deploy, support, promote, or
distribute software, Content, Streaming and Downloadable Media, or any other
technology, whether or not similar to Windows Media Technologies, nor to
preclude ICP from creating and supporting mirrored versions of the ICP Web Site
that are not subject to this Agreement.
Microsoft Confidential & Proprietary Page 7
<PAGE>
6. CONFIDENTIALITY
6.1 Each party shall protect the other's Confidential Information from
unauthorized dissemination and use with the same degree of care that such
party uses to protect its own like information and in no event using less
than a reasonable degree of care. Neither party will use the other's
Confidential Information for purposes other than those necessary to
directly further the purposes of this Agreement. Neither party will
disclose to third parties the other's Confidential Information without
the prior written consent of the other party. Except as expressly
provided in this Agreement, no ownership or license rights are granted in
any Confidential Information. The other provisions of this Agreement
notwithstanding, either party will be permitted to disclose the
Confidential Information to their outside legal and financial advisors;
and to the extent required by applicable law, provided however that
before making any such required filing or disclosure, the disclosing
party shall first give written notice of the intended disclosure to the
other party, within a reasonable time from the time disclosure is
requested prior to the time when disclosure is to be made, and the
disclosing party will exercise best efforts, in cooperation with and at
the expense of the other party, consistent with reasonable time
constraints, to obtain confidential treatment for all non-public and
sensitive provisions of this Agreement, including without limitation
dollar amounts and other numerical information.
6.2 The parties' obligations of confidentiality under this Agreement shall
not be construed to limit either party's right to independently develop
or acquire products without use of the other party's Confidential
Information. Further, either party shall be free to use for any purpose
the residuals resulting from access to or work with such Confidential
Information, provided that such party shall maintain the confidentiality
of the Confidential Information as provided herein. The term "residuals"
means information in non-tangible form, which may be retained by persons
who have had rightful and good faith access to the Confidential
Information, including ideas, concepts, know-how or techniques contained
therein. Neither party shall have any obligation to limit or restrict the
assignment of such persons or to pay royalties for any work resulting
from the use of residuals. However, the foregoing shall not be deemed to
grant to either party a license under the other party's copyrights or
patents.
7. WARRANTIES AND DISCLAIMERS
7.1 WARRANTIES. Each party warrants and covenants that it has the full power
and authority to enter into and perform according to the terms of this
Agreement.
7.2 DISCLAIMERS. ANY AND ALL SOFTWARE, TECHNOLOGY, SERVICES, CONTENT, OR
INFORMATION PROVIDED BY EITHER PARTY TO THE OTHER HEREUNDER IS PROVIDED
"AS IS," WITHOUT WARRANTY OF ANY KIND. EACH PARTY DISCLAIMS ALL
WARRANTIES, EITHER EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO THE
IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE,
TITLE AND NONINFRINGEMENT, WITH RESPECT TO ANY SOFTWARE, TECHNOLOGY,
SERVICES, CONTENT, OR INFORMATION PROVIDED HEREUNDER.
Microsoft Confidential & Proprietary Page 8
<PAGE>
8. INDEMNITY
8.1 INDEMNITY. ICP shall, at its expense and Microsoft's request, defend any
claim or action brought by a third party against Microsoft, or
Microsoft's Affiliates, directors, or officers, to the extent it is based
upon a claim that (i) the ICP Web Site and/or ICP Broadband Streaming
Media infringes or violates any copyright, patent, trademark, trade
secret, right of publicity, or other intellectual property, proprietary
or contractual right of a third party; (ii) the ICP Web Site and/or ICP
Broadband Streaming Media contain defamatory or libelous material or
material which discloses private or personal matters concerning any
person, without such person's consent; (iii) the ICP permits to appear or
be uploaded any messages, data, images or programs which are illegal,
contain nudity or sexually explicit content or are, by law, obscene,
profane or pornographic; or (iv) the ICP permits to appear or be uploaded
to the ICP Web Site any messages, data, images or programs that would
knowingly or intentionally (which includes imputed intent) violate the
property rights of others, including unauthorized copyrighted text,
images or programs, trade secrets or other confidential proprietary
information, or trademarks or service marks used in an infringing fashion
(all of the foregoing claims or actions being referred to hereinafter as
"ICP Claims"), and ICP will indemnify and hold Microsoft harmless from
and against any costs, damages and fees reasonably incurred by Microsoft,
including but not limited to fees of outside attorneys and other
professionals, that are attributable to such ICP Claims. Microsoft shall:
(a) provide ICP reasonably prompt notice in writing of any such ICP
Claims and permit ICP, through counsel chosen by ICP, to answer and
defend such ICP Claims; and (b) provide the entity defending such claim
information, assistance and authority, at such entity's expense, to help
defend such ICP Claims. ICP will not be responsible for any settlement
made by Microsoft without ICP's written permission, which permission will
not be unreasonably withheld or delayed. Reasonable withholding of
permission may be based upon, among other factors, editorial and business
concerns. ICP will consult with Microsoft on the choice of any counsel
under this Section 8.
8.2 SETTLEMENT BY ICP. Unless ICP obtains for Microsoft a complete release of
all ICP Claims thereunder, ICP may not settle any ICP Claim under this
Section 8 on Microsoft's behalf without first obtaining Microsoft's
written permission, which permission will not be unreasonably withheld or
delayed. Reasonable withholding of permission may be based upon, among
other factors, the ability for Microsoft to ship any product. In the
event ICP and Microsoft agree to settle an ICP Claim, ICP agrees not to
disclose terms of the settlement without first obtaining Microsoft's
written permission, which will not be unreasonably withheld or delayed.
9. TERMINATION
9.1 TERMINATION BY EITHER PARTY. Either party may suspend performance and/or
terminate this Agreement:
(a) Immediately upon written notice at any time, if the other party is
in material breach of any material warranty, term, condition or
covenant of this Agreement, other than those contained in Section
6, and fails to cure that breach within thirty (30) days after
written notice thereof; or
(b) Immediately upon written notice at any time, if the other party is
in material breach of Section 6.
Microsoft Confidential & Proprietary Page 9
<PAGE>
9.2 EFFECT OF TERMINATION.
(a) Neither party shall be liable to the other for damages of any sort
resulting solely from terminating this Agreement in accordance
with its terms.
(b) Termination of this Agreement shall not affect any other agreement
between the parties.
(c) Should either ICP or Microsoft terminate for cause pursuant to
Section 9.1(a) or (b), neither party shall have any further
obligations to the other under Sections 2.1 through 2.2 or
Sections 3.1 through 3.4 except to the extent specified with
respect to Microsoft's responsibilities under Section 2.1. Without
limiting the generality of the foregoing, Microsoft will have no
obligation to provide any further services to ICP under Section 2
of this Agreement.
9.3 SURVIVAL. In the event of termination or expiration of this Agreement for
any reason, Sections 1, 2.4, 3.6, 5, 6, 7, 8, 9, 10 and 11 shall survive
termination and continue in effect in accordance with their terms.
10. LIMITATION OF LIABILITIES
IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE OTHER IN CONNECTION WITH THIS
AGREEMENT FOR ANY CONSEQUENTIAL, INDIRECT, INCIDENTAL, PUNITIVE OR SPECIAL
DAMAGES WHATSOEVER, INCLUDING WITHOUT LIMITATION, DAMAGES FOR LOSS OF BUSINESS
PROFITS, BUSINESS INTERRUPTION, LOSS OF BUSINESS INFORMATION, AND THE LIKE,
ARISING OUT OF THIS AGREEMENT OR THE USE OF OR INABILITY TO USE ANY MICROSOFT
SOFTWARE OR EITHER PARTY'S CONFIDENTIAL INFORMATION OR CONTENT, EVEN IF A PARTY
HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
THIS SECTION SHALL NOT APPLY TO SECTION 6 (REGARDING CONFIDENTIALITY), NOR TO
ICP'S INDEMNITY OBLIGATIONS WITH RESPECT TO THIRD PARTY CLAIMS AS PROVIDED IN
SECTION 8 OF THIS AGREEMENT.
11. GENERAL PROVISIONS
11.1 NOTICES. All notices and requests in connection with this Agreement shall
be deemed given as of the day they are received either by messenger,
delivery service, or in the United States of America mails, postage
prepaid, certified or registered, return receipt requested. Any such
notices to ICP should be sent to the address set forth in the ICP Table
on the first page of this Agreement, and sent to the attention of the ICP
Contact named in such ICP Table. Any such notices to Microsoft should be
addressed as follows:
----------------------------------------------------
ADDRESS:
----------------------------------------------------
Microsoft Corporation
One Microsoft Way
Redmond, WA 98052-6399
Attention: Patty Jackson
----------------------------------------------------
Phone: (425) 882-8080
----------------------------------------------------
Fax: (425) 936-7329
----------------------------------------------------
Microsoft Confidential & Proprietary Page 10
<PAGE>
----------------------------------------------------
COPY TO: LAW AND CORPORATE AFFAIRS
----------------------------------------------------
Microsoft Corporation
One Microsoft Way
Redmond, WA 98052-6399
Attention: Law & Corporate Affairs
----------------------------------------------------
Phone: (425) 882-8080
----------------------------------------------------
Fax: (425) 936-7409
----------------------------------------------------
or to such other address as a party may designate pursuant to this notice
provision.
11.2 INDEPENDENT PARTIES. Nothing in this Agreement shall be construed as
creating an employer-employee relationship, an agency relationship, a
partnership, or a joint venture between the parties.
11.3 GOVERNING LAW. This Agreement will be governed by the laws of the State of
Washington, without reference to the conflict of law principles thereof.
Any action or litigation concerning this Agreement will take place
exclusively in the federal or state courts in King County, Washington, and
the parties expressly consent to jurisdiction of and venue in such courts
and waive all defenses of lack of personal jurisdiction and forum non
conveniens with respect to such courts. ICP hereby agrees to service of
process by mail or other method acceptable under the laws of the State of
Washington.
11.4 ATTORNEYS' FEES. In any action or suit to enforce any right or remedy
under this Agreement or to interpret any provision of this Agreement, the
prevailing party shall be entitled to recover its costs, including
reasonable attorneys' fees.
11.5 ASSIGNMENT. This Agreement and any rights or obligations hereunder may not
be assigned by ICP without Microsoft's prior written approval. For
purposes of the foregoing, an assignment shall be deemed to include,
without limitation, any transfer of ownership, whether by a sale of
assets, a sale of stock or other controlling interests, merger,
reorganization, or other change of control of ICP. Any attempted
assignment by ICP without such consent will be void and will constitute a
material default and breach of this Agreement for which Microsoft may
terminate this Agreement in accordance with Section 9.1. Except as
otherwise provided, this Agreement will be binding upon and inure to the
benefit of the parties' successors and lawful assigns.
11.6 FORCE MAJEURE. Neither party shall be liable to the other under this
Agreement for any delay or failure to perform its obligations under this
Agreement if such delay or failure arises from any cause(s) beyond such
party's reasonable control, including by way of example labor disputes,
strikes, acts of God, floods, fire, lightning, utility or communications
failures, earthquakes, vandalism, war, acts of terrorism, riots,
insurrections, embargoes, or laws, regulations or orders of any
governmental entity.
11.7 CONSTRUCTION. If for any reason a court of competent jurisdiction finds
any provision of this Agreement, or portion thereof, to be unenforceable,
that provision of the Agreement will be enforced to the maximum extent
permissible so as to effect the intent of the parties, and the remainder
of this Agreement will continue in full force and effect. Failure by
either party to enforce any provision of this Agreement will not be deemed
a waiver of future enforcement of that or any other provision. This
Agreement has been negotiated by the parties and their respective counsel
and will be interpreted fairly in accordance with its terms and without
any strict construction in favor of or against either party.
Microsoft Confidential & Proprietary Page 11
<PAGE>
11.8 ENTIRE AGREEMENT. This Agreement does not constitute an offer by Microsoft
and it shall not be effective until signed by both parties. This
Agreement, including the Exhibits attached hereto which are hereby
incorporated by this reference, constitutes the entire agreement between
the parties with respect to the subject matter hereof and merges all prior
and contemporaneous communications. It shall not be modified except by a
written agreement dated subsequent to the date of this Agreement and
signed on behalf of ICP and Microsoft by their respective duly authorized
representatives.
IN WITNESS WHEREOF, the parties have entered into this Agreement as of the
Effective Date written above.
- -------------------------------------- -----------------------------------------
MICROSOFT CORPORATION KANAKARIS COMMUNICATIONS
- -------------------------------------- -----------------------------------------
By: /s/ Kurt Buecheler By: /s/ Alex Kanakaris
- -------------------------------------- -----------------------------------------
Name (print): Kurt Buecheler Name (print): Alex Kanakaris
- -------------------------------------- -----------------------------------------
Title: Director Business Devel Title: CEO Kanakaris Communications
- -------------------------------------- -----------------------------------------
Date: 11/12/99 Date: 11/10/99
- -------------------------------------- -----------------------------------------
Microsoft Confidential & Proprietary Page 12
<PAGE>
EXHIBIT A
JUMPSTART PROGRAM REQUIREMENTS FOR ICPS
1. Throughout the Term, ICP will use and promote Windows Media Technologies as
follows:
(a) ICP shall offer end users high quality Streaming and Downloadable
Media, including by complying with the following:
(i) FOR ON-DEMAND CONTENT:
At the Trigger Date:
o Supply at least five (5) clips at 300 kbps, minimum
length thirty (30) seconds, and
o Supply at least five (5) clips at 100 kbps (or 64
kbps for audio), minimum length thirty (30) seconds.
Ongoing:
o Add at least one three (3) new clips daily per week
in both 100 kbps (or 64 kbps for audio)and 300 kbps.
Clips may be retired as they lose their relevance,
but at all times there must be at least five (5)
on-demand clips available.
(ii) FOR SIMULATED LIVE STREAMS (AS DEFINED IN SECTION 2.1(A)) (IF ANY
ARE OFFERED BY ICP):
o Supply at least one (1) live stream at both 100 kbps
(or 64 kbps for audio)and 300 kbps.
(iii) ALL CONTENT:
o All Streaming and Downloadable Media must use on a
nonexclusive basis MPEG 4 v.3 video codec and/or
Microsoft Audio v. 4 audio codec.
(iv) ICP will provide Microsoft with the following information within
two (2) weeks of the Effective Date:
1. Description of ICP Broadband Streaming Media.
2. Whether ICP Broadband Streaming Media will be live
or on-demand.
3. Whether ICP Broadband Streaming Media will be
embedded in Web pages or pop-up in a player.
4. Number of clips for trial.
5. Update frequency (# of clips/how often?).
6. Estimated traffic: streams/month at 100 and 300.
7. Any foreign language Content?
8. Which Content Delivery Network has been chosen by
ICP.
Microsoft Confidential & Proprietary Page 13
<PAGE>
9. Which Broadband Encoding Services Provider has been
chosen by ICP, if applicable and known.
10. Technical Contact at ICP (name, email, phone
number).
11. PR Contact at ICP (name, email, phone number).
12. Anticipated total average number of minutes of ICP
Broadband Streaming Media ICP believes it will offer
per week during the Term.
13. Standard ad banner rate card.
14. Whether or not end user registration data will be
collected.
Microsoft Confidential & Proprietary Page 14
<PAGE>
EXHIBIT B
WINDOWSMEDIA.COM SITE PARTICIPATION REQUIREMENTS
1. EDITORIAL GUIDELINES. ICP will use commercially reasonable efforts to
provide Microsoft with ICP Web Site Links and Content Modules and clips
for the Video Program Guide to be given to a Content Delivery Network
with additional information, on a daily basis, all of which
deliverables will meet the Content Module Editorial Guidelines set
forth at HTTP://WINDOWSMEDIA.MSN.COM/SUBMIT/SUBMIT.ASP, and as
reasonably updated by Microsoft from time to time, for use on the
WindowsMedia.com Site in accordance with Section 2.2 of the Agreement.
2. TRADEMARK PERMISSION. To the extent the ICP Web Site Link contains or
constitutes a trademark, service mark or other similar intellectual
property ("mark"), ICP hereby grants to Microsoft a non-exclusive,
non-transferable, royalty-free, worldwide right and license during the
Term and a commercially reasonable wind-down period thereafter to use
and display such mark solely for purposes of inclusion in the
WindowsMedia.com Site (including any successors thereof).
3. CONTENT MODULES. To the extent containing any information protected by
copyright or other intellectual property, ICP hereby grants Microsoft a
non-exclusive, non-transferable, royalty-free, worldwide right and
license during the Term and a commercially reasonable wind-down period
thereafter to use, copy, publicly perform and display, transmit and
distribute Content Modules solely for purposes of inclusion of such
Content Modules on the WindowsMedia.com Site.
4. DEMONSTRATION RIGHTS. ICP hereby further grants Microsoft a
non-exclusive, non-transferable, royalty-free, worldwide right and
license during the Term and a commercially reasonable wind-down period
thereafter to use and publicly perform and display the ICP Name, ICP
Service Name, ICP Web Site name, Content Modules, screen shots and/or
interactive versions of the ICP Web Site solely for the purposes of
demonstrating ICP's use of Windows Media Technologies at trade shows or
other industry or press events and other advertising and promotional
activities concerning Windows Media Technologies.
EXHIBIT B
GET WINDOWS MEDIA(TM) PLAYER LOGO PROGRAM
GET WINDOWS MEDIA(TM) PLAYER LOGO USAGE INSTRUCTIONS To put the logo and link on
your Web site, follow these easy steps:
1. Read our policy below on using the GET WINDOWS MEDIA PLAYER logo.
2. Copy the GET WINDOWS MEDIA PLAYER logo.gif file image to your
desktop.
[Get Windows [Get Windows
Media Player Media Player
Graphic Here] Graphic Here]
3. Move the GET WINDOWS MEDIA PLAYER logo .gif file from your desktop
to your Web server.
4. Insert the following HTML code on your Web page. Be sure to point
the (IMG SRC) to the location of the GET WINDOWS MEDIA PLAYER logo
.gif file on your server:
Microsoft Confidential & Proprietary Page 15
<PAGE>
(BR)(CENTER)
(A HREF="http://www.microsoft.com/windows/mediaplayer/download/
default.asp")
(IMG SRC="type path to logo image here" WIDTH="65" HEIGHT="57"
BORDER="0" ALT="Get Windows Media Player" VSPACE="7")(/A) (/CENTER)(BR)
5. You can modify this HTML code to fit your formatting as long as
you follow the guidelines outlined below.
GET WINDOWS MEDIA(TM) PLAYER LOGO USAGE GUIDELINES
- --------------------------------------------------
1. Except as Microsoft may authorize elsewhere, non-Microsoft Web sites may
display only the GET WINDOWS MEDIA(TM) PLAYER logo provided above ("Logo").
By downloading the Logo to your Web site, you agree to be bouNd by these
Policies.
2. You may only display the Logo on your Web site, and not in any other
manner. It must always be an active link to the download page for the
Windows Media Player at
http://www.microsoft.com/windows/mediaplayer/download/default.asp.
3. The Logo GIF image includes the words "Get Windows Media Player" describing
the significance of the Logo on your site (that the Logo is a link to the
download page for the Microsoft Windows Media Player, not an endorsement of
your site). You may not remove or alter any element of the Logo.
4. The Logo may be displayed only on Web pages that make accurate references
to Microsoft or its products or services or as otherwise authorized by
Microsoft. Your Web page title and other trademarks and logos must appear
at least as prominently as the Logo. You may not display the Logo in any
manner that implies sponsorship, endorsement, or license by Microsoft
except as expressly authorized by Microsoft.
5. The Logo must appear by itself, with a minimum spacing (30 pixels) between
each side of the Logo and other distinctive graphic or textual elements on
your page. The Logo may not be displayed as a feature or design element of
any other logo.
6. You may not alter the Logo in any manner, including size, proportions,
colors, elements, or animate, morph, or otherwise distort its perspective
or appearance, except in the event expressly authorized by Microsoft.
7. You may not display the Logo on any site that infringes any Microsoft
intellectual property or other rights, or violates any state, federal, or
international law.
8. These Policies do not grant a license or any other right to Microsoft's
logos or trademarks. Microsoft reserves the right at its sole discretion to
terminate or modify permission to display the Logo at any time. Microsoft
reserves the right to take action against any use that does not conform to
these Policies, infringes any Microsoft intellectual property or other
right, or violates other applicable law.
9. MICROSOFT DISCLAIMS ANY WARRANTIES THAT MAY BE EXPRESS OR IMPLIED BY LAW
REGARDING THE LOGO, INCLUDING WARRANTIES AGAINST INFRINGEMENT.
(C)1999 Microsoft Corporation. All rights reserved. Terms of Use.
Microsoft Confidential & Proprietary Page 16
Exhibit 21.1
Subsidiaries of the Registrant
------------------------------
Kanakaris InternetWorks, Inc., a Delaware corporation, is a
wholly-owned subsidiary of our Company. Desience Corporation, a California
Corporation, is a wholly-owned subsidiary of Kanakaris InternetWorks, Inc.
Neither Kanakaris InternetWorks, Inc. nor Desience Corporation does business
under any other names.
Exhibit 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT
We hereby consent to the use in the Amendment Number One to Form SB-2
Registration Statement, of Kanakaris Communications, Inc. and Subsidiary our
report for the years ended September 30, 1998 and 1997 dated March 10, 1999
(except for Notes 1(B) and 6(B) as to which the date is September 21, 1999)
relating to the consolidated financial statements of Kanakaris Communications,
Inc. and Subsidiaries which appear in such Form SB-2.
/s/ Weinberg & Company, P.A.
WEINBERG & COMPANY, P.A.
Certified Public Accountants
Boca Raton, Florida
November 8, 1999
Exhibit 23.2
CONSENT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form SB-2 of our
report dated January 14, 1998, related to the financial statements of Kanakaris
Communications, Inc. (formerly Desience Corporation), and to the reference to
our Firm under the caption "Experts" in the Prospectus.
/s/ TANNER + CO.
Salt Lake City, Utah
November 8, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> JUN-30-1999
<CASH> 200,701
<SECURITIES> 0
<RECEIVABLES> 139,728
<ALLOWANCES> 0
<INVENTORY> 11,435
<CURRENT-ASSETS> 451,454
<PP&E> 43,532
<DEPRECIATION> 10,703
<TOTAL-ASSETS> 1,019,989
<CURRENT-LIABILITIES> 881,044
<BONDS> 0
0
10,000
<COMMON> 25,491
<OTHER-SE> 103,454
<TOTAL-LIABILITY-AND-EQUITY> 1,019,989
<SALES> 688,325
<TOTAL-REVENUES> 772,167
<CGS> 457,252
<TOTAL-COSTS> 2,937,640
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (2,153,461)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,153,461)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,153,461)
<EPS-BASIC> (.099)
<EPS-DILUTED> (.099)
</TABLE>
