<PAGE>
- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
__________________________
FORM 10
GENERAL FORM FOR REGISTRATION OF SECURITIES
PURSUANT TO SECTION 12(b) OR 12 (g) OF THE SECURITIES
EXCHANGE ACT OF 1934
CYBERSENTRY, INC.
- --------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 22-3626108
- --------------------------------------------------------------------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
412 East Madison Street, Suite 1200, Tampa, Florida 33602
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (813) 228-0688
Securities to be registered pursuant to Section 12(b) of the Act:
- --------------------------------------------------------------------------------
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH EACH
TO BE SO REGISTERED CLASS IS TO BE REGISTERED
- --------------------------------------------------------------------------------
None None
- --------------------------------------------------------------------------------
Securities to be registered pursuant to Section 12(g) of the Act:
COMMON STOCK, PAR VALUE $.001 PER SHARE
---------------------------------------
(Title of Class)
CLASS A CONVERTIBLE REDEEMABLE PARTICIPATING PREFERRED STOCK
------------------------------------------------------------
($1.50 LIQUIDATION VALUE), PAR VALUE $.001 PER SHARE
----------------------------------------------------
(Title of Class)
CLASS B CONVERTIBLE REDEEMABLE PARTICIPATING PREFERRED STOCK
------------------------------------------------------------
($1.50 LIQUIDATION VALUE), PAR VALUE $.001 PER SHARE
----------------------------------------------------
(Title of Class)
- --------------------------------------------------------------------------------
The Exhibit Index is on located on Page 58
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ITEM 1. BUSINESS.................................................................. 1
ITEM 2. FINANCIAL INFORMATION..................................................... 23
ITEM 3. PROPERTIES................................................................ 31
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT............ 32
ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS.......................................... 38
ITEM 6. EXECUTIVE COMPENSATION.................................................... 41
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS............................ 44
ITEM 8. LEGAL PROCEEDINGS......................................................... 52
ITEM 9. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS............................................... 52
ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES................................... 53
ITEM 11. DESCRIPTION OF REGISTRANT'S SECURITIES TO BE REGISTERED................... 54
ITEM 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS................................. 56
ITEM 13. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA............................... 57
ITEM 14. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE...................................................... 57
ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS......................................... 57
</TABLE>
(i)
<PAGE>
ITEM 1. BUSINESS
Forward-looking Statements
This Registration Statement on Form 10 ("Registration Statement") includes
forward-looking statements within the meaning of Section 21E of the Securities
Exchange Act of 1934 (the "Exchange Act"). These statements are based on
management's beliefs and assumptions, and on information currently available to
management. Forward-looking statements include the information concerning
possible or assumed future results of operations of the Company set forth in
Item 2 - "FINANCIAL INFORMATION - Management's Discussion and Analysis of
Financial Condition and Results of Operations". Forward-looking statements also
include statements in which words such as "expect", "anticipate", "intend",
"plan", "believe", "estimate", "consider" or similar expressions are used.
Forward-looking statements are not guarantees of future performance. They
involve risks, uncertainties and assumptions, including the risks discussed
under the heading "BUSINESS - Risk Factors and Investment Considerations" and
elsewhere in this Registration Statement. The Company's future results and
stockholder values may differ materially from those expressed in these forward-
looking statements. Many of the factors that will determine these results and
values are beyond the Company's ability to control or predict. Investors are
cautioned not to put undue reliance on any forward-looking statements. In
addition, the Company does not have any intention or obligation to update
forward-looking statements after the effectiveness of this Registration
Statement, even if new information, future events or other circumstances have
made them incorrect or misleading. For these statements, the Company claims the
protection of the safe harbor for forward-looking statements contained in
Section 21E of the Exchange Act.
Description of Business
CyberSentry Inc., a Delaware corporation ("CyberSentry"), was incorporated
in Delaware on August 21, 1998 as Telecommunications Services, Inc. ("TSI ") and
subsequently amended its certificate of incorporation to change the
corporation's name to its current form. Telecommunications Service Center, Inc.,
a Florida corporation ("TSC"), was formed on July 15, 1991 and, on May 7, 1998,
filed for bankruptcy protection in Florida (the "Bankruptcy"). As of March 24,
1999, as contemplated by TSC's Second Amended Plan of Reorganization (the
"Plan"), TSC merged with and into CyberSentry, with CyberSentry being the
surviving corporation (the "Merger"). See Item 7 - "CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS - Bankruptcy, Merger and Related Transactions" for a
further description of the Bankruptcy, the Plan and the Merger. In this
Registration Statement, references to the "Company" refer to TSC and CyberSentry
prior to the Merger and to CyberSentry as the surviving corporation of the
Merger, and references to the business of the Company include the businesses of
TSC and CyberSentry prior to the Merger.
The Company currently has three primary lines of business: Internet
(commerce and service providing), Internet technologies (ATM technology) and
telecommunications.
1
<PAGE>
Internet
The Company has obtained an exclusive, worldwide, perpetual, fully-paid
right and license to publish, use, distribute and sublicense a software program
that provides digital rights management technology (the "CyberSentry Software").
The CyberSentry Software provides secure Internet commerce transactions for both
the consumer and the seller by controlling access to consumer credit information
and content that can be downloaded via the Internet, such as games, CD's,
videos, copyrighted information and other transactions. The CyberSentry
Software is designed to provide the secure distribution of copyrighted text,
audio, video, graphics and software in Internet commerce. It also restricts the
unauthorized redistribution of material to secondary recipients, such as passing
along copies of protected material. The Company believes that most content
currently downloaded via the Internet can be protected using CyberSentry
Software.
The Company is also a registered Internet service provider that intends to
provide national Internet access to customers. The Company will provide these
services in conjunction with major Internet service providers.
See Item 7 - "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS - CyberSentry
Software Acquisition" for a description of the transactions through which the
Company acquired the CyberSentry Software.
Internet Technologies (ATM Technology)
The Company has obtained the right to market and sell in the United States
and Canada certain Asynchronous Transfer Mode technology ("ATM" or "ATM
Technology") which has the potential to deliver real time multimedia services to
both consumer and business users at substantially increased speeds and lower
costs than other technologies. The Company currently plans to market and sell
two applications of the ATM Technology. The first is a fast packet digital
switch designed for small to medium size businesses. This device should allow a
business to transmit voice, video and data over a local area network using the
business's existing PABX infrastructure. The second is a set-top box designed
for applications in the home. This device allows for the delivery of voice,
video and data into the home via the existing telephone line, cable or via
satellite. The Company believes that this product will have applications for
games, music, television based Internet browsing and video on demand.
The Company plans to target specific carriers for partnership and is
currently negotiating agreements to secure ATM access on terms consistent with
the Company's strategies and operational goals. The Company believes that its
approach to marketing its ATM product is innovative and unique to the industry.
Such strategy involves the use by subscribers of either an
2
<PAGE>
existing copper line or a coaxial cable to use an ATM device which can be
purchased or leased from the Company. The Company believes that this technology
will permit a conventional telephone line to be used to simultaneously carry
voice, fax, Internet and audiovisual over a single conventional copper line. The
Company believes that by offering these multiple services using only one line,
the Company should be positioned as a competitive telecommunications provider of
ATM services.
See Item 7 - "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS - ATM
Technology Acquisition" for a description of the transactions through which the
Company acquired the ATM Technology.
Telecommunications
The Company is a facilities-based carrier providing telecommunications
services, including commercial and residential service, long distance service,
operator service for pay phones, prepaid phone cards, calling cards and enhanced
services, such as voice mail and fax services. The Company owns and operates a
Siemens high-volume gateway switch and an IBM AS400 billing platform to
accommodate its current business and anticipated near-term growth. The Company's
predecessor, TSC, was qualified to do business in forty-eight (48) states and
was tariffed or certified as a long distance telecommunications carrier in
forty-two (42) states. As a result of the Merger, the Company is required to
file, and is in the process of filing, qualifications to do business in each
jurisdiction in which it is or will be certified or tariffed as a long distance
telecommunications carrier. After such qualifications have been effected, the
Company intends to file appropriate name change amendments to its certification
or tariff documentation and any other documents necessary to reflect the Merger
in the appropriate jurisdictions.
TSC was certified as an Alternative Local Exchange Carrier ("ALEC") to
provide local telephone services in the State of Florida. To reflect the
Merger, the Company has filed a name change amendment to its ALEC certification
in Florida and is in the process of filing for ALEC certification in thirty
(30) additional states.
The Company currently provides all hardware and software for call
processing, billing, tracking and prepaid debiting, as well as call transport,
client programming, national and international connectivity, systems maintenance
and capital expansion requirements for both long distance (in all states) and
local residential service in Florida. The Company offers a comprehensive
service package that includes both automated and operator-assisted programs.
The Company's Business Plan
The Company intends to continue to expand upon its current success in the
calling card market, both conventional and prepaid. The Company's most
successful calling card programs
3
<PAGE>
have been targeted at selling calling cards in the transportation industry. The
Company plans to exhibit its products at numerous trade shows and to market them
to affinity groups and retail establishments via strategic relationships with
independent marketing agents and internal sales efforts. The Company also
intends to offer additional services and benefits to its calling card customers,
thereby moving toward its goal of establishing an electronic commerce credit
card.
The Company believes that strategic partnerships with clients and vendors
are essential to its global success. In the future, the Company plans to
provide a host of other intelligent network applications, including an
electronic commerce credit card.
The Company has from time to time received preliminary proposals, all
subject to numerous conditions and contingencies (including the completion of
due diligence and the obtaining of financing), to acquire all or part of the
Company or its stock or assets. None of the discussions regarding these
proposals has progressed beyond the preliminary stages. The Company expects to
engage continually in discussions and negotiations regarding possible
acquisitions and dispositions of assets and businesses and other strategic
alliances, some of which may be material. There can be no assurance that any
such transactions will be consummated.
Employees and Labor Relations
The Company currently employs 24 people, none of whom are represented by
labor unions. The Company is not a party to any collective bargaining
agreements or labor union contracts, nor has it been subjected to any strikes or
employment disruptions in its history.
Financial Information about Industry Segments
The Company operates in two industry segments, telecommunications and
internet technology. Financial information about the Company's industry
segments is included in the financial statements attached hereto for TSC
(telecommunications) and CyberSentry (internet technology), and is incorporated
herein by reference.
Financial Information About Geographic Areas
At present, substantially all of the Company's operations are conducted in
the United States, and the Company has no material foreign operations.
Risk Factors and Investment Considerations
Investors contemplating an investment in the Company's common stock, par
value $.001 per share (the "Common Stock"), the Company's Class A Convertible
Redeemable Participating Preferred Stock ($1.50 Liquidation Value), par value
$.001 per share (the "Class A Preferred
4
<PAGE>
Stock"), or the Company's Class B Convertible Redeemable Participating Preferred
Stock ($1.50 Liquidation Value), par value $.001 per share (the "Class B
Preferred Stock") should carefully consider the following risk factors and
investment considerations.
Risk Factors and Investment Considerations Relating to the Company as a
Whole
Recent Bankruptcy Proceedings. The Company was formed by the Merger as of
March 24, 1999 between TSC and CyberSentry. The Merger was entered into
pursuant to the Plan, by means of which TSC emerged from its Bankruptcy
proceedings. For more information about the Bankruptcy, the Plan, the Merger
and certain related transactions, see Item 7 - "CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS - Bankruptcy, Merger and Related Transactions".
Limited Operating History; History of Losses and Expectation of Future
Losses. The Company has a limited operating history upon which it can be
evaluated. Any investment in the Company must be considered in light of the
risks, expenses and difficulties frequently encountered by companies in an early
stage of development in new and rapidly evolving markets, including the risks
described below. There can be no assurance that the Company will be successful
in addressing such risks.
TSC incurred a net loss of approximately $3.41 million for the year ended
December 31, 1998; a net loss of $3.04 million for the year ended December 31,
1997 and a net loss of $1.26 million for the year ended December 31, 1996. As
of December 31, 1998, TSC had an excess of current liabilities over current
assets of approximately $8.4 million and a capital deficit of approximately $8.4
million.
Neither TSC nor the Company has achieved profitability on a quarterly
or annual basis, and the Company anticipates that it will incur net losses for
at least the next several quarters. The Company expects to continue to incur
significant product development, sales and marketing, and administrative
expenses, and as a result, will need to generate significant quarterly revenues
to achieve and maintain profitability. There can be no assurance that any of
the Company's business strategies will be successful or that significant
revenues or profitability will ever be achieved or, if they are achieved, that
they can be consistently sustained or increased on a quarterly or annual basis
in the future. See Item 2 - "FINANCIAL INFORMATION" and related Exhibits.
Potential Fluctuations in Operating Results. The Company's operating
results may fluctuate significantly in the future as a result of a variety of
factors, many of which are outside of the Company's control. These factors
include demand for CyberSentry Software and ATM Technology, demand for
telecommunications services and products offered by the Company and lengthy
sales cycles, changes in the growth rate of Internet usage, customers' capital
expenditures
5
<PAGE>
and other costs relating to the expansion of the respective operations, demand
for Internet commerce, seasonal trends in sales, introduction of new products or
services by the Company or its competitors, delays in the introduction or
enhancement of products and services by the Company or its competitors, customer
order deferrals in anticipation of upgrades and new products, changes in the
Company's pricing policies or those of its competitors, the Company's ability to
anticipate and effectively adapt to developing markets and rapidly changing
technologies, changes in the mix of international and U.S. revenues, changes in
foreign currency exchange rates, mix of products and services sold and the
channels through which those products and services are sold, general economic
conditions and specific economic conditions in Internet and related industries.
Additionally, as a strategic response to a changing competitive environment, the
Company may elect from time to time to make certain pricing, service, marketing
or acquisition decisions that could have a material adverse effect on the
Company's quarterly financial performance.
Quarterly sales and operating results generated by the Company's
CyberSentry Software applications are expected to generally depend on per-usage
fees and subscription revenues received from the Company's digital rights
management customers within the quarter, which are difficult to forecast.
Transaction based revenues generated by the Company's digital rights electronic
commerce customers are all pursuant to per usage contracts and are subject to
seasonal trends in advertising sales. Revenues from per-usage fees depend on
the volume of end user electronic commerce transactions processed by the
Company's digital rights management software. The Company does not have any
substantial historical basis for predicting the volume of transactions that may
be generated by end users of on-line services provided by many of its customers.
Accordingly, a low level of usage by end users or the cancellation or deferral
of any customer contract could have a material adverse effect on the Company's
quarterly financial performance.
The Company plans to significantly increase its operating expenses to
expand its sales and marketing operations, broaden its customer support
capabilities, develop new distribution channels, and establish strategic
alliances. Because the Company's operating expenses are based on anticipated
revenue trends and because a high percentage of the Company's expenses are
fixed, delay in generating or recognizing revenue from a limited number of
license transactions could cause significant variations in operating results
from quarter to quarter and could result in operating losses. To the extent
that such expenses are not subsequently followed by increased revenues, this
could have a material adverse effect on the Company's business, financial
condition and results of operations. As a result of these and other factors,
the Company believes that period to period comparisons of its operating results
may not be meaningful and should not be relied upon as an indication of future
performance. Due to all of the foregoing factors, it is likely that in some
future quarter, the Company's operating results may be below the expectations of
public market analysts and investors. In such event, the price of the Company's
Common Stock, Class A Preferred Stock and Class B Preferred Stock would likely
be materially adversely affected. See
6
<PAGE>
"Risk Factors - Substantial Dependence on CyberSentry Software and ATM
Technology; Uncertainty of Market Acceptance; Lengthy Sales Cycle".
Need to Manage Changing Operations; Dependence Upon Key Personnel. The
ability of the Company to successfully offer products and services and implement
its business plan in a rapidly evolving market requires an effective planning
and management process. The Company has recently increased the scope of its
operations domestically, and the Company's anticipated future operations will
continue to place a significant strain on the Company's management systems and
resources. The Company expects that it will be required to continue to improve
its financial and managerial controls and reporting systems and procedures, and
will need to expand, train and manage its work force. Furthermore, the Company
expects that it will be required to manage multiple relationships with various
customers and other third parties. There can be no assurance that the Company
will be able to effectively manage these tasks, and the failure to do so could
have a material adverse effect on the Company's business, financial condition
and results of operations.
The Company is dependent upon the continued efforts and abilities of its
President and Chief Executive Officer, Gerald Resnick, and its Senior Vice
President, Hal Shankland. The loss or unavailability of either of these
individuals for any significant period could have a material and adverse effect
on the Company's continued development, business, financial condition and
results of operations. The Company's operations will also depend to a great
extent on the Company's ability to attract new key personnel and retain existing
key personnel in the future. Mr. Resnick and Mr. Shankland are bound by
employment agreements with the Company. See Item 6 - "EXECUTIVE COMPENSATION -
Employment Agreements". The Company does not have "key person" life insurance
policies covering any of its employees.
Control by Officers and Directors; Transactions with Affiliates. The
Company's executive officers, directors and entities affiliated with them
(collectively, "management shareholders"), in the aggregate, beneficially own
Common Stock and Preferred Stock representing in the aggregate approximately
30.0% of the Company's outstanding voting securities. In addition, certain
shareholders of the Company who, in the aggregate, beneficially own Common Stock
and Preferred Stock representing approximately 34.6% of the Company's
outstanding voting securities, have entered into agreements with the Company,
pursuant to which such shareholders have agreed, among other things, to vote all
of their voting securities in proportion to the votes cast by all of the other
holders of the Company's voting securities. See Item 7 - "CERTAIN RELATIONSHIPS
AND RELATED TRANSACTIONS". These agreements will have the effect of
proportionately increasing the voting power of the management shareholders,
whose 30.0% ownership interest in the Company's voting securities will give
them, in effect, approximately 47.6% of total voting power. Thus, the
management shareholders will be able to significantly influence and, possibly,
control all matters requiring approval by the shareholders of the Company,
including the election of directors and the approval of mergers or
7
<PAGE>
other business combination transactions.
The Company has in the past entered into several contracts and transactions
with its executive officers, directors, substantial shareholders and entities
affiliated with them on terms that were not negotiated on an arms'-length basis.
Management believes that the terms of these transactions were as favorable to
the Company as would have been obtained if they had been negotiated on an arms'-
length basis with unaffiliated third parties. See Item 7 - "CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS". It is anticipated that any future
contracts and transactions between the Company and its executive officers,
directors, substantial shareholders and their affiliates will be on terms no
less favorable to the Company than those that would have been obtained from
unaffiliated third parties in arms'-length negotiations.
Risks Associated with International Operations. The Company currently
markets and sells its products and services only in the United States. However,
the Company is considering expanding into selected international markets. The
Company's entry into international markets will require significant management
attention and financial resources. If international revenues generated by the
Company are not adequate to offset the expense of establishing and maintaining
foreign operations, the Company's business, financial condition and results of
operations would be materially adversely effected. To date, the Company has
only limited experience in developing localized versions of its product and
marketing and distributing its products. There can be no assurance that the
Company will be able to successfully market, sell and deliver its products in
international markets. International operations are subject to inherent risks,
including the impact of possible recessionary environments in economies outside
the United States, the cost of localizing products for foreign markets, longer
receivables collection periods and greater difficulty in accounts receivable
collection, unexpected changes in regulatory requirements, difficulties and
costs of staffing and managing foreign operations, reduced protection for
intellectual property rights in some countries, potentially adverse tax
consequences and political and economic instability. There can be no assurance
that the Company or its distribution partners will be able to sustain or
increase international revenues, or that the foregoing factors will not have a
material adverse effect on the Company's future international revenues and,
consequently, on the Company's business, financial condition and results of
operations. International revenues are generally denominated in local
currencies. The Company does not currently engage in currency hedging
activities. Although exposure to currency fluctuations to date has been
insignificant, there can be no assurance that fluctuations in currency exchange
rates in the future will not have a material adverse impact on revenues from
international sales and thus the Company's business, financial condition and
results of operations.
Year 2000 Risks. The potential for software failures due to processing
errors arising from calculations using the Year 2000 date is a known risk. The
Company recognizes the need to ensure that its operations, products and services
will not be adversely impacted by Year 2000 software failures. The Company has
made plans to update the billing software for its IBM
8
<PAGE>
AS400 billing platform to make it Year 2000 compliant, and has been provided
with the software upgrade which the Company believes will make its Siemens high-
volume gateway switch Year 2000 compliant. The Company's contingency plan for
the Year 2000 risk is to download copies of all records, software and data to a
mass storage media, most likely CD Rom, in order that it may be reinstalled in
the event that any data is corrupted or lost. The Company has been advised by
its major vendors that they are Year 2000 compliant.
The Company intends to establish procedures for evaluating and managing the
risks and costs associated with the Year 2000 problem and is in the final stages
of upgrading its internal computer systems, including its accounting, sales and
technical support automation systems, to make them Year 2000 compliant.
However, there can be no guarantee that the systems of other companies on which
the Company's systems and operations rely will be able to handle all Year 2000
problems.
In addition, although the Company believes that its CyberSentry Software
applications are Year 2000 compliant, there can be no assurance that the
Company's software products contain all necessary date code changes.
Furthermore, many of the Company's customers or potential customers use Internet
protocols and maintain their Internet operations on servers that may be impacted
by Year 2000 complications. Reliance on such Internet protocols or the failure
of the Company's customers or potential customers to ensure that their servers
are Year 2000 compliant, could have a material adverse affect on the Company's
customers and on the Company's products and search services, which in turn could
have a material adverse effect on the Company's business, financial condition
and results of operations.
Risks Associated With Potential Acquisitions. The Company may in the
future pursue acquisitions of complementary products, technologies or
businesses. Future acquisitions by the Company may result in potentially
dilutive issuances of equity securities and the incurring of additional debt and
amortization expenses related to goodwill and other intangible assets, which
could adversely affect the Company's results of operations. In addition,
acquisitions involve numerous risks, including difficulties in the assimilation
of the operations, products and personnel of the acquired company, the diversion
of management's attention from other business concerns, risks of entering
markets in which the Company has no direct prior experience, and the potential
loss of key employees of the acquired company. There can be no assurance that
the Company will ever successfully complete an acquisition.
No Public Market for Common and Preferred Stock; Potential Volatility of
Common and Preferred Stock Price. Prior to the consummation of the Plan and the
Merger, there has been no public market for the Company's Common Stock, Class A
Preferred Stock or Class B Preferred Stock, and there can be no assurance that
an active trading market will develop or, if one does develop, that it will be
maintained. In addition, the securities markets have from time to time
experienced significant price and volume fluctuations that are unrelated to the
operating
9
<PAGE>
performance of particular companies. The market prices of the common stock of
many publicly held Internet companies have in the past been, and can in the
future be expected to be, especially volatile. The market price of the Company's
Common Stock, Class A Preferred Stock and Class B Preferred Stock is likely to
be highly volatile and may be subject to wide fluctuations in response to
announcements of technological innovations or new products by the Company or its
competitors, release of reports by securities analysts, developments or disputes
concerning patents or proprietary rights, economic and other external factors,
as well as period-to-period fluctuations in the Company's financial results.
Possible Antitakeover Effect of Preferred Stock. The Company is currently
authorized to issue 10,000,000 shares of preferred stock, par value $.001 per
share (the "Preferred Stock"). See Item 11 - "DESCRIPTION OF REGISTRANT'S
SECURITIES TO BE REGISTERED". The Board of Directors has the general authority
to issue Preferred Stock in one or more series and to fix the price, rights,
preferences, privileges and restrictions thereof, including dividend rights,
dividend rates, conversion rights, voting rights, terms of redemption,
redemption prices, liquidation preferences and the number of shares constituting
a series or the designation of such series, without any further vote or action
by the Company's stockholders. The issuance of Preferred Stock, while providing
desirable flexibility in connection with possible acquisitions and other
corporate purposes, could have the effect of delaying, deterring or preventing a
change in control of the Company without further action by the stockholders and
may adversely affect the market price of the Common Stock and the voting and
other rights of the holders of Common Stock. The issuance of Preferred Stock
with voting and conversion rights may adversely affect the voting power of the
holders of Common Stock, including the loss of voting control to others. See
Item 1 - "BUSINESS", Item 7 - " CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS"
and Item 11 - "DESCRIPTION OF REGISTRANT'S SECURITIES TO BE REGISTERED" for a
description of the terms of the Class A Preferred Stock and the Class B
Preferred Stock of the Company issued to certain former creditors and
stockholders of TSC (a predecessor of the Company) and other persons pursuant to
the Plan and the Merger.
Possible Antitakeover Effect of Certain Charter Provisions and of Delaware
Law. Certain provisions of the Company's Certificate of Incorporation and
Bylaws eliminate the right of stockholders to vote cumulatively in the election
of directors (subject to compliance with Delaware corporate law), provide for a
classified Board of Directors and specify certain procedures for nominating
directors and submitting proposals for consideration at stockholder meetings.
Such provisions are intended to enhance the likelihood of continuity and
stability in the composition of the Board of Directors and in the policies
formulated by the Board of Directors, and to discourage types of transactions
which may involve an actual or threatened change of control of the Company.
Such provisions are designed to reduce the vulnerability of the Company to an
unsolicited acquisition proposal and, accordingly, could discourage potential
acquisition proposals and could delay or prevent a change in control of the
Company. Such provisions are also intended to discourage certain tactics that
may be used in proxy fights but could, however,
10
<PAGE>
have the effect of discouraging others from making tender offers for the
Company's Common Stock and, consequently, may also inhibit fluctuations in the
market price of the Company's Common Stock that could result from actual or
rumored takeover attempts. These provisions may also have the effect of
preventing changes in the management of the Company.
The Company is subject to Section 203 of the Delaware General Corporation
Law (the "Anti-Takeover Law"), which regulates corporate acquisitions. The
Anti-Takeover Law prevents certain Delaware corporations, including those whose
securities are listed for trading on the NASDAQ National Market, from engaging,
under certain circumstances, in a "business combination" with any "interested
stockholder" for three years following the time that such stockholder became an
interested stockholder. For purposes of the Anti-Takeover Law, a "business
combination" includes, among other things, a merger or consolidation involving
the Company and the interested stockholder and the sale of more than 10% of the
Company's assets to the interested stockholder. In general, the Anti-Takeover
Law defines an "interested stockholder" as any entity or person beneficially
owning 15% or more of the outstanding voting stock of the Company and any entity
or person affiliated with or controlling or controlled by such entity or person.
A Delaware corporation may "opt out" of the Anti-Takeover Law with an express
provision in its original certificate of incorporation or an express provision
in its certificate of incorporation or bylaws resulting from amendments approved
by the holders of at least a majority of the company's outstanding voting
shares. The Company has not opted out of the provisions of the Anti-Takeover
Law.
Risks Associated with Telecommunications Business
Strong Competition. The telecommunications services industry is highly
competitive, rapidly evolving and subject to constant technological change.
There are numerous other companies offering one or more of each of the services
offered by the Company. As a service provider in the long distance
telecommunications industry, the Company would compete with three dominant
providers, AT&T Corp., MCI Communications Corporation and Sprint Corporation,
all of which are substantially larger and have: (i) greater financial,
technical. engineering, personnel and marketing resources; (ii) longer operating
histories; (iii) significant name recognition; and (iv) large consumer bases.
These advantages afford the Company's competitors pricing flexibility.
Telecommunications services companies may compete for consumers based on price,
with the dominant providers conducting extensive advertising campaigns to
capture market share. Competitors with greater financial resources may also be
able to provide more attractive incentive packages to retailers to encourage
them to carry services that compete with the Company's services. In addition,
competitors with greater resources than the Company may be better situated to
negotiate favorable contracts with retailers. The Company believes that
existing competitors are likely to continue to expand their service offerings to
appeal to retailers and their consumers. Moreover, since there are few, if any,
substantial barriers to entry, the Company expects that new competitors are
likely to enter the telecommunications
11
<PAGE>
market and attempt to market telecommunications services similar to the services
offered by the Company which would result in greater competition.
The ability of the Company to compete effectively in the telecommunications
services industry will depend upon its ability to provide high quality services
at prices generally competitive with, or lower than, those charged by its
competitors. Certain of the Company's competitors dominate the
telecommunications industry and have the financial resources to withstand
substantial price competition, which is expected to increase significantly, and
there can be no assurance that the Company will be able to compete successfully.
Moreover, there can be no assurance that certain of the Company's competitors
will not be better situated to negotiate contracts with suppliers of
telecommunications services which are more favorable than contracts the Company
negotiates. In addition, there can be no assurance that the competition from
existing or new competitors or a decrease in the rates charged for
telecommunications services by the major long distance carriers or other
competitors would not have a material adverse effect on the Company.
Dependence Upon Independent Marketing Agents. During 1998 and 1997, a
substantial portion of the Company's telecommunications business was obtained
through independent marketing agents ("Marketing Agents"). These Marketing
Agents obtain customers for the Company in return for payment by the Company to
such agents of a substantial portion of the fees received by the Company from
such customers. In 1998, TSC derived approximately $18.7 million (or
approximately 82%) of its approximately $22.8 million in sales revenues from
business obtained through Marketing Agents, with approximately $16 million (or
approximately 70%) of TSC's revenues coming as a result of programs generated
through Marketing Agents comprised of an affiliated group of privately owned
companies. There can be no assurance that the Company will continue to generate
business through Marketing Agents and any failure to do so, or any termination
or interruption of the Company's relationship with the affiliated group of
Marketing Agents, would have a material adverse effect on the Company's
business, financial condition and results of operations.
Need to Expand Sales and Support Organizations. To date, the Company has
sold its telecommunications products and services through master agents and
subagents, and through its direct sales organization, which as of December 31,
1998, consisted of three individuals. The Company believes that its future
success is dependent upon substantially increasing the size of its direct sales
force, both domestically and internationally. Competition for such personnel is
intense, and there can be no assurance that the Company will be able to attract,
assimilate or retain additional qualified sales personnel on a timely basis in
the future, or at all. In addition, the Company believes that its future
success is dependent upon establishing relationships with a variety of
distribution partners, including original equipment manufacturers ("OEM's"),
systems integrators, value added resellers ("VAR's") and joint marketing
partners. The Company has had discussions with only a limited number of such
distribution partners and has yet to enter into a
12
<PAGE>
written agreement with any such distributors. There can be no assurance that the
Company will be able to enter into agreements or establish relationships with
desired distribution partners on a timely basis or at all, or that such
distributors will devote adequate resources to selling the Company's products.
Failure of the Company to successfully expand the size of its sales organization
or establish appropriate distribution channels for its products would have a
material adverse effect on the Company's business, financial condition and
results of operations. Moreover, the Company believes that the complexity of its
products and the large-scale deployments anticipated by its customers will
require a number of highly trained customer service and support personnel. The
Company currently has a small customer service and support organization, which
as of December 31, 1998, consisted of twelve individuals. There can be no
assurance that the Company will be able to increase the size of its customer
service and support organization on a timely basis or at all, or that the
Company will be able to provide the high level of support required by its
customers. Failure in either of these regards could have a material adverse
affect on the Company's business, financial condition and results of operations.
Rapid Technological Change. The telecommunications services industry is
characterized by rapid technological change, new product introduction and
evolving industry standards. The Company's success will depend, in significant
part, on its ability to make timely and cost-effective enhancements and
additions to its technology and introduce new services that meet consumer
demands. The Company expects new products and services, and enhancements to
existing products and services, to be developed and introduced to compete with
the Company's services. The proliferation of new telecommunication technology,
including personal communication services and voice communication over the
Internet, may reduce demand for long distance services, including prepaid
calling cards. There can be no assurance that the Company will be successful in
developing or marketing new services or enhancements to the Company's services
that respond to these or other technological changes or evolving industry
standards. In addition, there can be no assurance that the Company will not
experience difficulties that could delay or prevent successful development,
introduction and marketing of its planned services or that new services or
enhancements thereto will adequately meet the requirements of the marketplace
and achieve market acceptance. Delay in the introduction of new services or
enhancements, the inability to develop such new services or enhancements or the
failure of such services or enhancements to achieve market acceptance could have
a material adverse effect on the Company.
Lack of Own Transmission Network. The Company does not own a transmission
network. Accordingly, the Company will depend on carriers for transmission of
its long distance calls. Further, the Company will be dependent upon local
exchange carriers for call origination and termination. The Company's ability
to maintain and expand its business depends, in part, upon its ability to obtain
telecommunications services on favorable terms from long distance carriers and
other such suppliers, as well as the cooperation of both inter exchanges and
local exchange carriers in originating and terminating service for its
commercial and residential customers in a timely manner. There can be no
assurance that the Company will not experience losses because
13
<PAGE>
of interruptions of service at any of its carriers. In addition, no assurance
can be given that the Company will be able to obtain long distance services in
the future at favorable prices, and a material increase in the price at which
the Company obtains long distance service could have a material adverse effect
on the Company.
Need to Expand Infrastructure; Risk of Interruptions in Service. The
Company owns a Siemens high-volume gateway switch and an IBM AS 400 billing
platform, which management considers sufficient to accommodate its current
business and anticipated near-term growth. In order to satisfy customer needs,
however, management expects, under current growth plans, that the Company will
be required to expand the capacity of its existing data center and to build out
additional data centers to adequately provide service. These activities require
highly specialized personnel and involve many difficult installation, tuning and
optimization tasks, and will require the Company to expend substantial financial
and management resources. The Company has in the past experienced difficulties
and delays in expanding and stabilizing its existing data center. As a result,
there can be no assurance that the Company will be able to expand its
infrastructure to meet increased customer demand on a timely basis. The Company
houses its data centers at its facilities and takes certain precautions to
protect the Company's equipment against damage from fire, earthquakes, floods,
power and telecommunications failures, sabotage, intentional acts of vandalism
and similar events. Despite such precautions, the occurrence of a natural
disaster or other unanticipated problems at current and future data centers of
the Company could result in interruptions in the services provided by the
Company. Such interruptions could result in reductions in, or terminations of,
service provided to the Company's customers, which could have a material adverse
effect on the Company's business, financial condition and results of operations.
Risks Associated with Billing and Collection. The Company presently
performs approximately one-quarter of its own billing and collection services.
In performing these services, the Company rates calls and directly bills the
customer utilizing an IBM AS400 billing platform and a Pitney Bowes mail
processing system. With respect to the remaining three-quarters of its billing
and collection services, the Company rates calls and forwards the rated call
records to other companies ("Billing Companies") for appropriate billing through
local exchange carriers ("LEC's"). The billing LEC's collect the amount due
from the end user and remit payment through the Billing Companies to the
Company. Such payments to the Company are net of any fees collected by the
LEC's as well as a provision for uncollectible amounts. The requirement that
the Company enter into agreements with Billing Companies, which have individual
contractual arrangements with the LEC's, to bill and collect the Company's
accounts could have a material adverse effect on the Company. In addition, the
Company has less leverage in collecting amounts due from customers directly
rather than billing customers through the LEC's.
Pervasive Governmental Regulation. The Company is currently subject to
pervasive Federal and state government regulation of its long distance telephone
services. The Company is regulated at the Federal level by the FCC and is
currently required to maintain both domestic and
14
<PAGE>
international tariffs for its services containing the currently effective rates,
terms and conditions of service. The FCC has proposed, however, to eliminate the
tariffing requirement for domestic non-dominant carriers. In addition, the
Company is required to maintain a certificate, issued by the FCC, in connection
with its international services. The intrastate long distance telecommunications
operations of the Company are also subject to various state laws and
regulations, including prior certification, notification or registration
requirements. The Company generally must obtain and maintain certificates of
public convenience and necessity from regulatory authorities in most states in
which it offers services. In most of these jurisdictions, the Company must file
and obtain prior regulatory approval of tariffs for intrastate services. In
addition, the Company must update or amend the tariffs and, in some cases, the
certificates of public convenience and necessity when rates are adjusted or new
products are added to the long distance services offered by the Company. The FCC
and numerous state agencies also impose prior approval requirements on transfers
of control, including transfers of control and corporate reorganization, and
assignments of certain regulatory authorizations.
The Company's predecessor, TSC, was qualified to do business in forty-eight
(48) states and was tariffed or certified as a long distance telecommunications
carrier in forty-two (42) states. As a result of the Merger, the Company is
required to and is in the process of filing qualifications to do business in
each jurisdiction in which it is or will be certified or tariffed as a long
distance telecommunications carrier. After such qualifications have been
effected, the Company intends to file appropriate name change amendments to its
certification or tariff documentation and any other documents necessary to
reflect the Merger in the appropriate jurisdictions. TSC was certified as an
Alternative Local Exchange Carrier ("ALEC") to provide local telephone services
in the State of Florida. To reflect the Merger, the Company has filed a name
change amendment to its ALEC certification in Florida and is in the process of
filing for ALEC certification in thirty (30) additional states.
If the Federal and state regulations requiring the local exchange carriers
to provide equal access for the origination and termination of calls by long
distance subscribers (such as the Company's customers) change or if the
regulations governing the fees to be charged for such access service change,
particularly if such regulations are changed to allow variable pricing of such
access fees based upon volume, such changes could have a material adverse effect
on the Company.
The Company's long distance prepaid calling card product and other
telecommunications services are currently subject to Federal, state and
international regulation. The Company's operations are intended to be in
compliance with the requirements of the Telephone Operator Consumer Services
Improvement Act of 1990 ("TOCSIA") and the FCC's implementing regulations
regarding unblocking, branding and posting for operator services. The Company
is duly authorized under section 214 of the Communications Act of 1934, as
amended (the "Communications Act") to provide international value-added
telecommunications services. The
15
<PAGE>
Company maintains informational tariffs for its operator services and maintains
on file tariffs for its long distance and prepaid calling card services. The
Company is licensed in the States in which it operates as a long-distance
operator service provider, and, except as described in Item 7 - "CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS - Grace Trust Transaction", the Company
is not aware of any instance in which there has been a substantial violation of
Federal or state telecommunications regulations in connection with the Company's
services. While the Company believes that it is in compliance with the
applicable Federal, state and international regulations governing
telecommunications services, there can be no assurance that the FCC or the
regulatory authorities in one or more states or foreign countries will not raise
material issues with regard to the Company's compliance with applicable
regulations, or that Federal, state and international regulatory activities will
not have a material adverse effect on the Company. In addition, while the
Company believes that it has instituted appropriate safeguards, there can be no
assurance that a transaction similar to the Grace Trust transaction will not
arise again in the future and, if so, that it will not have a material adverse
effect on the Company.
Section 276 of the Telecommunications Act of 1996 ("Section 276") mandated
the establishment of Universal Service for the promotion of nationwide access to
telecommunications services in rural, insular and high cost areas that are
reasonably comparable in price and type to those found in urban areas and the
promotion of access to advanced services for schools, libraries and certain
health care providers. Telecommunications providers of interstate services,
including pay phone aggregators and private network operators that offer service
to others for a fee on a non-common carrier basis, must contribute toward the
funding of Universal Service. Certain government and public safety entities are
exempt, as are entities whose contribution would be less than $100 per year.
Although the Company's competition will be similarly situated, the Universal
Service Fund annual assessment may have a material adverse effect on the long-
term financial condition of the Company.
Section 276 further mandated that the FCC promulgate rules to establish a
per call compensation plan to ensure that all pay phone providers are fairly
compensated for each completed intrastate and interstate pay phone initiated
call, including calls on which pay phone providers had not heretofore received
compensation. Such calls included those placed to toll free numbers (800/888),
such as operator assisted and prepaid calling card calls, and calls placed
through network access codes. In September 1996, the FCC promulgated rules to
implement Section 276 which established a three-phase compensation plan for pay
phone providers. Under the first phase, inter exchange carriers with annual
toll revenues of more than $100 million were to pay a total of $45.85 per pay
phone per month for all toll free and access code calls for the first year,
commensurate with their portion of inter exchange revenues. All switch-based
and facilities-based inter exchange carriers were to pay $0.35 per call to each
pay phone provider during the second year (although payments could subsequently
be recovered from resellers by the carriers), after which per call compensation
rates were to be left to individual market driven rates negotiated between pay
phone providers and inter exchange carriers. On July 7, 1997, the D.C.
16
<PAGE>
Circuit Court of Appeals vacated significant portions of the FCC's rules
including the $0.35 per call rate which was found to be arbitrary and
capricious, and remanded the matter to the FCC for reconsideration. On remand,
the FCC in September of 1997 established a two-year "default" compensation rate
of $0.284 per pay phone originated toll free or access code call. At the end of
the two year interim period, the per call pay phone compensation rate will be
the deregulated market based local coin rate less $0.066. This amount is payable
by all "switch-based" inter exchange carriers (but again may be passed on to
non-facilities based resellers). The revised FCC rules became effective on
October 7, 1997, but continue to be subject to regulatory and legal challenges.
The Company is unable to predict whether this regulation or other potential
changes in the regulatory environment could have a material adverse effect on
the Company.
Risks Associated with Internet and ATM Businesses
Uncertainty of Market Acceptance; Lengthy Sales Cycle. The Company's
future growth substantially depends on the commercial success of the CyberSentry
Software and ATM Technology, which the Company first licensed in 1998. The
Company has only one customer to date, Digital Rights International, Inc.
("DRI") for the CyberSentry Software, and is initially targeting large
publishers of copyrighted materials and telecommunications carriers. There can
be no assurance that these potential customers will adopt and implement the
CyberSentry Software and/or the ATM Technology. Even if the CyberSentry
Software and ATM Technology are adopted, they may not be accepted and
implemented on a timely basis or at all. To date, other than at DRI, the
CyberSentry Software and the ATM Technology have not been installed in a large-
scale, commercial deployment, and there can be no assurance that these products
will perform desired functions, offer sufficient price/performance benefits or
meet the technical or other requirements of customers. Despite testing of the
CyberSentry Software and ATM Technology prior to their initial commercial
release, there can be no assurance that all performance errors or deficiencies
have been discovered and remedied, that additional errors or deficiencies will
not occur, or that if they occur, the Company will be able to correct such
errors and deficiencies. The Company believes that the license of the
CyberSentry Software and ATM Technology by customers will involve an enterprise-
wide decision-making process, and that the Company or its distribution partners
will need to provide a significant level of education and information to
prospective customers regarding the uses and benefits of the products. In
addition, the Company believes that the time required to deploy the CyberSentry
Software and ATM Technology will vary significantly depending on a number of
factors, including the needs and skill set of the customer, the size of the
deployment, the complexity of the customer's network environment, the quantity
of hardware and degree of hardware configuration necessary to deploy the
CyberSentry Software and ATM Technology, and the customer's installation
schedule. For these and other reasons, the license and deployment of the
CyberSentry Software and ATM Technology may be characterized by lengthy sales
and implementation cycles. Failure of the CyberSentry Software or ATM
Technology to achieve market acceptance for these or any other
17
<PAGE>
reasons would have a material adverse effect on the Company's business,
financial condition and results of operations.
Substantial Competition. The markets in which the Company expects to
compete in providing Internet services are new, intensely competitive, highly
fragmented and characterized by rapidly changing technology and evolving
standards. The Company faces competition in the overall network computing
software market as well as each of the market segments in which its products and
services compete. The Company has experienced and expects to continue to
experience increases in competition from current and potential competitors, many
of whom have significantly greater financial, technical, marketing and other
resources than the Company.
The Company's competitors may be able to respond more quickly to new or
emerging technologies and changes in customer requirements or devote greater
resources to the development, promotion and sales of their products than the
Company. Certain of the Company's current and potential competitors may bundle
their products with other software or hardware, including operating systems and
browsers, in a manner that may discourage users from purchasing products offered
by the Company. Also certain current and potential competitors have greater
name recognition or more extensive customer bases that could be leveraged
thereby gaining market share to the Company's detriment. The Company expects
additional competition as other established and emerging companies enter the
network computing software market and new products and technologies are
introduced. Increased competition could result in price reductions, fewer
customer orders, reduced gross margins and loss of market share, any of which
could materially adversely effect the Company's business, financial condition
and results of operations. Current and potential competitors may make strategic
acquisitions or establish cooperative relationships among themselves or with
third parties, thereby increasing the ability of their product to address the
needs of the Company's prospective customers. The Company's current or future
channel partners may establish cooperative relationships with current or
potential competitors of the Company, thereby limiting the Company's ability to
sell its products through particular distribution channels. Accordingly, it is
possible that new competitors or alliances among current competitors may emerge
and rapidly gain significant market share. Such competition could materially
adversely affect the Company's ability to obtain new contracts and maintenance
and support renewals for existing contracts on terms favorable to the Company.
Further, competitive pressures could require the Company to reduce the prices of
its products and services, which could materially adversely affect the Company's
business, financial condition and results of operations. There can be no
assurance that the Company will be able to compete successfully against current
and future competitors, and the failure to do so would have a material adverse
effect upon the Company's business, financial condition and results of
operations.
Need to Expand Sales and Support Organizations. The Company currently has
only three full-time employee devoted to its Internet services business. The
Company intends to hire a significant number of additional sales, support,
marketing, and research and development
18
<PAGE>
personnel for its internet services business in 1999 and beyond. Competition for
such personnel is intense, and there can be no assurance that the Company will
be able to attract, assimilate or retain additional highly qualified personnel
in the future. If the Company is unable to hire and retain such personnel,
particularly those in key positions, the Company's business, financial condition
and results of operations may be materially adversely affected.
Risk of Default Under Primary Licenses. The Company's rights to the
CyberSentry Software and the ATM Technology under both the Assignment from
Templar and the Sub-Contract with Comtel, respectively, are subject to the risk
of default by Templar and Comtel, respectively, under the agreements (the
"Primary Licenses") pursuant to which these companies acquired the technology
rights assigned or sub-contracted to the Company. Any such default by Templar
or Comtel under the Primary Licenses would have a material adverse effect on the
Company's business, financial condition and results of operations. Item 7 -
"CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS - Bankruptcy, Merger and
Related Transactions."
Customer Concentration. The Company expects that a small number of
customers will account for a substantial portion of revenues of its CyberSentry
Software and ATM businesses. As a result, the loss of a major customer or a
decline in the usage of any such customer could have a material adverse effect
on the Company's business, financial condition and results of operations.
Dependence on Strategic Relationships. The Company believes that its
success in penetrating markets for its CyberSentry Software product application
will depend in part on its ability to develop and maintain strategic
relationships with key hardware and software vendors, distribution partners and
customers. The Company further believes that such relationships will be
important in order to validate the Company's technology, facilitate broad market
acceptance of the Company's products, and enhance the Company's sales, marketing
and distribution capabilities. The Company's inability to develop, attract or
retain strategic relationships, or the termination of one or more successful
relationships could have a material adverse effect on the Company's business
financial condition and results of operations. In addition, the Company expects
from time to time to license certain components from third parties, such as
security features, and to incorporate them into the Company's products. Failure
of such third parties to maintain or enhance their products could impair the
functionality of the Company's products and could require the Company to obtain
alternative products from other sources or to develop such software internally,
either of which could involve costs and delays as well as diversion of
engineering resources.
Risk Associated with New Versions of Software and New Products; Rapid
Technological Change. The Company's future growth depends on its successful and
timely introduction of new products and services in markets that do not
currently exist or are rapidly evolving. The markets for the Company's products
are characterized by rapid technological change, frequent new product
19
<PAGE>
introductions, changes in customer demands and evolving industry standards. The
introduction of products embodying new technologies and the emergence of new
industry standards can render existing products obsolete and unmarketable. The
Company's future success will depend upon its ability to address the
increasingly sophisticated needs of its customers by developing and introducing
enhancements to its software on a timely basis that keep pace with technological
developments, emerging industry standards and customer requirements. There can
be no assurance that the Company will be successful in developing and marketing
enhancements to its software that respond to technological change, evolving
industry standards or customer requirements, that the Company will not
experience difficulties that could delay or prevent the successful development,
introduction and sale of such enhancements or that such enhancements will
adequately meet the requirements of the marketplace and achieve any significant
degree of market acceptance. Companies that develop and publish software
frequently experience delays, sometimes very lengthy delays, in the release
dates of new products and product enhancements. Any material delay in the
release dates of the Company's future products or enhancements or any failure of
such future products or enhancements to achieve market acceptance when released,
could have a material adverse effect on the Company's business, financial
condition and results of operations. There can be no assurance that the
introduction or announcement of new product offerings by the Company or the
Company's competitors will not cause customers to defer or forego purchases of
current versions of the Company's software, which could have a material adverse
effect on the Company's business, financial condition and results of operations.
Governmental Regulations. There are currently few laws or 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 local, state, national or
international levels with respect to the Internet, covering issues such as user
privacy, pricing, taxation, advertising, intellectual property rights,
information security or the convergence of traditional communications services
with Internet communications. The Telecommunications Reform Act of 1996 imposes
criminal penalties (via the Communications Decency Act) on anyone who
distributes obscene communications on the Internet knowing that the recipient of
the communications is under 18 years of age. Other nations, including Germany,
have taken actions to restrict the free flow of material deemed to be
objectionable on the Internet. In addition, the applicability to the Internet
of existing laws governing issues such as property ownership, copyrights and
other intellectual property issues, taxation, libel and personal privacy is
uncertain. The vast majority of such laws were adopted prior to the advent of
the Internet and related technologies and, as a result, do not contemplate or
address the unique issues of the Internet and related technologies. Changes to
such laws or adoption of additional laws or regulations intended to address
these issues, including some recently proposed changes, could create uncertainty
in the marketplace which could reduce demand for the Company's products and
services, could increase the Company's cost of doing business as a result of
compliance, could result in litigation or could in some other manner have a
material adverse effect on the Company's business, financial condition and
results of operations.
20
<PAGE>
Risks of Infringement and Proprietary Rights. Because materials may be
downloaded by the search services which may be licensed by the Company to use
the CyberSentry Software, or may be copied and stored by customers that have
deployed the Company's CyberSentry Software product, and, in either case, may be
subsequently distributed to others, there is a potential that claims will be
made against the Company (directly or through contractual indemnification
provisions with customers) for negligence, copyright or trademark infringement
or other theories based on the nature and content of such materials. It is also
possible that if any information provided through the search services licensed
or facilitated by the Company or information that is copied and stored by
customers that have deployed CyberSentry Software such as stock quotes, analyst
estimates or other trading information, contains errors, third parties could
make claims against the Company for losses incurred in reliance on such
information. Although the Company carries general liability insurance, the
Company's insurance may not cover potential claims of this type or may not be
adequate to indemnify the Company for all liability that may be imposed. Any
imposition of liability or legal defense expenses that is not covered by
insurance or that is in excess of insurance coverage, could have a material
adverse effect on the Company's business, financial condition and results of
operations.
The Company's success and ability to compete in the Internet services
business will be substantially dependent upon its acquired and internally
developed technology. While the Company relies on copyright, trade secret and
trademark law to protect its technology, the Company believes that factors such
as the technological and creative skills of its personnel, new product
developments, frequent product enhancements and reliable product maintenance are
more essential to establishing and maintaining a technology leadership position.
There can be no assurance that others will not develop technologies that are
similar or superior to the Company's technology. The Company will generally
enter into confidentiality or license agreements with its employees, consultants
and corporate partners, and will generally control access to and distribution
of its software, documentation and other proprietary information. Despite the
Company's efforts to protect its proprietary rights, unauthorized parties may
attempt to copy or otherwise obtain and use the Company's products or
technology. Policing unauthorized use of the Company's products is difficult,
and there can be no assurance that the steps taken by the Company will prevent
misappropriation of its technology, particularly in foreign countries where the
laws may not protect the Company's proprietary rights as fully as do the laws of
the United States. Substantial litigation regarding intellectual property
rights exists in the software industry, and the Company expects that software
products may be increasingly subject to third party infringement claims with the
growing number of competitors and the increased functionality of products in
different industry segments. There can be no assurance that third parties will
not claim infringement by the Company with respect to its software or
enhancements thereto. Any such claims, with or without merit, could be time
consuming to defend, result in costly litigation, divert management's attention
and resources, cause product shipment delays or require the Company to enter
into royalty or licensing agreements. Such royalty or licensing agreements, if
required, may not be available on terms acceptable to the Company, if at all. A
successful claim
21
<PAGE>
of product infringement against the Company and failure or inability of the
Company to license the infringed or similar technology could have a material
adverse effect on the Company's business, financial condition and results of
operations.
Risks Associated with Electronic Credit Card Business
The Company intends to issue a national electronic commerce credit card and
provide a clearance system for electronic credit card settlement. The Company
will generally bear the same credit risk normally assumed by other providers of
these systems arising from returned transactions caused by closed accounts,
frozen accounts, unauthorized use, disputes, theft or fraud. Any relationship
the Company establishes with providers of merchant card services such as VISA
and MasterCard could be adversely affected by excessive uncollectibles or charge
backs, which are generally higher in the telephone industry than in other
industries, particularly with respect to recharges because the transaction
typically is not on a face to face basis in which a cardholder signature is
captured. Termination of the Company's ability to offer recharge through
merchant card services would have a material adverse effect on the Company. To
minimize financial exposure, the Company will limit the amount that consumers
can recharge within specified time frames. From time to time persons may obtain
services without rendering payment to the Company by unlawfully utilizing the
Company's access numbers and personal identification numbers ("PIN's"). No
assurance can be given that future losses due to unauthorized use will not be
material. The Company will attempt to manage these credit, theft and fraud
risks through internal controls, monitoring and blocking systems. The Company
maintains no reserves for such risks. There can be no assurance that the
Company's risk management practices or reserves which it may establish in the
future will be sufficient to protect the Company from unauthorized or returned
transactions or thefts of services which could have a material adverse effect on
the Company.
22
<PAGE>
ITEM 2. FINANCIAL INFORMATION
Selected Financial Data
The selected financial data set forth below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," the financial statements and the notes thereto of CyberSentry and
TSC included elsewhere in this Form 10. As of March 24, 1999, TSC was acquired
by CyberSentry, with CyberSentry being the surviving corporation. CyberSentry
is a development stage enterprise with minimal operations in 1998. TSC has been
operating since 1991 and is the primary operating entity. The selected
financial data set forth below as of and for the years ended December 31, 1998,
1997 and 1996 are derived from the audited financial statements of TSC included
elsewhere in this Form 10, which have been audited by BDO Seidman L.L.P.,
independent accountants. TSC's financial statements following its emergence
from bankruptcy will not be comparable to the historical financial statements
contained herein, which do not reflect the plan of reorganization. TSC's
historical financial statements may not be indicative of future performance.
Telecommunications Service Center, Inc. (1)
Years Ended December 31,
<TABLE>
<CAPTION>
(Unaudited) (Unaudited)
1998 1997 1996 1995 1994
------------ ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Income Statement Data:
Net sales $ 22,804,240 $ 8,341,164 $ 2,606,254 $ 2,493,409 $ 1,100,189
Operating expenses 26,042,048 11,024,545 3,663,781 3,266,917 1,095,621
------------ ------------ ------------ ------------ ------------
Operating (loss) income (3,237,808) (2,683,381) (1,057,527) (773,508) 4,568
Other (expense) income (175,257) (354,959) (205,932) 46,671 -
------------ ------------ ------------ ------------ ------------
Net (loss) income (3,413,065) (3,038,340) (1,263,459) (726,837) 4,568
============ ============ ============ ============ ============
Net loss per share
Basic $ (3.41) $ (3.04) $ (1.26) $ (.73) $ 0
Diluted $ (3.41) $ (3.04) $ (1.26) $ (.73) $ 0
Weighted average number of
outstanding shares(2)
Basic 1,000,000 1,000,000 1,000,000 1,000,000 1,000,000
Diluted 1,000,000 1,000,000 1,000,000 1,000,000 1,000,000
</TABLE>
- -------------------------------
(1) On May 7, 1998, the Telecommunications Service Center, Inc. filed for
relief under Chapter 11 of the United Stated Bankruptcy Code in the Middle
District of Florida, Tampa Division. On March 4, 1999, the Bankruptcy Court
confirmed the plan of reorganization and on March 14, 1999 the plan of
reorganization became effective.
(2) Weighted average number of outstanding shares reflects CyberSentry's
acquisition of TSC and the CyberSentry common stock issued to replace TSC's
common stock.
23
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Total assets 1,519,559 2,493,896 1,881,856 896,044 475,242
Short-term debt including current
portion of long-term debt - 866,127 561,032 289,586 -
Liabilities subject to
compromise
under reorganization
proceedings 8,097,928 - - - -
Long-term debt - 4,409,783 2,399,352 548,675 444,675
Capital deficit (8,430,612) (5,017,547) (1,979,207) (716,748) (18,062)
</TABLE>
Pro Forma Selected Financial Data
Year Ended December 31, 1998
(Unaudited)
Income Statement Data:
Net sales $ 22,804,240
Operating expenses 27,511,594
----------
Operating loss income (4,707,354)
Operating (expense) income (205,401)
-----------
Net loss (4,912,755)
===========
Net loss per share
Basic ($.43)
Diluted ($.43)
Weighted average number of outstanding shares
Basic 11,500,000
Diluted 11,500,000
Balance Sheet Data:
Total assets 18,765,067
Short-term debt including current portion of 960,510
long-term debt
Long-term debt 977,317
Redeemable convertible preferred stock 904,338
Stockholders' equity $ 15,028,313
24
<PAGE>
Management's Discussion and Analysis of Financial Condition and Results of
Operations
The following Management's Discussion and Analysis of Financial Condition and
Results of Operations contains forward looking statements based upon current
expectations that involve risks and uncertainties. The Company's actual results
and the timing of certain events could differ materially from those anticipated
in these forward looking statements as a result of certain factors, including
those set forth under "Risk Factors" and elsewhere in this Form 10.
Overview
CyberSentry, Inc., a Delaware corporation ("CyberSentry"), was incorporated in
Delaware on August 21, 1998 as Telecommunications Services, Inc. and
subsequently amended its certificate of incorporation to change the
corporation's name to CyberSentry, Inc. Telecommunications Service Center, Inc.,
a Florida corporation ("TSC"), was formed on July 15, 1991 and, on May 7, 1998,
filed for bankruptcy protection in Florida. See Item 7 - "CERTAIN RELATIONSHIPS
AND RELATED TRANSACTIONS - Bankruptcy, Merger and Related Transactions" for
further description. Effective March 24, 1999, CyberSentry purchased all of the
outstanding shares of TSC for $500,000 in cash and common and preferred stock
valued at $2,500,000 and CyberSentry is the surviving corporation (the
"Corporation" or the "Company"). See Item 7 - "CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS - Bankruptcy, Merger and Related Transactions" for further
description. The acquisition was accounted for as a purchase. The excess of
the purchase price over the fair market value of the assets acquired and
liabilities assumed of approximately $11,430,612 is recorded as goodwill and is
being amortized on a straight-line basis over 10 years. Since CyberSentry is a
development stage enterprise with minimal operations in 1998, TSC is treated as
the predecessor corporation due to the significance of its operations.
CyberSentry has only recently begun to market the CyberSentry Software and to
date has no sales. In 1999, CyberSentry is developing a CyberSentry browser and
CyberSentry card for use by customers both on and off the Internet. The
CyberSentry Software protects Internet commerce transactions by controlling
access to both consumer credit information and content that can be downloaded
via the Internet, such as games, CD's, videos, copyrighted information and other
transactions. It also restricts the unauthorized redistribution of material to
secondary recipients, such as passing along copies of protected material. The
Company believes that most content currently downloaded via the Internet can be
protected using CyberSentry Software. See "Risk Factors."
CyberSentry has obtained the right to develop and sell in the United States and
Canada certain Asynchronous Transfer Mode technology ("ATM" or "ATM technology")
which has the potential to deliver real time multimedia services to both
consumer and business users at substantially increased speeds and lower costs
than other technologies. The Company currently plans to sell two applications
of the ATM technology. The first is a fast packet digital switch designed for
small to medium size businesses. This device
25
<PAGE>
allows a business to transmit voice, video and data over a local area network
using the business' existing PABX infrastructure. The second is a set-top box
designed for applications in the home. This device will allow for the delivery
of voice, video and data into the home via the existing telephone line, cable or
via satellite. The Company believes that this product will have applications for
games, music, television based Internet browsing and video on demand.
In the last five years, TSC has been a facilities-based carrier providing long
distance telecommunications services, including commercial and residential
service, long distance service, operator service for pay phones, prepaid phone
cards, calling cards and enhanced services, such as voice mail and fax services.
TSC owns and operates a Siemen's high-volume gateway switch and an IBM AS400
billing platform to accommodate anticipated growth. It is certified as an
"Alternative Local Exchange Carrier" ("ALEC") to provide local telephone
services in the State of Florida and is currently filing for ALEC certification
in thirty (30) additional states.
TSC currently provides all hardware and software for call processing, billing,
tracking and prepaid debiting, as well as call transport, client programming,
national and international connectivity, systems maintenance and capital
expansion requirements for both long distance (in all states) and local
residential service in Florida. TSC offers a comprehensive service package that
includes both automated and operator-assisted programs.
CyberSentry acquired TSC effective March 24, 1999 and CyberSentry has a limited
operating history upon which it can be evaluated. Any investment in the Company
must be considered in light of the risks, expenses and difficulties frequently
encountered by companies in an early stage of development in new and rapidly
evolving markets. See "Risk Factors."
Results of Operations
The following table sets forth selected financial data of TSC stated as a
percentage of net sales:
Years ended December 31, 1998 1997 1996
------ ------ ------
Net sales 100.0% 100.0% 100.0%
Telecommunications costs 97.7 97.3 88.4
Selling, general and administrative expenses
(including depreciation and amortization
expense) 16.5 34.9 52.1
Operating loss (14.2) (32.2) (40.5)
Other expense, net .8 4.2 7.9
Net loss (15.0) (36.4) (48.4)
26
<PAGE>
1998 Compared to 1997
Net sales increased by $14,463,076, or 173.4%, from $8,341,164 for the year
ended December 31, 1997, to $22,804,240 for the year ended December 31, 1998.
Of this increase, $13,510,034 was due to increased volume in the Local Exchange
Carrier ("LEC") billing programs with PCI, Accutel and Valutel and a $2,274,605
increase in (1+) long distance program. Such increases were offset by a
$865,281 decrease in the travel card and (T-1) long distance programs.
Telecommunication costs increased to support the increased revenue by
$14,170,417 or 174.7%, from $8,112,840 for the year ended December 31, 1997, to
$22,283,257 for the year ended December 31, 1998. As a percentage of net sales,
these amounts represented 97.3% for 1997 as compared to 97.7% for 1998. The
amounts as a percentage of net sales are consistent from 1997 to 1998.
TSC's selling, general and administrative expenses increased $786,574, or 31.1%,
from $2,532,845 for the year ended December 31, 1997 to $3,319,419 for the year
ended December 31, 1998. As a percentage of net sales, these expenses decreased
from 30.4% for 1997 to 14.6% for 1998. The overall dollar increase in selling,
general and administrative expenses was primarily attributable to bad debts in
1998. The decrease in these expenses as a percentage of net sales was
attributable to the increase in net sales and TSC's ability to increase revenues
and maintain an efficient cost structure in 1998.
Depreciation and amortization expense increased $60,512 or 16%, from $378,860
for the year ended December 31, 1997 to $439,372 for the year ended December 31,
1998. The overall dollar increase was attributable to equipment purchased in
mid-year 1997 that have depreciation for a portion of 1997 and a full year of
depreciation in 1998.
Other expense, net decreased by $179,702, or 50.6%, from $354,959 for the year
ended December 31, 1997 to $175,257 for the year ended December 31, 1998. Other
expense, net consists of gains from the sale of marketable securities in 1998
amounting to $227,251, offset by an increase of $47,549 in interest expense in
1998.
Principally as a result of the factors described above, the Company incurred a
net loss of $(3,413,065) for the year ended December 31, 1998 as compared to a
net loss of $(3,038,340) for the year ended December 31, 1997.
1997 Compared to 1996
Net sales increased by $5,734,910 or 220.0%, from $2,606,254 for the year ended
December 31, 1996, to $8,341,164 for the year ended December 31, 1997. Of this
increase, $5,369,465 was due to increases in the LEC billing programs with PCI,
Aliantel and Accutel and, a $1,723,775 increase in debit card, (T-1) and (1+)
long distance programs. Such increases were offset by a $1,515,063 decrease in
travel cards, ICB and private pay phone programs.
27
<PAGE>
Telecommunications costs increased by $5,807,817, or 252.0%, from $2,305,023 for
the year ended December 31, 1996, to $8,112,840 for the year ended December 31,
1997. As a percentage of net sales, these amounts represented 88.4% for 1996 as
compared to 97.3% for 1997. The increase in telecommunications costs as a
percentage of revenues primarily was due to increased fees and commissions for
the Hold/PCI program.
TSC's selling, general and administrative expenses increased $1,387,606 or
121.2%, from $1,145,239 for the year ended December 31, 1996 to $2,532,845 for
the year ended December 31, 1997. As a percentage of net sales, these expenses
decreased from 43.9% in 1996 to 30.4% in 1997. The overall dollar increase in
selling, general and administrative expenses was primarily attributable to a
$610,107 increase in bad debts, a $203,958 increase in legal and professional
fees and a $114,081 increase in salaries and wages. The increase in legal and
professional fees resulted from increased accounting fees for audits of prior
years and increased legal fees from pending litigation. The increase in
salaries and wages was due primarily to the use of more temporary agency
employees and contract labor in 1997. The decrease in these expenses as
percentage of net sales was attributable to the increase in net sales and TSC's
ability to increase revenues and maintain an efficient cost structure in 1997.
Depreciation and amortization expense increased $165,341 or 77.4%, from $213,519
for the year ended December 31, 1996 to $378,860 for the year ended December 31,
1997. The overall dollar increase was attributable to depreciation on the
Siemens switching equipment purchased under capital lease in 1997.
Other expense, net increased $149,027 or 72.4%, from $205,932 for the year ended
December 31, 1996 to $354,959 for the year ended December 31, 1997. The
increase was attributable to a $221,893 increase in interest expense which
consisted primarily of interest expense related to the capital lease for the
Siemens switching equipment purchased in 1997 and increased borrowings on the
bank line of credit. The increase was offset by a loss on the sale of assets of
$76,203 in 1996.
Principally as a result of the factors described above, the Company incurred a
net loss of $(3,038,340) for the year ended December 31, 1997 as compared to a
net loss of $(1,263,459) for the year ended December 31, 1996.
Liquidity and Capital Resources
On May 7, 1998, TSC filed a voluntary petition for relief under Chapter 11 of
the United States Bankruptcy Code in the Middle District of Florida, Tampa
Division. After the filing, TSC operated its business in the ordinary course as
debtor-in-possession subject to the jurisdiction of the Bankruptcy Court. On
March 4, 1999, the Bankruptcy Court confirmed TSC's Second Amended Plan of
Reorganization (the "Plan") and the Plan became effective on March 14, 1999.
Effective March 24, 1999, TSC was acquired by CyberSentry. CyberSentry was the
surviving corporation and the separate existence of TSC ceased.
28
<PAGE>
The filing enabled TSC to stabilize its liquidity position because the cash
requirements for the payment of accrued interest, accounts payable and other
liabilities, which arose prior to the filing, were in most cases deferred until
the Plan was approved by the Bankruptcy Court.
Management expects to finance the Company's short-term working capital and
capital expenditure requirements for the next twelve months through cash
generated by its operations, its existing credit facility and through a new
credit facility resulting from the purchase. Pursuant to the purchase,
CyberSentry paid $500,000 in advance in cash to TSC and has available a
$3,000,000 line of credit through one of its shareholders. The amount
outstanding on the line may not exceed 50% of the Company's assets and is
collateralized by substantially all of the Company's assets. The Company will
pay its shareholder monthly interest payments at an annual interest rate of two
percentage points higher than the highest domestic "Prime Rate" published in the
Wall Street Journal on the first day of publication in the previous month. The
line of credit extends for one year, and amounts outstanding after one year are
payable on demand. See Item 7 - "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- - Bankruptcy, Merger and Related Transactions."
Operating
Net cash used in operating activities amounted to $1,657,417 in 1997 as compared
to $403,704 of net cash provided by operating activities in 1998. The favorable
variance of $2,061,121 is primarily attributable to the increase in accounts
payable of $1,660,732, an increase in bad debts of $1,312,511, offset by a
decrease in accrued expenses of $423,797 and an increase of $374,725 in the net
loss.
Investing
Net cash used in investing activities decreased from $41,167 in 1997 to $7,833
in 1998 as a result of TSC purchasing less equipment in 1998.
Financing
Net cash provided by financing activities amounted to $1,714,383 in 1997,
reflecting $1,838,364 of net proceeds from a note payable to a stockholder
(described below), and $197,589 from the factoring line of credit, offset by
$86,952 of payments on the bank line of credit and note payable and $234,618 of
payments on capital lease obligations. This compares to net cash used in
financing activities of $408,087 in 1998, primarily representing repayments on
bank debt, the factoring line of credit and capital leases, offset by a $196,042
increase in note payable to a stockholder.
TSC also has an existing line of credit collateralized by substantially all of
TSC's assets, providing for borrowings up to $300,000 (see Note 6 of "Notes to
Financial Statements" of TSC for a description of this line of credit). TSC had
outstanding borrowings of $255,000 and $260,872 under the existing line of
credit at December 31, 1998 and 1997, respectively.
29
<PAGE>
TSC has an unsecured note payable to a stockholder outstanding at December 31,
1998 amounting to $3,660,000. The amounts outstanding include accrued interest.
Pursuant to the Plan the shareholder was entitled to receive $.07 in cash and
the value of $.93 in a share of Class A Preferred Stock ($1.50 stated value) of
the Company for every $1.00 of unsecured claim. See Item 7 - "CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS - Bankruptcy, Merger and Related
Transactions."
TSC also has a note payable with a bank that is collateralized by substantially
all of TSC's assets. The note is guaranteed by the TSC's stockholders. The
balance outstanding at December 31, 1998 and 1997 amounted to $222,292 and
$215,266, respectively. Pursuant to the Plan, the bank will be paid in
accordance with the terms of the note.
On July 9, 1997, the TSC entered into a factoring agreement providing a line of
credit for up to $1,000,000 based on 90% of the eligible accounts receivable.
The term of the agreement was for one year with an option to extent for one year
thereafter. TSC did not exercise its options to extend the factoring agreement
in 1998.
Lease Obligations
See Note 10 of the TSC "Notes to Financial Statements" for discussion of the
TSC's lease obligations.
Future Adoption of New Accounting Statements
Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activities," establishes accounting and
reporting standards for derivative instruments and for hedging activities. It
requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. The statement applies to all entities and is effective for all
fiscal quarters of fiscal years beginning after June 15, 1999. The Company did
not engage in derivative instruments or hedging activities in any periods
presented in the financial statements and management does not expect this
statement to have a material impact on the Company's financial position or
results of operations.
Statement of Position (SOP) 98-5, "Reporting on the Costs of Start-Up
Activities," provides guidance on the financial reporting of start-up costs and
organization costs. It requires costs of start-up activities and organization
costs to be expensed as incurred. The SOP is effective for financial statements
for fiscal years beginning after December 15, 1998. The Company's management
does not expect this SOP to have a material impact on the Company's financial
position or results of operations.
30
<PAGE>
Year 2000 Compliance
The potential for software failures due to processing errors arising from
calculations using the Year 2000 date is a known risk. The Company recognizes
the need to ensure that its operations, products and services will not be
adversely impacted by Year 2000 software failures. The Company has made plans
to update the billing software for its IBM AS400 billing platform to make it
Year 2000 compliant, and has been provided with the software upgrade which the
Company believes will make its Siemens high-volume gateway switch Year 2000
compliant. The Company's contingency plan for the Year 2000 risk is to download
copies of all records, software and data to a mass storage media, most likely CD
Rom, in order that it may be reinstalled in the event that any data is corrupted
or lost. The Company has been advised by its major vendors that they are Year
2000 compliant.
The Company intends to establish procedures for evaluating and managing the
risks and costs associated with the Year 2000 problem and is in the final stages
of upgrading its internal computer systems, including its accounting, sales and
technical support automation systems, to make them Year 2000 compliant.
However, there can be no guarantee that the systems of other companies on which
the Company's systems and operations rely will be able to handle all Year 2000
problems.
In addition, although the Company believes that its CyberSentry Software
applications are Year 2000 compliant, there can be no assurance that the
Company's software products contain all necessary date code changes.
Furthermore, many of the Company's customers or potential customers use Internet
protocols and maintain their Internet operations on servers that may be impacted
by Year 2000 complications. Reliance on such Internet protocols or the failure
of the Company's customers or potential customers to ensure that their servers
are Year 2000 compliant, could have a material adverse effect on the Company's
customers and on the Company's products and search services, which in turn could
have a material adverse effect on the Company's business, financial condition
and results of operations.
ITEM 3. PROPERTIES
The corporate headquarters and principal executive offices of the Company
are located at 412 East Madison Street, Suite 1200, Tampa, Florida. The
Company's use of this office is pursuant to two lease agreements which expire on
June 30, 2000 and June 30, 2001, respectively (the "Leases"). Copies of the
Leases are attached hereto as Exhibits 10.7 and 10.8 and are incorporated herein
by reference.
31
<PAGE>
The Company believes that its leased property is in good condition, is well
maintained and is adequate for the Company's current and immediately foreseeable
operating needs.
The Company anticipates that it will be leasing additional office space and
switch facilities, as necessary, including space in New York City.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following tables set forth certain information regarding beneficial
ownership of the Company's capital stock as of March 24, 1999 by (i) each person
who is known by the Company to beneficially own more than five percent of any
class of the Company's capital stock, (ii) each of the Company's directors,
(iii) each of the executive officers named in the Summary Compensation Table set
forth in Item 6 - "EXECUTIVE COMPENSATION", and (iv) all directors and
executive officers of the Company as a group. Unless otherwise indicated, the
address of each individual named in the following tables is c/o CyberSentry,
Inc., 412 East Madison Street, Suite 1200, Tampa, Florida 33602.
32
<PAGE>
Common Stock
------------
<TABLE>
<CAPTION>
Number of Shares Percentage of Total Shares
of Common Stock of Common Stock
Beneficially Owned/1/ Beneficially Owned
----------------------------- -----------------------------------
Name and Address of Beneficial Owner Outstanding Fully Diluted/2/ Outstanding Fully Diluted/2/
- ------------------------------------ ----------- ---------------- --------------- ------------------
<S> <C> <C> <C> <C>
Sinclair Partners Limited Partnership/3/
97 Church Road
Easton, Connecticut 06612 6,000,000 6,000,000 43.6 28.6
Digital Rights International, Inc.
c/o LibertyOne Limited
80 McLachlan Avenue
Rushcutters Bay
Sydney NSW 2011 Australia 500,000 2,500,000 3.6 11.9
Templar Corporation/4/
43 Deshon Avenue
Bronxville, New York 10708 700,000 700,000 5.1 3.3
Patriot Advisors, Inc./4, 5/
43 Deshon Avenue
Bronxville, New York 1070 575,000 575,000 4.1 2.7
David Veltman
3130 Tiffany Drive
Bellair Beach, Florida 34635 258,765 2,550,686 1.9 12.2
Raoul Boille
Marina Office, Suite 5
Sandy Bay Road
Clontral SW 2093 Australia 250,000 500,000 1.8 2.4
Gerald Resnick and Helene Resnick 4,500,000 4,500,000 32.7 21.5
Hal Shankland 750,000 1,500,000 5.5 7.2
Phillip Gambell 225,000 225,000 1.6 1.1
Steven Frank/6/ - 50,000 - 0.2
All directors and executive officers as a
group (last 4 persons listed) 5,475,000 6,275,000 39.8 30.0
</TABLE>
/1/ Beneficial ownership is determined in accordance with the rules of
the Securities and Exchange Commission and generally includes voting or
investment power with respect to securities. Except as indicated by footnotes
and subject to community property laws, where
33
<PAGE>
applicable, the persons named above have sole voting and investment power with
respect to all shares of Common Stock or Preferred Stock, as the case may be,
shown as beneficially owned by them.
/2/ For purposes of this table, the number of "fully diluted" shares of
Common Stock means the number of shares of Common Stock that would be
outstanding, assuming the exercise of all outstanding options and the conversion
of all outstanding shares of Preferred Stock, whether or not such options are
then exercisable or such shares of Preferred Stock are then convertible. The
number of fully diluted shares of Common Stock, and the percentage of total
fully diluted shares of Common Stock, beneficially owned by a person are equal
to the number of votes, and the percentage of total votes, which that person is
entitled to cast at a meeting of shareholders in the election of directors
(other than the director elected by the holders of shares of Class A Preferred
Stock) and on all other matters requiring a stockholder vote or other
stockholder action by the holders of Common Stock.
/3/ Sinclair Partners, Limited Partnership ("SPLP") is a Connecticut
limited partnership formed on March 24, 1999 by Sinclair Advisors, Ltd., a
Connecticut corporation ("SAL"), as general partner, and Patriot Advisors, Inc
("Patriot") and Templar Corporation ("Templar"), as limited partners. Pursuant
to the governing documents of SPLP, SAL has the sole voting and dispositive
power over the shares of Common Stock held by SPLP. Francis Conklin is the sole
shareholder and Chief Executive Officer of SAL. SPLP has agreed to certain
restrictions on the transferability and the exercise of voting rights with
respect to the shares of Common Stock held by it. See Item 7 - "CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS - Bankruptcy, Merger and Related
Transactions".
/4/ Frank Kristan is the sole shareholder and Chief Executive Officer of
Templar and Patriot. Mr. Kristan, Patriot, Templar and the Company have entered
into a shareholders' agreement which restricts the voting rights and the
transferability of the shares of the Company's capital stock held by such
persons. SPLP has also agreed to be bound by the provisions of this agreement
with respect to the shares of Common Stock held by it. See Item 7 - "CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS - Bankruptcy, Merger and Related
Transactions".
/5/ Patriot has entered into Stock Purchase Agreements with each of
Sprint Communications Company L.P. ("Sprint") (the "Sprint Agreement") and RSL
Com U.S.A., Inc. ("RSL") (the "RSL Agreement") pursuant to which Patriot has
agreed to purchase at specified times specified amounts of shares of Class A
Preferred Stock owned by RSL (the "RSL Shares") and Sprint (the "Sprint
Shares"), respectively. Under the Sprint Agreement, Patriot agreed to purchase
from Sprint at $1.50 per share (i) 54,000 Sprint Shares within 30 days after
confirmation of the Plan, (ii) 74,087 Sprint Shares within 90 days after
confirmation of the Plan, (iii) at the option of Sprint, all or part of the
balance of Sprint Shares during the period (subject to extension) between 180
days and 455 days after confirmation of the Plan and (iv) if Sprint still owns
any Sprint Shares after the end of that 455-day period (as extended), all of the
remaining Sprint Shares. Under the RSL Agreement, Patriot agreed to purchase
from RSL at $1.50 per share (i) 53,564 RSL Shares
34
<PAGE>
within 30 days after confirmation of the Plan, (ii) 74,395 RSL Shares within 90
days after confirmation of the Plan, (iii) at the option of RSL, all or part of
the balance of RSL Shares during the period (subject to extension) between 180
days and 455 days after confirmation of the Plan and (iv) if RSL still owns any
RSL Shares after the end of that 455-day period (as extended), all of the
remaining RSL Shares. To the extent that such options are exercised by RSL
and/or Sprint, the shares of Class A Preferred Stock owned by such entities
would decrease by such amounts and the shares of Class A Preferred Stock owned
by Patriot would increase by such amounts.
/6/ The Company has authorized the issuance to Mr. Frank of an
option to purchase 50,000 shares of Common Stock exercisable at $1.10 per share
for three years. The table includes the shares of Common Stock subject to that
option.
35
<PAGE>
Class A Preferred Stock/1/
-----------------------
<TABLE>
<CAPTION>
Number of Shares of Percentage of Total Shares
Class A Preferred Stock of Class A Preferred Stock
Name and Address of Beneficial Owner Beneficially Owned/2/ Beneficially Owned/2/
- ------------------------------------ --------------------------- --------------------------
<S> <C> <C>
David M. Veltman
3130 Tiffany Drive
Bellair Beach, Florida 34635 2,291,921 51.5
RSL Comm. U.S.A., Inc./3/
c/o Westinghouse Communications
1001 Brinton Road
Pittsburgh, PA 15221-4533 850,062 19.1
Sprint Communications Company L.P./3/
8140 Ward Parkway
Kansas City, MO 64114-2006 545,705 12.3
Worldcom
P.O. Box 730426
Dallas, TX 75373-0426 399,859 9.0
</TABLE>
/1/ Each share of Class A Preferred Stock may be converted at the option
of the holder into one share of Common Stock (subject to adjustment in certain
events) at any time from and after March 25, 2001 and through March 24, 2004.
The holders of shares of Class A Preferred Stock are entitled to elect one
director as a class and, in addition, are entitled to cast one vote (subject to
similar adjustment) per share of Class A Common Stock on all other matters
requiring a stockholder vote or other stockholder action by the holders of
Common Stock. See Item 11 - "DESCRIPTION OF REGISTRANT'S SECURITIES TO BE
REGISTERED".
/2/ Beneficial ownership is determined in accordance with the rules of
the Securities and Exchange Commission and generally includes voting or
investment power with respect to securities. Subject to community property
laws, where applicable, the persons named above have sole voting and investment
power with respect to all shares of Class A Preferred Stock shown as
beneficially owned by them.
/3/ See note 5 above under Common Stock table.
36
<PAGE>
Class B Preferred Stock/1/
-----------------------
<TABLE>
<CAPTION>
Number of Shares of Percentage of Total Shares
Class A Preferred Stock of Class A Preferred Stock
Name and Address of Beneficial Owner Beneficially Owned/2/ Beneficially Owned/2/
- ------------------------------------ --------------------------- --------------------------
<S> <C> <C>
Digital Rights International, Inc.
c/o LibertyOne Limited
80 McLachlan Avenue
Rushcutters Bay
Sydney NSW 2011 Australia 2,000,000 66.7
Raoul Boielle Marina Office, Suite 5
Sandy Bay Road
Clontral SW 2093 Australia 250,000 8.3
Hal Shankland 750,000 25.0
All directors and executive officers as a
group (last 1 person listed) 750,000 25.0
</TABLE>
/1/ Each share of Class B Preferred Stock may be converted at the option
of the holder into one share of Common Stock (subject to adjustment in certain
events) at any time from and after March 25, 2001 and through March 24, 2004.
The holders of shares of Class B Preferred Stock entitled to cast one vote
(subject to similar adjustment) per share of Class B Preferred Stock on all
other matters requiring a stockholder vote or other stockholder action by the
holders of Common Stock. See Item 11 - "DESCRIPTION OF REGISTRANT'S SECURITIES
TO BE REGISTERED".
/2/ Beneficial ownership is determined in accordance with the rules of
the Securities ;and Exchange Commission and generally includes voting or
investment power with respect to securities. Subject to community property
laws, where applicable, the persons named above have sole voting and investment
power with respect to all shares of Preferred Stock shown as beneficially owned
by them.
37
<PAGE>
ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS
The Company's directors and executive officers, and their ages as of March
24, 1999 are as follows:
<TABLE>
<CAPTION>
Name Age Position(s)
---- --- -----------
<S> <C> <C>
Gerald A. Resnick 53 Chairman of the Board, Chief Executive
Officer and President
Hal Shankland 55 Director, Senior Vice President and Secretary
Kenneth Fedorcek 57 Treasurer and Chief Financial Officer
R. Kent Rutherford 58 Director of Switch Operations
Aamir Qazi 28 Director of Management Information Systems
Stacy Acampora 36 Executive Vice President of Marketing
Phillip Gambell 44 Director
Steve Frank 42 Director
</TABLE>
The officers of the Company were appointed to the offices set forth above
pursuant to the terms of the Merger Agreement. Mr. Resnick has entered into a
five year employment agreement with the Company and Mr. Shankland has entered
into a three year employment agreement with the Company. See Item 6 -
"EXECUTIVE COMPENSATION" for a description of the terms of these employment
agreements. The directors of the Company have served as the directors of
CyberSentry since its inception and as the directors of the Company since the
Merger. Under the Company's Restated Certificate of Incorporation and Bylaws,
the directors of the Company will be divided into three classes and designated
as Class I, Class II and Class III. Class I directors will be initially elected
for a term expiring at the first annual meeting of stockholders, Class II
directors will be initially elected for a term expiring at the second annual
meeting of stockholders, and Class III directors will be initially elected for a
term expiring at the third annual meeting of stockholders. Members of each
class will hold office until their successors are elected and qualified.
Members of each class will hold office until their successors are elected and
qualified. At each succeeding annual meeting of the stockholders of the
Corporation, the successors of the class of directors whose term expires at that
meeting will be elected to hold office for a term expiring at the annual meeting
of stockholders held in the third year following the year of their election, and
until their successors are elected and qualified. At present, the directors
have not yet been assigned to particular classes.
Gerald A. Resnick, Chairman of the Board, Chief Executive Officer and
President of the Company, has held such offices in CyberSentry since September
1998 and in the Company since the Merger. Mr. Resnick has practiced law for
thirty years, including engaging in the private practice of law from 1978 to
1981 and from 1985 to 1995. His practice has embraced all aspects of corporate
and tax law. He has represented major international corporations in
acquisitions and mergers, project finance, management of intellectual
properties, governmental and regulatory
38
<PAGE>
compliance and the management of labor negotiations. Mr. Resnick served as
General Counsel to the Jersey City Planning Board (1973-1978), as adviser to
various charitable foundations, and as special tax counsel to Kern, Augustine,
Conroy & Schoppmann, P.C. (1995 to present), a law firm with offices in
Bridgewater, N.J. and Lake Success, New York, specializing in the health
professions.
Mr. Resnick has extensive experience in creating successful prepaid and
enhanced credit card telecommunications sales programs, many of which are
currently marketed by major national and international financial institutions.
He is admitted and in good standing with the following legal bars: New Jersey,
New York, Florida, U.S. Tax Court and U.S. Supreme Court. Mr. Resnick graduated
from New York University with a B.A. in 1966, received his Juris Doctorate from
Brooklyn Law School in 1969 and received a Master of Laws (Tax) from the
University of Miami School of Law in 1970.
Mr. Resnick also sits on the Board of Directors of Lake Tel, Inc., a
telecommunications marketing company specializing in financial institutions and
serves as counsel to several domestic and international telecommunications
firms. Mr. Resnick was the co-founder of ION Technologies/Noise Cancellation
Technologies, Inc., a company which is listed on the NASDAQ under the symbol
NCTI and had served as a member of its Board of Directors from 1981 until 1985,
and as Vice President and General Counsel. During 1995, Mr. Resnick served as
Vice President and General Counsel of Public Switch Corp., a company engaged in
telecommunications marketing activities. Mr. Resnick has extensive experience
in the sales and marketing of intellectual properties and the development of
research and development partnerships.
Hal Shankland, Senior Vice President and a Director of the Company, served
as President of TSC from July 1991 until the Merger and has held his current
position with the Company since the Merger. He is an entrepreneur with over 25
years experience with the computer and telecommunications industries. Mr.
Shankland has worked with Litton Industries, Dyna Com and has served as
President of Hal & Associates, Inc. of Tampa, Florida. Mr. Shankland has been a
computer consultant to numerous corporate clients, including Southern
Management, Inc. As Senior Vice President of the Company, Mr. Shankland is
responsible for operational management of the telecommunications systems and the
integration of new technologies. While serving in the U.S. Air Force, Mr.
Shankland attended Florida State University and the University of Maryland from
1963 until 1967.
Kenneth Fedorcek, Chief Financial Officer of the Company, served as Vice
President and Chief Financial Officer of TSC from December 1997 until the Merger
and has held his current position with the Company since the Merger. He is an
accounting professional with over 25 years experience. From 1983 to 1990, Mr.
Fedorcek was the Director of Accounting for Orange-co, Inc., a large public
company, where his responsibilities included multiple divisions and the
financial and regulatory reports required of a public company. From 1990 to
1992, he was the Finance Coordinator for the Chilled Products division of Seald-
Sweet Growers, Inc. From 1992
39
<PAGE>
to 1994, he was the Director of Finance for Gatsby Spa's Inc., a manufacturing
company. From 1994 to 1996, he was the Controller for Reilly Dairy & Food
Company. From 1996 to 1997, he was Accounting Supervisor at Tiger Transportation
of Florida. Inc. Mr. Fedorcek currently has overall responsibility for
accounting and cost controls for the Company. Mr. Fedorcek attended Dyke College
and earned a Bachelor of Science degree in 1972.
R. Kent Rutherford, Director of Switch Operations of the Company, served in
such capacity with TSC from July 1998 until the Merger and has held his current
position with the Company since the Merger. Mr. Rutherford has 37 years of
experience in the telecommunications industry. He began his career in the
Installation and Repair Division of Mountain Bell (Bell Systems) in Albuquerque,
New Mexico in 1959. He then moved up into the Central Office, technical division
and then into Electronic Central Office, technical support. In 1976, Mr.
Rutherford joined American Arabian Oil Company ("Arabian") as a Senior
Specialist Electronic Technician. He was promoted to Senior Supervisor, Northern
Area Switching, and then to Senior Supervisor of the Communications Department,
Saudi Arabia Northern Region. In this capacity, Mr. Rutherford oversaw 24
technicians that were responsible for the performance, operations and
maintenance of 17 switching systems, both onshore and offshore. These systems
varied in size from 120 lines to 45,000 lines and ranged from x-bar to
electronic to digital. Mr. Rutherford worked at Arabian untill July 1998 when he
joined TSC.
Aamir Qazi, Director of Management Information Systems of the Company,
served in such capacity with TSC from August 1998 until the Merger and has held
his current position with the Company since the Merger. Mr. Qazi has five years
of experience in research development of engineering, network and software
solutions. Prior to joining TSC in 1998, Mr. Qazi was an Assistant Professor at
Tampa Institute where he taught systems and design. From December 1996 through
January 1998, he worked for Apollo International of Delaware, Inc. as a Digital
Design Engineer working with algorithm development for Data Acquisition Systems.
In 1996, Mr. Qazi worked in the development division of Lasergate Systems, Inc.
From January 1995 through May 1996, he worked for the University of South
Florida, College of Public Health, as a Graduate Research Assistant. Mr. Qazi
graduated from the University of South Florida in 1995 with a M. S.E.E. degree,
and he received a B.S.E.E. degree in 1992 from the University of Engineering
and Technology, Peshwar, Pakistan.
Stacy Acampora, Executive Vice President of Marketing of the Company,
served in such capacity with TSC from January 1998 until the Merger and has held
her current position with the Company since the Merger. Ms. Acampora has been a
telecommunications marketing professional for over 16 years, which includes five
years in alternate channel sales. Ms. Acampora has a long list of achievements
including senior management positions with Advanced Telecommunications Corp.
("ATC") (now known as LDDS/Worldcom/MCI, Amnex) and Intermedia Communications,
Inc. ("ICI"). From 1984 through December 1991, Ms. Acampora held several senior
management positions in marketing, regulatory and sales operation for ATC. From
December 1991 until December of 1993, Ms. Acampora served as the Director of
Marketing and Product Planning for AMNEX, an Orlando-based operator service
provider. From
40
<PAGE>
December 1993 to December 1997, Ms. Acampora was Senior Director of Alternate
Channel Sales at ICI. Ms. Acampora attended Broward Community College and
Florida Atlantic University from 1980 through 1984.
Steven Frank is a Director of the Company. He is the president and sole
owner of P&F Realty, Inc., a corporation that acquires and renovates existing
low to moderate income residential properties in the South Florida area. Prior
to forming P&F Realty, Inc. in 1989, Mr. Frank was an associate and analyst at
W. Lyman Case & Company, in Ft. Lauderdale, Florida from 1982 through 1989. Mr.
Frank graduated from Boston University with a B.A. in Political Science in 1975,
Long Island University with an M.A. in Public Administration in 1976 and a J.D.
from Nova Law School in 1980.
Phillip E. Gambell is a Director of the Company. Mr. Gambell has over 15
years telecommunications experience in international and domestic carrier sales,
network design and development. Currently, President of TOSA Enterprizes, Inc.,
an international telecommunications consulting firm, which he founded in 1998,
Mr. Gambell's clients include local exchange carriers, international service
providers, operator service companies and telecommunications service bureaus.
His client list includes Grande River Communications, Inc., WorldPort
Communications, Inc., Telenational Communications, Inc. and Gulf American
Telecommunications. Prior to forming TOSA, he held national sales positions for
carrier sales with Westinghouse Communications, Inc. (1993-1996) and Digitel
Facilities, Inc. (1990-1993). From 1996 through 1998, Mr. Gambell served as a
consultant to WorldPort Communications, Inc., an international
telecommunications carrier. Mr. Gambell began his telecommunications career
with U.S. Sprint (1984-1990) as major account manager, upon completing military
service as a commissioned officer in the U.S. Marine Corps.
ITEM 6. EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth certain summary information concerning the
aggregate compensation paid to each of the Company's executive officers by TSC
and CyberSentry in 1998.
41
<PAGE>
SUMMARY COMPENSATION TABLE
--------------------------
<TABLE>
<CAPTION>
Long-Term
Compensation
Awards
------------
Annual Compensation Securities
--------------------------------- Underlying All Other
Name and Principal Position(s) Year Salary ($) Bonus ($) Other ($) Options Compensation
- -------------------------------------- ---------- --------- -------- ------- ------------
<S> <C> <C> <C> <C> <C>
Gerald A. Resnick 1998 - - - -
Chairman of the Board,
President and CEO
Hal Shankland 1998 $90,000 - - -
Senior Vice President
Kenneth Fedorcek 1998 52,000 - - -
Executive VP and CFO
Kevin White 1998 80,000 - - -
Executive VP of Technology
Stacy Acampora 1998 70,000 $10,000 - -
Executive VP of Marketing
</TABLE>
As of February 1999, Mr. White no longer works for the Company.
Stock Options; Long-Term Incentive Plans
No options were granted to, or exercised by, any of the Company's named
executive officers in 1998 by TSC or CyberSentry, and none of them held any
unexercised options at December 31, 1998. TSC and CyberSentry made no awards to
the named executive officers under any long-term incentive plan in 1998.
Compensation of Directors
Each outside director of the Company receives $1,000 for each Board of
Directors meeting attended, and $500 for each meeting not attended. The
Chairman of the Board is paid an additional $1,000 per month, regardless of the
number of meetings attended.
Employment Agreements
The Company has entered into a five year employment agreement with its
President and Chief Executive Officer, Gerald Resnick, effective January 1,
1999. Under the agreement, Mr. Resnick is entitled to receive a base salary of
$180,000, subject to annual increases of not less than 10% per year, and a bonus
in the discretion of the Board of Directors but in no event less than three
quarters of one percent of the Company's gross sales in excess of $30,000,000
annually, which
42
<PAGE>
sum may be paid, at Mr. Resnick's option, in cash or stock (valued at $1.00 per
share). During the term of his employment agreement and for a period of one year
thereafter, Mr. Resnick will have the right to purchase up to 500,000 shares of
Common Stock at $1.00 per share. Mr. Resnick also will be entitled to
participate in all executive incentive plans and other compensation plans
adopted by the Company, if any, as well as to various perquisites, including,
without limitation, fully funded whole life insurance in an amount not less than
$2 million, disability and healthcare insurance, office and legal staff, use of
an automobile, and reimbursement for business club fees and business class
travel and entertainment expenses incurred in the ordinary course of business.
Mr. Resnick will be entitled to a severance allowance in the event his
employment is terminated without cause prior to his attaining the age of 65, and
to additional benefits in the event of his death or disability, or upon the
occurrence of certain termination events described the agreement.
In addition, in the event of a "Termination" following a "Change in
Control" (as such terms are defined in the agreement), Mr. Resnick will be
entitled to receive, within 90 days of such event, an amount equal to ten times
his then annual base salary. In such event, he will also be entitled to all
retirement benefits, together with 20 years fully vested service with respect to
any of the Company's employee benefit plans. Under the Internal Revenue Code of
1986, as amended, the Company is not entitled to deduct any "excess parachute
payment", which is defined generally as an amount equal to the excess of any
"parachute payment" over three times the "base amount" allocated to such
payment. The term "parachute payment" generally means any payment contingent
upon a change in control and the term "base amount" generally means average
annual base compensation for the five year period preceding the change in
control of the Company. Accordingly, in the event of a change in control of the
Company, a substantial portion of the amounts to which Mr. Resnick would be
entitled would be deemed to be excess parachute payments and hence not
deductible by the Company.
A copy of Mr. Resnick's employment agreement is attached hereto as Exhibit
10.9 and is incorporated herein by reference.
The Company has entered into a three year employment agreement with its
Senior Vice President, Hal Shankland, which commenced upon the effectiveness of
the Merger. Under the agreement, Mr. Shankland is entitled to receive a base
salary of $120,000, subject to such annual increases as determined by the Board
of Directors, and will be entitled to participate in any employee benefit plans
available to employees generally as well as in any incentive stock option plans
and other executive incentive plans available to Company executives. In
addition, at the end of each year during the period of his employment, Mr.
Shankland will have the right to purchase up to 100,000 shares of Common Stock
at $1 per share (for the first year) and at fair market value (for subsequent
years). In the event his employment is terminated without cause or by reason of
death or disability, Mr. Shankland or his representative will be entitled to
receive his then prevailing base salary until December 31, 2001. During his
employment, Mr. Shankland will be entitled to an automobile allowance not to
exceed $500 per month and to reimbursement for travel and entertainment expenses
reasonably incurred in the performance of his duties.
43
<PAGE>
At the option of the Company and upon payment by the Company to Mr.
Shankland of one year's salary, for a period of one year following termination
of his employment with the Company, Mr. Shankland has agreed not to engage in
any activity which interferes or competes with the business of the Company.
Mr. Shankland has agreed not to sell any shares of Common Stock or
Preferred Stock held by him except in accordance with Rule 144 under the
Securities Act of 1933; provided, however, that in the event that Mr. Shankland
voluntarily terminates his employment with the Company prior to December 31,
2001, he has agreed not to sell any such shares without the prior written
approval of the Company's Board of Directors.
A copy of Mr. Shankland's employment agreement with the Company is attached
hereto as Exhibit 10.10, and is incorporated herein by reference.
Additional Information with Respect to Compensation Committee Interlocks and
Insider Participation in Compensation Decisions
Neither TSC nor CyberSentry had a compensation committee during the fiscal
year ended December 31, 1998. The stockholders, officers and directors of
CyberSentry who participated in board of director deliberations concerning
executive officer compensation were Phillip Gambell, Steve Frank, Frank Kristan,
Helene Resnick and Gerald Resnick. Mr. Kristan is a stockholder and former Vice
President of the Company, and Ms. Resnick is a stockholder and former Secretary
of the Company and the wife of Mr. Resnick. The only stockholder, officer or
director of TSC who participated in board of director deliberations concerning
executive officer compensation was Hal Shankland.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Bankruptcy, Merger and Related Transactions
Grace Trust Transaction
Until December 1997, the Company's predecessor, TSC, which owned and
operated the Company's telecommunications services business, was solvent and was
funding its operations through cash flow. In December 1997, TSC entered into an
agreement with Grace Trust ("Grace Trust") pursuant to which Grace Trust was to
provide sales and marketing services for TSC by undertaking telemarketing
efforts to increase TSC's customer base. Grace Trust assured TSC that the file
of customers submitted by Grace Trust did not contain any large blocks of
sequential telephone numbers and that valid customer authorization had been
obtained for every order to substitute TSC for the customer's existing service
provider, as required by the FCC. After the file was processed and customers'
long distance service changed, however, TSC received notifications from a number
of these customers disputing the change in service providers. TSC later
confirmed
44
<PAGE>
through its research that - contrary to Grace Trust's assurances -Grace Trust
had not obtained proper customer authorization for all of the business
submitted. Although TSC immediately implemented a plan to minimize the damage
caused by Grace Trust's actions, TSC remained subject under Federal law to very
large potential contingent liabilities to customers whose service provider had
been changed without proper authorization..
Bankruptcy
As a result of the actions of Grace Trust, TSC elected to file for
bankruptcy protection and, on May 8, 1998, filed a voluntary petition with the
United States Bankruptcy Court for the Middle District of Florida (the
"Bankruptcy Court") seeking reorganization under Chapter 11 of the United States
Bankruptcy Code (the "Code").
On March 4, 1999 (the "Confirmation Date"), the Bankruptcy Court entered an
order (the "Order") pursuant to Section 1129 of the Code confirming the
Company's Second Amended Plan of Reorganization (the "Plan"). The Plan became
effective on March 14, 1999. Copies of the Plan and Order are attached hereto
as Exhibits 2.1.1, 2.1.2, 2.1.3 and 2.1.4 and are incorporated herein by
reference.
The Plan provided for the division of creditors and equity holders into six
classes and for the treatment of each class.
The Class One Creditors (as defined in the Plan) consisted of
administrative claims and was paid in full unless, on the Confirmation Date,
payment was waived, deferred or otherwise ordered to be paid on a different date
by the Bankruptcy Court. The aggregate payment made to the Class One Creditors
was approximately $20,000, excluding certain Class One Creditors who agreed to
be treated as Class Five Creditors under the Plan (see discussion below). The
Class Two Creditors (as defined in the Plan) consisted of a relatively small
amount of claims of governmental units for past due taxes which will be paid in
full in 60 equal monthly installments.
The Class Three Creditors (as defined in the Plan) consisted of the secured
claims of South Trust Bank, N.A. ("South Trust"). South Trust was owed
approximately $430,300 pursuant to a Revolving Line of Credit and a Term Loan
(the "South Trust Loans"). The South Trust Loans are secured by Company assets,
including accounts receivable, general intangibles, equipment and fixtures.
The South Trust Loans are also guaranteed by Hal Shankland, Raoul Boielle and
David Veltman, officers and/or stockholders of the Company and officers,
directors and/or stockholders of TSC at the time the loans were made. South
Trust will be paid in accordance with the terms of the South Trust Loan
documents, copies of which are attached hereto as Exhibits 10.1.1 and 10.1.2,
and are incorporated herein by reference.
The Class Four Creditors (as defined in the Plan) consisted of the
equipment lease claims of IBM Credit Corporation ("IBM") and Telecom Finance
Group ("Telecom Finance"). IBM's claim related to a lease agreement for a
computer system (the "IBM Lease"). IBM was owed
45
<PAGE>
approximately $20,000, and will be paid in full pursuant to the terms of the IBM
Lease. A copy of the IBM Lease is attached hereto as Exhibit 10.3, and is
incorporated herein by reference. Telecom Finance's claim is pursuant to a
lease/purchase agreement regarding the lease/purchase of Siemens switch
equipment (the "Siemens Lease"). Telecom Finance was owed approximately
$1,300,000 and, shortly after the Plan became effective, the Company paid
approximately $100,000 to Telecom Finance to be applied towards such balance.
Pursuant to the Plan, the Company and Telecom Finance will enter into an amended
lease wherein the past due pre-petition and post-petition arrearage, including
costs, fees, charges and interest, shall be added to the existing lease
obligations and restructured under an amended lease, with such restructured
obligation to be paid out over a five-year period. A copy of the Siemens Lease
and related agreements are attached hereto as Exhibits 10.2.1 and 10.2.2, and
are incorporated herein by reference.
The Class Five Creditors (as defined in the Plan) consisted of unsecured
creditors who received $.07 in cash and the value of $.93 in a share of Class A
Preferred Stock for every $1.00 of unsecured claim. The total amount of cash
received by the Class Five Creditors (including certain Class One Creditors who
agreed to be treated as Class Five Creditors for purposes of receiving
distributions under the Plan) was approximately $502,500. The Class Five
Creditors (including certain Class One Creditors who agreed to be treated as
Class Five Creditors for purposes of receiving distributions under the Plan)
also received approximately 4.45 million shares of Class A Preferred Stock under
the Plan. See Item 11 - "DESCRIPTION OF REGISTRANT'S SECURITIES TO BE
REGISTERED" for a description of the Class A Preferred Stock, including the
mandatory redemption pool to be established by the Company, the holder's
conversion rights and the Company's redemption rights established in connection
therewith.
The Class Five Creditors also received the right to purchase Common Stock
for $1.00 per share upon confirmation of the Plan for each one share of Class A
Preferred Stock received by the Class Five Creditor pursuant to the Plan (the
"Rights Offering"). The Rights Offering was only available to the Class Five
Creditors. No shares of Common Stock have been issued by the Company pursuant to
the Rights Offering.
Included among the Class Five Creditors is David Veltman, a former director
of TSC, who was owed approximately $3.6 million in principal and accrued
interest as of December 31,1998 pursuant the terms of a subordinated promissory
note due December 31, 2000. As a Class Five Creditor, Mr. Veltman received
cash and Class A Preferred Stock in the Company in satisfaction of his claims,
as described above. Mr. Veltman has entered into an Agreement and Waiver with
the Company dated as of April 20, 1999 (the "Veltman Agreement") pursuant to
which Mr. Veltman agreed to accept one share of Common Stock in exchange for
each dollar that he was otherwise entitled to receive as a Class Five Creditor
of the Company pursuant to the Plan, which resulted in the issuance to Mr.
Veltman of 258,765 shares of Common Stock in addition to the 2,291,921 shares of
Class A Preferred Stock he received pursuant to the Plan. See Item 4 -
"SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT". Pursuant to
the Veltman Agreement, Mr. Veltman has agreed to waive his right to participate
in any redemption pool to be established by the Company for the Class A
Preferred Stock pursuant to
46
<PAGE>
the Plan. A copy of the Veltman Agreement is attached hereto as Exhibit 10.16,
and is incorporated by reference herein.
The Class Six Creditors (as defined in the Plan) consisted of the pre-
Bankruptcy shareholders of TSC (the "TSC Shareholders") whose interest in TSC
was terminated pursuant to the Plan by cancellation of all outstanding shares of
capital stock of TSC. Pursuant to the Plan and the Merger (see discussion
below), the TSC Shareholders were issued 1,000,000 shares of Common Stock and
1,000,000 shares of Class B Preferred Stock in the reorganized Company on a pro
rata basis.
In connection with the Plan, the Company (through TSC and CyberSentry prior
to the Merger) and Marine Midland Bank ("Marine Midland") have entered into a
Distribution and Escrow Agreement, dated February 22, 1999 (the "Escrow
Agreement"), pursuant to which Marine Midland will act as escrow agent and
distribution agent for purposes of certain distributions of cash and securities
required to be made by the Company to creditors and stockholders of TSC pursuant
to the Plan. A copy of the Escrow Agreement is attached hereto as Exhibit 10.13,
and is incorporated by reference herein.
In connection with the Merger and in lieu of the references in the Plan and
the Second Amended Disclosure Statement attached thereto (see Exhibits 2.1.1 and
2.1.2 hereto) to CyberSentry depositing $2,500,000 and providing a $1,000,000
operating line of credit to the reorganized Company upon confirmation of the
Plan pursuant to the Merger, CyberSentry has contributed $500,000 in cash to the
reorganized Company, and has provided the Company with a working capital line of
credit in the amount of $3,000,000 as well as the CyberSentry Software and the
ATM Technology.
Merger
Pursuant to the Plan, TSC and CyberSentry were merged as of March 24, 1999,
with CyberSentry remaining as the surviving corporation of the Merger. Prior to
the Merger, TSC conducted the Company's telecommunications services business,
while CyberSentry had only one employee, had no operating revenues and conducted
only limited business activities. The Merger was accomplished in accordance
with the terms of an Agreement and Plan of Merger, dated January 22, 1999,
between TSC and CyberSentry (the "Merger Agreement"), a copy of which is
attached hereto as Exhibit 2.1.5 and is incorporated herein by reference. By
operation of law all assets, property, rights, liabilities and obligations of
TSC have been transferred to and assumed by the Company, as the surviving
corporation of the Merger.
47
<PAGE>
Transactions with Management and Others
Lake Tel Transaction
The Company (through its predecessor, TSC), Lake Tel, Inc., a New Jersey
corporation ("Lake Tel"), and Capital One Bank, a Virginia banking corporation
("Capital One"), have entered into a Carrier Agreement dated October 1998 (the
"Carrier Agreement") pursuant to which the Company has agreed to allow Capital
One to offer secured credit card products to customers of the Company for an
initial term of five years. For each account booked by Capital One under the
Carrier Agreement, Lake Tel is entitled to receive a fee from Capital One and is
obligated to pay a fee to the Company. Gerald Resnick, the Company's Chairman
and President, sits on the Board of Directors of Lake Tel, a telecommunications
marketing company specializing in financial institutions. A copy of the Carrier
Agreement is attached hereto as Exhibit 10.12, and is incorporated herein by
reference.
Patriot Transactions
The Company was a party to an Advisory Agreement with Patriot Advisors,
Inc. ("Patriot") dated as of December 1, 1998 (the "Advisory Agreement")
pursuant to which Patriot agreed to render various financial and investment
advisory services to the Company including, but not limited to, (x) reviewing
and analyzing all material documentation (legal, financial or otherwise) of the
Company to determine the Company's most effective internal organizational
financial structure for the purpose of financing, and (y) determining the
Company's best course of action, which may include (i) private placements of
common or preferred stock, or debt, for the expansion of its working capital,
acquisition financing or the restructuring of existing indebtedness, (ii)
mergers and acquisitions, (iii) initial public offerings, and (iv) any other
transactions deemed by Patriot to be in the best interests of the Company. In
consideration for such services, the Company agreed to pay Patriot an advisory
fee of $10,000 per month, of which a minimum of $6,500 was to be in cash, and
any equity was to be paid in the form of Common Stock at the rate of $1.00 per
share. By mutual agreement, the Advisory Agreement was terminated as of March
30, 1999. Patriot and Templar Corporation ("Templar") are 100% owned by Mr.
Frank Kristan. Mr. Kristan beneficially owns approximately 4% of the ordinary
shares of LibertyOne Ltd., which (through its subsidiary, Digital Rights
International, Inc.) beneficially owns approximately 3.6% of the Company's
Common Stock and 66.7% of the Company's Class B Preferred Stock. In addition,
Mr. Kristan serves as a consultant to LibertyOne, for which he is entitled to
receive an advisory fee of $10,000 per month in cash. A copy of the Advisory
Agreement is attached hereto as Exhibit 10.11, and is incorporated herein by
reference.
The Company has also entered into a Credit Agreement with Patriot dated
February 22, 1999 (the "Credit Agreement") pursuant to which Patriot has agreed
to extend a $3 million line of credit to the Company, with amounts outstanding
not to exceed 50% of the Company's assets. The line of credit is secured by all
of the Company's assets and will be available to the Company for a period of one
year, after which time all outstanding amounts must be repaid, subject to
various events of default
48
<PAGE>
which can accelerate the maturity of the loan. Interest on amounts outstanding
is due monthly at the rate per annum equal to two percentage points above the
highest domestic "Prime Rate" published in the Wall Street Journal on the first
day of publication in the previous month. In the Credit Agreement, the Company
acknowledged that $171,000 has already been advanced to it by Patriot at the
Company's request in connection with certain transactions pursuant to the Plan.
A copy of the Credit Agreement is attached hereto as Exhibit 10.14, and is
incorporated herein by reference.
Mr. Kristan, Templar and Patriot have entered into a Shareholders'
Agreement with the Company dated as of March 24, 1999 (the "Shareholders'
Agreement") pursuant to which they have agreed that on all matters coming before
the shareholders of the Company for shareholder action, each of them will vote
all of the shares of voting stock of the Company that are beneficially owned by
him or it in proportion to the votes cast by all of the other holders of shares
of the Company's voting stock. Moreover, each of Mr. Kristan, Templar and
Patriot has agreed in the Shareholders' Agreement that he or it will not
transfer any shares of voting stock of the Company beneficially owned by him or
it to any person who, upon the consummation of such transfer, would beneficially
own 5% or more of the outstanding shares of any class or series of the Company's
voting stock, subject to certain limited exceptions. A copy of the
Shareholders' Agreement is attached hereto as Exhibit 10.15 and is incorporated
herein by reference.
Templar and Patriot are limited partners in Sinclair Partners, Limited
Partnership ("SPLP"), a Connecticut limited partnership formed on March 24, 1999
by Sinclair Advisors, Ltd., a Connecticut corporation ("SAL), as general
partner, and Patriot and Templar as limited partners. In return for their
limited partnership interests, Patriot made a capital contribution to SPLP in
the form of 3,700,000 shares of Common Stock of the Company and Templar made a
capital contribution in the form of 2,300,000 shares of Common Stock of the
Company. Pursuant to the governing documents of SPLP, SAL has the sole voting
and dispositive power over the shares of Common Stock held by SPLP. Francis
Conklin is the sole shareholder and Chief Executive Officer of SAL. SPLP has
agreed to be bound by the provisions of the Shareholders' Agreement restricting
the voting rights and transferability of the shares of voting stock of the
Company beneficially owned by it to the same extent as Patriot and Templar. A
copy of SPLP's agreement to be bound by the Shareholders' Agreement is attached
to Exhibit 10.15 hereto and is incorporated herein by reference.
As a result of the Shareholders' Agreement and related agreements, the
voting power of the management shareholders will be proportionately increased
giving them, in effect, approximately 47.6% of total voting power of the
Company's outstanding voting securities. Thus, the management shareholders will
be able to significantly influence and, possibly, control all matters requiring
approval by the shareholders of the Company, including the election of directors
and the approval of mergers or other business combination transactions.
49
<PAGE>
CyberSentry Software Acquisition
On October 2, 1998, Templar Corporation, a Delaware corporation
("Templar"), entered into a license agreement (the "Learning License Agreement")
with Learning Company Properties Inc., a Delaware corporation ("Learning"),
pursuant to which Templar obtained an exclusive, worldwide, perpetual, fully-
paid right and license to publish, use, distribute and sublicense a software
program that provides digital rights management technology (the "CyberSentry
Software"). In addition, pursuant to the Learning License Agreement, Learning
assigned its rights to certain trademarks and agreed to provide engineering
support to Templar through September 30, 1999. Templar agreed to pay Learning
$150,000 in consideration for such engineering support and has paid the first
installment thereof in accordance with the terms of said agreement.
Pursuant to the Learning License Agreement, Templar transferred to Learning
2,500,000 ordinary shares (the "LibertyOne Shares") in the capital of LibertyOne
Ltd. ("LibertyOne") theretofore held by Templar and, in connection with this
transfer, agreed to grant to Learning the right to put the LibertyOne Shares to
Templar for an aggregate purchase price of $3,000,000, pursuant to a Put and Top
Up Agreement ("Put Agreement"), dated October 22, 1998, by and between Learning
and Templar. This put expires on December 31, 2001, unless it terminates
earlier due to the occurrence of certain Trigger Events (as defined in the Put
Agreement). Templar and Learning valued the transaction at $3,000,000 which was
based on the then anticipated initial public offering price of the LibertyOne
Shares of $1.20 per share. The initial public offering of the LibertyOne Shares
closed on December 10, 1998 at a price of $2.00 per share. The closing sales
price of the LibertyOne Shares as of March 17, 1999 was $4.72 per share.
Templar assigned the Learning License Agreement, and all of Templar's
rights to the CyberSentry Software thereunder, to the Company pursuant to an
Assignment of Software License Agreement, effective as of November 20, 1998 (the
"Assignment"). Pursuant to the terms of the Assignment and in consideration
thereof, the Company issued 3,000,000 shares of its Common Stock to Templar,
which thereby became a significant shareholder in the Company. As described
above, Templar transferred 2,300,000 of these shares to SPLP. Templar is 100%
owned by Mr. Frank Kristan, who may therefore be deemed the beneficial owner of
the shares of Common Stock held by Templar. A copy of the Assignment is
attached hereto as Exhibit 10.5, and is incorporated herein by reference. See
Item 1 - "BUSINESS - Risk Factors and Investment Considerations".
The Company has entered into a Software Sub-License Agreement (the "DRI
License Agreement"), effective as of January 1, 1999, with Digital Rights
International, Inc., a Delaware corporation ("DRI"), pursuant to which the
Company has granted DRI a non-transferable, non-exclusive, worldwide, right and
license to publish and use the CyberSentry Software solely for the protection of
celebrity digital rights and content related thereto on the websites owned or
operated by DRI, subject to the terms and conditions of the Learning License
Agreement. The Company is under no obligation to provide upgrades to the
software licensed to DRI unless DRI elects to pay the Company $150,000 for
continuing software engineering support. The term of the DRI License Agreement
is indefinite, subject to early termination by either party for cause, as
described in the
50
<PAGE>
agreement. In conjunction with entering into the DRI License Agreement, DRI
purchased 500,000 shares of the Company's Common Stock at $1.00 per share for an
aggregate purchase price of $500,000. DRI is a subsidiary of LibertyOne. A copy
of the DRI License Agreement is attached hereto as Exhibit 10.6, and is
incorporated herein by reference.
ATM Technology Acquisition
Comtel Telecommunications Pty Ltd. ("Comtel"), a wholly owned subsidiary of
LibertyOne, entered into a Patent and Know How License and Commercialization
Agreement dated as of February 4, 1998 (the "ATM License Agreement") with
Telstra Corporation Limited ("Telstra"), pursuant to which LibertyOne was
granted a non-exclusive license in relation to Telstra's Fast Packet Digital
Switch Project ("FPDX"). FPDX represents technology developed by Telstra over
11 years. FPDX utilizes ATM technology, which has the potential to deliver
"virtual" Internet services to users at substantially increased speeds and lower
costs than other technologies.
Comtel entered into a Patent and Know How Sub-Contract and
Commercialization Agreement (the "Sub-Contract") with the Company, effective as
of December 30, 1998, pursuant to which the Company has been granted the non-
exclusive right to market and sell the ATM Technology in the United States and
Canada, subject to the terms of the ATM License Agreement. Pursuant to the Sub-
Contract, the Company agreed to pay Comtel a royalty fee of 110% of the royalty
rates required pursuant to the ATM License Agreement. A copy of the Sub-
Contract is attached hereto as Exhibit 10.4, and is incorporated herein by
reference. See Item 1 - "BUSINESS - Risk Factors and Investment
Considerations".
As consideration for Comtel entering into the Sub-Contract with the
Company, the Company agreed to issue 2,000,000 shares of its Preferred Stock to
Comtel's designee, DRI, a subsidiary of LibertyOne. Pursuant to the Merger
Agreement, these shares were converted on a one for one basis into 2,000,000
shares of the Company's Class B Preferred Stock. See Item 11 - "DESCRIPTION OF
REGISTRANT'S SECURITIES TO BE REGISTERED" for a description of the terms of the
Class A Preferred Stock.
51
<PAGE>
ITEM 8. LEGAL PROCEEDINGS
On May 7,1998, TSC, a predecessor of the Company, sought protection from
its creditors and filed for bankruptcy protection pursuant to Chapter 11 of the
Bankruptcy Code in the United States Bankruptcy Court for the Middle District of
Florida. On March 14, 1999, TSC emerged from the Bankruptcy pursuant to the
Plan approved by the Bankruptcy Court, and, on March 24, 1999, was merged with
and into the Company in accordance with the Plan and the Merger Agreement. See
Item 7 - "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS - Bankruptcy, Merger
and Related Transactions".
Prior to the Bankruptcy, Worldcom filed a claim for approximately $690,000
against TSC pertaining to an alleged breach of certain trade agreements by TSC.
This claim was reduced to approximately $640,000 in the Bankruptcy proceeding
and was uncontested by TSC. Worldcom was treated as a Class Five Creditor in
the Bankruptcy for this amount of claim and received a distribution of cash and
Class A Preferred Stock in accordance with the Plan in satisfaction of its
claim. See Item 7 - "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS -
Bankruptcy, Merger and Related Transactions".
A copy of the Plan and related confirmation orders are attached hereto as
Exhibits 2.1.1 through 2.1.4, and are incorporated herein by reference.
In addition to the foregoing, the Company is, and TSC as its predecessor
was, involved from time to time in various claims and lawsuits in the ordinary
course of business, none of which is expected, individually or in the aggregate,
to have a material effect on the Company.
ITEM 9. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
As of the date hereof, neither the Company's Common Stock nor its Class A
Preferred Stock nor its Class B Preferred Stock are listed on any stock exchange
or quoted on the NASDAQ market and there is no established public trading market
for such securities. However, upon effectiveness of this Registration Statement
and satisfaction of applicable NASD requirements, the Company intends to apply
to have its Common Stock, Class A Preferred Stock and Class B Preferred Stock
listed on either the NASDAQ market or the OTC market.
From and after March 25, 2001 up until March 24, 2004, all of the Company's
Class A Preferred Stock and Class B Preferred Stock are convertible, at the
holder's option, into shares of Common Stock at a one to one ratio. See Item 11
- - "DESCRIPTION OF REGISTRANT'S SECURITIES TO BE REGISTERED".
The Company believes that under Section 1145 of the Bankruptcy Code, all
resales and subsequent transfers of the Common Stock and Class A Preferred Stock
issued pursuant to the Plan
52
<PAGE>
would be exempt from the registration requirements of the Securities Act of
1933, as amended (the "Securities Act"), unless the holder thereof is deemed to
be an "underwriter" with respect to such securities within the meaning of
Section 1145(b) of the Bankruptcy Code. Affiliates of the Company may be
entitled to rely on Rule 144 under the Securities Act for certain limited public
resales of Company securities held by them, provided the requirements of such
rule are satisfied.
As of the date hereof, there are approximately 9 holders of record of the
Company's Common Stock, approximately 78 holders of record of the Company's
Class A Preferred Stock and three holders of record of the Company's Class B
Preferred Stock. If all of the holders of the Class A Preferred Stock and the
Class B Preferred Stock exercised their right to convert their shares into
Common Stock, the Company would have approximately 86 holders of record of its
Common Stock.
The Company has never paid a cash dividend to shareholders nor does it
expect to pay a dividend in the foreseeable future.
ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES
Prior to the Bankruptcy and the Merger, TSC was a privately held Florida
corporation owned by Hal Shankland and Raoul Boielle. Common Stock, Class A
Preferred Stock and Class B Preferred Stock of the reorganized Company were
distributed to various creditors and stockholders upon TSC's emergence from the
Bankruptcy pursuant to the Plan. See Item 7 - "CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS -Bankruptcy, Merger and Related Transactions" for a further
description of the Bankruptcy, the Plan, the Merger and certain related
transactions. Pursuant to the Veltman Agreement, David Veltman received an
additional 258,765 shares of Common Stock in exchange for the cash distribution
that he was otherwise entitled to receive as a Class Five Creditor under the
Plan. See Item 7 - "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS -
Bankruptcy, Merger and Related Transactions". The issuance of these shares was
exempt from the registration requirements of the Securities Act pursuant to
either (i) Section 1145(a)(1) of the Bankruptcy Code which exempts securities
offered and sold under a plan of reorganization to certain classes of persons,
or (ii) the exemption from registration provided by Section 4(2) of the
Securities Act. Other than pursuant to the Bankruptcy, no securities of TSC
were issued within the past three years.
In connection with the assignment of the CyberSentry Software, 3,000,000
shares of the Company's Common Stock were issued to Templar. In connection with
the DRI License Agreement, 500,000 shares of the Company's Common Stock were
issued to DRI. See Item 7 - "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS -
CyberSentry Software Acquisition". In connection with the subcontract of the
ATM technology, 2,000,000 shares of the Company's Preferred Stock were issued to
DRI. Such shares of Preferred Stock were converted on a one for one basis
into shares of Class B Preferred Stock pursuant to the Merger Agreement. See
Item 7 - "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS - ATM
53
<PAGE>
Technology Acquisition". All of the above issuances were exempt from the
registration requirements of the Securities Act pursuant to the exemption
provided by Section 4(2) thereof.
In connection with the founding of CyberSentry, 4,275,000 shares of Common
Stock were issued to Patriot, which is 100% owned by Frank Kristan, 4,500,000
shares of Common Stock were issued to Gerald and Helene Resnick and 225,000
shares of Common Stock were issued to Phillip Gambell. All of these shares were
issued at $.006 per share. All of the above issuances were exempt from the
registration requirements of the Securities Act pursuant to the exemption
provided by Section 4(2) thereof.
ITEM 11. DESCRIPTION OF REGISTRANT'S SECURITIES TO BE REGISTERED
The authorized capital stock of the Company consists of 30,000,000 shares
of Common Stock and 10,000,000 shares of Preferred Stock. As of the date
hereof, there were issued and outstanding 13,758,765 shares of Common Stock,
4,451,446 shares of Class A Preferred Stock and 3,000,000 shares of Class B
Preferred Stock. Any shares of Class A Preferred Stock or Class B Preferred
Stock converted, redeemed, purchased or otherwise acquired by the Company in any
manner whatsoever shall be retired and canceled promptly after the acquisition
thereof, and, if necessary to provide for the lawful redemption or purchase of
such shares, the capital represented by such shares shall be reduced in
accordance with the applicable law. All such shares shall upon their
cancellation become authorized but unissued shares of Preferred Stock and may be
reissued as part of another series of Preferred Stock.
Redemption and Conversion Rights
Pursuant to the Plan, the Company will establish a mandatory redemption
pool for the outstanding Class A Preferred Stock at $.05 per share on each March
1 and September 1 of the years 2000, 2001, 2002, 2003 and 2004. The redemption
right is at the option of the shareholder who may choose to redeem the shares of
Class A Preferred Stock on a pro rata basis, convert them to Common Stock
(during the time period set forth below) or hold onto them. Shareholders who
redeem their preferred shares will receive a pro rata share of the redemption
pool which will be funded by the Company. Holders of Class B Preferred Stock
and holders of Common Stock are not eligible to participate in the redemption
pool. Pursuant to the Veltman Agreement, Mr. Veltman also is not entitled to
participate in the redemption pool.
From and after March 25, 2001 up until March 24, 2004, each share of Class
A Preferred Stock and each share of Class B Preferred Stock may be converted, at
the option of the holder, into shares of Common Stock at a one to one ratio,
subject to adjustment for dilution. This conversion right is separate and
distinct from the Rights Offering pursuant to the Plan. See Item 7 - "CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS - Bankruptcy, Merger and Related
Transactions".
54
<PAGE>
Pursuant to the Plan, the Company has the right to redeem the Class A
Preferred Stock and the Class B Preferred Stock at $1.50 per share at any time
prior to March 4, 2001.
Voting Rights
The holders of Common Stock are entitled to one vote per share on all
matters requiring shareholder action. Pursuant to the Supplement to Second
Amended Disclosure Statement attached to the Plan (see Exhibit 2.1.2 hereto) (i)
each share of Class A Preferred Stock and each share of Class B Preferred Stock
is entitled to one vote per share on all matters requiring shareholder action,
(ii) the holders of Class A Preferred Stock, voting together as a class, have
the right to elect one member of the Company's Board of Directors, (iii) the
Company is prohibited from issuing non-voting stock, (iv) dividends to be issued
to holders of Class A Preferred Stock and Class B Preferred Stock shall be equal
to the dividends issued to holders of Common Stock, and (v) the Company may not
issue shares of Class A Preferred Stock in excess of the number of shares of
Class A Preferred Stock which are required to be issued under the Plan without
first obtaining the approval of a majority of the holders of Class A Preferred
Stock then outstanding.
The rights granted to holders of Class A Preferred Stock and Class B
Preferred Stock pursuant to the Plan terminate automatically upon redemption or
conversion of all of the Class A Preferred Stock and all of the Class B
Preferred Stock, respectively.
The holders of the Class A Preferred Stock have elected Hal Shankland to
serve on the Company's Board of Directors.
Dividends; Redemption; Conversion; Liquidation
The holders of Common Stock have no preemptive or other rights and there
are no redemption, sinking fund or conversion privileges applicable thereto.
The holders of Class A Preferred Stock have certain redemption rights, as
described above. The holders of Common Stock are entitled to receive dividends
as and when declared by the Board of Directors out of funds legally available
therefore, subject to the imposition of restrictions thereon by the Company's
regulators. The holders of Class A Preferred Stock and Class B Preferred Stock
have no dividend preference but are entitled to receive dividends in the same
amount per share as the holders of Common Stock each time dividends are paid to
the holders of Common Stock. Upon liquidation, dissolution or winding up of the
Company, the holders of Common Stock are entitled to share ratably in all assets
remaining after payment of liabilities. The holders of Class A Preferred Stock
and Class B Preferred Stock are entitled to a liquidation preference of $1.50
per share and no more.
All of the above described terms of the Class A Preferred Stock and the
Class B Preferred Stock are set forth in two Certificates of Designation and a
Certificate of Amendment thereto filed by the Company with the Secretary of
State of the State of Delaware. Such Certificates of
55
<PAGE>
Designation and Certificate of Amendment are attached hereto as Exhibits 4.1,
4.2 and 4.3, and are incorporated herein by reference.
Transfer Agent
The Company's transfer agent is Marine Midland Bank. The transfer agent's
mailing address is Marine Midland Bank, 140 Broadway, 12/th/ Floor, New York,
New York 10005-1180, Attention: Corporate Trust Department.
ITEM 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the General Corporation Law of the State of Delaware grants
corporations the power to indemnify their directors, officers, employees and
agents in accordance with the provisions set forth therein.
The Company's Bylaws provide for indemnification of the Company's directors,
officers, employees and other agents of the Company to the extent and under the
circumstances permitted by the Delaware General Corporation Law (the "DGCL").
The Company's Bylaws also provide that the Company will have the power to
purchase and maintain insurance covering its directors, officers and employees
against any liability or loss asserted against any of them and incurred by any
of them, whether or not the Company would have the power to indemnify them
against such liability under the DGCL. The Company does not currently maintain
any directors' and officers' liability insurance.
Section 5.1 of Article V of the Bylaws of the Company provides for
indemnification of directors and officers of the Company to the fullest extent
authorized by the DGCL, and is set forth below:
Section 5.1 Right to Indemnification. Each person who was or is
----------- ------------------------
made a party or is threatened to be made a party to or is otherwise
involved in any action, suit or proceeding, whether civil, criminal,
administrative or investigative (hereinafter a "proceeding"), by reason
of the fact that he or she or a person of whom he or she is the legal
representative is or was a director or an officer of the Corporation or
is or was serving at the request of the Corporation as a director,
officer, employee or agent of any other corporation or of a partnership,
joint venture, trust or other enterprise, including service with respect
to any employee benefit plan (hereinafter an "indemnitee"), whether the
basis of such proceeding is an alleged action or failure to act in an
official capacity as a director, officer, employee or agent or in any
other capacity while serving as a director, officer, employee or agent,
will be indemnified and held harmless by the Corporation to the fullest
extent authorized by the GCL, as the same exists or may hereafter be
amended (but, in the case of any such amendment, only to the extent that
such amendment permits the Corporation to provide broader
indemnification rights than said law permitted the Corporation to
provide prior to such amendment), against all expense, liability and
loss (including, without limitation, attorneys' fees, court costs,
judgments, fines, excise taxes or penalties under the Employee
Retirement Income Security Act of 1974, as amended, and amounts paid or
to be paid in settlement) reasonably incurred by such indemnitee in
connection
56
<PAGE>
therewith; provided, however, that except as provided in Section 5.3
-------- -------
with respect to proceedings seeking to enforce rights to
indemnification, the Corporation will indemnify any such indemnitee
seeking indemnification in connection with a proceeding (or part
thereof) initiated by such indemnitee only if such proceeding (or part
thereof) was authorized by the Board of Directors.
In addition, Article Ninth of the Company's Restated Certificate of
Incorporation contains provisions exculpating a director from liability for
certain breaches of fiduciary, and is set forth below:
NINTH: A director of the Corporation will not be personally liable to
the Corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability (i) for any breach of
the director's duty of loyalty to the Corporation or its stockholders,
(ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the GCL or (iv) for any transaction from which the
director derived an improper personal benefit.
The Company's Restated Certificate of Incorporation and Bylaws are attached
hereto as Exhibits 3.1 and 3.2, respectively, and are incorporated herein by
reference.
ITEM 13. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data required by this Item are
filed as part of this Form 10. See Index to Financial Statement Information at
page F-1 of this Form 10.
ITEM 14. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements:
The financial statements of the Company are filed as part of this
Registration Statement on Form 10. See Index to Financial Statement Information
at page F-1.
57
<PAGE>
(b) Exhibits:
<TABLE>
<CAPTION>
Exhibit No.
- -----------
<S> <C>
2.1.1 Second Amended Plan of Reorganization, dated December 4,
1998, filed by Telecommunications Service Center, Inc. with
the United States Bankruptcy Court for the Middle District of
Florida
2.1.2 Supplement to Second Amended Disclosure Statement dated
December 21, 1998
2.1.3 Order of Conditional Confirmation of Debtor's Plan of
Reorganization dated February 16, 1999
2.1.4 Final Order Confirming Debtor's Plan of Reorganization
dated March 4, 1999
2.1.5 Agreement and Plan of Merger dated January 22, 1999
between Telecommunications Service Center, Inc. and
CyberSentry, Inc.
3.1 Restated Certificate of Incorporation of CyberSentry, Inc.
3.2 Bylaws of CyberSentry, Inc.
4.1 Certificate of Designation for Class A Convertible
Redeemable Participating Preferred Stock ($1.50 Liquidation
Value), Par Value $.001 Per Share
4.2 Certificate of Designation for Class B Convertible
Redeemable Participating Preferred Stock ($1.50 Liquidation
Value), Par Value $.001 Per Share
4.3 Certificate of Amendment of Certificate of Incorporation
amending Certificates of Designation
10.1.1 Revolving Credit Note dated April 1, 1996 and Letter
Agreements dated August 7, 1997 and May 1, 1996 among
South Trust Bank, N.A., Telecommunications Service
Center, Inc. and David Veltman
10.1.2 Installment Note and Security Agreement dated May 1, 1996 among
South Trust Bank, N.A., Telecommunications Service
Center, Inc. and David Veltman
10.2.1 Lease Agreement, effective April 17, 1996, between
Telecommunications Finance Group, as Lessor, and
Telecommunications Service Center, Inc., as Lessee,
Addendum dated February 5, 1999 and related Assignments
of Purchase Orders
</TABLE>
58
<PAGE>
<TABLE>
<S> <C>
10.2.2 Software License Agreement dated May 28, 1996 between
Telecommunications Service Center, Inc. and Siemens Stromberg-Carlson
10.3 Lease Agreement dated June 14, 1996 between Telecommunications
Service Center, Inc. and IBM Credit Corporation
10.4 Patent and Know How Sub-Contract and Commercialisation Agreement,
effective as of December 30, 1998 between Comtel and CyberSentry, Inc.
10.5 Assignment of Software License Agreement, effective as of
November 20, 1998, between Templar Corporation and CyberSentry, Inc.
10.6 Software Sub-License Agreement, effective as of January 1, 1998,
between CyberSentry, Inc. and Digital Rights International, Inc.
10.7 Lease Agreement for principal executive office dated as of July
1, 1996 between Telecommunications Service Center,
Inc. and Madison Building Inc.
10.8 Lease Agreement for principal executive office dated as of July
1, 1995 between Telecommunications Service Center, Inc. and Madison
Building Inc.
10.9 Employment Agreement dated December 25, 1998 between CyberSentry,
Inc. and Gerald A. Resnick
10.10 Employment Agreement dated February 16, 1999 between
CyberSentry, Inc. and Hal Shankland
10.11 Advisory Agreement dated December 1, 1998 between
CyberSentry, Inc. and Patriot Advisors, Inc.
10.12 Carrier Agreement dated October 1998 among
Telecommunications Service Center, Inc., Lake Tel, Inc. and
Capital One Bank
10.13 Distribution and Escrow Agreement dated February 22, 1999
among Marine Midland Bank, Telecommunications Service Center, Inc. and
CyberSentry, Inc.
10.14 Credit Agreement dated February 22, 1999 between Patriot
Advisors, Inc. and CyberSentry, Inc.
10.15 Shareholders' Agreement dated as of March 24, 1999 among
CyberSentry, Inc., Frank Kristan, Templar Corporation
</TABLE>
59
<PAGE>
<TABLE>
<S> <C>
and Patriot Advisors, Inc.; and agreement by Sinclair Partners,
Limited Partnership to be bound thereby.
10.16 Agreement and Waiver between CyberSentry, Inc. and
David Veltman dated as of April 20, 1999.
27.1 Financial Data Schedule Telecommunications Service Center, Inc.
27.2 Financial Data Schedule Cybersentry, Inc.
</TABLE>
60
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act
of 1934, the registrant has duly caused this Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized.
CYBERSENTRY, INC.
Dated: May 14, 1999
By: /s/ Gerald A. Resnick
------------------------------
Name: Gerald A. Resnick
Title: President
61
<PAGE>
CyberSentry, Inc.
Index to Financial Statements
Page No.
--------
Telecommunications Service Center, Inc.:
Report of Independent Certified Public Accountants F-2
Balance Sheets at December 31, 1998 and 1997 F-3
Statements of Operations for the years ended
December 31, 1998, 1997 and 1996 F-4
Statements of Capital Deficit for the years ended
December 31, 1998, 1997 and 1996 F-5
Statements of Cash Flows for the years ended
December 31, 1998, 1997 and 1996 F-6
Notes to Financial Statements F-7
CyberSentry, Inc.:
Report of Independent Certified Public Accountants F-21
Balance Sheet at December 31, 1998 F-22
Statement of Operations for the period from August 31, 1998
(inception) through December 31, 1998 F-23
Statement of Stockholders' Equity (Deficit) for the period
from August 21, 1998 (inception) through December 31, 1998 F-24
Statement of Cash Flows for the period from August 31, 1998
through December 31, 1998 F-25
Notes to Financial Statements F-26
Pro forma Financial Information F-38
CyberSentry, Inc.'s pro forma condensed balance sheet as of
December 31, 1998 (unaudited) F-39
CyberSentry, Inc.'s pro forma statement of operations
for the year ended December 31, 1998 (unaudited) F-40
Notes to pro forma condensed financial statements (unaudited) F-41
F-1
<PAGE>
Report of Independent Certified Public Accountants
To the Board of Directors and Stockholders of
Telecommunications Service Center, Inc.
We have audited the accompanying balance sheets of Telecommunications Service
Center, Inc. as of December 31, 1998 and 1997, and the related statements of
operations, capital deficit and cash flows for each of the years ended December
31, 1998, 1997 and 1996. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly in all
material respects, the financial position of Telecommunications Service Center,
Inc. as of December 31, 1998 and 1997, and the results of its operations and its
cash flows for each of the years ended December 31, 1998, 1997 and 1996, in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. As discussed in Note 1 to the financial
statements, on May 7, 1998, the Company filed a petition for reorganization
under Chapter 11 of the U.S. Bankruptcy Code. The Company will continue as a
Debtor-in-Possession under Chapter 11 of the Bankruptcy Code. This event and
circumstances relating to this event, including the Company's recurring losses
from operations, negative working capital and capital deficit raise substantial
doubt about its ability to continue as a going concern. Although the Company
will operate as a Debtor-in-Possession under the jurisdiction of the Bankruptcy
Court, the continuation of business as a going concern is contingent upon, among
other things, the ability to (1) formulate a Plan of Reorganization which will
gain approval of the creditors and stockholders and confirmation by the
Bankruptcy Court, (2) achieve satisfactory levels of future operating results
and cash flows and (3) obtain additional debt and equity. The accompanying
financial statements do not include any adjustments that might result from the
outcome of these uncertainties.
Miami, Florida
February 5, 1999, except for Note 2 BDO Seidman, LLP
which is as of March 14, 1999
F-2
<PAGE>
<TABLE>
<CAPTION>
Telecommunications Service Center, Inc.
(Debtor-In-Possession)
Balance Sheets
============================================================================================================
December 31, 1998 1997
- ------------------------------------------------------------------------------------------------------------
Assets
Current
<S> <C> <C>
Cash $ 33,970 $ 46,186
Accounts receivable, less $81,307 and $137,878 allowance
for doubtful accounts (Note 8) 144,435 701,423
Prepaid expenses and other current assets 69,003 113,346
Other receivables 5,298 2,900
- ------------------------------------------------------------------------------------------------------------
Total Current Assets 252,706 863,855
Equipment and Leasehold Improvements, net (Note 4) 1,156,807 1,588,345
Other assets 110,046 41,696
- ------------------------------------------------------------------------------------------------------------
$ 1,519,559 $ 2,493,896
============================================================================================================
Liabilities and Capital Deficit (Note 2)
Current Liabilities
Factoring line of credit (Note 8) $ - $ 197,589
Accounts payable 1,405,320 1,753,018
Accrued expenses and other current liabilities 446,923 482,515
Current maturities of capital lease obligations (Note 10) - 331,120
Line of credit (Note 6) - 260,872
Current maturities of bank note payable (Note 9) - 76,546
Liabilities subject to compromise under reorganization
proceedings (Note 3) 8,097,928 -
- -------------------------------------------------------------------------------------------------------------
Total Current Liabilities 9,950,171 3,101,660
Note payable stockholder (Note 7) - 3,189,362
Obligations under capital leases, less current maturities (Note 10) - 1,005,155
Bank note payable (Note 9) - 215,266
- -------------------------------------------------------------------------------------------------------------
Total liabilities 9,950,171 7,511,443
- -------------------------------------------------------------------------------------------------------------
Commitments, Contingencies and Subsequent Events
(Notes 8, 12 and 14)
Capital Deficit
Common stock - $1 par, 100,000 shares authorized,
2,000 shares issued and outstanding 2,000 2,000
Accumulated deficit (8,432,612) (5,019,547)
- -------------------------------------------------------------------------------------------------------------
Total Capital Deficit (8,430,612) (5,017,547)
- -------------------------------------------------------------------------------------------------------------
$ 1,519,559 $ 2,493,896
=============================================================================================================
See accompanying notes to financial statements.
</TABLE>
F-3
<PAGE>
<TABLE>
<CAPTION>
Telecommunications Service Center, Inc.
(Debtor-In-Possession)
Statements of Operations
==================================================================================================================
Years ended December 31, 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Sales (Note 1) $ 22,804,240 $ 8,341,164 $ 2,606,254
- ------------------------------------------------------------------------------------------------------------------
Operating Expenses:
Telecommunications costs (excluding
depreciation and amortization, shown
separately below) 22,283,257 8,112,840 2,305,023
Selling, general and administrative expenses 3,319,419 2,532,845 1,145,239
Depreciation and amortization 439,372 378,860 213,519
- ------------------------------------------------------------------------------------------------------------------
Total operating expenses 26,042,048 11,024,545 3,663,781
- ------------------------------------------------------------------------------------------------------------------
Other (Income) Expense:
Loss on sale of assets - - 76,203
Interest expense 402,508 354,959 133,066
Other income (227,251) - (3,337)
- ------------------------------------------------------------------------------------------------------------------
Total other expense 175,257 354,959 205,932
- ------------------------------------------------------------------------------------------------------------------
Net loss $ (3,413,065) $ (3,038,340) $ (1,263,459)
==================================================================================================================
Net loss per share
Basic $ (3.41) $ (3.04) $ (1.26)
Diluted $ (3.41) $ (3.04) $ (1.26)
Weighted average number of outstanding shares/1/
Basic 1,000,000 1,000,000 1,000,000
Diluted 1,000,000 1,000,000 1,000,000
See accompanying notes to financial statements.
</TABLE>
_____________________________
/1/ Weighted average number of outstanding shares reflects CyberSentry's
acquisition of TSC and the CyberSentry common stock issued to replace TSC's
common stock.
F-4
<PAGE>
<TABLE>
<CAPTION>
Telecommunications Service Center, Inc.
(Debtor-In-Possession)
Statements of Capital Deficit
=============================================================================================================================
Common Stock
-----------------------------------
Shares Amount (Deficit) Total
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at January 1, 1996 1,000 $ 1,000 $ (717,748) $ (716,748)
Issuance of common stock 1,000 1,000 - 1,000
Net loss - - (1,263,459) (1,263,459)
- -----------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1996 2,000 2,000 (1,981,207) (1,979,207)
Net loss - - (3,038,340) (3,038,340)
- -----------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1997 2,000 2,000 (5,019,547) (5,017,547)
Net loss - - (3,413,065) (3,413,065)
- -----------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1998 2,000 $ 2,000 $ (8,432,612) $ (8,430,612)
=============================================================================================================================
See accompanying notes to financial statements.
</TABLE>
F-5
<PAGE>
<TABLE>
<CAPTION>
Telecommunications Service Center, Inc.
(Debtor-In-Possession)
Statements of Cash Flows
(Note 11)
======================================================================================================================
Years ended December 1998 1997 1996
- ----------------------------------------------------------------------------------------------------------------------
Operating Activities:
<S> <C> <C> <C>
Net loss $ (3,413,065) $ (3,038,340) $ (1,263,459)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation and amortization 439,372 378,860 213,519
Interest expense accrued to note payable - stockholder 275,024 162,473 65,048
Loss on sale of assets - - 76,203
Bad debts 1,452,911 140,400 -
Changes in assets and liabilities:
(Increase) decrease in:
Accounts receivable (895,923) (692,880) (63,586)
Prepaid expenses and other 44,343 (48,141) (17,970)
Other receivables (2,398) 79,561 (82,462)
Other assets (68,350) 25,795 (43,790)
Increase (decrease) in:
Accounts payable 2,673,982 1,013,250 153,950
Accrued expenses (102,192) 321,605 74,335
- ----------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities 403,704 (1,657,417) (888,212)
- ----------------------------------------------------------------------------------------------------------------------
Investing Activities:
Purchases of equipment (7,833) (41,167) (119,127)
Proceeds from dispositions of property, plant and equipment - 221,032
- ----------------------------------------------------------------------------------------------------------------------
Net cash (used in) provided by investing activities (7,833) (41,167) 101,905
- ----------------------------------------------------------------------------------------------------------------------
Financing Activities:
Proceeds from factoring line of credit, net (136,861) 197,589 -
(Repayments) proceeds - line of credit, net (69,519) (17,174) 304
Proceeds from bank note payable - - 400,000
Repayments on bank note payable - (69,778) (38,410)
Proceeds from note payable-stockholder 196,042 1,926,614 500,500
Repayments on note payable-stockholder - (88,250) (5,000)
Repayments of obligations under capital leases (397,749) (234,618) (50,446)
Repayments on other debt - - (11,845)
- ----------------------------------------------------------------------------------------------------------------------
Net cash (used in) provided by financing activities (408,087) 1,714,383 795,103
- ----------------------------------------------------------------------------------------------------------------------
Net (decrease) increase in cash (12,216) 15,799 8,796
Cash at beginning of year 46,186 30,387 21,591
- ----------------------------------------------------------------------------------------------------------------------
Cash at end of year $ 33,970 $ 46,186 $ 30,387
======================================================================================================================
See accompanying notes to financial statements.
</TABLE>
F-6
<PAGE>
Telecommunications Service Center, Inc.
(Debtor-In-Possession)
Notes to Financial Statements
================================================================================
1. Summary of Significant Business
Accounting --------
Policies
Telecommunications Service Center, Inc. ("The
Company" or "TSC") is a facilities based carrier
providing long distance telecommunications
services including commercial and residential
service, international call back long distance
service, operator service for pay phones,
prepaid phone cards, and enhanced services, such
as voice and fax-mail services. The Company is
in a specialized telecommunications service
industry. This industry segment is subject to
certain competitive pressures.
During 1998 and 1997, a significant amount of
the Company's business was acquired through
independent marketing agents. For the years
ending December 31, 1998 and 1997, the
agreements contributed revenues of $18,659,810
and $5,359,652 and related telecommunication
costs of $17,160,483 and $4,326,573,
respectively. There were no significant
agreements in 1996.
In 1997, the Company purchased high-volume,
state-of-the-art Digital Switching equipment to
accommodate anticipated growth and targeted new
markets. The Company is certified to do business
in forty eight (48) states and is tariffed in
forty two (42) states. It was certified as an
"Alternative Local Exchange Carrier" (ALEC) to
provide "Local Telephone Services" in the state
of Florida in 1998 and is currently filing for
ALEC certification in thirty (30) additional
states.
Basis of Presentation
---------------------
On May 7, 1998, the Company filed a voluntary
petition (the "Petition") for relief under
Chapter 11 of the United States Bankruptcy Code
in the Middle District of Florida, Tampa
Division. Since the filing the Company is
operating its business in the ordinary course as
debtors-in-possession subject to the
jurisdiction of the Bankruptcy Court.
The accompanying financial statements have been
prepared on a going concern basis which assumes
continuity of operations and realization of
assets and liquidation of liabilities in the
ordinary
F-7
<PAGE>
Telecommunications Service Center, Inc.
(Debtor-In-Possession)
Notes to Financial Statements
================================================================================
course of business. As a result of the
reorganization proceedings (Note 2), there are
significant uncertainties relating to the
ability of the Company to continue as a going
concern. The financial statements do not include
any adjustments that might be necessary as a
result of the outcome of the uncertainties
discussed herein including the effects of any
Plan of Reorganization.
Use of Estimates
----------------
The preparation of financial statements in
conformity with generally accepted accounting
principles requires management to make estimates
and assumptions that affect the reported amounts
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.
Recognition of Revenue
----------------------
The Company recognizes revenue upon completion
of telephone calls by end users. Allowances are
provided for estimated uncollectible usage.
Asset Impairment
----------------
The Company periodically reviews the carrying
value of certain of its assets in relation to
historical results, current business conditions
and trends to identify potential situations in
which the carrying value of assets may not be
recoverable. If such reviews indicate that the
carrying value of such assets may not be
recoverable, the Company would estimate the
undiscounted sum of the expected future cash
flows of such assets to ascertain if a permanent
impairment exists. If a permanent impairment
exists, the Company would determine the fair
value by using quoted market prices, if
available, for such assets, or if quoted market
prices are not available, the Company would
discount the expected future cash flows of such
assets.
F-8
<PAGE>
Telecommunications Service Center, Inc.
(Debtor-In-Possession)
Notes to Financial Statements
================================================================================
Financial Instruments
---------------------
The fair value of financial instruments is
determined by reference to various market data
and other valuation techniques, as appropriate,
and unless otherwise disclosed, the fair values
of financial instruments approximate their
recorded values.
Equipment and Leasehold Improvements
------------------------------------
Depreciation and amortization are provided on
the straight-line method over the estimated
useful lives of the assets. Leasehold
improvements are amortized over the term of the
respective leases or the service lives of the
improvements, whichever is shorter. Upon sale or
retirement, the asset cost and related
accumulated depreciation and amortization are
removed from the accounts and any related gain
or loss is reflected in earnings.
Income Taxes
------------
Income taxes are accounted for using the
liability approach under the provisions of
Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes." Under this
method, deferred taxes are recognized for the
tax consequences of temporary differences by
applying enacted statutory tax rates applicable
for future years to the differences between the
financial statement and tax basis of existing
assets and liabilities.
Earnings Per Share
------------------
During 1998, the Company adopted Statement of
Financial Accounting Standards ("SFAS") No. 128
"Earnings Per Share" ("SFAS No. 128"). SFAS No.
128 replaced the existing methodology for
calculating and presenting earnings per share.
Under SFAS No. 128, primary earnings per share
has been replaced with a presentation of basic
earnings per share and fully diluted earnings
per share has been replaced with diluted
earnings per share. Basic earnings per share
excludes dilution and is computed by dividing
income available to common shares outstanding
for the period by the weighted average of common
shares outstanding. Diluted earnings per share
is computed
F-9
<PAGE>
Telecommunications Service Center, Inc.
(Debtor-In-Possession)
Notes to Financial Statements
================================================================================
similarly to fully diluted earnings per share in
accordance with the Accounting Principles Board
("APB") Opinion No. 15. The impact of the
adoption of SFAS No. 128 has not been material.
New Accounting Pronouncements
-----------------------------
Statement of Financial Accounting Standards
(SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities," establishes
accounting and reporting standards for
derivative instruments and for hedging
activities. It requires that an entity recognize
all derivatives as either assets or liabilities
in the statement of financial position and
measure those instruments at fair value. The
statement applies to all entities and is
effective for all fiscal quarters of fiscal
years beginning after June 15, 1999. The Company
did not engage in derivative instruments or
hedging activities in any periods presented in
the financial statements and management does not
expect this statement to have a material impact
on the Company's financial position or results
of operations.
Statement of Position (SOP) 98-5, "Reporting on
the Costs of Start-Up Activities," provides
guidance on the financial reporting of start-up
costs and organization costs. It requires costs
of start-up activities and organization costs to
be expensed as incurred. The SOP is effective
for financial statements for fiscal years
beginning after December 15, 1998. The Company's
management does not expect this SOP to have a
material impact on the Company's financial
position or results of operations.
2. Reorganization In Chapter 11, substantially all liabilities as
of the petition date are subject to resolution
under the reorganization plan (filed
concurrently with the petition for relief) which
is to be voted upon by the Company's creditors
and stockholders and confirmed by the Bankruptcy
Court.
The Bankruptcy Court authorized the Company to
use the cash generated by its operations to
continue to fund its business obligations and to
pay pre-petition wages, salaries and other
liabilities. These various Bankruptcy Court
authorizations provide
F-10
<PAGE>
Telecommunications Service Center, Inc.
(Debtor-In-Possession)
Notes to Financial Statements
================================================================================
the Company with cash and liquidity, so that it
may conduct its operations. Until a
reorganization plan is effective, the Company
will fund its working capital and capital
expenditures requirements through cash generated
by its operations. The reorganized company
expects to meet its working capital and capital
expenditure requirements through its existing
credit facilities (Notes 6, 7 and 9) and through
the purchase by CyberSentry, Inc. (see Note 14).
Schedules have been filed by the Company with
the Bankruptcy Court setting forth its assets
and liabilities as of the petition date as shown
by its accounting records. Creditors holding
pre-petition date claims against the Company
were required to file proofs of claim on or
before a date fixed by the Bankruptcy Court.
Differences between amounts shown by the Company
and claims filed by its creditors, including
claims in excess of what the Company has
previously accrued, have been or will be
investigated and resolved consensually or by
order of the Bankruptcy Court. The ultimate
amount and settlement terms for such liabilities
are subject to the confirmation of the
reorganization plan.
The Bankruptcy Court confirmed the plan of
reorganization on March 4, 1999 and the Plan
became effective ("Effective Date") March 14,
1999.
The Plan provides for the division of creditors
and equity holders into six classes and for the
treatment of each class as follows:
The Class One Creditors (as defined in the Plan)
consists of administrative claims that were paid
in full. The aggregate payment made to the Class
One Creditors was approximately $20,000
(excluding Westinghouse Communications and
Sprint Communications Company, L.P.). Included
in accounts payable at December 31, 1998 in the
balance sheet are post petition administrative
claims of $895,692 from Westinghouse
Communications ("Westinghouse") and Sprint
Communications Company L.P. ("Sprint"). The
administrative amounts were allowed in full and
pre-petition claims amounting to $1,355,544 were
allowed in full as unsecured claims (see Class
Five Creditors).
With respect to the allowed administrative
claims of Westinghouse and Sprint, the companies
received $.07 in cash and the value of
F-11
<PAGE>
Telecommunications Service Center, Inc.
(Debtor-In-Possession)
Notes to Financial Statements
================================================================================
$.93 in a share of Class A Preferred Stock
($1.50 stated value) in CyberSentry, Inc., for
every $1.00 of unsecured claim. Westinghouse and
Sprint have also entered into an agreement with
Patriot Advisors, Inc. ("Patriot") to sell the
preferred stock of CyberSentry, Inc. to Patriot
Advisors, Inc. at $1.50 per share at certain
time intervals up to 455 days after the
confirmation date of the plan of reorganization.
The Class Two Creditors (as defined in the Plan)
consists of relatively small amount of claims of
governmental units for past due taxes which will
be paid in full in 60 equal monthly payments.
The Class Three Creditors (as defined in the
Plan) consists of the secured claims of
Southtrust Bank ("Southtrust") and Receivable
Funding Corporation ("Receivable Funding").
Southtrust is owed approximately $477,000 at
December 31, 1998 pursuant to a Note and
Mortgage on all assets, such debt being incurred
by the Company in connection with a line of
credit. Southtrust will be paid in accordance
with the terms of the Note and Mortgage.
Receivable Funding is owed approximately $10,000
pursuant to a factoring agreement. Receivable
Funding will be paid in accordance with the
terms of the agreement.
The Class Four Creditors (as defined in the
Plan) consists of the equipment lease claims of
IBM ("IBM"), and Telecom Finance Group ("Telecom
Finance"). IBM's claim is pursuant to a lease
agreement for a computer system by and between
TSC and IBM (the "IBM Lease"). IBM is owed
approximately $24,000 at December 31, 1998, and
will be paid in full pursuant to the terms of
the IBM Lease. Telecom Finance's claim is
pursuant to a lease agreement by and between TSC
and Telecom Finance regarding the lease of
Siemen's switch equipment (the "Siemens Lease").
Telecom Finance is owed approximately $1,300,000
at December 31, 1998. Within ten days of the
entry of the confirmation order, TSC shall make
a $100,000 payment to Telecom Finance to be
applied to amounts owed under the lease. Telecom
Finance and TSC shall then enter into an amended
lease wherein the past due pre-petition and
post-petition arrearage including costs, fees,
charges and interest, shall be added to the
existing lease obligations and restructured
F-12
<PAGE>
Telecommunications Service Center, Inc.
(Debtor-In-Possession)
Notes to Financial Statements
================================================================================
under an amended lease with such restructured
obligation paid out over a five-year period.
The Class Five Creditors (as defined in the
Plan) consists of unsecured creditors who will
receive $.07 in cash and the value of $.93 in a
share of Class A Preferred Stock ($1.50 stated
value) of CyberSentry, Inc. for every $1.00 of
unsecured claim.
The Class Five Creditors also received the right
to purchase Common Stock for $1.00 per share
upon confirmation of the Plan for each one share
of preferred stock received by the Class Five
Creditor pursuant to the Plan (the "Right's
Offering"). The Rights Offering is only
available to the Class Five Creditors.
The Class Six Creditors (as defined in the Plan)
consist of the pre-Bankruptcy shareholders of
TSC (the "TSC Shareholders") whose interest in
TSC is terminated pursuant to the Plan by
cancellation of all outstanding shares of
capital stock of TSC. Pursuant to the Plan and
the proposed acquisition (see Note 14), the TSC
Shareholders were issued 1,000,000 shares of
Common Stock and 1,000,000 shares of Class B
Preferred Stock in CyberSentry, Inc. on a pro
rata basis.
3. Liabilities Subject to Substantially all of the Company's liabilities
Compromise Under as of the Petition Date are subject to
Reorganization settlement under a plan of reorganization.
Proceedings
At December 31, 1998, liabilities subject to
comprise under reorganization proceedings
consisted of:
<TABLE>
<S> <C>
Priority claims $ 20,000
Secured debt
Principal 1,415,819
General Unsecured Claims 3,001,681
Unsecured Debt, Principal and Interest 3,660,428
-------------------------------------------------------
$ 8,097,928
=======================================================
</TABLE>
F-13
<PAGE>
Telecommunications Service Center, Inc.
(Debtor-In-Possession)
Notes to Financial Statements
================================================================================
Priority claims, the repayment of which the
Company is required to prioritize under bankruptcy
law are comprised principally of administrative
claims. Unsecured debt includes amounts which may
ultimately be deemed secured. It is not
practicable to estimate the fair value of the
Company's liabilities subject to compromise under
reorganization proceedings.
4. Equipment Equipment and leasehold improvements are as
and follows:
Leasehold
Improvements
<TABLE>
<CAPTION>
Estimated
Useful
Lives
December 31, 1998 1997 (in years)
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Switch equipment $ 1,552,075 $ 1,554,075 5
Switch software 335,228 334,479 5
Computer equipment 269,722 260,637 5
Furniture and equipment 56,480 56,480 5-10
Leasehold improvements 14,215 14,215 5
- ------------------------------------------------------------------------------------------
2,227,720 2,219,886
Less accumulated depreciation
and amortization (1,070,913) (631,541)
- ------------------------------------------------------------------------------------------
$ 1,156,807 $ 1,588,345
==========================================================================================
</TABLE>
Substantially all of the Company's equipment is
under capital lease.
5. Income Taxes Deferred income taxes reflect the net tax effects
of temporary differences between the carrying
amounts of assets and liabilities for financial
reporting purposes and the amounts used for income
tax purposes. Significant components of the
Company's current deferred income tax asset and
non-current deferred income tax asset (liability)
are as follows:
F-14
<PAGE>
Telecommunications Service Center, Inc.
(Debtor-In-Possession)
Notes to Financial Statements
================================================================================
December 31, 1998 1997
- ------------------------------------------------------------------------------
Deferred tax liabilities:
Tax greater than book depreciation
and amortization $ 211,000 $ 108,000
- ------------------------------------------------------------------------------
Total deferred tax liabilities 211,000 108,000
- ------------------------------------------------------------------------------
Deferred tax assets:
Net operating loss carryforwards 2,816,000 1,190,000
Bad debt - 48,000
Accrual to cash conversion 503,000 655,000
- ------------------------------------------------------------------------------
Total deferred tax assets 3,319,000 1,893,000
- ------------------------------------------------------------------------------
Valuation allowance for deferred tax
assets (3,108,000) (1,785,000)
- ------------------------------------------------------------------------------
$ - $ -
==============================================================================
As of December 31, 1998, the Company had Federal
and Florida net operating loss carryforwards of
approximately $7,483,000 that expire from 2010
through 2018.
A "valuation allowance" is provided when it is
more likely than not that some portion of deferred
tax assets will not be realized. The Company has
established valuation allowances in the amount of
$3,108,199 at December 31, 1998, principally for
that portion of the net operating loss
carryforward and other net deferred tax assets
whose future tax benefit is currently uncertain.
Realization of the benefits related to losses may
be limited in any one year due to U.S. Internal
Revenue Code Section 382, change of ownership
rules.
The difference between the reported income tax
provision (benefit) and the tax provision
(benefit) that would result from applying the 34%
Federal statutory rate to the income (loss) from
operations before income taxes is reconciled as
follows:
F-15
<PAGE>
Telecommunications Service Center, Inc.
(Debtor-In-Possession)
Notes to Financial Statements
================================================================================
December 31, 1998 1997 1996
- -------------------------------------------------------------------------------
Income tax (benefit) computed
at Federal statutory rate $ (1,160,442) $ (1,033,036) $ (429,576)
- - -
Increase (decrease) in Federal
taxes resulting from:
Effect of net operating
losses for which no tax
carryback benefit is
available 1,154,922 1,030,678 429,576
Other non-deductible expenses 5,520 2,358 -
- -------------------------------------------------------------------------------
$ - $ -
===============================================================================
6. Line of Credit The Company has a revolving line of credit
collateralized by all business assets, including
but not limited to accounts receivable, property
and equipment, contract rights and general
intangibles, now owned or hereafter acquired,
providing for borrowings up to $300,000. The
principal balance is due on demand and interest
is payable monthly at the financial
institution's base rate plus 1.5% (10.0% at
December 31, 1998). The line is guaranteed by
the Company's stockholders. The balance
outstanding at December 31, 1998 amounted to
$255,000 and is included in liabilities subject
to compromise under reorganization proceedings
in the balance sheet.
7. Note Payable-Stockholder The note payable-stockholder is unsecured and
due on December 31, 2000. The note bears
interest at the prime rate plus 1% (9.5% at
December 31, 1998). Interest expense on the note
amounted to $275,024, $162,473 and $65,048 for
the years ended December 31, 1998, 1997 and
1996, respectively. The loan is subordinated to
the line of credit and bank note payable.
Accrued interest in the amount of $544,918 and
$332,200 was included in the note balance at
December 31, 1998 and 1997, respectively. The
balance outstanding, including accrued interest
at December 31, 1998 and 1997 amounted to
$3,660,428 and $3,389,361, respectively. The
balance outstanding at December 31, 1998 is
included in liabilities subject to compromise
under reorganization
F-16
<PAGE>
Telecommunications Service Center, Inc.
(Debtor-In-Possession)
Notes to Financial Statements
================================================================================
proceedings in the balance sheet.
8. Factoring Agreement On July 9, 1997, the Company entered into a
factoring agreement providing a line of credit
for up to $1,000,000, based upon 90% of the
eligible accounts receivable. The agreement
provides for the line to be increased to
$1,500,000. The fee charged by the factor is
16.5% per annum of amounts advanced and
outstanding. The advances are collateralized by
accounts receivable. The term of the agreement
is for one year with an option to extend for one
year thereafter. The Company did not exercise
its option to extend the factoring agreement in
1998. Factoring fees amounted to $758,683 for
the year ended December 31, 1997.
9. Bank Note The Company has a note payable with a bank that
Payable is collateralized by all business assets,
including but not limited to accounts
receivable, property and equipment, contract
rights and general intangibles, now owned or
hereafter. The note bears interest at 8.75% and
principal and interest are due monthly in the
amount at $8,254 through May 2001. The note is
guaranteed by the Company's stockholders. On May
7, 1998 the Company filed a voluntary petition
for relief under Chapter 11 (see Notes 1 and 2).
As a result of the bankruptcy filing, the
Company was not in compliance with certain
covenants relating to the bank note agreement
and therefore has classified the balance of the
bank note payable as a current liability. The
balance outstanding at December 31, 1998 and
1997 amounted to $222,292 and $291,812. The
balance outstanding at December 31, 1998 is
included in liabilities subject to compromise
under reorganization proceedings in the balance
sheet.
Maturities of the bank note payable at December
31, 1998 are as follows:
1999 $ 90,808
2000 91,112
2001 40,372
--------------------------------------------
$ 222,292
============================================
F-17
<PAGE>
Telecommunications Service Center, Inc.
(Debtor-In-Possession)
Notes to Financial Statements
================================================================================
10. Lease Obligations Telecommunications Service Center, Inc. leases
its office facilities. Minimum rental payments
required under these leases as of December 31,
1998 are as follows:
1999 $ 77,754
2000 52,881
2001 22,672
2002 19,336
2003 4,334
---------------------------------------------
Total minimum lease payments $ 176,977
=============================================
Rent expense aggregated $72,461, $63,088 and
$56,361 in 1998, 1997 and 1996, respectively.
The Company also leases certain computer
equipment, switch equipment and software under
capital lease agreements. Total future minimum
lease payments under the original terms of the
agreements at December 31, 1998 are as follows:
<TABLE>
<S> <C>
1999 $ 596,717
2000 416,813
2001 312,610
---------------------------------------------------------------------
Total minimum lease payments 1,326,140
Less amount representing interest (387,614)
Less current maturities of capital lease obligations (259,845)
---------------------------------------------------------------------
Present value of long-term obligations
under capital leases $ 678,681
======================================================================
</TABLE>
On May 7, 1998, the Company filed a voluntary
petition for relief under Chapter 11 (See Notes
1 and 2). As a result of the bankruptcy filing,
the Company was not in compliance with certain
covenants relating to the capital lease
agreements and has therefore classified the
balance of the lease obligations as a current
liability included in liabilities subject to
compromise under reorganization proceedings in
the balance sheet.
F-18
<PAGE>
Telecommunications Service Center, Inc.
(Debtor-In-Possession)
Notes to Financial Statements
================================================================================
11. Statement of Supplemental disclosures of cash flow
Cash Flows information:
<TABLE>
<CAPTION>
Years ended December 31, 1998 1997 1996
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash paid for interest $ 127,726 $ 192,941 $ 67,683
Non cash transactions:
Purchase of equipment by capital leases - 438,669 1,182,670
Repayment of note payable stockholder
through issuance of common stock - - 1,000
Interest accrued to balance of note
payable - stockholder 275,024 162,473 65,048
Services received in settlement of
accounts receivable - - 376,614
Transfer of the following to liabilities
subject to compromise under
reorganization proceedings:
Pre-petition accounts payable 3,021,681 - -
Bank line of credit 255,000 - -
Capital leases 938,526 - -
Bank note payable 222,293 - -
Note payable-stockholder 3,660,428 - -
-----------------
Total transferred $ 8,097,928
-----------------
</TABLE>
12. Litigation In December 1997, the Company received notice
of a claim aggregating approximately $696,000
filed against the Company pertaining to
breach of certain trade agreements. The
Company is vigorously defending this claim.
Management believes the Company's maximum
exposure is $696,000 which it has recorded as
of December 31, 1998 and is included in
liabilities subject to compromise under
reorganization proceedings in the balance
sheet. All litigation has been stayed as a
result of the bankruptcy proceedings.
Additionally, the Company is subject to
various legal proceedings, claims and
liabilities which arise in the ordinary
course of its business. In the opinion of
management, the amount of ultimate
F-19
<PAGE>
Telecommunications Service Center, Inc.
(Debtor-In-Possession)
Notes to Financial Statements
================================================================================
liability with respect to these matters will
not materially affect the financial
statements of the Company.
13. Related Party Transaction The Company, Lake Tel, Inc., a New Jersey
corporation ("Lake Tel"), and Capital One
Bank, a Virginia banking corporation "Capital
One"), have entered into a Carrier Agreement
dated October 1998 (the "Carrier Agreement")
pursuant to which the Company has agreed to
allow Capital One to offer secured credit
card products to customers of the Company for
an initial term of five years. For each
account booked by Capital One under the
Carrier Agreement, Lake Tel is entitled to
receive a fee from Capital One and is
obligated to pay a fee to the Company. The
Chairman and President of CyberSentry, Inc.
(see Note 14) sits on the Board of Directors
of Lake Tel, a telecommunications marketing
company specializing in financial
institutions.
14. Subsequent Event On January 22, 1999, the Company entered into
a preliminary agreement ("the Plan") to be
acquired by CyberSentry, Inc., a Delaware
Corporation. CyberSentry, Inc. will be the
surviving corporation in the purchase and the
separate existence of Telecommunications
Service Center, Inc. will cease. The
finalization of the purchase is dependent
upon the bankruptcy court's confirmation of
the Company's plan of reorganization (Note
2).
CyberSentry, Inc. ("CyberSentry") was
incorporated in Delaware on August 21, 1998
as Telecommunications Services Corporation
and subsequently amended its certificate of
incorporation to change the corporation's
name to CyberSentry, Inc. CyberSentry's
principal business includes the sale of
CyberSentry software and to sell two
applications of Asynchronous Transfer Mode
("ATM") Technology.
Additionally, CyberSentry advanced $500,000
in cash against the purchase of TSC and
provided a working capital line of credit in
the amount of $3,000,000.
F-20
<PAGE>
Report of Independent Certified Public Accountants
To the Board of Directors and Stockholders of
CyberSentry, Inc.
We have audited the accompanying balance sheet of CyberSentry, Inc. (a
development stage enterprise) as of December 31, 1998 and the related statements
of operations, stockholders' equity (deficit) and cash flows for the period from
August 21, 1998 (inception) through December 31, 1998. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of CyberSentry, Inc. as of
December 31, 1998 and the results of its operations and cash flows for the
period from August 21, 1998 (inception) through December 31, 1998 in conformity
with generally accepted accounting principles.
Miami, Florida BDO Seidman, LLP
February 22, 1999, except for Note 6
which is as of March 14, 1999
F-21
<PAGE>
CyberSentry, Inc.
(a development stage enterprise)
Balance Sheet
================================================================================
<TABLE>
<CAPTION>
December 31, 1998
- ----------------------------------------------------------------------------------------------------------
Assets
Current
<S> <C> <C>
Other receivables (Note 4) $ 50,000
Other assets 14,896
- ----------------------------------------------------------------------------------------------------------
Total current assets 64,896
ATM Technology License, net of $142,857 of accumulated amortization
(Notes 1 and 2) 2,857,143
CyberSentry Software License, net of $107,143 of accumulated amortization
(Notes 1 and 2) 2,892,857
- ----------------------------------------------------------------------------------------------------------
$ 5,814,896
==========================================================================================================
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable and accrued liabilities $ 12,500
Due to shareholder (Note 4) 76,181
- ----------------------------------------------------------------------------------------------------------
Total current liabilities 88,681
Commitments and contingencies (Note 6)
==========================================================================================================
Stockholders' Equity (Deficit) (Note 5)
Class A convertible redeemable participating preferred stock, $.001 par value,
7,000,000 shares authorized, no shares issued -
Class B convertible redeemable participating preferred stock, $.001 par value,
3,000,000 shares authorized, 2,000,000 shares issued and outstanding 2,000
Common stock, $.001 par value, 30,000,000 shares authorized,
12,000,000 shares issued and outstanding 12,000
Additional paid-in capital 6,038,700
Deficit accumulated during the development stage (326,485)
- ----------------------------------------------------------------------------------------------------------
Total stockholders' equity 5,726,215
- ----------------------------------------------------------------------------------------------------------
$ 5,814,896
==========================================================================================================
See accompanying notes to financial statements.
</TABLE>
F-22
<PAGE>
CyberSentry, Inc.
(a development stage enterprise)
Statement of Operations
================================================================================
For the
Period from
August 21, 1998
(inception) through
December 31,
1998
- --------------------------------------------------------------------
Expenses:
General and administrative $ 76,485
Amortization of acquired technology 250,000
- --------------------------------------------------------------------
Total expenses 326,485
- --------------------------------------------------------------------
Net loss $ (326,485)
====================================================================
Net loss per share
Basic $ (.03)
Diluted $ (.03)
Weighted average number of
outstanding shares
Basic 10,500,000
Diluted 10,500,000
See accompanying notes to financial statements.
F-23
<PAGE>
CyberSentry, Inc.
(a development stage enterprise)
Statement of Stockholders' Equity (Deficit)
<TABLE>
<CAPTION>
Deficit
Accumulated
Preferred Common Additional During
---------------------------------------------- Paid-in Development
Shares Amount Shares Amount Capital Stage Total
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Issuance of common stock
for cash in September 1998
at $.006/share (Note 5) - $ - 8,550,000 $ 8,550 $ 41,450 $ - $ 50,000
Issuance of common stock
for services in September
1998 at $.006/share (Note 5) - - 450,000 450 2,250 - 2,700
Issuance of common stock for
CyberSentry Software
acquisition in November 1998
at $1.00/share (Note 5) - - 3,000,000 3,000 2,997,000 - 3,000,000
Issuance of Class B preferred
stock for ATM Technology
acquisition in September 1998
at $1.50/share (Note 5) 2,000,000 2,000 - - 2,998,000 - 3,000,000
Net loss - - - - - (326,485) (326,485)
- --------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1998 2,000,000 $ 2,000 12,000,000 $ 12,000 $ 6,038,700 $ (326,485) $ 5,726,215
=================================================================================================================================
See accompanying notes to financial statements.
</TABLE>
F-24
<PAGE>
CyberSentry, Inc.
(a development stage enterprise)
Statement of Cash Flows
================================================================================
For the
Period from
August 21, 1998
(inception) to
December 31,
1998
- --------------------------------------------------------------------------------
Operating Activities:
Net loss $(326,485)
Adjustments to reconcile net loss to
net cash used in operating activities:
Amortization 250,000
Stock granted for services 2,700
Changes in operating assets and liabilities:
Other receivables (50,000)
Other assets (14,896)
Accounts payable and accrued liabilities 12,500
- --------------------------------------------------------------------------------
Total adjustments 200,304
- --------------------------------------------------------------------------------
Net cash used in operating activities (126,181)
- --------------------------------------------------------------------------------
Investing Activities:
Proceeds from issuance of common stock 50,000
- --------------------------------------------------------------------------------
Net cash provided by investing activities 50,000
- --------------------------------------------------------------------------------
Financing Activities:
Increase in due to shareholder 76,181
- --------------------------------------------------------------------------------
Net cash provided by financing activities 76,181
- --------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents -
Cash and cash equivalents at beginning of period -
- --------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ -
================================================================================
Supplemental Disclosures:
Stock issued in exchange for ATM Technology License $3,000,000
Stock issued in exchange for CyberSentry Software $3,000,000
================================================================================
See accompanying notes to financial statements.
F-25
<PAGE>
CyberSentry, Inc.
(a development stage enterprise)
Notes to Financial Statements
================================================================================
1. Summary of Significant Organization and Business
Accounting -------------------------
Policies
CyberSentry, Inc. ("CyberSentry" or the
"Company") was incorporated in Delaware on
August 21, 1998 as Telecommunication Services,
Inc. ("TSI"). On November 30, 1998, TSI amended
its certificate of incorporation to change the
Corporation's name to CyberSentry, Inc.
CyberSentry's principal business includes the
marketing and sale of CyberSentry software and
to sell two applications of Asynchronous
Transfer Mode ("ATM") Technology.
The CyberSentry Software protects Internet
commerce transactions by controlling access to
both consumer credit information and content
that can be downloaded via the Internet, i.e.,
games, CD's, videos, copyrighted information and
other transactions. It also restricts the
unauthorized redistribution of material to
secondary recipients, such as passing along
copies of protected material. Content downloaded
via the Internet can be protected using
CyberSentry Software.
The two ATM applications are a fast packet
digital switch and a set-top box. The fast
packet digital switch is designed for small to
medium size businesses. The device will allow a
business to transmit voice, video and data over
a local area network using the business'
existing PABX infrastructure. The set-top box is
designed for applications in the home. This
device will allow for the delivery of voice,
video and data into the home via the existing
telephone line or via satellite.
Use of Estimates
----------------
The preparation of financial statements in
conformity with generally accepted accounting
principles requires management to make estimates
and assumptions that affect the reported amounts
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.
F-26
<PAGE>
CyberSentry, Inc.
(a development stage enterprise)
Notes to Financial Statements
================================================================================
Cash and Cash Equivalents
-------------------------
The Company considers all highly liquid
investments with an initial maturity of three
months or less when purchased to be cash
equivalents.
ATM Technology and CyberSentry Software Licenses
------------------------------------------------
The ATM Technology and CyberSentry Software
licenses are carried at cost less accumulated
amortization. Amortization is computed using the
straight-line method over the estimated useful
life of seven years.
New Accounting Pronouncements
-----------------------------
Statement of Financial Accounting Standards
(SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities," establishes
accounting and reporting standards for
derivative instruments and for hedging
activities. It requires that an entity
recognizes all derivatives as either assets or
liabilities in the statement of financial
position and measures those instruments at fair
value. The statement applies to all entities and
is effective for all fiscal quarters of fiscal
years beginning after June 5, 1999. The Company
did not engage in derivative instruments or
hedging activities in any periods presented in
the financial statements and management does not
expect this statement to have a material impact
on the Company's financial position or results
of operations.
Statement of Position (SOP) 98-5, "Reporting on
the Costs of Start-Up Activities," provides
guidance on the financial reporting of start-up
costs and organization costs. It requires costs
of start-up activities and organization costs to
be expensed as incurred. The SOP is effective
for financial statements for fiscal years
beginning after December 15, 1998. The Company's
management does not expect this SOP to have
material impact on the Company's financial
position or results of operations.
F-27
<PAGE>
CyberSentry, Inc.
(a development stage enterprise)
Notes to Financial Statements
================================================================================
Income Taxes
------------
Income taxes are accounted for using the
liability approach under the provisions of
Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes." Under this
method, deferred taxes are recognized for the
tax consequences of temporary differences by
applying enacted statutory tax rates applicable
for future years to the differences between the
financial statement and tax basis of existing
assets and liabilities.
Earnings Per Share
------------------
During 1998, the Company adopted Statement of
Financial Accounting Standards ("SFAS") No. 128
"Earnings Per Share" ("SFAS No. 128"). SFAS No.
128 replaced the existing methodology for
calculating and presenting earnings per share.
Under SFAS No. 128, primary earnings per share
has been replaced with a presentation of basic
earnings per share and fully diluted earnings
per share has been replaced with diluted
earnings per share. Basic earnings per share
excludes dilution and is computed by dividing
income available to common shares outstanding
for the period by the weighted average of common
shares outstanding. Diluted earnings per share
is computed similarly to fully diluted earnings
per share in accordance with the Accounting
Principles Board ("APB") Opinion No. 15. The
impact of the adoption of SFAS No. 128 has not
been material.
Asset Impairment
----------------
The Company periodically reviews the carrying
value of certain of its assets in relation to
historical results, current business conditions
and trends to identify potential situations in
which the carrying value of assets may not be
recoverable. If such reviews indicate that the
carrying value of such assets may not be
recoverable, the Company would estimate the
undiscounted sum of the expected future cash
flows of such assets to ascertain if a permanent
impairment exists. If a permanent impairment
exists, the Company would determine the fair
value using quoted market
F-28
<PAGE>
CyberSentry, Inc.
(a development stage enterprise)
Notes to Financial Statements
================================================================================
prices, if available, for such assets, or if
quoted market prices are not available, the
Company would discount the expected future cash
flows of such assets.
Financial Instruments
---------------------
The fair value of financial instruments is
determined by reference to various market data
and other valuation techniques, as appropriate,
and unless otherwise disclosed, the fair values
of financial instruments approximate their
recorded values.
2. Acquired Technology CyberSentry Software License
----------------------------
On October 2, 1998, Templar Corporation, a
Delaware corporation ("Templar"), entered into a
license agreement (the "License Agreement") with
Learning Company Properties, Inc., a Delaware
corporation ("Learning"), pursuant to which
Templar obtained an exclusive, worldwide,
perpetual, fully-paid right and license to
publish, use, distribute and sublicense a
software program that provides digital rights
management technology (the "CyberSentry
Software").
In addition, pursuant to the License Agreement,
Learning assigned its rights to certain
trademarks, and Learning agreed to provide
engineering support through September 30, 1999.
Templar agreed to pay Learning $150,000 in
consideration for such engineering support.
Templar transferred to Learning 2,500,000 fully
paid and ordinary shares (the "LibertyOne
Shares") in the capital of LibertyOne Ltd.,
("LibertyOne") as consideration for the license
of the CyberSentry Software. In connection with
the LibertyOne Shares, Learning has been issued
a right to put the LibertyOne Shares to Templar
for an aggregate purchase price of $3,000,000,
pursuant to the Put and Top Up Agreement ("Put
Agreement"), dated October 22, 1998, by and
between Learning and Templar. This put expires
on December 31, 2001, unless it terminates
earlier due to the occurrence of certain Trigger
Events, as defined in the Put
F-29
<PAGE>
CyberSentry, Inc.
(a development stage enterprise)
Notes to Financial Statements
================================================================================
Agreement. Templar and Learning valued the
transaction at $3,000,000 which was based on the
then anticipated initial public offering price
of the LibertyOne Shares of $1.20 per share. The
initial public offering of the LibertyOne Shares
closed on December 10, 1998 at a price of $2.00
per share.
Templar assigned the License Agreement to the
Company pursuant to the terms of the Assignment
of the Software License Agreement, effective as
of November 20, 1998 (the "Assignment").
Pursuant to the terms of the Assignment and in
consideration thereof, the Company transferred
3,000,000 shares of its Common Stock to Templar
which thereby became a significant shareholder
in the Company. Templar is 100% owned by Mr.
Frank Kristan who may therefore be deemed to be
the beneficial owner of the shares of Common
Stock held by Templar. The shares of common
stock issued to Templar have been valued at
Templar's carrryover basis in the CyberSentry
Software.
ATM Technology License
----------------------
Comtel Telecommunications Pty Ltd. ("Comtel"), a
wholly owned subsidiary of LibertyOne, entered
into a Patent and Know How License and
Commercialization Agreement dated as of February
4, 1998 (the "ATM Agreement") with Telstra
Corporation Limited ("Telstra"), pursuant to
which LibertyOne was granted a non-exclusive
license to certain applications in relation to
Telstra's Fast Packet Digital Switch Project
("FPDX"). FPDX represents technology developed
by Telstra over 11 years. FPDX utilizes
Asynchronous Transfer Mode technology ("ATM or
"ATM Technology") which has the potential to
deliver "virtual" Internet services to users at
substantially increased speeds and lower costs
than other technologies. The ATM Agreement
grants LibertyOne the license to sell this
technology as desk-top and set-top applications.
Comtel entered into a Patent and Know How Sub-
Contract and Commercialization Agreement (the
"Sub-Contract") with the Company, effective as
of September 8, 1998, pursuant to which
F-30
<PAGE>
CyberSentry, Inc.
(a development stage enterprise)
Notes to Financial Statements
================================================================================
CyberSentry has been granted the right to
develop and sell the ATM Technology in the
United States and Canada. As consideration for
Comtel entering into the Sub-Contract with
CyberSentry, CyberSentry issued 2,000,000 shares
of Class B Preferred Stock to Comtel's designee,
Digital Rights International, Inc., a Delaware
Corporation ("DRI"). The shares of Class B
Preferred Stock issued to DRI have been valued
at $3,000,000 which is the value of the shares
issued to TSC creditors pursuant to the plan of
reorganization.
In addition, pursuant to the Sub-Contract,
CyberSentry agreed to pay Comtel a royalty fee
of 110% of the royalty rates required pursuant
to the ATM Agreement. There were no fees paid or
expenses incurred in 1998.
3. Income Taxes The net non-current deferred income tax asset
resulted from the following components:
<TABLE>
<CAPTION>
1998
----------------------------------------------------------
Non-current deferred income tax asset:
-------------------------------------
<S> <C>
Net operating loss carryforward $ 66,000
Amortization of intangibles 45,000
----------------------------------------------------------
111,000
Valuation allowance (111,000)
----------------------------------------------------------
Total $ -
==========================================================
</TABLE>
As of December 31, 1998, the Company had a net
operating loss carryforward for Federal income tax
purposes of approximately $193,000 expiring in the
year 2018.
A "valuation allowance" is provided when it is
more likely than not that some portion of deferred
tax assets will not be realized. The Company has
established a valuation allowance for that portion
of the net operating loss carryforward and
amortization of intangibles whose future tax
benefit is currently uncertain.
F-31
<PAGE>
CyberSentry, Inc.
(a development stage enterprise)
Notes to Financial Statements
================================================================================
The difference between the reported income tax
provision (benefit) and the tax provision
(benefit) that would result from applying the 34%
Federal statutory rate to the income (loss) from
operations before income taxes is reconciled as
follows:
<TABLE>
<CAPTION>
1998
- --------------------------------------------------------------------------------------------------------
<S> <C>
Income tax (benefit) computed at Federal statutory rate $ (111,000)
Increase (decrease) in Federal taxes resulting from:
Effect of net operating losses for which no tax
carryforward benefit is available 111,000
- --------------------------------------------------------------------------------------------------------
$ -
========================================================================================================
</TABLE>
4. Related Party In September of 1998, the Company advanced $50,000
Transactions to Telecommunications Service Center, Inc. ("TSC")
for working capital. The entire $50,000 is
included in "Other Receivables" as of December 31,
1998. The advance is non-interest bearing and
payable on demand. See Note 6 for description of
relationship with TSC.
During the period from August 21, 1998 (inception)
to December 31, 1998, the Company incurred various
operating expenses totaling $76,181 which were
paid directly by a shareholder of the Company. The
entire amount due at December 31, 1998 is included
in "Due to Shareholder" in the balance sheet. The
amount is non-interest bearing and due on demand.
5. Stockholders' Equity Transactions in stockholders' equity during 1998
(Deficit) were as follows:
a) The Company issued its promoters 8,550,000
shares of common stock at a fair value of
$0.006 per share in exchange for $50,000.
b) The Company issued 450,000 shares of $0.006
fair value common stock in exchange for
services rendered. The fair market value of
the services was $2,700.
F-32
<PAGE>
CyberSentry, Inc.
(a development stage enterprise)
Notes to Financial Statements
================================================================================
c) The Company issued 3,000,000 shares of
common stock at a fair value of $1.00 per
share in exchange for the acquisition of the
CyberSentry Software License (see Note 2).
d) The Company issued 2,000,000 of Class B
convertible redeemable participating
preferred stock at a fair value of $1.50 per
share in exchange for the acquisition of the
ATM Technology License (see Note 2).
Common Stock
------------
Each holder of common stock has one vote in
respect of each share of common stock held by
such holder of record on the books of the
Corporation for the election of directors and on
all other matters on which stockholders of the
Corporation are entitled to vote. The holders of
shares of common stock are entitled to receive,
when and if declared by the Board of Directors,
out of the assets of the Corporation which are
by law available therefor, dividends payable
either in cash, in stock or otherwise.
Class A Convertible Redeemable Participating
Preferred Stock
--------------------------------------------
Each holder of Class A convertible redeemable
participating preferred stock ("Class A
Preferred Stock") is entitled to one vote per
share on all matters requiring shareholder
action. The holders of Class A Preferred Stock,
voting together as a class, have the right to
elect one director of the Company. The holders
of shares of Class A Preferred Stock are
entitled to receive from the Company, with
respect to each share of Class A Preferred Stock
held, the same dividend or distribution received
by a holder of shares of common stock. Any such
dividend or distribution shall be declared,
ordered, paid or made on the Class A Preferred
Stock at the same time such dividend or
distribution is declared, ordered, paid or made
on the common stock.
On each March 1 and September 1 of the years
2000, 2001, 2002, 2003 and 2004 (each such date,
an "Optional Redemption Date,"
F-33
<PAGE>
CyberSentry, Inc.
(a development stage enterprise)
Notes to Financial Statements
================================================================================
the Corporation shall set aside for payment an
amount equal to five cents ($.05) for each share
of Class A Preferred Stock then outstanding. The
aggregate amount so set aside for payment shall
be referred to herein as the "Redemption Pool."
Each record holder of shares of Class A
Preferred Stock as of the Optional Redemption
Date shall be entitled to require the
Corporation to redeem all or any portion of the
shares of Class A Preferred Stock then held by
such holder, up to a maximum number of shares
equal to (x) the number of shares of Class
Preferred Stock held by such holder as of the
Optional Redemption Date, multiplied by (y) $.05
cents per share of Class A Preferred Stock,
divided by (z) the redemption price per share of
$1.50 ("Redemption Price") of Class A Preferred
Stock as of the Optional Redemption Date (with
any fractional shares being rounded up or down
to the nearest whole share), by paying therefor
in cash out of the Redemption Pool an amount
equal to the Redemption Price per share as of
the Optional Redemption Date.
In the event of any liquidation or dissolution
of the Company, whether voluntary or
involuntary, the holders of shares of Class A
Preferred Stock are entitled to receive out of
the assets of the Company available for
distribution to its stockholders, an amount
equal to the liquidation preference per share
plus all accrued and unpaid dividends.
Liquidation distributions shall be made to the
Class A Preferred Stockholders before the common
stockholders.
Each share of Class A Preferred Stock is
convertible at any time from and after March 25,
2001 up until March 24, 2004 at the option of
the holder into one share of full-paid and non-
assessable common stock at a one to one ratio.
Class B Convertible Redeemable Participating
Preferred Stock
--------------------------------------------
Each holder of the Class B convertible
redeemable participating preferred stock ("Class
B Preferred Stock") is entitled to the same
rights as the Class A Preferred Stock except
that they may not participate in the optional
redemption pool and they do not have the right
as a class to elect one director of the Company.
F-34
<PAGE>
CyberSentry, Inc.
(a development stage enterprise)
Notes to Financial Statements
================================================================================
6. Subsequent On January 22, 1999, the Company entered into a
Events preliminary agreement ("the Plan") to acquire
Telecommunications Service Center, Inc. ("TSC"),
a Florida Corporation. CyberSentry, Inc. will be
the surviving corporation in the purchase and
the separate existence of Telecommunications
Service Center, Inc. will cease. The
finalization of the purchase was dependent upon
the bankruptcy court's confirmation of TSC's
plan of reorganization. The Bankruptcy Court
confirmed the plan of reorganization on March 4,
1999 and the Plan became effective March 14,
1999. CyberSentry purchased all of the
outstanding shares of TSC for $500,000 in cash
and common and preferred stock valued at
$2,500,000. The value of the common and
preferred stock has been established based on
the Company's purchases of the ATM and
CyberSentry technologies, see Note 2. The
transaction will be accounted for as a purchase
and the preliminary excess of the purchase price
over the fair market value of the assets
acquired and liabilities assumed of
approximately $11,430,612 will be recorded as
goodwill and will be amortized on a straight-
line basis over 10 years.
Telecommunications Service Center, Inc. is a
facilities based carrier providing long distance
telecommunications services including commercial
and residential service, international call back
long distance service, operator service for pay
phones, prepaid phone cards, and enhanced
services, such as voice and fax-mail services.
TSC is in a specialized telecommunications
service industry.
As defined in TSC's plan of reorganization,
Class A Preferred Shares shall be issued to the
Class Five Creditors in accordance with the
terms of the Plan. Additional common stock of
CybersSentry will be issued to the Class Five
Creditors pursuant to the Rights Offering
provided for in the Plan.
Each CyberSentry common stock that is issued and
outstanding immediately prior to the effective
purchase date will continue to be issued and
outstanding. Each CyberSentry preferred stock
that is issued and outstanding immediately prior
to the effective purchase
F-35
<PAGE>
CyberSentry, Inc.
(a development stage enterprise)
Notes to Financial Statements
================================================================================
date will be converted into one Class A
Preferred Share.
Additionally, CyberSentry advanced $500,000 in
cash against the line of credit in the amount of
$3,000,000.
All issued and outstanding TSC common stock will
be converted into 1,000,000 common shares and
1,000,000 Class B Convertible Redeemable
Preferred Stock of CyberSentry. The shares will
be issued to existing TSC shareholders on a pro
rata basis in accordance with the Plan.
The Company has entered into a five year
employment agreement with its President and
Chief Executive Officer, Gerald Resnick,
effective January 1, 1999. Under the agreement,
Mr. Resnick is entitled to receive a base salary
of $180,000, subject to annual increases of not
less than 10% per year, and a bonus in the
discretion of the Board of Directors but in no
event less than three quarters of one percent of
the Company's gross sales in excess of
$30,000,000 annually, which sum may be paid, at
Mr. Resnick's option, in cash or stock (valued
at $1.00 per share). During the term of his
employment agreement and for a period of one
year thereafter, Mr. Resnick will have the right
to purchase up to 500,000 shares of Common Stock
at $1.00 per share. The Company also entered
into a three year employment agreement with its
Senior Vice President, Hal Shankland, which
commenced upon the effectiveness of the Merger.
Under the agreement, Mr. Shankland is entitled
to receive a base salary of $120,000, subject to
such annual increases as determined by the Board
of Directors. In addition, at the end of each
year during the period of his employment, Mr.
Shankland will have the right to purchase up to
100,000 shares of Common Stock at $1 per share
(for the first year) and at fair market value
(for subsequent years).
The Company has entered into a Software License
Agreement (the "DRI License Agreement"),
effective as of January 19, 1999, with DRI,
pursuant to which the Company has granted DRI a
non-transferable, non-exclusive, worldwide right
and license to publish and use the CyberSentry
Software solely for the protection of
F-36
<PAGE>
CyberSentry, Inc.
(a development stage enterprise)
Notes to Financial Statements
================================================================================
celebrity digital rights and content related
thereto on the websites owned or operated by
DRI. In conjunction with entering into the DRI
License Agreement, DRI purchased 500,000 shares
of the Company's Common Stock at $1.00 per share
for an aggregate purchase price of $500,000. The
Company is under no obligation to provide
upgrades to the software licensed to DRI unless
DRI elects to pay the Company $150,000 for
continuing software engineering support.
On February 22, 1999, the Company entered into a
line of credit agreement with Patriot Advisors,
Inc. ("Patriot"). The amount of the line of
credit is $3,000,000, and the amount outstanding
may not exceed 50% of the Company's assets. The
line is collateralized by substantially all of
the Company's assets. The Company will pay
Patriot monthly interest payments at an annual
interest rate of two percentage points higher
than the highest domestic "Prime Rate" published
in the Wall Street Journal on the first day of
publication in the previous month. The line of
credit extends for one year, and amounts
outstanding after one year are payable on
demand. Patriot is a stockholder of the Company.
F-37
<PAGE>
CyberSentry, Inc.
Pro Forma Financial Information
(Unaudited)
The accompanying condensed pro forma financial statements illustrate the effect
of the acquisition of 100% of the net assets of Telecommunications Service
Center ("TSC") on CyberSentry, Inc.'s ("CyberSentry") financial position and
results of operations. The transaction closed on March 24, 1999. On May 7,
1998, TSC filed a voluntary petition for relief under Chapter 11 of the United
States Bankruptcy Code in the Middle District of Florida, Tampa Division.
Pursuant to TSC's confirmed plan of reorganization on March 4, 1999, TSC shall
be acquired by CyberSentry. CyberSentry is the surviving corporation in the
business combination accounted for as a purchase and the separate existence of
TSC ceases. As part of the purchase and plan of reorganization, certain
creditors of TSC received $.07 in cash and the value of $.93 in a share of Class
A Preferred Stock for every $1.00 of unsecured claim. The purchase price
aggregated $12,950,171, which includes the assumption of approximately
$9,950,171 of liabilities and the issuance of 1 million shares of Common Stock
and 1 million shares of Class B Preferred Stock ($1.50 stated value) valued at
$2,500,000.
The accompanying condensed pro forma financial statements illustrate the effect
of the purchase ("Pro forma") on CyberSentry's financial position and results of
operations. The condensed pro forma balance sheet as of December 31, 1998 is
based on the historical balance sheets of TSC and CyberSentry and assumes that
the purchase took place on that date. The pro forma condensed statements of
operations for the year ended December 31, 1998 are based on the historical
statements of operations of TSC and CyberSentry for those periods. The pro forma
condensed statements of operations assume the purchase took place on January 1,
1998.
The pro forma condensed financial statements may not be indicative of the actual
results of the purchase. In particular, the pro forma condensed financial
statements include the Class A Preferred Stock issued by CyberSentry to TSC
unsecured creditors based on amounts due at December 31, 1998 and not the
effective date of the purchase, both of which may differ.
The pro forma condensed financial statements should be read in connection with
the historical financial statements of TSC and CyberSentry.
F-38
<PAGE>
CyberSentry, Inc.
Pro Forma Condensed Balance Sheet
December 31, 1998
(Unaudited)
<TABLE>
<CAPTION>
CyberSentry TSC Adjustments Pro Forma
--------------- ------- -------------- -----------
Assets
Current
<S> <C> <C> <C> <C> <C>
Cash (1) (204,205)
33,970 (2) (62,698) 33,970
(3) (20,000)
(5) 500,000
(6) (500,000)
(7) 286,903
Trade receivables, net 144,435 144,435
Prepaid expenses and other current assets 64,896 74,301 139,197
- --------------------------------------------------------------------------------------------------------------------
Total Current Assets 64,896 252,706 317,602
Equipment and leasehold improvements, net 1,156,807 1,156,807
ATM Technology License, net 2,857,143 2,857,143
CyberSentry Software License, net 2,892,857 2,892,857
Goodwill (6) 11,430,612 11,430,612
Other Assets 110,046 110,046
- --------------------------------------------------------------------------------------------------------------------
5,814,896 1,519,559 18,765,067
- --------------------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
(Deficit)
Accounts payable and accrued expenses (2) (895,692) 894,589
12,500 1,852,243 (4) 10,000
(4) (84,462)
Due to shareholder 76,181 76,181
Bank line of credit (4) 255,000 541,903
(7) 286,903
Current maturities of capital lease
obligations and bank note payable (4) 342,426 342,426
Liabilities subject to compromise under
reorganization proceedings (1) (6,577,647)
8,097,928 (3) (20,000) 0
(4) (1,500,281)
- --------------------------------------------------------------------------------------------------------------------
Total Current Liabilities 88,681 9,950,171 1,855,099
- --------------------------------------------------------------------------------------------------------------------
Capital lease obligations (4) 837,605 837,605
Bank note payable (4) 139,712 139,712
- --------------------------------------------------------------------------------------------------------------------
Total liabilities 2,832,416
- --------------------------------------------------------------------------------------------------------------------
Redeemable convertible preferred stock (1) 904,338 904,338
- --------------------------------------------------------------------------------------------------------------------
Class A Preferred Stock - (1) 2,269 2,824
(2) 555
Class B Preferred Stock 2,000 (6) 1,000 3,000
Common stock 12,000 2,000 (6) (2,000) 13,756
(5) 500
(6) 1,000
(1) 256
Additional paid-in capital 6,038,700 (1) 5,466,579 15,335,218
(2) 832,439
(5) 499,500
(6) 2,498,000
Retained deficit (326,485) (8,432,612) (6) 8,432,612 (326,485)
- --------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 5,726,215 (8,430,612) 15,028,313
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to Pro Forma Condensed Financial Statements (Unaudited).
F-39
<PAGE>
CyberSentry, Inc.
Pro Forma Condensed Statement of Operations
Year Ended December 31, 1998
(Unaudited)
<TABLE>
<CAPTION>
CyberSentry TSC Adjustments Pro Forma
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
Net sales 22,804,240 22,804,240
- --------------------------------------------------------------------------------------------------------------------------------
Operating Expenses:
Telecommunications costs 22,283,257 22,283,257
Selling, general and administrative expenses
(including depreciation and amortization) 326,485 3,758,791 (9) 1,143,061 5,228,337
================================================================================================================================
Total operating expenses 326,485 26,042,048 27,511,594
- --------------------------------------------------------------------------------------------------------------------------------
Operating (loss) (326,485) (3,237,808) (4,707,354)
Other (expense), net (175,257) (8) (30,126) (205,383)
- --------------------------------------------------------------------------------------------------------------------------------
Net (loss) (326,485) (3,413,065) (4,912,737)
================================================================================================================================
Net loss per share
Basic $ (.43)
Diluted $ (.43)
Weighted average number of outstanding shares
Basic 11,500,000
Diluted 11,500,000
</TABLE>
See notes to Pro Forma Condensed Financial Statements (Unaudited).
F-40
<PAGE>
CyberSentry, Inc.
Notes to Pro Forma Condensed Financial Statements
December 31, 1998
(Unaudited)
The pro forma adjustments to the condensed balance sheet are as follows:
Note 1
- ------
To reflect the cash and Class A Preferred Stock issued pursuant to the plan of
reorganization and the purchase:
<TABLE>
<CAPTION>
Amount included in
Liabilities subject to Par Value Additional
Compromise under of Class A paid-in
reorganization Cash Number Preferred capital
Description Proceedings Amount of Shares Stock amount
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Unsecured note payable
Including principal and
interest(2) $3,660,428 $ - 2,269,472 $2,269 $3,401,929
Unsecured pre-petition 2,917,219 204,205 1,808,676 1,809 2,711,205
--------- ------- --------- ----- ---------
Total $6,577,647 $204,205 4,078,148 4,078 $6,113,134
========= ======= --------- ----- ---------
Less amount treated as
mezzanine equity due to
optional redemption pool(1) (1,808,676) (1,809) (902,529)
---------- ------ ---------
Amount recorded to equity 2,269,472 2,269 $5,210,605
========== ====== =========
</TABLE>
(1) The Company will fund the optional redemption pool for 5 years. The amount
to be funded to the pool is approximately $180,867 per year for a total of
$904,338. The 2,269,472 shares of Class A Preferred Stock pertaining to
the unsecured note payable will not participate in the optional redemption
pool.
(2) In lieu of cash the unsecured note holder has agreed to accept common stock
valued at $1.00/share. The holder will receive approximately 256,200
shares of common stock; par value $256.
Note 2
- ------
To reflect cash paid and Class A Preferred Stock issued to Westinghouse
Communications and Sprint Communications Company, L.P. in full satisfaction of
$895,692 of post-petition accounts payable and accrued expenses. Cash paid
totalled $62,698; issued approximately 555,329 shares of Class A Preferred stock
at a par value of $555 and additional paid-in capital amounting to $832,439.
F-41
<PAGE>
Note 3
- ------
To reflect $20,000 cash paid for priority administrative claims included in
liabilities subject to compromise under reorganization proceedings.
Note 4
- ------
To reflect amounts included in liabilities subject to compromise under
reorganization proceedings that will be paid in accordance with the terms of the
original agreement or are refinanced. The amounts are as follows:
<TABLE>
<CAPTION>
Amount Included in
Liabilities Subject To Amount
Compromise Included Long
Under reorganization In Accounts Current Term
Description Proceedings Payable Amount Amount
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Southtrust Bank Note Payable $ 222,293 $ - $ 82,581 $139,712
Southtrust Bank Line of Credit 255,000 - 255,000 -
IBM Capital Leases 24,000 - 6,156 17,844
Telcom Finance Capital Leases 988,988 84,462 253,689 819,761
Receivable Funding 10,000 - 10,000 N/A
--------- ------ ------- -------
Total $1,500,281 $84,462 $607,426 $977,317
========= ====== ======= =======
</TABLE>
Note 5
- ------
To reflect Digital Rights International, Inc.'s ("DRI") purchase of 500,000
shares of CyberSentry common stock for $500,000, used by CyberSentry as the
advance on purchase price.
Note 6
- ------
To reflect the preliminary allocation of purchase price including $500,000 cash
paid pursuant to the purchase. The adjustment eliminates the capital deficit of
TSC of ($8,430,612), records the issuance of 1 million shares of CyberSentry
common stock ($1,000,000) and 1 million shares of Class B Preferred Stock
($1,500,000), and records the resulting goodwill intangible of $11,430,612.
Preliminary allocation of purchase price:
Cash paid $ 500,000
Issuance of common stock 1,000,000
Issuance of Class B preferred stock 1,500,000
Accounts payable and accrued expenses
Assumed 1,852,243
Liabilities subject to compromise under
reorganization proceedings assumed 8,097,928
----------
Total consideration $12,950,171
----------
F-42
<PAGE>
Cash $ 33,970
Accounts receivable 144,435
Equipment and leasehold improvements 1,156,807
Prepaid expenses and other assets 184,347
---------
Total assets acquired 1,519,559
----------
Excess of purchase price over the fair value of $11,430,612
assets and liabilities assumed ==========
Note 7
- ------
To reflect the use of $286,903 of the bank line of credit to fund payments
pursuant to the plan of reorganization.
The pro forma adjustments to the condensed statements of operations are as
follows:
Note 8
- ------
To record interest expense of $30,126 relating to the use of the bank line of
credit ($286,903 at 10.5%).
Note 9
- ------
To reflect amortization of goodwill over a 10 year life with a basis of
$11,430,612.
F-43
<PAGE>
EXHIBIT 2.1.1
UNITED STATES BANKRUPTCY COURT
MIDDLE DISTRICT OF FLORIDA
TAMPA DIVISION
In re:
CASE NO.: 98-7835-8P1
TELECOMMUNICATIONS SERVICE
CENTER, INC., CHAPTER: 11
DEBTOR(S)
_______________________________/
SECOND AMENDED PLAN OF REORGANIZATION
TELECOMMUNICATIONS SERVICE CENTER, INC., the Debtor herein, does hereby
submit this Amended Plan of Reorganization.
ARTICLE I
Definitions
The following terms used in the Plan shall, unless the context otherwise
requires, have the meanings specified below:
Plan: This Plan for the Reorganization of the Debtor, as currently filed
or hereafter amended pursuant to Chapter 11 of the Bankruptcy Code or in the
Bankruptcy Rules of Practice and Procedure promulgated thereunder.
Claim: A right against the Debtor within the meaning of Section 101(4) of
the Bankruptcy Code.
Code: The Bankruptcy Reform Act of 1978, 11 U.S.C., Section 101, et seq.
enacted as Public Law 95-598, on November 6, 1978, 92 Stat. 2549, together with
amendments thereto applicable to this case.
Confirmation: Entry by the Court of an Order confirming this Plan of
Reorganization.
<PAGE>
Confirmation Date: The date upon which the Court enters the Confirmation
Order.
Confirmation Order: The Order entered by the Bankruptcy Court confirming
this Plan, in accordance with Section 1129 of the Bankruptcy Code.
Costs and Expenses of Administration: Claims against the Debtor allowed
under Section 503(b) of the Bankruptcy Code.
Court: The United States Bankruptcy Court for the Middle District of
Florida, Tampa Division, as an adjunct to the United States District Court.
Creditor: A person as defined by Section 101(9) of the Bankruptcy Code.
Debtor: TELECOMMUNICATIONS SERVICE CENTER, INC.
Deposit Date: The date upon which the Debtor pays the deposits
contemplated by this Plan, either to the Court or to such other entities as the
Court shall designate in the Confirmation Order or in an Order in aid of
consummation of the Plan.
Effective Date: The date upon which the Confirmation Order becomes final,
plus ten (10) days, provided no Order is entered staying the effectiveness of
the Confirmation Order pending an appeal.
Order In Aid Of Consummation: An Order entered by the Court authorizing or
directing the procedures and actions necessary for the consummation of the
confirmed Plan of Reorganization.
Case: This case for the Reorganization of the Debtor under Chapter 11 of
the Bankruptcy Code.
<PAGE>
Allowed Claim: A claim in these proceedings proven and allowed in
accordance with Section 502 of the Bankruptcy Code.
ARTICLE II
Construction and Interpretation
Unless inconsistent or in conflict with the provisions of the Plan, the
words and phrases employed herein shall have the meanings ascribed thereto in
the Code and in the Rules of Bankruptcy Practice and Procedure.
ARTICLE III
Classification of Creditors
Class One: All proven and allowed claims for costs and expenses of
administration. This includes, but is not limited to, any claim of the United
States Trustee for quarterly payments which remain unpaid at the time of
confirmation of this Plan.
Class Two: Claims of governmental units entitled to priority under Section
507(a)(8) of the Bankruptcy Code or its assignees, including secured claims of
governmental units for taxes, attendant interest and penalties on past due or
delinquent taxes; and all other charges provided for under such Section.
Class Three: The class consist of secured claims:
3a. Receivable Funding Corporation shall be paid in accordance with the
terms of the contract upon Confirmation.
3b. Southtrust Bank with a Note and Security in the approximate amount of
$550,000.00 which shall be paid in accordance with the terms of the contract
upon Confirmation.
Class Four: This Class consists of the creditors secured by leases on
equipment, to wit:
<PAGE>
4a. IBM with a lease on an IBM computer system AS-400. IBM shall be paid
in accordance with the terms of the contract.
4b. Telecom Finance Group with a lease on Siemens's switch equipment with
arrears in the approximate amount of $150,420.24. Siemens shall be paid
normal monthly payments provided in the contract.
Class Five: This Class consists of unsecured creditors.
Class Six: This Class consists of Shareholders of the Debtor.
ARTICLE IV
Treatment of Classes Not Impaired Under the Plan
Class One: This Class shall be paid in full upon confirmation of the Plan
unless payment on this date is waived, deferred or ordered by this Court to be
paid on a different date. Based upon the previous quarters' disbursements, it is
estimated that the Debtor will owe $5,000.00 in quarterly fees upon
confirmation. It is estimated that Debtor's counsel will be allowed fees of
$20,000.00.
Class Two: This Class shall be paid in full in sixty (60) equal monthly
payments with the first payment due thirty (30) days after the Confirmation
Date. Payments shall include interest, penalties, and other amounts provided for
in the Bankruptcy Code. All liens held by the Class Two creditors as of the date
of the Petition herein shall be retained.
4
<PAGE>
ARTICLE V
Treatment of Classes Impaired Under the Plan
Class Three: The Class 3a. and 3b. creditors shall be paid normal monthly
payments as stated in the leases commencing upon confirmation.
Class Four: This Class shall be paid in accordance with the terms of the
contracts.
Class Five: Upon confirmation, this class shall be paid $.07 in cash and
$.93 in preferred share for every $1 of unsecured claim. The value of the
preferred shares in the reorganized Debtor at confirmation is $1.50 per share.
For every $100 of unsecured claim, creditors shall receive $7 in cash and 62
shares of preferred stock in the reorganized Debtor equaling $7 cash and $93 in
preferred shares. For every $1000 of unsecured claim, creditors shall receive
$70 in cash and 620 preferred shares in the reorganized Debtor equaling $70 cash
and $930 in preferred shares. For every $100,000 of unsecured claim, creditors
shall receive $7000 in cash and 62,000 preferred shares in the reorganized
Debtor equaling $7000 cash and $93,000 in preferred shares. The calculation used
to determine the above amounts is as follows: $1 of unsecured claim minus $.07
equaling $.93 which is then divided by $1.50 to give a creditor .62 of preferred
share; or for every $100 of unsecured claim, $100 minus $70 (100 x $.07)
equaling $93 which is then divided by $1.50 to give a creditor 62 preferred
shares for every $100 of unsecured claim.
5
<PAGE>
Creditors shall also have the right to purchase common stock for $1.00 per
share upon confirmation for each one share of preferred share that the creditor
has received (the right's offering).
There shall be a mandatory redemption pool of the preferred shares at $.05
per share one year after confirmation and a like redemption pool each six month
period thereafter for a total of five years. The redemption is at the option of
the shareholder who may chose to redeem the preferred shares, convert them to
common stock or hold onto them. Shareholders who redeem their preferred shares
will receive a pro-rata share of approximately $200,000 per redemption pool,
which shall be funded by Telecommunications Service Center, Inc.
The creditor's shares may be converted to common stock at each redemption
period at a one to one ratio.
Telecommunications Service Center, Inc. may purchase the shares at $1.50
per share within two years after confirmation. Telecommunications Service
Center, Inc., intends to convert all remaining preferred shares to common shares
at a one to one ratio after 5 years.
Class Six: This interest of the Shareholders will be terminated by
cancellation of all outstanding shares of stock. The shareholders will be issued
1 million shares of common stock and 1 million shares of preferred stock in the
reorganized company on a pro-rate basis. This class will not be sharing in the
redemption pool.
6
<PAGE>
ARTICLE VI
Means for Execution of the Plan
a. Title to the Debtor's property shall revest in the Debtor upon the
effective date of the Plan.
b. The property of the estate shall be free and clear of all liens and
encumbrances, except those provided by this Plan and the Order of Confirmation.
All liens of secured creditors as of the Petition date shall be retained unless
specifically provided to the contrary hereunder.
c. As part of the plan for emerging from bankruptcy, TSC has agreed to a
merger with Cyber Sentry, Inc. that will provide an Internet digital rights
management product line, which permits emphasis on the core business (switched
platform services) of TSC, as well as expansion of the business into areas that
will utilize the real time billing platform to provide secure Internet commerce
and Internet billing services. The reorganized surviving company will be called
"Cyber Sentry, Inc".
The merger will provide enhanced marketing capabilities and the funding
required for the Debtor's continued business operation as well as the infusion
of $2,500,000.00 pursuant to the merger. Cyber Sentry, Inc. will deposit
$2,500,000.00 upon confirmation and will provide an operating line of credit in
the amount of $1,000,000.00. In addition, Cyber Sentry, Inc. is utilizing a
right's offering (right of creditors to purchase common stock for $1.00 per
share upon confirmation for each one share of preferred share that the creditor
has received) to raise approximately
7
<PAGE>
$2,000,000.00 to $5,000,000.00 for marketing and acquisitions. This offering is
for both shareholders and other investors.
ARTICLE VII
Provisions For Executory Contracts
All written and oral contracts which exist between the Debtor and any
individual or other entity, and which have not been rejected or approved by
Order of this Court, may be rejected upon further application to this Court.
ARTICLE VIII
Modification of the Plan
The Debtor may propose a modification of the Plan in writing at any time
after Confirmation. The Plan, as modified, must meet the requirements of Section
1122 and 1123 of the Code. Additionally, the Debtor must comply with the
provisions of Section 1125 of the Code.
If all applicable Sections of the Code have been met, and if such
modifications are warranted, the Court may confirm the modified Plan after
proper notice and hearing.
Impaired creditors who are unaffected by the modification of the Plan will
be deemed to have accepted or rejected the modified Plan based on the "original
Ballot" filed with the Bankruptcy Court. Creditors who are affected by the
modification may change their vote by filing a new Ballot with the Bankruptcy
Court within the time specified.
8
<PAGE>
ARTICLE IX
General Provisions
a. If any payment under the Plan falls due on a non-business day, then
such due date shall be extended to the next following business day. Saturdays,
Sundays and holidays recognized by the United States Government, State of
Florida, County of Hillsborough or the City of Tampa are considered non-business
days.
b. Any notice required hereunder shall be in writing. If sent by telegram
or telex, notice shall be deemed to have been given when sent. If sent by mail,
notice shall be deemed to have been given three (3) days after the date sent by
first class, registered or certified mail, postage prepaid, and properly
addressed.
c. The terms and provisions of this Plan shall be further governed and
controlled by agreements previously approved by Order of this Court, and not
specifically and expressly superseded by this Plan.
d. In the event that the holder of an unsecured claim transfers such
claim, it shall immediately advise the Debtor, in writing, of such transfer. The
Debtor shall be entitled to assume that no such transfer has been made unless
and until the Debtor has received such written notice to the contrary. Each
transferee shall take such claim, subject to the provisions of the Plan, and to
any request made, waiver or consent given or other action taken hereunder; and,
except as otherwise expressly provided in such notice, the Debtor shall be
entitled to assume conclusively that
9
<PAGE>
the transferee named in such notice shall thereafter be vested with all rights
and powers under the provisions of the Plan.
e. In the event that the required number of creditors do not accept the
Plan and the Debtor is found to be solvent, the Debtor reserves the right to
orally amend the Plan at confirmation.
f. Under no circumstances will the Debtor pay any claim unless such claim
is proven and allowed.
g. All liens and mortgages shall remain unaffected by this Plan unless
otherwise provided herein or any other Order of this Court.
h. Creditors seeking payment of attorneys' fees or special costs must
obtain an Order from the Bankruptcy Court approving such amounts at or prior to
the confirmation hearing. Failure to obtain such an order will be deemed a
waiver of the right to payment of costs and attorneys' fees. This provision does
not apply to claims for attorneys' fees and costs which have been duly
liquidated by a court of competent jurisdiction prior to the confirmation
hearing.
i. Any sale or transfer of assets which occurs as a result of this
reorganization shall be free of otherwise applicable transfer taxes and
documentary stamps.
ARTICLE X
"Cram Down" Provisions
In the event that any Class of Creditors is deemed impaired by this Plan
of Reorganization and the requisite majorities of such Class or Classes fail to
approve the Plan, then the Debtor intends to confirm its Plan over the
objections of any such dissenting
10
<PAGE>
Class by the use of the provisions of the United States Bankruptcy Code, Section
1129, and any other provisions relating to the "cram down" of dissenting
Classes.
DATED this 4 day of Dec., 1998.
TELECOMMUNICATIONS SERVICE CENTER, INC.
By: /s/ Hal Shankland
----------------------
HAL SHANKLAND as its
President
CERTIFICATE OF SERVICE
I HEREBY CERTIFY that a true and correct copy of the foregoing has been
furnished by U.S. mail to:
U.S. Trustee
4919 Memorial Hwy., Ste. 110
Tampa, FL 33634
Telecommunications Service Center, Inc.
412 E. Madison, Suite 1200
Tampa, FL 33602
John J. Lamoureux, Esq.
Carlton, Fields, Ward, Emmanuel, Smith & Cutler, P.A.
P.O. Box 3239
Tampa, FL 33601
Attorneys for Siemens Telecom Networks d/b/a Telecommunications
Finance Group
Russell M. Blain, Esq.
Stichter, Riedel, Blain & Prosser, P.A.
110 East Madison St., Suite 200
Tampa, FL 33602-4700
Attorneys for RFC Capital Corporation
Scott Stigall, Esq.
601 Bayshore Boulevard, Suite 700
Tampa, FL 33606
Attorneys for Worldcom, Inc.
Robert L. Olsen, Esq.
P.O. Box 1438
Tampa, FL 33601
Attorneys for Qwest Communications
11
<PAGE>
James D. Gibson, Esq.
Riknich & Gibson
1800 Second Street, Suite 901
Sarasota, Florida 34236
Attorneys for Call-1-800, Inc. and Call-l-800, USA, Inc.
John H. Mueller, Esg.
Smith Clark Delesie Bierley Mueller & Kadyk
P.O. Box 2939
Tampa, FL 33601-2939
and the twenty largest unsecured creditors on attached matrix this 4 day of
December 1998.
/s/ David W. Steen
------------------
David W. Steen
12
<PAGE>
UNITED STATES BANKRUPTCY COURT
MIDDLE DISTRICT OF FLORIDA
TAMPA DIVISION
In re:
CASE NO.: 98-7835-8P1
TELECOMMUNICATIONS SERVICE
CENTER, INC., CHAPTER: 11
DEBTOR(S)
_______________________________/
SECOND AMENDED DISCLOSURE STATEMENT
I. INTRODUCTION
TELECOMMUNICATIONS SERVICE CENTER, INC., the Debtor herein, does hereby
provide this Second Amended Disclosure Statement to all of its known creditors
for the purpose of disclosing that information deemed by the Debtor to be
material, important and necessary for its creditors to arrive at a reasonably
informed decision in exercising their right to vote on the Plan of
Reorganization. A copy of the Second Amended Plan or a Summary of the Second
Amended Plan accompanies this statement.
Creditors may vote on the Second Amended Plan by filling out and mailing
the accompanying ballot to the Bankruptcy Court, or may attend a hearing to
consider the acceptance of the Second Amended Plan and present a ballot at that
time.
In order for the Plan to be deemed accepted, the creditors holding at
least two-thirds in the amount and more than one-half in number of the allowed
claims in each voting class of creditors must vote in favor of the Plan. To the
extent that creditors are deemed paid in full, there may be no right to vote on
the Plan.
NO REPRESENTATIONS CONCERNING THE DEBTOR ARE AUTHORIZED OTHER THAN AS SET
FORTH IN THIS STATEMENT. ANY REPRESENTATIONS
<PAGE>
OR INDUCEMENTS MADE TO SECURE YOUR ACCEPTANCE WHICH ARE OTHER THAN AS CONTAINED
IN THIS STATEMENT SHOULD NOT BE CONSIDERED BY YOU IN ARRIVING AT YOUR DECISION.
FURTHERMORE, SUCH ADDITIONAL REPRESENTATIONS OR INDUCEMENTS SHOULD BE REPORTED
TO COUNSEL FOR THE DEBTOR FOR TRANSMITTAL TO THE BANKRUPTCY COURT.
The information contained herein has not necessarily been subject to a
certified audit. With respect to financial information which has not been the
subject of a certified audit, the Debtor has made every effort to accurately
reflect its financial condition in this Disclosure Statement.
II. THE PLAN OF REORGANIZATION
The Plan is based upon the Debtor's position that it is a viable
corporation which is able to repay its debts and continue in operation. In
accordance with the philosophy of the Bankruptcy Code, it is preferable for a
viable business to reorganize and remain in business rather than liquidate, if
possible. Furthermore, it is believed that the creditors will receive a more
substantial recovery through the Plan of Reorganization than through a forced
liquidation.
The Plan provides for the division of creditors and equity holders into
six classes.
Class One Creditors: This is the class of administrative claims including
unpaid fees to the U.S. Trustee. Such claims will be paid in full upon
confirmation of the Plan, unless payment on the effective date is waived,
deferred or otherwise
2
<PAGE>
ordered to be paid on a different date by the Bankruptcy Court.
Class Two Creditors: This Class consists of Governmental units entitled to
priority under Section 507(a) (8) of the Bankruptcy Code or its assignees,
including Secured Claims of Governmental units for taxes, attendant interest and
penalties on past due or delinquent taxes; all other charges provided for under
such Subsection. These claims will be paid in full with interest as required by
law upon confirmation of the Plan.
Class Three Creditors: This Class consists of the secured claims
a.) Southtrust Bank with a Note and Mortgage on real property in the
approximate amount of $550,000.00. Southtrust Bank shall be paid in accordance
with the terms of the contract.
b.) Receivable Funding Corporation shall be paid in accordance with the
terms of the contract.
Class Four Creditors: This Class consists of the claims of IBM with a
lease on certain equipment; and Telecom Finance Group with a lease on switch
equipment. This Class shall be paid in accordance with the terms of the
contract.
a.) IBM-shall be paid in accordance with terms of the contract
b.) Siemens-the arrears should be added to the balance and then paid in
accordance with the terms of the contract.
Class Five Creditors: Upon confirmation, this class shall be paid $.07 in
cash and $.93 in preferred share for every $1 of unsecured claim. The value of
the preferred shares in the
3
<PAGE>
reorganized Debtor at confirmation is $1.50 per share. For every $100 of
unsecured claim, creditors shall receive $7 in cash and 62 shares of preferred
stock in the reorganized Debtor equaling $7 cash and $93 in preferred shares.
For every $1000 of unsecured claim, creditors shall receive $70 in cash and 620
preferred shares in the reorganized Debtor equaling $70 cash and $930 in
preferred shares. For every $100,000 of unsecured claim, creditors shall receive
$7000 in cash and 62,000 preferred shares in the reorganized Debtor equaling
$7000 cash and $93,000 in preferred shares. The calculation used to determine
the above amounts is as follows: $1 of unsecured claim minus $.07 equaling $.93
which is then divided by $1.50 to give a creditor .62 of preferred share; or for
every $100 of unsecured claim, $100 minus $70 (100 x $.07) equaling $93 which is
then divided by $1.50 to give a creditor 62 preferred shares for every $100 of
unsecured claim.
Creditors shall also have the right to purchase common stock for $1.00 per
share upon confirmation for each one share of preferred share that the creditor
has received(the right's offering).
There shall be a mandatory redemption pool of the preferred shares at $.05
per share one year after confirmation and a like redemption pool each six month
period thereafter for a total of five years. The redemption is at the option of
the shareholder who may chose to redeem the preferred shares, convert them to
common stock or hold onto them. Shareholders who redeem their
4
<PAGE>
preferred shares will receive a pro-rata share of approximately $200,000 per
redemption pool, which shall be funded by Telecommunications Service Center,
Inc.
The creditor's shares may be converted to common stock at each redemption
period at a one to one ratio.
Telecommunications Service Center, Inc. may purchase the shares at $1.50
per share within two years after confirmation. Telecommunications Service
Center, Inc., intends to convert all remaining preferred shares to common shares
at a one to one ratio after 5 years.
Class Six Creditors: This interest of the Shareholder will be terminated
by cancellation of all outstanding shares of stock. The shareholders will be
issued 1 million shares of common stock and 1 million shares of preferred stock
in the reorganized company of a pro-rate basis. This class will not be sharing
in the redemption pool.
III. FINANCIAL INFORMATION RESPECTING THE DEBTOR
An unaudited financial statement of the Debtor entitled "Liquidation
Analysis" reflecting the market and liquidation values of its assets and
liabilities is attached as Exhibit "A". The market and liquidation values of the
assets are the estimates of the Debtor based upon tax assessments, prior
appraisals, and the opinion of the Debtor's principals. In addition, a Pro-Forma
Statement of Projected Income and Expenses for the term of the Plan is attached
as Exhibit "B". A Historical Cash Flow Data
5
<PAGE>
Sheet, attached as Exhibit "C", reflects the Debtor's actual financial history
since the filing of the Petition. The Pro Forma figures are the Debtor's
principal's prediction of future performance based upon historical data. The
current status of Debtor's accounts receivable is attached as Exhibit "D" and is
entitled "Aged Receivables".
IV. BACKGROUND AND EVENTS DURING CHAPTER 11
In December of 1997, TSC entered into an agreement to provide service
bureau, billing and customer service to customers of a large marketing company:
Grace Trust. The intent of the arrangement was to utilize Grace Trust as a means
to aggregate traffic for TSC through telemarketing efforts. In March of 1998,
Grace Trust submitted a large block of business to TSC, which business, unknown
to TSC, was fraudulently obtained. During this same time period, TSC was in
final negotiations for merging with a Miami-based investment group. The
dramatic increase in billable revenue that was anticipated from Grace Trust made
TSC a very attractive acquisition.
This initial customer file submitted by Grace Trust contained an unusually
large number of ANI's that were to be processed through our network supplier.
Because of the size of the file received, TSC immediately verified that it did
not contain any large sequential blocks of numbers and that all orders had the
appropriate LOA and voice capture documentation required by the FCC. Once this
file was processed and customer's
6
<PAGE>
long distance service was switched to TSC, we began to receive calls from
customers disputing the change in carrier. The number of calls intensified over
a short period of time and it became apparent that the business submitted to us
by Grace Trust was fraudulent.
TSC immediately implemented a reactive and proactive plan to minimize the
damage that was caused as a result of this activity. Unfortunately, the
magnitude of the incident coupled with the potential contingent liability
resulted in the merger being cancelled during the last week of April. TSC had
already incurred $250,000 of debt in our efforts to prepare for the merger at
this point.
On May 8, 1998, TSC was forced to seek Bankruptcy protection and filed
Chapter 11. As a part of the reorganization effort, every aspect of the business
was examined. Immediate steps were taken to realign costs and overhead as well
as improving the overall efficiency of the organization to enable the Company to
emerge fiscally and operationally sound.
As part of the plan for emerging from bankruptcy, TSC has agreed to a
merger with Cyber Sentry, Inc. that will provide an Internet digital rights
management product line, which permits emphasis on the core business (switched
platform services) of TSC, as well as expansion of the business into areas that
will utilize the real time billing platform to provide secure Internet commerce
and Internet billing services. The reorganized surviving company will be called
"Cyber Sentry, Inc".
7
<PAGE>
The merger will provide enhanced marketing capabilities and the funding
required for the Debtor's continued business operation as well as the infusion
of $2,500,000.00 pursuant to the merger. Cyber Sentry, Inc. will deposit
$2,500,000.00 upon confirmation and will provide an operating line of credit in
the amount of $1,000,000.00. In addition, Cyber Sentry, Inc. is utilizing a
right's offering (right of creditors to purchase common stock for $1.00 per
share upon confirmation for each one share of preferred share that the creditor
has received) to raise approximately $2,000,000.00 to $5,000,000.00 for
marketing and acquisitions. This offering is for both shareholders and other
investors.
Cyber Sentry has applied to Nasdaq for an IPO and has requested symbols
for common and preferred shares. As a prerequiste of filing its application,
Telecommunications Service Center has certified audited financial statements for
years 1995, 1996 and 1997. BDO Seidman was the appointed auditor.
V. MARKETING PLAN
Cyber Sentry, Inc. is a breakthrough digital rights management technology.
It protects Internet commerce transactions. It permits controlled access to both
consumer credit information and controlled access to virtually any content that
can be downloaded via the Internet, ie., games, CD's, videos, copyrighted
information and other transactions.
Cyber Sentry, Inc. is designed to provide the secure
8
<PAGE>
distribution of copyrighted text, audio, video, graphics and software in
Internet commerce. It also restricts the unauthorized redistribution of material
to secondary recipients, such as passing along copies of protected material.
Virtually any content that can be downloaded via the Internet can be protected
using Cyber Sentry, Inc. technology.
Cyber Sentry, Inc. will continue to market reliable, competitively priced
telecommunications services. Cyber Sentry, Inc. will capitalize on the
historical marketing relationships, proven retail distribution and technical
know-how previously established by TSC to achieve significant market share.
Strategic relationships with major communications carriers will provide the
infrastructure to meet the growing demand for domestic and international
Internet and telecommunications services. TSC's existing sales encompasses long
distance, prepaid and postpaid local residential service in the rapidly growing
Florida market. For a more comprehensive overview of the Cyber Sentry Marketing
Plan, refer to the attached Exhibit "Marketing Plan".
The new company will target specific carriers for partnership and is
currently negotiating agreements to secure ATM access in terms consistent with
the company's strategies and operational goals. The company's approach to
marketing its ATM product is innovative and unique to the industry. It involves
the use by subscribers of an existing copper line number inbound calling to use
an ATM device which can be purchased or leased
9
<PAGE>
from the company. It will permit a conventional telephone line to simultaneously
be used to carry voice, fax, Internet and audiovisual as the same time over a
single conventional copper line. Offering these multiple services using only one
line will position the company as a major force in ATM services and as a
telecommunications provider in general.
TSC will continue to expand upon its current success in the prepaid
calling card market. The most successful prepaid calling card programs were and
are targeted in selling conventional calling cards in ethnic markets. The
company will exhibit at numerous cultural events and continue to market our
product to retail establishments via strategic relationships with independent
marketing agents and internal sales efforts.
The Company believes strategic partnerships with clients and vendors are
essential to global success. Cyber Sentry, Inc. will provide a host of
intelligent network applications; real-time call processing and billing systems
for service bureau activity; cellular/wireless service; Internet; ATM; carrier
termination; and all traditional inter-exchange carrier products and services.
This cutting-edge portfolio of services combined with an effective marketing
strategy to deliver a "one-stop" shop approach to customers is essential as we
approach the next millenium in telecommunications.
VI. PENDING LITIGATION
The Debtor has also filed objections to the following
10
<PAGE>
applications for administrative expenses:
- Westinghouse's administrative application for $494,098 and
$39,997.01; and
- Sprint's administrative application for $449,325.
The actual administrative claims for these claimants should be
approximately $116,936. There is approximately $277,998 in additional
administrative expenses.
VII. TAX STATUS
The Debtor has filed all tax returns required of it to date. All
pre-petition taxes owed by the Debtor are reflected herein. All post-petition
taxes have been paid.
VIII. MISCELLANEOUS PROVISIONS AND CONCLUSIONS
The Debtor shall continue to operate and manage the business as described
herein. Any executory contracts not previously rejected will be deemed accepted
upon confirmation of the Plan. However, the Debtor reserves the right to reject
such contracts up until the confirmation date of the Debtor's Plan.
CREDITORS ARE URGED TO READ THE PLAN IN FULL AND TO CONSULT WITH COUNSEL,
OTHER CREDITORS, OR THE CREDITORS COMMITTEE IN ORDER TO FULLY UNDERSTAND THE
EFFECTS.
Dated: 12/04/98
------------------
TELECOMMUNICATIONS SERVICE CENTER, INC.
By: /s/ Hal Shanklan
--------------------
HAL SHANKLAND as its
President
11
<PAGE>
CERTIFICATE OF SERVICE
I HEREBY CERTIFY that a true and correct copy of the foregoing has been
furnished by U.S. mail to:
U.S. Trustee
4919 Memorial Hwy., Ste. 110
Tampa, FL 33634
Telecommunications Service Center, Inc.
412 E. Madison, Suite 1200
Tampa, FL 33602
John H. Mueller, Esq.
Smith Clark Delesie Bierley Mueller & Kadyk
P.O. Box 2939
Tampa, FL 33601-2939
Attorney for RSL Com. formerly Westinghouse
John J. Lamoureux, Esq.
Carlton, Fields, Ward, Emmanuel, Smith & Cutler, P.A.
P.O. Box 3239
Tampa, FL 33601
Attorneys for Siemens Telecom Networks d/b/a Telecommunications
Finance Group
Russell M. Blain, Esq.
Stichter, Riedel, Blain & Prosser, P.A.
110 East Madison St., Suite 200
Tampa, FL 33602-4700
Attorneys for RFC Capital Corporation
Scott Stigall, Esq.
601 Bayshore Boulevard, Suite 700
Tampa, FL 33606
Attorneys for Worldcom, Inc.
Robert L. Olsen, Esq.
P.O. Box 1438
Tampa, FL 33601
Attorneys for Qwest Communications
James D. Gibson, Esq.
Riknich & Gibson
1800 Second Street, Suite 901
Sarasota, Florida 34236
12
<PAGE>
Attorneys for Call-1-800, Inc. and Call-1-800, USA, Inc. and the twenty largest
unsecured creditors on attached matrix this 4 day of December 1998.
/s/ David W. Steen
------------------
David W. Steen
13
<PAGE>
TSC INC.
LIQUIDATION ANALYSIS
EXHIBIT "A"
MARKET LIQUIDATION LIEN AMOUNT
DESCRIPTION VALUE VALUE LIENHOLDER
- -------------- -------------- ------------ ------------
EQUIPMENT $ 750,000.00 $ 300,000.00 $ 550,000.00
SouthTrust Bank
SUPPLIES $ 8,000.00 $ 3,000.00 incl. in above
SouthTrust Bank
ACCOUNTS RECEIVABLE $ 1,100,000.00 $ 500,000.00 $ 109,000.00
RFC
-------------- ------------ ------------
TOTAL $ 1,858,000.00 $ 803,000.00 $ 659,000.00
============== ============ ============
12/3/98
<PAGE>
TSC INC,
PRO-FORMA STATEMENT OF PROJECTED INCOME AND EXPENSES
FOR YEAR ENDED 12/31/98
EXHIBITS "B" AND "C"
<TABLE>
<CAPTION>
August- Sept- Oct- Nov.- Dec.- Y-T-D
May-Actual June-Actual July-Actual Actual Actual Actual Proj. Proj. Totals
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues $3,091,714 $2,519,816 $1,832,568 $1,508,822 $1,535,379 $1,733,652 $1,510,000 $1,550,000 $15,281,952
Cost of Sales $2,787,800 $2,303,154 $1,645,319 $1,357,580 $1,601,919 $1,470,623 $1,313,700 $1,348,500 $13,828,595
Commissions $ 7,044 $ 54,943 $ 26,216 $ 24,187 $ 19,875 $ 22,382 $ 27,000 $ 28,000 $ 209,647
------------------------------------------------------------------------------------------------------------
Gross Profit (Loss) $ 296,870 $ 161,720 $ 161,033 $ 127,055 $ (86,415) $ 240,647 $ 169,300 $ 173,500 $ 1,243,710
Operating Expenses
Salaries & Benefits $ 97,387 $ 67,247 $ 69,613 $ 62,741 $ 74,856 $ 99,278 $ 75,000 $ 75,000 $ 621,122
Travel &
Entertainment $ 4,060 $ 979 $ 1,383 $ 4,469 $ 946 $ 4,353 $ 4,200 $ 1,700 $ 22,090
Communications $ 9,584 $ 5,344 $ 11,014 $ 7,243 $ 10,287 $ 3,908 $ 8,700 $ 9,000 $ 65,080
Printing & Supplies $ 7,924 $ 8,584 $ 7,451 $ 5,350 $ 12,191 $ 5,323 $ 8,500 $ 8,100 $ 63,424
Premises & Equipment $ 21,150 $ 12,498 $ 9,644 $ 15,140 $ 13,304 $ 10,726 $ 10,000 $ 10,000 $ 102,462
Depreciation $ 708 $ 708 $ 708 $ 708 $ 708 $ 708 $ 708 $ 708 $ 5,661
Other General
Expenses $ 39,987 $ 8,282 $ 10,360 $ 7,803 $ 192 $ 9,765 $ 10,000 $ 10,000 $ 96,390
------------------------------------------------------------------------------------------------------------
Total Operating
Expenses $ 180,800 $ 103,642 $ 110,173 $ 103,454 $ 112,484 $ 134,061 $ 117,108 $ 114,508 $ 976,228
------------------------------------------------------------------------------------------------------------
Oper. Income (Loss) $ 116,070 $ 58,078 $ 50,860 $ 23,601 $ (198,899) $ 106,586 $ 52,192 $ 58,992 $ 267,482
Other Income $ 6,355 $ 122 $ -- $ 5,627 $ 6,271 $ 18,843 $ 6,000 $ 5,000 $ 48,218
Other Expenses $ 11,910 $ 37,134 $ 43,523 $ 5,977 $ 27,392 $ 31,834 $ 32,000 $ 33,000 $ 222,770
------------------------------------------------------------------------------------------------------------
PreTax Income (Loss) $ 110,515 $ 21,066 $ 7,337 $ 23,251 $ (220,020) $ 93,595 $ 26,192 $ 30,992 $ 92,929
============================================================================================================
</TABLE>
<PAGE>
TSC INC,
INCOME STATEMENT BY MONTH
FOR YEAR ENDED 12/31/98
EXHIBIT "B"
<TABLE>
<CAPTION>
Jan.-Actual Feb.-Actual Mar.-Actual April-Actual May-Actual June-Actual July-Actual
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues $ 2,044,097 $ 2,261,279 $ 2,392,025 $ 2,202,082 $ 3,091,714 $ 2,519,816 $ 1,832,568
Cost of Sales $ 1,598,406 $ 1,927,346 $ 1,836,272 $ 2,345,001 $ 2,787,800 $ 2,303,154 $ 1,645,319
Commissions $ 227,963 $ 236,536 $ 250,418 $ 42,675 $ 7,044 $ 54,943 $ 26,216
----------------------------------------------------------------------------------------------------
Gross Profit (Loss) $ 217,729 $ 97,397 $ 305,335 $ (185,594) $ 296,870 $ 161,720 $ 161,033
Operating Expenses:
Salaries & Benefits $ 103,187 $ 98,996 $ 100,793 $ 101,950 $ 97,387 $ 67,247 $ 69,613
Travel & Entertainment $ 1,553 $ 7,550 $ 1,374 $ 5,489 $ 4,060 $ 979 $ 1,383
Communications $ 12,120 $ 11,772 $ 14,008 $ 9,349 $ 9,584 $ 5,344 $ 11,014
Printing & Supplies $ 9,045 $ 12,830 $ 14,818 $ 19,450 $ 7,924 $ 8,584 $ 7,451
Premises & Equipment $ 12,308 $ 7,059 $ 9,918 $ 11,391 $ 21,150 $ 12,498 $ 9,644
Depreciation $ 708 $ 708 $ 708 $ 708 $ 708 $ 708 $ 708
Other General Expenses $ 26,077 $ 19,757 $ 27,928 6,971 $ 39,987 $ 8,282 $ 10,360
----------------------------------------------------------------------------------------------------
Total Operating
Expense $ 164,996 $ 158,672 $ 169,547 $ 155,307 $ 180,800 $ 103,642 $ 110,173
----------------------------------------------------------------------------------------------------
Operating Income (Loss) $ 52,733 $ (61,275) $ 135,788 $ (340,901) $ 116,070 $ 58,078 $ 50,860
Other Income $ -- $ 21 $ 11 $ 800 $ 6,355 $ 122 $ --
Other Expenses $ 37,714 $ 35,594 $ 38,660 $ 37,492 $ 11,910 $ 37,134 $ 43,523
----------------------------------------------------------------------------------------------------
Pre-Tax Income (Loss) $ 15,019 $ (96,848) $ 97,139 $ (377,592) $ 110,515 $ 21,066 $ 7,337
====================================================================================================
<CAPTION>
August-Actual Sept-Actual Oct-Actual Nov.-Proj. Dec.-Proj. Y-T-D Totals
<S> <C> <C> <C> <C> <C> <C>
Revenues $ 1,508,822 $ 1,535,379 $ 1,733,652 $ 1,510,000 $ 1,550,000 $ 24,181,434
Cost of Sales $ 1,357,580 $ 1,601,919 $ 1,470,623 $ 1,313,700 $ 1,348,500 $ 21,535,619
Commissions $ 24,187 $ 19,875 $ 22,382 $ 27,000 $ 28,000 $ 967,238
------------------------------------------------------------------------------------
Gross Profit (Loss) $ 127,055 $ (86,415) $ 240,647 $ 169,300 $ 173,500 $ 1,678,577
Operating Expenses:
Salaries & Benefits $ 62,741 $ 74,856 $ 99,278 $ 75,000 $ 75,000 $ 1,026,047
Travel & Entertainment $ 4,469 $ 946 $ 4,353 $ 4,200 $ 1,700 $ 38,058
Communications $ 7,243 $ 10,287 $ 3,908 $ 8,700 $ 9,000 $ 112,329
Printing & Supplies $ 5,350 $ 12,191 $ 5,323 $ 8,500 $ 8,100 $ 119,565
Premises & Equipment $ 15,140 $ 13,304 $ 10,726 $ 10,000 $ 10,000 $ 74,324
Depreciation $ 708 $ 708 $ 708 $ 708 $ 708 $ 8,491
Other General Expenses $ 7,803 $ 192 $ 9,765 $ 10,000 $ 10,000 $ 177,123
------------------------------------------------------------------------------------
Total Operating
Expense $ 103,454 $ 112,484 $ 134,061 $ 117,108 $ 114,508 $ 1,555,937
------------------------------------------------------------------------------------
Operating Income (Loss) $ 23,601 $ (198,899) $ 106,586 $ 52,192 $ 58,992 $ 122,640
Other Income $ 5,627 $ 6,271 $ 18,843 $ 6,000 $ 5,000 $ 49,050
Other Expenses $ 5,977 $ 27,392 $ 31,834 $ 32,000 $ 33,000 $ 372,229
------------------------------------------------------------------------------------
Pre-Tax Income (Loss) $ 23,251 $ (220,020) $ 93,595 $ 26,192 $ 30,992 $ (269,353)
====================================================================================
</TABLE>
<PAGE>
TSC INC,
PRO-FORMA STATEMENT OF PROJECTED INCOME AND EXPENSES
FOR YEAR ENDED 12/31/99
EXHIBIT "B"
<TABLE>
<CAPTION>
Jan.-Proj. Feb.-Proj. Mar.-Proj. April-Proj. May-Proj. June-Proj. July-Proj.
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues $ 1,750,000 $ 1,800,000 $ 1,800,000 $ 1,850,000 $ 1,875,000 $ 1,900,000 $ 1,880,000
Cost of Sales $ 1,540,000 $ 1,584,000 $ 1,584,000 $ 1,628,000 $ 1,650,000 $ 1,672,000 $ 1,598,000
Commissions $ 40,000 $ 43,750 $ 45,000 $ 45,000 $ 46,250 $ 46,875 $ 47,500
-----------------------------------------------------------------------------------------
Gross Profit (Loss) $ 170,000 $ 172,250 $ 171,000 $ 177,000 $ 178,750 $ 181,125 $ 234,500
Operating Expenses
Salaries & Benefits $ 78,000 $ 80,000 $ 81,000 $ 81,000 $ 81,000 $ 82,000 $ 82,500
Travel & Entertainment $ 4,500 $ 3,500 $ 4,500 $ 5,000 $ 4,500 $ 4,000 $ 3,500
Communications $ 9,500 $ 9,500 $ 9,700 $ 9,500 $ 9,700 $ 9,600 $ 9,800
Printing & Supplies $ 8,000 $ 8,500 $ 8,300 $ 8,400 $ 8,500 $ 8,700 $ 8,600
Premises & Equipment $ 11,000 $ 11,700 $ 11,200 $ 10,900 $ 10,850 $ 11,250 $ 11,000
Depreciation $ 708 $ 708 $ 708 $ 708 $ 708 $ 708 $ 706
Other General Expenses $ 18,000 $ 18,250 $ 18,000 $ 17,500 $ 18,200 $ 18,000 $ 18,500
-----------------------------------------------------------------------------------------
Total Operating Expense $ 129,708 $ 132,158 $ 133,408 $ 133,008 $ 133,458 $ 134,258 $ 134,606
-----------------------------------------------------------------------------------------
Operating Income (Loss) $ 40,292 $ 40,092 $ 37,592 $ 43,992 $ 45,292 $ 46,867 $ 99,894
Other Income $ 100 $ 50 $ 50 $ 300 $ 100 $ 50 $ 500
Other Expenses $ 13,000 $ 12,000 $ 22,000 $ 23,000 $ 23,000 $ 23,000 $ 24,000
-----------------------------------------------------------------------------------------
Pre-Tax Income (Loss) $ 27,392 $ 28,142 $ 15,642 $ 21,292 $ 22,392 $ 23,917 $ 76,394
=========================================================================================
<CAPTION>
August-Proj. Sept.-Proj. Oct.-Proj. Nov.-Proj. Dec.-Proj. Y-T-D Totals
<S> <C> <C> <C> <C> <C> <C>
Revenues $ 1,925,000 $ 1,975,000 $ 2,000,000 $ 2,050,000 $ 2,080,000 $ 22,885,000
Cost of Sales $ 1,636,250 $ 1,678,750 $ 1,700,000 $ 1,742,500 $ 1,768,000 $ 19,781,500
Commissions $ 47,000 $ 48,125 $ 49,375 $ 50,000 $ 51,250 $ 560,125
-----------------------------------------------------------------------------
Gross Profit (Loss) $ 241,750 $ 248,125 $ 250,625 $ 257,500 $ 260,750 $ 2,543,375
Operating Expenses
Salaries & Benefits $ 83,000 $ 83,000 $ 84,000 $ 84,000 $ 85,000 $ 984,500
Travel & Entertainment $ 3,500 $ 4,000 $ 3,500 $ 3,000 $ 3,500 $ 47,000
Communications $ 10,000 $ 9,800 $ 10,000 $ 9,900 $ 9,900 $ 116,900
Printing & Supplies $ 8,200 $ 8,900 $ 8,600 $ 8,500 $ 8,100 $ 101,300
Premises & Equipment $ 11,000 $ 11,250 $ 11,500 $ 11,000 $ 10,000 $ 132,650
Depreciation $ 708 $ 708 $ 708 $ 708 $ 708 $ 8,489
Other General Expenses $ 18,500 $ 18,500 $ 18,000 $ 18,250 $ 18,500 $ 218,200
-----------------------------------------------------------------------------
Total Operating Expense $ 134,908 $ 136,158 $ 136,308 $ 135,358 $ 135,708 $ 1,609,039
-----------------------------------------------------------------------------
Operating Income (Loss) $ 106,842 $ 111,967 $ 114,317 $ 122,142 $ 125,042 $ 934,336
Other Income $ 250 $ 400 $ 250 $ 300 $ 400 $ 2,750
Other Expenses $ 24,000 $ 24,000 $ 23,000 $ 24,000 $ 24,000 $ 259,000
-----------------------------------------------------------------------------
Pre-Tax Income (Loss) $ 83,092 $ 88,367 $ 91,567 $ 98,442 $ 101,442 $ 678,086
=============================================================================
</TABLE>
<PAGE>
TSC INC,
PRO-FORMA STATEMENT OF PROJECTED INCOME AND EXPENSES
FOR YEAR ENDED 12/31/00
EXHIBIT "B"
<TABLE>
<CAPTION>
Jan.-Proj Feb.-Proj. Mar.-Proj. April-Proj. May-Proj. June-Proj. July-Proj.
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues $ 2,000,000 $ 2,075,000 $ 2,100,000 $ 2,250,000 $ 2,280,000 $ 2,400,000 $ 2,500,000
Cost of Sales $ 1,700,000 $ 1,763,750 $ 1,785,000 $ 1,912,500 $ 1,938,000 $ 2,040,000 $ 2,125,000
Commissions $ 52,000 $ 50,000 $ 51,875 $ 52,500 $ 56,250 $ 57,000 $ 60,000
-----------------------------------------------------------------------------------------
Gross Profit (Loss) $ 248,000 $ 261,250 $ 263,125 $ 285,000 $ 285,750 $ 303,000 $ 315,000
Operating Expenses
Salaries & Benefits $ 86,000 $ 86,000 $ 87,000 $ 87,000 $ 87,000 $ 87,000 $ 88,000
Travel & Entertainment $ 3,500 $ 3,500 $ 3,500 $ 5,000 $ 4,500 $ 4,500 $ 4,000
Communications $ 10,000 $ 10,000 $ 10,000 $ 11,000 $ 11,000 $ 11,000 $ 11,000
Printing & Supplies $ 9,920 $ 10,450 $ 10,525 $ 11,400 $ 11,430 $ 12,120 $ 12,600
Premises & Equipment $ 12,000 $ 11,000 $ 12,000 $ 11,000 $ 11,000 $ 10,000 $ 12,000
Depreciation $ 708 $ 708 $ 708 $ 708 $ 708 $ 708 $ 708
Other General Expenses $ 18,500 $ 18,500 $ 19,000 $ 18,500 $ 18,500 $ 18,500 $ 19,000
-----------------------------------------------------------------------------------------
Total Operating Expenses $ 140,628 $ 140,158 $ 142,733 $ 144,608 $ 144,138 $ 143,828 $ 147,308
-----------------------------------------------------------------------------------------
Operating Income (Loss) $ 107,372 $ 121,092 $ 120,392 $ 140,392 $ 141,612 $ 159,172 $ 167,692
Other Income $ 100 $ 50 $ 50 $ 300 $ 100 $ 50 $ 500
Other Expenses $ 20,000 $ 20,000 $ 20,500 $ 22,000 $ 22,000 $ 23,000 $ 25,000
-----------------------------------------------------------------------------------------
Pre-Tax Income (Loss) $ 87,472 $ 101,142 $ 99,942 $ 118,692 $ 119,712 $ 136,222 $ 143,192
=========================================================================================
<CAPTION>
August-Proj. Sept.-Proj. Oct.-Proj. Nov.-Proj. Dec.-Proj. Y-T-D Totals
<S> <C> <C> <C> <C> <C> <C>
Revenues $ 2,550,000 $ 2,600,000 $ 2,625,000 $ 2,710,000 $ 2,900,000 $ 28,990,000
Cost of Sales $ 2,167,500 $ 2,210,000 $ 2,231,250 $ 2,303,500 $ 2,465,000 $ 25,801,100
Commissions $ 62,500 $ 63,750 $ 65,000 $ 65,625 $ 67,750 $ 704,250
-----------------------------------------------------------------------------
Gross Profit (Loss) $ 320,000 $ 326,250 $ 328,750 $ 340,875 $ 367,250 $ 3,644,250
Operating Expenses
Salaries & Benefits $ 88,000 $ 88,000 $ 88,000 $ 88,500 $ 89,000 $ 1,049,500
Travel & Entertainment $ 5,000 $ 4,000 $ 3,500 $ 3,500 $ 4,000 $ 48,500
Communications $ 11,000 $ 11,000 $ 11,000 $ 11,000 $ 11,000 $ 129,000
Printing & Supplies $ 12,800 $ 13,050 $ 13,150 $ 13,635 $ 14,690 $ 145,770
Premises & Equipment $ 11,000 $ 12,000 $ 11,000 $ 10,000 $ 11,000 $ 134,000
Depreciation $ 708 $ 708 $ 708 $ 708 $ 708 $ 8,496
Other General Expenses $ 18,500 $ 19,000 $ 19,000 $ 19,000 $ 19,000 $ 225,000
-----------------------------------------------------------------------------
Total Operating Expenses $ 147,008 $ 147,758 $ 146,358 $ 146,343 $ 149,398 $ 1,740,266
-----------------------------------------------------------------------------
Operating Income (Loss) $ 172,992 $ 178,492 $ 182,392 $ 194,532 $ 217,852 $ 1,903,984
Other Income $ 250 $ 400 $ 250 $ 300 $ 400 $ 2,750
Other Expenses $ 25,000 $ 25,000 $ 25,500 $ 24,000 $ 25,500 $ 277,500
-----------------------------------------------------------------------------
Pre-Tax Income (Loss) $ 148,242 $ 153,892 $ 157,142 $ 170,832 $ 192,752 $ 1,629,234
=============================================================================
</TABLE>
<PAGE>
TSC INC,
PRO-FORMA STATEMENT OF PROJECTED INCOME AND EXPENSES
FOR YEAR ENDED 12/31/01
EXHIBIT "B"
<TABLE>
<CAPTION>
Jan.-Proj. Feb.-Proj. Mar.-Proj. April-Proj May-Proj June-Proj. July-Proj.
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues $ 2,850,000 $ 2,925,000 $ 3,100,000 $ 3,150,000 $ 3,225,000 $ 3,285,000 $ 3,250,000
Cost of Sales $ 2,465,250 $ 2,530,125 $ 2,681,500 $ 2,724,750 $ 2,789,625 $ 2,841,525 $ 2,811,250
Commissions $ 63,000 $ 71,250 $ 73,125 $ 77,500 $ 78,750 $ 80,625 $ 82,125
-----------------------------------------------------------------------------------------------
Gross Profit (Loss) $ 321,750 $ 323,625 $ 345,375 $ 347,750 $ 356,625 $ 362,850 $ 356,625
Operating Expenses
Salaries & Benefits $ 89,000 $ 90,000 $ 90,000 $ 90,000 $ 90,000 $ 90,000 $ 90,000
Travel & Entertainment $ 3,500 $ 3,200 $ 3,500 $ 3,200 $ 3,500 $ 3,500 $ 3,500
Communications $ 11,000 $ 11,000 $ 11,000 $ 10,000 $ 11,000 $ 11,000 $ 10,000
Printing & Supplies $ 10,000 $ 10,000 $ 10,000 $ 10,000 $ 10,500 $ 10,000 $ 10,500
Premises & Equipment $ 12,000 $ 11,000 $ 11,000 $ 11,000 $ 11,000 $ 11,000 $ 11,000
Depreciation $ 708 $ 708 $ 708 $ 708 $ 708 $ 708 $ 706
Other General Expense $ 19,000 $ 18,500 $ 19,000 $ 18,000 $ 18,500 $ 18,500 $ 18,000
-----------------------------------------------------------------------------------------------
Total Operating Expen $ 145,208 $ 144,408 $ 145,208 $ 142,908 $ 145,208 $ 144,708 $ 143,706
-----------------------------------------------------------------------------------------------
Operating Income (Loss) $ 176,542 $ 179,217 $ 200,167 $ 204,842 $ 211,417 $ 218,142 $ 212,919
Other Income $ 100 $ 150 $ 350 $ 300 $ 100 $ 250 $ 500
Other Expenses $ 26,000 $ 26,000 $ 27,500 $ 27,500 $ 27,000 $ 28,500 $ 28,000
-----------------------------------------------------------------------------------------------
Pre-Tax Income (Loss) $ 150,642 $ 153,367 $ 173,017 $ 177,642 $ 184,517 $ 189,892 $ 185,419
===============================================================================================
<CAPTION>
August-Proj. Sept.-Proj. Oct.-Proj. Nov.-Proj. Dec.-Proj. Y-T-D Totals
<S> <C> <C> <C> <C> <C> <C>
Revenues $ 3,265,000 $ 3,100,000 $ 3,150,000 $ 3,200,000 $ 3,220,000 $ 37,720,000
Cost of Sales $ 2,824,225 $ 2,681,500 $ 2,724,750 $ 2,768,000 $ 2,785,300 $ 33,570,800
Commissions $ 81,250 $ 81,625 $ 77,500 $ 78,750 $ 80,000 $ 925,500
----------------------------------------------------------------------------------
Gross Profit (Loss) $ 359,525 $ 336,875 $ 347,750 $ 353,250 $ 354,700 $ 4,166,700
Operating Expenses
Salaries & Benefits $ 90,000 $ 90,000 $ 90,000 $ 90,000 $ 90,000 $ 1,079,000
Travel & Entertainment $ 4,000 $ 3,500 $ 3,500 $ 4,000 $ 4,000 $ 42,900
Communications $ 11,000 $ 11,000 $ 11,000 $ 11,000 $ 11,000 $ 130,000
Printing & Supplies $ 10,000 $ 10,000 $ 10,000 $ 10,000 $ 10,000 $ 121,000
Premises & Equipment $ 10,500 $ 11,000 $ 11,000 $ 10,000 $ 11,000 $ 131,500
Depreciation $ 708 $ 708 $ 708 $ 708 $ 708 $ 8,489
Other General Expense $ 19,000 $ 19,000 $ 19,000 $ 19,000 $ 19,000 $ 224,500
----------------------------------------------------------------------------------
Total Operating Expen $ 145,208 $ 145,208 $ 145,208 $ 144,708 $ 145,708 $ 1,737,389
----------------------------------------------------------------------------------
Operating Income (Loss) $ 214,317 $ 191,667 $ 202,542 $ 208,542 $ 208,992 $ 2,429,311
Other Income $ 250 $ 400 $ 500 $ 300 $ 400 $ 3,600
Other Expenses $ 29,200 $ 29,500 $ 29,000 $ 30,000 $ 29,000 $ 337,200
----------------------------------------------------------------------------------
Pre-Tax Income (Loss) $ 185,367 $ 162,567 $ 174,042 $ 178,842 $ 180,392 $ 2,095,711
==================================================================================
</TABLE>
<PAGE>
TSC INC,
PRO-FORMA STATEMENT OF PROJECTED INCOME AND EXPENSES
FOR YEAR ENDED 12/31/02
EXHIBIT "B"
<TABLE>
<CAPTION>
Jan.-Proj. Feb.-Proj. Mar.-Proj. April-Proj. May-Proj. June-Proj. July-Proj.
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues $ 3,200,000 $ 3,300,000 $ 3,425,000 $ 3,575,000 $ 3,617,500 $ 3,700,000 $ 3,710,000
Cost of Sales $ 2,752,000 $ 2,838,000 $ 2,945,500 $ 3,074,500 $ 3,111,050 $ 3,182,000 $ 3,190,600
Commissions $ 63,000 $ 80,000 $ 82,500 $ 85,625 $ 89,375 $ 90,438 $ 92,500
-----------------------------------------------------------------------------------------------
Gross Profit (Loss) $ 385,000 $ 382,000 $ 397,000 $ 414,875 $ 417,075 $ 427,563 $ 426,900
Operating Expenses
Salaries & Benefits $ 90,000 $ 95,000 $ 95,000 $ 95,000 $ 95,000 $ 95,000 $ 95,000
Travel & Entertainment $ 3,000 $ 3,500 $ 3,500 $ 3,500 $ 3,500 $ 4,000 $ 3,500
Communications $ 11,000 $ 11,000 $ 11,000 $ 11,000 $ 11,000 $ 11,500 $ 11,000
Printing & Supplies $ 11,000 $ 10,000 $ 10,000 $ 10,000 $ 11,000 $ 10,000 $ 10,000
Premises & Equipment $ 10,000 $ 10,000 $ 10,000 $ 11,000 $ 11,000 $ 10,000 $ 11,000
Depreciation $ 708 $ 708 $ 708 $ 708 $ 708 $ 708 $ 706
Other General Expenses $ 18,000 $ 18,000 $ 19,000 $ 20,000 $ 20,000 $ 19,000 $ 20,000
-----------------------------------------------------------------------------------------------
Total Operating
Expense $ 143,708 $ 148,208 $ 149,208 $ 151,208 $ 152,208 $ 150,208 $ 151,206
-----------------------------------------------------------------------------------------------
Operating Income (Loss) $ 241,292 $ 233,792 $ 247,792 $ 263,667 $ 264,867 $ 277,355 $ 275,694
Other Income $ 100 $ 150 $ 350 $ 300 $ 100 $ 250 $ 500
Other Expenses $ 29,000 $ 28,500 $ 29,500 $ 29,000 $ 30,500 $ 31,000 $ 31,250
-----------------------------------------------------------------------------------------------
Pre-Tax Income (Loss) $ 212,392 $ 205,442 $ 218,642 $ 234,967 $ 234,467 $ 246,605 $ 244,944
===============================================================================================
<CAPTION>
August-Proj. Sept.-Proj. Oct.-Proj. Nov.-Proj. Dec.-Proj. Y-T-D Totals
<S> <C> <C> <C> <C> <C> <C>
Revenues $ 3,735,000 $ 3,785,000 $ 3,775,000 $ 3,765,000 $ 3,785,000 $ 43,372,500
Cost of Sales $ 3,212,100 $ 3,255,100 $ 3,246,500 $ 3,237,900 $ 3,255,100 $ 38,601,525
Commissions $ 92,750 $ 93,375 $ 94,625 $ 94,375 $ 94,125 $ 1,052,688
----------------------------------------------------------------------------------
Gross Profit (Loss) $ 430,150 $ 436,525 $ 433,875 $ 432,725 $ 435,775 $ 5,019,463
Operating Expenses
Salaries & Benefits $ 95,000 $ 95,000 $ 95,000 $ 95,000 $ 95,000 $ 1,135,000
Travel & Entertainment $ 4,000 $ 3,500 $ 4,000 $ 3,200 $ 4,000 $ 43,200
Communications $ 11,000 $ 11,000 $ 11,000 $ 11,000 $ 11,000 $ 132,500
Printing & Supplies $ 10,000 $ 10,000 $ 10,000 $ 10,000 $ 10,000 $ 122,000
Premises & Equipment $ 10,000 $ 10,000 $ 10,000 $ 11,000 $ 11,000 $ 125,000
Depreciation $ 708 $ 708 $ 708 $ 708 $ 708 $ 8,489
Other General Expenses $ 19,000 $ 19,000 $ 20,000 $ 20,000 $ 19,000 $ 231,000
----------------------------------------------------------------------------------
Total Operating
Expense $ 149,708 $ 149,208 $ 150,708 $ 150,908 $ 150,708 $ 1,797,189
----------------------------------------------------------------------------------
Operating Income (Loss) $ 280,442 $ 287,317 $ 283,167 $ 281,817 $ 285,067 $ 3,222,273
Other Income $ 250 $ 400 $ 500 $ 300 $ 400 $ 3,600
Other Expenses $ 31,000 $ 30,850 $ 30,850 $ 31,000 $ 31,200 $ 363,650
----------------------------------------------------------------------------------
Pre-Tax Income (Loss) $ 249,692 $ 256,867 $ 252,817 $ 251,117 $ 254,267 $ 2,862,223
==================================================================================
</TABLE>
<PAGE>
TSC INC,
PRO-FORMA STATEMENT OF PROJECTED INCOME AND EXPENSES
FOR YEAR ENDED 12/31/03
EXHIBIT "B"
<TABLE>
<CAPTION>
Jan.-Proj. Feb.-Proj. Mar.-Proj. April-Proj. May-Proj. June-Proj. July-Proj.
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues $ 3,700,000 $ 3,720,000 $ 3,785,000 $ 3,825,000 $ 3,865,000 $ 3,840,000 $ 3,875,000
Cost of Sales $ 3,182,000 $ 3,199,200 $ 3,255,100 $ 3,289,500 $ 3,323,900 $ 3,302,400 $ 3,332,500
Commissions $ 63,000 $ 92,500 $ 93,000 $ 94,625 $ 95,625 $ 96,625 $ 96,000
-----------------------------------------------------------------------------------------------
Gross Profit (Loss) $ 455,000 $ 428,300 $ 436,900 $ 440,875 $ 445,475 $ 440,975 $ 446,500
Operating Expenses:
Salaries & Benefits $ 90,000 $ 95,000 $ 95,000 $ 95,000 $ 95,000 $ 95,000 $ 95,000
Travel & Entertainment $ 3,000 $ 3,500 $ 3,500 $ 3,500 $ 3,500 $ 4,000 $ 3,500
Communications $ 11,000 $ 11,000 $ 11,000 $ 11,000 $ 11,000 $ 11,500 $ 11,000
Printing & Supplies $ 11,000 $ 10,000 $ 10,000 $ 10,000 $ 11,000 $ 10,000 $ 10,000
Premises & Equipment $ 10,000 $ 10,000 $ 10,000 $ 11,000 $ 11,000 $ 10,000 $ 11,000
Depreciation $ 708 $ 708 $ 708 $ 708 $ 708 $ 708 $ 706
Other General Expenses $ 18,000 $ 18,000 $ 19,000 $ 20,000 $ 20,000 $ 19,000 $ 20,000
-----------------------------------------------------------------------------------------------
Total Operating Expense $ 143,708 $ 148,208 $ 149,208 $ 151,208 $ 152,208 $ 150,208 $ 151,206
-----------------------------------------------------------------------------------------------
Operating Income (Loss) $ 311,292 $ 280,092 $ 287,692 $ 289,667 $ 293,267 $ 290,767 $ 295,294
Other Income $ 100 $ 150 $ 350 $ 300 $ 100 $ 250 $ 500
Other Expenses $ 32,000 $ 32,000 $ 32,500 $ 33,000 $ 31,000 $ 31,000 $ 31,250
-----------------------------------------------------------------------------------------------
Pre-Tax Income (Loss) $ 279,392 $ 248,242 $ 255,542 $ 256,967 $ 262,367 $ 260,017 $ 264,544
===============================================================================================
<CAPTION>
August-Proj. Sept.-Proj. Oct.-Proj. Nov.-Proj. Dec.-Proj. Y-T-D Totals
<S> <C> <C> <C> <C> <C> <C>
Revenues $ 3,900,000 $ 3,920,000 $ 3,875,000 $ 3,925,000 $ 3,950,000 $ 46,180,000
Cost of Sales $ 3,354,000 $ 3,371,200 $ 3,332,500 $ 3,375,500 $ 3,397,000 $ 41,100,200
Commissions $ 96,875 $ 97,500 $ 98,000 $ 96,875 $ 98,125 $ 1,118,750
----------------------------------------------------------------------------------
Gross Profit (Loss) $ 449,125 $ 451,300 $ 444,500 $ 452,625 $ 454,875 $ 5,346,450
Operating Expenses:
Salaries & Benefits $ 95,000 $ 95,000 $ 95,000 $ 95,000 $ 95,000 $ 1,135,000
Travel & Entertainment $ 4,000 $ 3,500 $ 4,000 $ 3,200 $ 4,000 $ 43,200
Communications $ 11,000 $ 11,000 $ 11,000 $ 11,000 $ 11,000 $ 132,500
Printing & Supplies $ 10,000 $ 10,000 $ 10,000 $ 10,000 $ 10,000 $ 122,000
Premises & Equipment $ 10,000 $ 10,000 $ 10,000 $ 11,000 $ 11,000 $ 125,000
Depreciation $ 708 $ 708 $ 708 $ 708 $ 708 $ 8,489
Other General Expenses $ 19,000 $ 19,000 $ 20,000 $ 20,000 $ 19,000 $ 231,000
----------------------------------------------------------------------------------
Total Operating Expense $ 149,708 $ 149,208 $ 150,708 $ 150,908 $ 150,708 $ 1,797,189
----------------------------------------------------------------------------------
Operating Income (Loss) $ 299,417 $ 302,092 $ 293,792 $ 301,717 $ 304,167 $ 3,549,261
Other Income $ 250 $ 400 $ 500 $ 300 $ 400 $ 3,600
Other Expenses $ 31,000 $ 32,000 $ 31,000 $ 31,000 $ 31,200 $ 378,950
----------------------------------------------------------------------------------
Pre-Tax Income (Loss) $ 268,667 $ 270,492 $ 263,292 $ 271,017 $ 273,367 $ 3,173,911
==================================================================================
</TABLE>
<PAGE>
Sheet 2
AGED ACCOUNTS RECEIVABLE SUMMARY OCTOBER, 1998
EXHIBIT D
<TABLE>
<CAPTION>
TOTAL DUE CURRENT 31-60 61-90 91-120 120+
<S> <C> <C> <C> <C> <C> <C>
1 $ 388,780.66 $ 111,085.59 $ 78,923.77 $ 53,296.01 $ 43,406.14 $ 102,069.15
2 $ 4,217.21 $ (2,531.09) $ -- $ 120.31 $ 276.90 $ 6,351.09
3 $ 434,144.19 $ 130,538.57 $ 85,786.66 $ 16,365.66 $ 76,516.06 $ 124,937.24
4 $ 124.22 $ 3.88 $ 120.34 $ -- $ -- $ --
5 $ (297.95) $ (297.95) $ -- $ -- $ -- $ --
6 $ 127,805.57 $ 33,565.56 $ 12,437.17 $ 5,807.98 $ 8,207.80 $ 67,787.06
7 $ 9,106.34 $ 1,755.94 $ 7,350.40 $ -- $ -- $ --
9 $ -- $ -- $ -- $ -- $ -- $ --
12 $ 7,328.27 $ (1,711.16) $ 439.35 $ 1,208.60 $ 7,391.48 $ --
13 $ -- $ -- $ -- $ -- $ -- $ --
14 $ 374,123.55 $ 13,506.18 $ -- $ 39,130.22 $ 47,124.73 $ 274,362.42
16 $ 178.65 $ 18.28 $ 12.82 $ 14.22 $ 133.33 $ --
17 $ -- $ -- $ -- $ -- $ -- $ --
18 $ 33,922.82 $ 16,243.40 $ 5,708.31 $ 3,756.12 $ 4,785.60 $ 3,429.39
21 $ 504.55 $ 3.60 $ -- $ -- $ -- $ 500.95
22 $ 56,409.96 $ 467.10 $ 7,573.70 $ 19,769.41 $ 4,590.60 $ 24,009.15
25 $ 100,718.44 $ 3,034.21 $ 4,671.89 $ 19,292.76 $ 11,278.85 $ 62,440.93
TOTALS $ 1,537,068.48 $ 305,682.11 $ 203,024.21 $ 158,761.29 $ 203,711.49 $ 665,887.38
</TABLE>
Page 1
<PAGE>
CYBER SENTRY
[GRAPHIC]
The e-commerce gateway
<PAGE>
Cyber Sentry, Inc.
Information Memorandum
Cyber Sentry Business Plan
CYBER SENTRY INC.
(Formerly Telecommunications Services, Inc.)
IMPORTANT NOTICE
This Descriptive Memorandum (the Memorandum) has been prepared by
Telecommunications Service Center Inc. (hereinafter "TSC" or the "Company") for
use by participants in the financing of the company by private investors,
lenders and institutional investors (hereinafter known collectively as the
investors). On or about November 20,1998, the Company changed its name to Cyber
Sentry, Inc., a Delaware corporation.
While the company believes that the financial and other information contained in
the Memorandum is accurate, it makes no representations or warranties, implied
or expressed, as to the accuracy or completeness of this information and
expressly disclaims any liability for the contents of or omissions from this
Memorandum, and for any other written or oral communication transmitted or made
available to a prospective investor.
This Memorandum includes certain statements and estimates provided by the
company with respect to historical and anticipated performance which reflect
assumptions by the company and its management, and may or may not prove to be
accurate. No representations or warranties are made as to the accuracy or
completeness of such statements or estimates. Only those particular
representations and warranties which may be made to the lender or investor in a
definitive agreement, when, as and if it is executed and subject to such
limitations and restrictions as may be specified in a definitive agreement,
shall have any legal effect.
This page shall serve as a preface to the Marketing plan for Cyber Sentry, Inc.
Page 1
<PAGE>
TABLE OF CONTENTS
I Executive Summary
II Business Segments
III Critical Assets and Agreements: Strategic
Partnerships
- Service Bureaus and Operator Service Processing
- Distributed Architecture Wireless Prepaid Network
- Management
IV Development of Cyber Sentry, Inc.
V Objectives
VI Target Markets
- Competitor's Sales & marketing
VII Sales & Marketing
VIII Company Switching Services & Client Benefits
IX Ownership, Management and Personnel
X Financial
Page 2
<PAGE>
I. Executive Summary
Telecommunications Service Center Inc. (hereinafter "TSC") a Florida
corporation, is a facilities-based carrier providing long distance
telecommunications services, including commercial and residential service, long
distance service, operator service for pay phones, prepaid phone cards, calling
cards and enhanced services, such as voice and fax mail services.
Telecommunications Service Center, Inc. owns and operates a Siemen's
high-volume gateway switch and an IBM AS400 billing platform to accommodate
anticipated growth. It is certified to do business in forty-eight (48) states
and is tariffed in forty-two (42) states. It was certified as an "Alternative
Local Exchange Carrier" (ALEC) to provide "Local Telephone Services" in the
State of Florida in 1997 and is currently filing for ALEC certification in
thirty (30) additional states.
TSC currently provides all hardware and enhanced software to provide for
call processing, billing, tracking and prepaid debiting, as well as call
transport, client programming, national and international connectivity, systems
maintenance and capital expansion requirements for both long distance (in all
states) and local residential service in Florida. Unlike traditional providers,
and especially dissimilar to prepaid providers, TSC offers a comprehensive
service package that includes both automated and operator-assisted programs.
The Company has the ability to cause a majority of its services to be
billed to the consumer's residential phone bill. The system's capability to
maintain real time spending limits makes coordination with credit card issuers
and the maintenance of credit risk limits easy to implement. Most importantly,
the system can handle authorizations, real time payments and posting, and
automated settlement.
In December of 1997, TSC entered into an agreement to provide service
bureau, billing and customer service to customers of a large marketing company:
Grace Trust. Grace Trust submitted a large block of business to TSC, which
business, unknown to TSC, was fraudulently obtained. At the [ILLEGIBLE] when
TSC became aware of the illegal activity, it
Page 3
<PAGE>
took immediate steps to rectify the situation. However, on May 8, 1998, TSC
sought the protection of the Bankruptcy Court and filed a Chapter 11; it is
expected to emerge relatively debt free and with annual revenues of $20 million
and EBIT of approximately $1 million (see annexed Financials). TSC has agreed
to a merger that will provide an Internet digital rights management product
line, which permits emphasis on the core business (switched platform services),
as well as expansion of the business into areas that will utilize the real time
billing platform to provide secure Internet commerce and Internet billing
services. The reorganized surviving company will be Cyber Sentry, Inc.
(hereinafter "Cyber Sentry or the "Company"), a Delaware corporation.
Cyber Sentry is breakthrough digital rights management technology. It
protects Internet commerce transactions. It permits controlled access to both
consumer credit information and controlled access to virtually any content that
can be downloaded via the Internet, i.e., games, CD's, videos, copyrighted
information and other transactions.
Cyber Sentry is designed to provide the secure distribution of copyrighted
text, audio, video, graphics and software in Internet commerce. It also
restricts the unauthorized redistribution of material to secondary recipients,
such as passing along copies of protected material. Virtually any content that
can be downloaded via the Internet can be protected using Cyber Sentry
technology.
The web publisher or content provider uses a secure Windows tool to create
"rights certificates" for material delivered digitally. These electronic
certificates are provided to the consumer when making a purchase or conducting
other transactions with a merchant. The certificates indicate the rights the
consumer has purchased as a result of a specific transaction with the web site
or as an ongoing subscription. For example, a consumer wishing to purchase a
particular publication, music CD, video, video game, Internet library etc. would
be issued a certificate granting the right to view material but not to print,
copy or forward the material; in the alternative, various levels of access to
the web server can be permitted, including the right to copy and forward, as
well as to view digital content.
Page 4
<PAGE>
The publisher, be it of games, journals, texts, music or video CD's sets
up a secure directory on its Web servers. The material stored in this protected
space is available only to authorized users running the Cyber Sentry client
application.
Cyber Sentry manages digital rights on the desktop. The software requires
only a small amount of space on the consumer's hard drive and is downloaded for
free from the content provider's web site. The consumer obtains the Cyber Sentry
client software from one web publisher; however, the software manages digital
rights certificates from any content provider who uses Cyber Sentry to secure
content. Web site passwords become linked to a specific desktop; one password,
one user. This will form the foundation for the Cyber Sentry methodology which
lends itself to the development of a true Internet credit/debit card which will
provide Internet commerce security, as well as a traditional credit card in
traditional merchant settings. The Cyber Sentry software transparently manages
the user's access to secure directories on a site, so there is no need to
provide a visible password to grant access.
Cyber Sentry is unique in that it protects a publisher's copyright and his
revenue. Cyber Sentry is the only rights management solution that solves the
problem of initial distribution of copyrighted digital content and protects
against secondary, pass-along distribution. By managing activity at the server
and on the consumer's desktop, Cyber Sentry assures the on-line publisher that
the first copy sold won't be their last.
Cyber Sentry supports existing Internet commerce transaction systems
already being used by content providers, from bookstores to software publishers
to artists. Cyber Sentry enters the process after confirmation of a financial
transaction and provides the protected delivery and explicit management of
rights purchased in a transaction. This protects the obligations and rights of
both vendor and consumer as well as preventing the secondary, unauthorized
redistribution of copyrighted material and consumer credit information.
Cyber Sentry was developed by Microsystems Software (The Learning Company)
and acquired by Cyber Sentry Inc. in 1998, at a cost of Three Million Dollars.
Analysts estimate
Page 5
<PAGE>
that electronic commerce will reach $200 billion by the year 2001. It is
estimated that $50 billion of that $200 billion could be digitally delivered
content, suitable for protection by Cyber Sentry.
The possibilities for Cyber Sentry technology are limitless because Cyber
Sentry uses the e-commerce and web structures already in use by web publishers
to present Internet content. It will be easily extendible to new types of
content and transaction mechanisms.
The infrastructure and customer service capabilities of TSC will permit
Cyber Sentry the infrastructure requisite to providing a real time billing
system thereby enabling Cyber Sentry to act as an Internet digitally secure
credit card issuer and billing processor, a gateway to Internet commerce
including the redemption of manufacturers coupons both on the Internet and at
conventional point of sale. This functionality permits the processing of
manufacturer redemption coupons, a $350 billion dollar market of which $100
billion is allocated to processing fees. In addition, "By some reports, 60
percent of the 62 billion pieces of first class mail are bills. Merchants have
already said they would be willing to pay as much as 40 cents a bill for such
service, instantly creating a market with a $15 billion potential." (New York
Times, November 16, 1998, page C5).
Cyber Sentry is positioned to provide secured credit card functions for
customers and to provide a proprietary Internet browser, market Internet
services as an ISP, as well as the Cyber Sentry Card (the gateway to Internet
commerce) product. The Company has the ability to cause a majority of its
services to be billed to the consumer's residential phone bill. The Company has
an IBM AS 400 electronic billing system that is one of the most advanced in the
market today for billing telecommunications services to credit cards and local
phone carriers. The system's capability to maintain real time spending limits
makes coordination with credit card issuers and the maintenance of credit risk
limits easy to implement. Most importantly, the system can handle
authorizations, real time payments and posting, and automated settlement.
Cyber Sentry will continue to market reliable, competitively priced
telecommunications services. The company will capitalize on historical marketing
Page 6
<PAGE>
relationships, proven retail distribution and technical know-how to achieve
significant market share. Strategic relationships with major communications
carriers will provide the infrastructure to meet the growing demand for domestic
and international Internet and telecommunications services. The company's
existing sales encompasses long distance, prepaid and local residential service
in the rapidly growing Florida market.
Cyber Sentry's mission is to develop synergistic partnerships employing
its proprietary, patent pending, software to manage and deliver Internet
commerce transactions protecting the obligations and rights of both vendor and
consumer. Cyber Sentry's real time billing capability and the fact that it is
provided by the e-commerce and web structures already in use by web publishers
to present Internet content, is easily extendible to new types of content and
transaction mechanisms create Cyber Sentry as the "gateway to Internet
commerce."
II. Business Segments
Domestic & International E-Commerce Markets:
The company will immediately market and license the Cyber Sentry digital rights
management solution and the Cyber Sentry Card, the gateway to Internet commerce.
The Company will continue the existing telecommunications marketing and
distribution. The Company has finished development of a Cyber Sentry browser and
is developing an Internet commerce portal. The means of a banner on a portal
main page generates "hits, 'of between 3%-8% or millions of clicks thru. Brian
Sugar, Director of New Media for J.Crew Inc., reported that one hour of banner
on AOL's front page doubled the J.Crew sales for the day (as reported in
Forrester Reports)
III. Critical Assets & Agreements
Strategic Partnerships
The assets and agreements, which will enable Cyber Sentry to become a major
force in e-commerce credit card services include the following:
Page 7
<PAGE>
Banking Relationship
The company has forged a license agreement with one of the world's top secured
bank credit card issuers and is moving forward to develop a globally accepted
Cyber Sentry Card able to be used securely on the Internet or any retail
location accepting major credit cards. In addition the card will be a telephone
calling card which will permit enhanced services including access to email from
any phone, as well as, local and long distance calling at competitive rates.
Telco Access Agreements
The company has targeted specific carriers for partnership, and currently has
agreements to provide local and long distance residential service, as well as
billing, which is consistent with the company's strategies and operational goals
of obtaining ALEC status. The company will integrate its billing service
platform with the Cyber Sentry Card and methodology to service Internet
merchants and customers. This approach is unique on the Internet today. It is
designed to provide the secure distribution of copyrighted text, audio, video,
graphics and software in Internet commerce. It also restricts the unauthorized
redistribution of material to secondary recipients, such as passing along a
copyrighted research report or personal consumer information to a third party.
Cross marketing of the Cyber Sentry Card with financial institutions, Internet
portals and ISP providers will expose the product to both merchants and
consumers.
Financial Institutions
The company has entered into negotiations for distribution with a well-known
international financial institution. This respected partner has the ability to
issue and authorize both merchant and consumer VISA card accounts in North
America, Latin America and Europe. This partner's merchant customer base
includes major mass merchants and retail chains. The ability to issue Cyber
Sentry Cards globally is critical, as fully thirty percent (30%) of all Internet
commerce transactions in the United States comes from outside the U.S.
(Forrester Research). The Cyber Sentry Card will be the gateway to Internet
commerce as a means of protecting both the customer and the merchant's privacy
and affording the security or knowing their
Page 8
<PAGE>
information is secure. The merchant uses a secure Windows tool to create "rights
certificates" for material delivered digitally or for a charge transaction.
These electronic certificates are provided to the consumer when making a
purchase or conducting other transactions with the merchant. Merchants or credit
card issuers set up a secure directory on their Web servers, which may only be
accessed by authorized users. The Cyber Sentry Card will be registered with all
major credit card processors and will thereby be accessible at most merchants,
mail order or Internet commerce venues.
Strategic Banking and Merchant Relationships
In conjunction with its financial institution partner, the Company may co-brand
the Cyber Sentry Card with one or more vendors. Co-branding will depend upon
negotiations with the vendor's where management believes the company can
significantly benefit from co-branding. The principals' knowledge of and
relationships with the vendors will be valuable in development of regional
relationships for distribution and service provisioning in conjunction with
these powerful institutional entities.
Strategic Publishing Partners
The company has forged long-term strategic relationships with major publishers,
which allows the company to move forward rapidly in the copyrighted text,
graphics distribution markets. These relationships will also enable the company
to increase profit margins and capture new revenue as its digital rights
business matures. In particular, in the digital rights management, the
additional profit margins provided by low-cost entry into the protecting of
protected digital rights and will buoy the company's long and short-term
earnings.
Management Resources
The company has on its management team a seasoned, proven core sales force and
strategic sales contacts, along with requisite technical engineering
specialists.
Service Bureaus and Operator Service Processing
The Company has identified several electrical utility aggregators [ILLEGIBLE] a
service bureau to provide billing
Page 9
<PAGE>
services, The Company uses a new breed of intelligent, programmable switching
systems, which are becoming the preferred infrastructure for some of the largest
service providers in the global market. TSC currently services several prepaid
programs. To meet today's market needs, a combination of hardware, software,
switching systems, voice, data and other resources are required. The Company's
Siemens switching platforms architecture quickly adapts to increases in the
customer base, evolving market demands and emerging telecommunications
technologies. The company's Siemen's gateway switching platforms reduce
time-to-market, easily adapt to new market conditions and requirements, and work
with a broad choice of hardware, software, network and other technical
resources.
Switching technologies contracted by the company provide a level of
programmability not found in other switching systems. The demands of a global
market require such flexibility. Ordinary switches frequently require software
changes from the switch manufacturer, taking months, and sometimes years, to
respond to special requests, develop software enhancements, and delivery, The
company has developed proprietary services through systems which allow
customization of the protocol software on-site anywhere in the world, using
easy-to-use graphical tools, with solutions possible within hours or even
minutes. These core technologies are provided in-house by the company technical
staff whose integrated solutions provide a broad range of flexible switching
applications.
The company will provide customer service for the Cyber Sentry Card, as well as
full calling card services, incidental thereto with email accessibility from any
phone, and on the enhanced service side wire line and cellular voice mail, IVR,
paging, fax, and voice recognition services.
All these technologies make it possible for the Company to combine its local
residential service, long distance service and enhanced billing services with
sophisticated customization for Cyber Sentry, its clients and a high level of
assured customer satisfaction and retention.
Customer care is provided through a customer care call enter staffed by TSC in
Tampa, Florida. Cyber Sentry Card production, activation, inventory control and
distribution are determined on a regional basis.
Page 10
<PAGE>
Management
The company has on board a core management team of experienced and seasoned
professionals. In the key technology realm, professional's with focused and
broadly relevant capabilities and experience are committed to the company.
Sales, marketing and general management areas will be staffed by proven
professionals whose commitments to corporate vision and success have been proven
over several decades and in various start-ups and operating entities.
Management Team
The senior management team is made up of seasoned professionals with more than
fifty years combined Data and Telecommunications Sales and Management
experiences.
Additionally, The Learning Company provides Cyber Sentry technology and
methodology support on a contractual basis.
IV. Development of Distribution
In the prepaid area, the Company has agreements with national retail
distribution channels for the sale of its prepaid and travel or post-paid
telecommunications services, The company currently services thousands of retail
outlets, and intends to begin contracting for distribution of its travel card
product line through insert statements with major financial institutions.
Through the company's Chief Executive Officer, it has access to a range of
financial arrangements that have made it possible for the Company to forge
highly favorable relationships with national and international carriers, and
will allow continued development of the company's wholesale and retail products.
V. Objectives
Short-Term Objectives
1) Will be to expand the company's long distance and prepaid service and
switching facilities businesses to attain in excess of $50 million in revenue
run-rate by January of 2000.
Page 11
<PAGE>
2) Will reach gross profit margins of 50% during FY 1998/99.
3) Will be positioned to capture a percentage of the nation's digitally
delivered content i.e., entertainment, games and publishing on the Internet,
which commercial transactions are projected to be in excess of $50 billion by
2001.
Long-Term Objectives
1) Will build an equity value of $250 million within three to five years of
inception.
2) Will position the company for entrance into the Internet commerce credit card
market through strategic technology deployment and marketing relationships.
3) Will create strategic partnerships with many international corporations to
enable Cyber Sentry methodology deployment.
VI. Target Markets
In the area of digital rights or Internet credit card services, the company is
targeting key retail markets that conform to its strategic demographic
development plan. These markets, which include entertainment, games, libraries,
publications are targeted for rollout. The company is providing its services in
conjunction with copyright-protected merchants, entertainment, recording artists
and financial institutions.
In the area of telephony the company intends to introduce products into five key
markets in 1999. The results of these markets will allow the company to
accurately forecast the outcome of additional market rollouts throughout the
United States, and to forecast which of the pending ALEC Licenses will be
developed in what order of priority.
In order to deliver highly profitable sales, the company will concentrate on
strategic national market opportunities through internal sales and marketing
team efforts. Management believes that vast opportunities exist in providing
cost-effective telecommunications connectivity into key foreign markets and is
negotiating such agreements with several foreign carriers, as well as US
carriers with
Page 12
<PAGE>
bulk purchasing power that are reselling international connectivity at extremely
competitive prices.
The company has established criteria for the development of ALEC licenses into
geographical markets which a) are developing rapidly and have extensive business
traffic in the United States, and b) are under-served relative to
telecommunications demands and cost factors. The company will work within these
domestic venues to offer cost-effective, comprehensive telecommunications
services through existing regional carriers and providers of telecommunications
services by deploying its feature-rich hardware and software into select
American areas. The development of sales relationships is vital to the company's
mid-term and long-term strategy.
Competitors
The company is aware of several developing areas of competition in the digital
rights area. Potential competitors include some of the credit card issuers
themselves (Chase and Citibank). However, no major financial institution has
yet to field an end user friendly product such as the Company has patented,
Cyber Sentry. The company regards the Cyber Sentry methodology as building a
good experience with users, providing utility, speed, and reliability. By
creating a positive experience and creating a niche in a valuable market, the
Company believes that it is able to launch its own Cyber Sentry Card within the
year. Historically the bar to 70% or more of the Internet users in purchasing
goods and services over the Internet has been reluctance to expose personal
credit information over the Internet. Now, via Cyber Sentry, both vendor and
consumer are able to conduct secure transactions. A significant share of the
nascent Internet commerce credit card market presents itself as a real
opportunity. The price at which the Company intends to offer its credit card
processing services will be extremely competitive, while maintaining excellent
profit margins.
Essentially, the major credit card issuers are seeking development of digital
rights management technology such as Cyber Sentry methodology and they do not
have it available to them at this time. However, most institutions are highly
focused on establishing a traditional base of credit card customers, and on
ongoing service provisioning. They generally have little or no expertise in the
area of
Page 13
<PAGE>
technical security methodology development and support. Therefore, the company
believes that rather than compete with them in traditional sales venues, it can
work in conjunction with major institutions to afford them the benefits of its
Cyber Sentry processing expertise. In this vein, the company is negotiating with
the very same institutions that have successfully marketed hundreds of millions
of dollars in credit card products. The Company's comprehensive switching and
database services allow the precise and detailed segmentation of downloading and
protecting Internet credit accounts, which level of security is not otherwise
currently available. Through this important relationship the company will also
venture into the bank card field, which, management believes, will become a key
delivery vehicle for prepaid and post-paid voice, data and Internet services in
the United States and worldwide.
VII. Sales & Marketing
In the area of postpaid and prepaid calling card services, the Company is
targeting financial institutions whose markets conform to its strategic
demographic development plan. These markets are demographically defined as
small-office and home-office credit card holders desirous of cost-control
lifestyles. Target cities will likely include Miami, El Paso and Houston (TX),
San Diego (CA), New York City (NY), and Denver (CO). The Company is providing
its services in conjunction with major national long distance carriers and local
and national land-line carriers. The Company's product competes favorably with
long distance calling cards and residential services put out by the major
carriers such as Sprint, AT&T and MCI/WorldCom because of the current pricing
structures of these carriers. The cost per minute when using a Cyber "Sentry
Card" or "Phone Money" for a domestic call tops at $0.19 per minute, compared to
a range of approximately $0.17 per minute up to $1.25 for an initial minute of
long distance from major carriers at this time. Mass merchandisers,
supermarkets, variety stores, drug chains, electronics stores, auto stores,
service stations, cellular phone dealers, beeper distributors or any multi-store
chain can sell the prepaid calling card as a new profit center: "Receive a
coupon good for a free $l0.00 cellular phone card with your next purchase of
$50.00, or with a purchase of "quality motor oil". The card then bears the
"quality motor oil" logo and greeting -- for which "quality
Page 14
<PAGE>
motor oil" pays the retailer under its co-op-advertising program. Hotels can
provide a free card to guests who stay more than one night and then sell the
card at a discount to frequent travelers. The local management can make a
commission and the balance can go into a regional advertising budget.
Gross Profit
Historically, the gross profit on prepaid phone cards has frequently been in
excess of 22%, although it can be as low as five percent (5%). International
card charges are determined as a markup factor of the actual costs of the calls
placed, and is frequently in excess of 35%. Gross profit is calculated for all
projected periods at an estimated average of eighteen percent (18%) of sales.
The domestic prepaid calling card market is currently $2 billion per year, up
from $75 million only five years ago. Projections are for a $10 billion per year
market within the next five years.
Outside Sales Representatives
The fundamental telecommunications marketing strategy consists of Internet
access residential dial tone, long distance and 1-800 services marketed through
master brokers and regional representatives. The Company has put into place a
national sales network by using brokers and sales reps with the proven
experience. Since outside sales representatives operate on a commission only
basis, this system provides a cost-effective way for the company to market its
products and achieve maximum results.
Sales Seminars
The Company has organized a program of sales seminars to train its brokers and
sales reps. These seminars are held at regional airport locations. The sales
reps attend at their own expense and are thoroughly trained to understand all of
the nuances of the Company telephony product line of residential, long distance,
800 and travel card services. They are specifically instructed as to the many
advantages the Company can provide to customers that major competitors cannot.
It has been the Company's experience that well-trained and informed sales
organization gives a big edge over competitors that send [ILLEGIBLE] people that
are not sufficiently trained.
Page 15
<PAGE>
Resellers
The Company is a telecommunication reseller, The company is consistently
negotiating with carriers to obtain the most competitive pricing. It provides
service to companies that do not own switching equipment and that use it to
provide switching for their private label pre and post-paid calling cards. The
company also plans to target customers through large tract residential
developers and independent interconnect phone companies. These vendors usually
render their services by owning the cable to the customers' site. They install
telephone systems in residences or business offices, which require local dial
tone as well as long distance, service. Many of the customers have been wired to
a switch owned by the developer and the Company historically has provided local
dial tone access and billing services to developers and sold one plus long
distance services to many of their customers. They are well positioned to
promote the Company products by simply being on the customers' premises. The
independent interconnect companies have access to their customers phone bills
and can analyze them and make recommendations as to how a customer can benefit
from the Company products and services. On-premises encounters can be a very
powerful means of communication.
These contractors have the necessary tools and ability to analyze different
products. They can advise their clientele on the best alternative after
considering the different criterion of selection. Typically, these contractors
have access to a customer base and they take the initiative to contact them. The
Company will pay them on a commission basis.
Institutional
The company, in addition to publishing and financial. institutions is also
targeting educational, charitable, philanthropic and religious institutions to
market and license the Cyber Sentry methodology. The Internet commerce Direct
mailing and newsletters of the various organizations will promote security of
both the customer and vendor.
Page 16
<PAGE>
Ethnic Markets
The most successful prepaid calling card programs were and are targeted in
selling conventional calling cards in ethnic markets, The company will exhibit
at numerous cultural events, informing the community through Multi-lingual
Internet portals about the merits of the Cyber Sentry management of digital
rights and consumer security. To date, no Internet commerce card has garnered a
major share of the potential market. We are confident that with the proper
advertising and marketing approach the Cyber Sentry Card with its Internet
digital rights security component will secure and maintain a leading position in
the Internet commerce marketplace.
VIII. Company Switching Services & Client Benefits
Unique Systems
The company has broad base expertise in the area of Siemen's switching systems.
While relatively new to the telecommunications field with ten years of
operational history, programmable switching technologies are present in one form
or another in most central offices as voice mail systems, fax store and forward
systems and other flexible, non-traditional telecommunications hardware and
software.
The company's vendor, Siemens', provide corporate and governmental clients with
telecommunications switching capability and related ancillary services.
Installation of large-scale, highly flexible open architecture call matrices in
major cities within the United States and abroad allow the company to provide
its clients with an unparalleled level of flexible, high-bandwidth switching
capacity at competitive rates.
Key client benefits include:
Instant Scalability
In this time of extraordinarily rapid telecommunications growth, companies need
to be able to add massive port capacity within days. The Company maintains a
full service platform, which offers rapid up scaling and client growth support.
Page 17
<PAGE>
Network Flexibility
The company maintains multiple transmission capabilities through dual service
bureaus so that its clients benefit from a) network redundancy -- in the event
of long-line failures, the company has various transmission opportunities and
can avoid any client downtime; and b) least-cost routing as a function of
time-of-day, day-of-week, volume, and holiday opportunities.
Exceptionally Flexible Messaging
The service bureau call matrix design includes feature-rich voice messaging
capability. The equipment can deliver messages and accept responses by voice and
by touch-tone. As a result, the company is able to offer services such as:
Calling Cards
Using proprietary database and connectivity algorithms, prepaid calls can be
offered locally, nationally or internationally at rates adjusted for a wide
range of complex parameters. Such parameters can include such features as "the
more you call the less it costs," a particular caller can win a significant
prize, lottery-type prizes can be offered, etc.
Advertising Features
The company offers its telecommunications clients the ability to sell a wide
range of audio advertising for customers. Messages can be delivered through
prepaid formats to offer customers advertisements, service routing via
touch-tone, and special record-and-replay messaging, such messaging to be
flexible with regard to time of day/day of week delivery.
Unique Safety Features
Unauthorized use and telephone fraud are common occurrences. The company offers
its clients a variety of safety features that can restrict calls even within
large businesses relative to called number, time of day calling, PIN entry,
calling number, and special voice-print messaging and "locks."
Page 18
<PAGE>
Internet Service & Product
The company plans to contract with key local Internet Service Providers
nationwide (ISPs) to offer an Internet-based message delivery system that
operates world-wide to deliver voice-mail messages at local call costs. These
services will be rolled out to provide a strategic and effective position for
growth and development of the company's services as such services grow with the
Internet itself. This product will enhance the customer's ability to obtain
their email from any telephone utilizing their Cyber Sentry Card.
Strategic Partnerships
The Company believes strategic partnerships with clients and vendors are
essential to global success. Cyber Sentry provides a host of intelligent network
applications (single number service, call management; fax, data management);
real-time call processing and billing systems (invoicing, call rating for 1+,
callback, and debit card processing) radio paging and cellular/wireless service
offerings (call routing, protocol, translation, release link functionality;
messaging, voice activated dialing, and other enhanced services); wireless local
loop, microcellular and Cyber Sentry systems; voice mail with automatic call
back and integrated paging; global conferencing for simultaneous voice, video
and data transmission; and full featured call processing software as an
integrated switching system suitable to interface to digital and analog wireless
base stations supporting multiple air protocols. This infrastructure supports
the Internet commerce and Cyber Sentry Card with no additional capital
expenditure. The IBM AS400 billing system employed by the Company is the billing
system of choice for most major banks and such telco's as BT.
The company believes that its owned service bureau's Siemens gateway systems
serve as a vital bridge to new technologies. New technology developments create
additional demand for the company's services as competition and market
development proliferate. Regulatory initiatives have enhanced competition in
telecommunications, thereby opening new markets and providing incentives for the
development of new products. Examples of these changes include the development
of facsimile communications, the assignment of radio frequencies to cellular
telephone
Page 19
<PAGE>
services and the development of private satellite networks. Advances in
technology have lowered per-unit communications costs, increased product
reliability, and encouraged a proliferation of new and enhanced communications
products and services. All of which pale in the face of the new ATM technology
which permits the usage to increase without additional capital outlay for
additional network capacity - the existing lines can achieve never before
anticipated speeds for data transmission, all while the same line is being used
simultaneously for alternate uses.
The company's technology and marketing are readily adapted to suit the new ATM
Communication Systems requirements; at this time such technologies are most
likely to displace traditional Ethernet systems in the next few years. The
advent of new ATM technologies will likely expand the market for communications,
to the general benefit of Cyber Sentry and its sales mission.
Cost of New Technologies
The company intends to participate in most if not all areas of transmission
technologies, and will deploy given technologies -- through its strategic
relationships with expert technology providing companies -- for its clients and
their customers. Because the company has focused its service and sales efforts
on Internet commerce and the additional services that it has historically
successfully provided including, but not limited to residential local and long
distance services, pre and post-paid calling cards utilities billing services
and the Company has a real track record in providing quality services in those
areas. The Cyber Sentry Card product is the opportunity for the Company to gain
entry as the provider of digital rights management for the Internet commerce
industry; as a primary source for the next major evolution. In developing and
marketing the patented and proprietary Cyber Sentry methodology the company will
have transmission capabilities to route calls as a function of availability,
cost, time of day, weather, and other factors in order to provide the best
possible service and pricing to its clients.
While all these opportunities represent potential revenue, it is also true that
the company will have to acquire personnel with sufficient expertise to
capitalize on these developing technologies, The company has identified and is
negotiating with several potential associates with the
Page 20
<PAGE>
requisite technical training and experience level required by the Company of
employees and the ongoing retention of consultants.
IX. Ownership, Management and Personnel
Ownership
Cyber Sentry, Inc. (formerly Telecommunications Services, Inc.), a Delaware
corporation, which corporation was formed to acquire Telecommunications Service
Center, Inc., a Florida corporation, is a regular C Corporation, organized under
the laws of the State of Delaware. Currently, Board, investors and management
own the C Corporation, Cyber Sentry, Inc.
Telecommunications Service Center, Inc. is offering equity partners the right
to purchase up to five million shares of common stock of Telecommunications
Service Center, Inc. for $1.00 per share, pursuant to a Rights Offering under
its Plan of Reorganization, dated October 21,1998.
Board Structure
Five Directors of Cyber Sentry, Inc. will be elected for annual terms by vote
of the shareholders. These directors will serve as the Board of Directors for
Cyber Sentry, Inc.
Source & Use of Proceeds
Telecommunications Service Center, Inc. is raising up to $5 million by virtue of
the Rights Offering of one share of common stock for $1.00 pursuant to the
Chapter 11, Bankruptcy Reorganization. The Company believes that it can also
secure, with this capital infusion, a bank line of Credit, to be used for the
purchase of instruments and for carrier deposits. Investors who wish to
participate will receive equity in the Company.
Proposed New Products
The Company will develop its proprietary Cyber Sentry digital rights management
product, to be marketed under the name Cyber Sentry and provided transparently
to consumers by vendors. Build an integrated secure Cyber Sentry digital rights
management environment, including the Cyber Sentry Card and extendible by the
customer and vendor to
Page 21
<PAGE>
other transaction related services available over the Internet or via other
international commercial credit card transaction processing.
Management Team
The senior management team is made up of seasoned professionals with more than
fifty years combined Data and Telecommunications Sales and Management
experience.
Chairman of the Board: Gerald A. Resnick
Mr. Resnick is an attorney with over thirty years of experience and is
admitted to practice in New York, Florida and New Jersey. Mr. Resnick was the
co-founder of Noise Cancellation Technologies Inc. (NASDAQ-NCTI) and served
as a member of its Board of Directors; and as Vice-President and General
Counsel. Mr. Resnick has extensive experience in the sales and marketing of
intellectual properties and the development of research and development
partnerships.
President: Harold (Hal) Shankland
An entrepreneur with more than twenty-five years experience within the
computer and telecommunications industries. Mr. Shankland has worked with
Litton Industries, Dyna Com and served as President of HAI of Tampa. Mr.
Shankland has been a computer consultant to numerous corporate clients,
including Southern Management, Inc. As President, Mr. Shankland is
responsible for operational management of the telecommunications systems and
the integration of new technologies.
Vice President Corporate Development: Phillip E. Gambell
Mr. Gambell has over fifteen years telecommunications experience in
international and domestic carrioer sales, network design and development.
Currently President of TOSA Enterprizes, Inc., an international
telecommunications consulting firm, which he founded in 1997, Mr. Gambell's
clients include local exchange carriers, international service providers,
operator service companies, and telecommunications service bureaus. Mr.
Gambell has also served as a commissioned officer in the U.S. Marine Corps.
Page 22
<PAGE>
Vice President Sales & Marketing: Stacy A. Acampora
A telecommunications Marketing Professional with an impressive sixteen years in
Marketing, including five years in Alternate Channel Sales. Ms. Acampora has a
long list of achievements including senior management positions with Advanced
Telecommunications Corp. (ATC), now known as LDDS/Worldcom/ MCI, Amnex and
Intermedia Communications Inc. (ICI). At ICI, Ms. Acampora developed the agent
program and within two years created billing in excess of $18 million annually.
Ms. Acampora has in depth industry knowledge and contacts which enhance the
Company. Ms. Acampora also serves as President of JasCom Consulting Group, a
Florida-based telecommunications consulting company.
Vice President Switch Operations: Kevin White
Mr. White is an operations professional with more than fourteen years in the
telecommunications field. He began his career as an electronics technician in
the United States Navy. He was the head of the SCAT Team for Siemens
Stromberg-Carlson, a worldwide leader in digital switching and
telecommunications equipment. SCAT was the troubleshooting and problem solving
team for Siemens switches nationwide. As the Manager of Network and Switching
for TWT, a $100 million company, Mr. White was responsible for the
implementation and management of a Siemens Stromberg-Carlson five switch
nationwide network. As Vice-President of Switch Operations for
Telecommunications Service Center, Inc., Mr. White is responsible for the
installation and on going management of their new Siemens Stromberg-Carlson
Digital Central Office Switch -
Treasurer and Director of Accounting: Kenneth J. Fedorcek
An accounting professional with over twenty-five years experience. Mr.
Fedorcek was the Director of Accounting for a large public company where his
responsibilities included multiple divisions and the financial and regulatory
reports required of a public company. Mr. Fedorcek has overall responsibility
for accounting and cost controls.
X. Financials
See Annexed BDO SEIDMAN FINANCIAL REPORTS 1995, 1996, 1997.
Page 23
<PAGE>
No Public Market for Shares: Lack of Transferability of Common Stock. There is
no public market for the Common Stock acquired from the Company in this rights
offering pursuant to the Reorganization Plan under the Chapter 11 Bankruptcy and
it is not anticipated that one will develop in the near future. Even if such a
market should develop, there can be no assurance that it will be sustained or
that it will be broad enough to enable investors in this rights offering to sell
their Common Stock at prices which they deem satisfactory or reasonable. Even if
such a market should develop, the Common Stock may be subject to transfer
restrictions.
The Common Stock being offered has not been registered under a federal or state
securities law and may not be sold or transferred except pursuant to an
exemption from registration under federal or state securities law, unless
registered. No registration of the Shares acquired from the Company is
contemplated by the Company. As a consequence, an investment in the shares
cannot be easily liquidated. Investors should be prepared to hold the Shares
indefinitely.
The offering price of the Shares offered hereby does not necessarily bear any
relationship to the assets, book value or other recognized criteria of valuation
of the Company. The offering price was determined arbitrarily by the Company.
Such determination was based on consideration of such factors as the history of
and prospects for the products in which the Company competes, estimates of the
business potential of the Company, an assessment of the Company's management,
the amount of control desired to be retained by the Company's present owners,
and the amount of financing necessary to satisfy the Company's management and
the Company's projected working capital needs.
Although the Company believes that this offering will provide it with the
financial resources sufficient to enable it to develop the Company and its
product offerings, there can be no absolute assurance that this will be
achieved. Adverse events may cause a change in the Company's revenues,
expenditures or cash flow, and the Company might not have sufficient resources
to achieve its expansion or operating goals without obtaining additional
financing. There is no assurance that such financing would be available to the
Company on terms reasonably acceptable to it or that such financing would be
available to the
Page 24
<PAGE>
Company on any terms whatsoever. In either event, the ability of the Company to
maintain or expand its operations might materially be adversely impacted.
Page 25
<PAGE>
Cyber Sentry Inc.
Projected Balance Sheet
**** ASSETS ****
Cash & Equivalents: $ 5,000.00
Accounts Receivable: 1,974,456.90
Investments $ 6,000,000.00
Inventory: 35,000.00
Prepaids: 46,000.00
--------------
Total Current Assets $ 8,060,456.90
Fixed Assets - At Cost: 2,220,000.00
Accumulated Depreciation: (1,071,018.00)
--------------
Net Book Value - Fixed Assets 1,148,982.00
Other Assets: 45,000.00
--------------
Total Assets $ 9,254,438.90
==============
**** LIABILITIES & EQUITY ****
Current Liabilities: $ 2,022,035.72
Long-Term Liabilities: 900,177.00
--------------
Total Liabilities $ 2,922,212.72
Stockholders Equity:
Retained Earnings (106,492.72)
Common Stock 6,002,000.00
Post-Petition Net Income 436,718.90
--------------
Total Stockholders Equity 6,332,226.18
--------------
Total Liabilities & Equity $ 9,254,438.90
==============
<PAGE>
CYBER SENTRY
[GRAPHIC]
The e-commerce gateway
<PAGE>
To register call 1-800-123-4567 or go to http: // www.cybersentry.com
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
To place a call on the MCI Worldcom Network dial 1-800-888-8777
To place a call on the AT&T wireless Network dial 1-800-123-5467
To join America Online, call 1-800-123-4567 or go to www.aol.com
-------------
Valid
Without
Photo
-------------
- -------------------------------------------------------------
Signature Required
- -------------------------------------------------------------
---------------------------------------------
CYBERSENTRY CREDIT PROGRAM Bar Code
---------------------------------------------
If this card is lost or stolen contact:1-800-123 1234 or email:
[email protected]
<PAGE>
FACT SHEET
The Cyber Sentry Fact Sheet
Digital Rights Management
[GRAPHIC]
CYBER SENTRY (R)
[GRAPHIC]
DIGITAL RIGHTS MANAGEMENT
Cyber Sentry
o Protects copyrighted text, audio, video, graphics and software
o Prevents secondary redistribution, including username/password sharing
o Uses double-key re-encryption to actively protect content
o Uses conventional server and desktop technology
o Works with all standard browsers
o Operates on Windows 3.x, Windows 95, Windows 98 and Windows NT
Cyber Sentry is breakthrough digital rights management technology. It is a
simple, yet robust, solution to the problem of protecting copyrighted content
during initial distribution and controlling redistribution.
Cyber Sentry is designed to provide the secure distribution of copyrighted text,
audio, video, graphics and software in Internet commerce. It also restricts the
unauthorized redistribution of material to secondary recipients such as passing
along a copyrighted research report to a friend. Virtually any content that can
be downloaded via the Internet can be protected using Cyber Sentry technology
p: including .html, .doc, .wav and .exe files.
The web publisher or content provider uses a secure Windows tool to create
"rights certificates" for material delivered digitally. These electronic
certificates are provided to the consumer when making a purchase or conducting
other transactions with the content provider. The certificates indicate the
rights a consumer has purchased as a result of a specific transaction with the
web site. For example, a consumer wishing to purchase research published by IDG
could be issued a certificate granting the right to view material but not print
it.
Publishers set up a secure directory on their Web servers. Copyrighted material
is stored in this protected space. It is available only to authorized users
running the Cyber Sentry client application who possess a valid certificate that
authorizes access and specifies the rights, such as the right to read or print
or save the copyrighted material. For example, IDG would segregate material it
wanted to charge for in a secure directory that would only be available to those
with a valid certificate.
- ----------
Windows OS
- ----------
[GRAPHIC]
<PAGE>
[GRAPHIC] [GRAPHIC]
Application Application
[ILLEGIBLE] [ILLEGIBLE]]
Certificate Certificate
Cyber Sentry client software manages the digital rights on the desktop. The
software requires only a small amount of space on the consumer's hard drive and
is downloaded for free from the content provider's website. Cyber Sentry
controls the Windows' services that are available to an Internet browser or
other software application, so that only the functions that are specifically
licensed are enabled.
For example, a consumer who purchased the right to read a copyrighted article
could not print it because the function would be blocked by Cyber Sentry. Cyber
Sentry works with all Windows browsers; any application that opens the protected
content inherits the Cyber Sentry restrictions.
A single Cyber Sentry stores digital rights certificates for all the consumer's
transactions made from a single desktop computer. The consumer obtains the Cyber
Sentry client software from one web publisher, however, the software manages
digital rights certificates from any content provider who uses Cyber Sentry to
secure content.
Cyber Sentry actively protects the downloaded digital content through double key
re-encryption on the destination computer, linking the specific content by key
directly to the computer and the publisher. This effectively prohibits
unauthorized redistribution.
Cyber Sentry also can protect against unauthorized "redistribution" of
passwords. The Cyber Sentry software transparently manages the user's access to
secure directories on a site, so there is no need to provide a visible password
to grant access. Web site passwords become linked to a specific desktop. One
password, one user.
What makes Cyber Sentry unique?
Cyber Sentry is unique in that it protects a publisher's copyright and his
revenue. Cyber Sentry is the only rights management solution that solves the
problem of initial distribution of copyrighted digital content and protects
against secondary, pass-along, distribution. By managing activity at the server
and on the consumer's desktop, Cyber Sentry assures the on-line publisher that
the first copy sold won't be the last.
Cyber Sentry supports existing e-commerce transaction systems already being used
by content providers p; from bookstores to software publishers to artists.
Cyber Sentry enters the process after confirmation of a financial transaction
and provides the protected delivery and explicit management of rights purchased
in a transaction. This protects the obligations and rights of both vendor and
consumer as well as preventing the secondary, unauthorized redistribution of
copyrighted material.
Enabling Electronic Commerce
Cyber Sentry is the first digital rights management solution that provides a
comprehensive solution to two critical e-commerce issues: the need to manage
initial distribution of digitally-delivered products and the need to prevent
unauthorized pass-along distribution.
Microsystems Software is the developer of Cyber Patrol, the most widely used
Internet filtering solution in the world. As the developers of security
software, we have always
<PAGE>
provided the capability to deliver trial versions of our product for download
and subsequent purchase over the Internet. However, it became clear the content
providers were not so fortunate, and that the inability to secure
digitally-delivered content was slowing the rate of acceptance of electronic
delivery among the publishers themselves. Cyber Sentry was designed to address
this problem.
Analysts estimate that the electronic commerce space will reach $200 billion by
the year 2001. We estimate that $50 billion of that $200 billion could be
digitally delivered content, suitable for protection by Cyber Sentry.
The possibilities for Cyber Sentry technology are limitless. Because Cyber
Sentry uses the e-commerce and web structures already in use by web publishers
to present Internet content, it will be easily extensible to new types of
content and transaction mechanisms. Publishers of all sorts p; from market
researchers to book publishers to music producers p; are exploring new ways
to deliver, and sell, their content "over the wire."
We expect synergy and partnerships to develop between these publishers and
Microsystems to improve and enhance Cyber Sentry as new business and delivery
models develop.
Demonstration Tour
A demonstration tour of Cyber Sentry is available at
http://www.cybersentry.com. Users can download and register the Cyber Sentry
client application which permits access to a demonstration web site and a
variety of protected content. Web Publishers looking for more information or to
receive an evaluation copy of Cyber Sentry, please contact:
Microsystems Software, Inc.
Telephone: 508-416-1000
E-mail: [email protected]
Microsystems SITE MAP DOWNLOAD WHAT'S NEW PRESS RELEASES
software ----|-----------|------------|-------------|------
PRODUCTS SUPPORT TRAINING JOBS
----|----------|------------}---------|--
CyberPatrol [GRAPHIC}CaLANdar [GRAPHIC]Route 6-16 [GRAPHIC]
1
Microsystems Software ss. Sitemap ss. Products ss. Support ss. What's New ss.
Press Releases
Cyber Patrol ss. @Cyber Patrol ss. Download Cyber Patrol ss. Partners
- --------------------------------------------------------------------------------
Please read the Legal Restrictions and Terms Of Use applicable to this site.
Use of this site constitutes your acceptance of the Microsystems Software's
Terms Of Use. (c)1998 Microsystems Software, Inc.
<PAGE>
SENTRYCARD
CYBER SENTRY
[GRAPHIC]
DIGITAL RIGHTS MANAGEMENT John J. Smith
Digital Rights Number 123 456 789
JohnSmith @ cybersentry.com www.cybersentry.com
[GRAPHIC]
gateway for e-commerce [GRAPHIC]
<PAGE>
To register call 1-800-123-4567 or go to http://www.cybersentry.com
- --------------------------------------------------------------------------------
Magnetic Stripe
- --------------------------------------------------------------------------------
To place a call on the MCI Worldcom Network dial 1-800-888-8777
To place a call on the AT&T wireless Network dial 1-800-123-5467
To join America Online, call 1-800-123-4567 or go to www.aol.com
- --------------------
Valid
Without
Photo
- --------------------
- -------------------------------------------------
Signature Required
- -------------------------------------------------
CYBERSENTRY CREDIT PROGRAM ------------------------------------
Bar Code
------------------------------------
If this card is lost or stolen contact: 1-800-123-1234 or
email: [email protected]
<PAGE>
CYBER SENTRY(R)
[GRAPHIC]
DIGITAL RIGHTS MANAGEMENT
Cyber Sentry(R) Registration
The fact that you are seeing this page indicates that Cyber Sentry is active on
your desktop, but you are Unregistered on this system. Please fill out the
following Cyber Sentry(R) registration form to continue.
---------------------------------
Your E-mail Address: |
---------------------------------------------------
| First Name | Last Name
Name: | |
-------------------------------------------
Company Name: |
---------------------------------------
| (Area) |
Telephone Number | |
Additional Info?
- ---------------------------------------------------------
|
|
|
|
[GRAPHIC] Reset Form| To clear all the information on this form and start again.
----------|
[GRAPHIC] Submit Form | To submit form and continue to protected viewing area
------------|
Thank you for registering Cyber Sentry(R).
- --------------------------------------------------------------------------------
Copyright 1997 Microsystems Software, Inc.
<PAGE>
CONFIDENTIAL
CYBERSENTRY OPPORTUNITY
BACKGROUND
Telecommunications Services Center, ("TSC") Inc is presently emerging from
Bankruptcy proceedings in Tampa, Florida. It is in the credit and debit card
processing business with a distributing network of more than 10,000 independent
agents and more than 300,000 cards being processed by the center.
It has sales of approximately $20 million and $1 million pre tax earning. It has
submitted a plan for reorganization to be completed by December 15, 1998. It
will significantly reduce its debt post bankruptcy in exchange for preferred
stock. The new preferred shareholders would include Worldcom, CBS, Sprint and
Qwest Communications.
Pursuant to the plan there is an opportunity to purchase up to 5 million shares,
representing approximately 30% of the outstanding common, at a $1.00 per share.
Cybersentry (www.cybersentry.com) was purchased for $3 million dollars. This is
Digital Rights Management technology for protecting digital content on the
internet and off the internet, including e-commerce transactions. The purchasers
of TSC have agreed to exchange the technology for a total of 3 million of the 5
million shares issued pursuant to the rights offering.
The new company would be named Cybersentry and proceed to implement the first
e-commerce card to be used on the internet and off the internet. It would become
a toll booth on the information superhighway, protecting the Digital Rights of
each person. It would have the ability to bill to the card online and offline
and to your local phone bill.
There would be 2 million shares available @ $1.00 per share. The company would
be valued at $15 million dollars emerging from bankruptcy.
OPPORTUNITY
It would be the first company providing a telecommunications gateway for
e-commerce. It would be NASDAQ national market qualified upon emergence from
bankruptcy and the securities issued pursuant to the plan would be exempt from
registration. It would be scheduled to begin trading by December 31, 1998. The
minimum valuation on the company would be $75 million dollars, with a indicated
price of between $5.00 and $7.00 per share.
It would be a profitable internet related company with the potential to capture
a significant number of the 165 million people who are not current internet
users. This represents an opportunity to gain market share as the market
increases from $6 Billion to $300 Billion dollars in the next few years from
both online users and new internet users.
<PAGE>
[GRAPHIC]
PATRIOT
ADVISORS
INCORPORATED
November 27, 1998
The Nasdaq Stock Market, Inc.
9801 Washington Blvd, 5th Fl.
Gaithersburg, MD 20878
Att: Listing Qualifications
Dear Sir/Madam,
Please find enclosed a Nasdaq National Market IPO application.
If you have any questions or require further information contact either (i)
Gerald Resnick, Esq on phone (212) 832-6825 or fax (212) 980-9634 or e-mail
geraldr @ idt.net, or (ii) Frank Kristan on (914) 395-1351 or
fax: (914) 779-8995 or e-mail fkristan @ compuserve.com.
Thank you for your consideration.
Sincerely,
/s/Frank Kristan
Frank Kristan
President
7 Pondfield Road
Suite 201
Bronxville, NY 10706
TEL: 914-395-1200
FAX: 914-395-3052
<PAGE>
Treasury Stock/Open Market Shares
Treasury stock should not be included when calculating the "Total Shares
Outstanding" for the Company or its individual plans or issuances. If the
Company has stock remuneration plans or future issuances for which either
Treasury stock or shares purchased from the open market will be used to satisfy
the plan/transaction, please do not include those plans or issuances on the
"Baseline Form" since no "new" shares of the Company's stock will be issued.
However, the Company is requested to advise Nasdaq, in writing, of the existence
of such plans and/or future issuances. Please provide a description of the
plan/issuance and the number of shares to be provided by Treasury stock and/or
purchased on the open market. Please include this information with your
"Baseline Form" for submission.
Dilution Protection/Shareholders' Rights Plans
The Company should report all dilution protection/shareholders' rights plans
("poison pills"), if approved prior to listing, by enclosing a copy of any such
plans with the "Baseline Form" filing. However, the Company should not list the
plans on the "Baseline Form" since they are not included in the Company's
baseline record of eligible shares for listing.
Nasdaq Total Shares Outstanding
Issue Symbol(1): CYBS - Common At Time Of Listing(2): 12,000,000
---------------- --------------
<TABLE>
<CAPTION>
Specify Type of Total Number of Total Shares Number of Number of Date of
Plan/Reason for Authorized Shares/ Outstanding/ Shares Reserved Shares Board
Issuance(3) Conversion Shares(4) Exercised(6) For Issuance(6) Cancelled(7) Approval
<S> <C> <C> <C> <C> <C>
Rights 2,000,000 0 2,000,000 0 11/20/98
- ------------ --------- ---------- --------- --------- --------
Reorg. 1,000,000 0 1,000,000 0 11/20/98
- ------------ --------- ---------- --------- --------- --------
Prefer.Com 5,000,000 0 5,000,000 0 11/20/98
- ------------ --------- ---------- --------- --------- --------
- ------------ --------- ---------- --------- --------- --------
</TABLE>
1 Please use a separate form for each class of securities listed on The Nasdaq
Stock Market. If no plans/anticipated future issuances exist, please write
"None" in the "Specify Type of Plan/Reason for Issuance" column. Attach a
separate sheet if more space is needed. This form may be duplicated to comply
with reporting requirements. No fees are required with this filing.
2 Treasury shares should be excluded in determination of Total Shares
Outstanding.
3 Public Offering
Rights Offering
Subscription Offering
Exchange Offering
Regulation Offering
Private Offering
Underwriter Fees
Private Placement
Acquisition
Merger
Placement Fees
Recapitalization
Debt Conversation
Preferred Stock Conversion
Warrant Exercise
Stock Split
Stock Dividend
Dividend Reinvestment Plan
Stock Option Plan
Employee Stock Purchase Plan
Employee Savings or 401(k) Plan
Professional Services Agreement
Litigation or Settlement
Other - Please specify
4 If original plan/issuance was amended or the Company has undertaken any stock
splits or other adjustments prior to its listing, please state the adjusted
number of shares authorized under the plan/issuance. If reporting a
derivative instrument (e.g., warrants, debentures, preferred stock, etc.),
please use the number of underlying shares when completing this column. If
exact number is not known, please estimate.
5 The Company should list only the number of shares that have been actually
issued and distributed to shareholders. Treasury shares should not be
included in this figure. For option plans, this figure would represent those
shares issued for options that have been granted and exercised.
6 Reserved shares represent shares authorized but not issued or outstanding.
Shares in this column will be issuable in the future. For option plans, this
figure would represent those shares underlying options that have been granted
but not exercised and all other shares available for future option grants.
7 Cancelled shares represent those shares that have expired or have been
cancelled or terminated. Shares in this column will not be issuable in the
future.
<PAGE>
Treasury Stock/Open Market Shares
Treasury stock should not be included when calculating the "Total Shares
Outstanding" for the Company or its individual plans or issuances. If the
Company has stock remuneration plans or future issuances for which either
Treasury stock or shares purchased from the open market will be used to satisfy
the plan/transaction, please do not include those plans or issuances on the
"Baseline Form" since no "new" shares of the Company's stock will be issued.
However, the Company is requested to advise Nasdaq, in writing, of the existence
of such plans and/or future issuances. Please provide a description of the
plan/issuance and the number of shares to be provided by Treasury stock and/or
purchased on the open market. Please include this information with your
"Baseline Form" for submission.
Dilution Protection/Shareholders' Rights Plans
The Company should report all dilution protection/shareholders' rights plans
("poison pills"), if approved prior to listing, by enclosing a copy of any such
plans with the "Baseline Form" filing. However, the Company should not list the
plans on the "Baseline Form" since they are not included in the Company's
baseline record of eligible shares for listing.
Nasdaq Total Shares Outstanding
Issue Symbol(1): CYBSP - Preffered At Time Of Listing(2): 0
----------------- -------------------
<TABLE>
<CAPTION>
Specify Type of Total Number of Total Shares Number of Number of Date of
Plan/Reason for Authorized Shares/ Outstanding/ Shares Reserved Shares Board
Issuance(3) Conversion Shares(4) Exercised(6) For Issuance(6) Cancelled(7) Approval
<S> <C> <C> <C> <C> <C>
Reorg Plan 5,000,000 0 5,000,000 0 11/20/98
- ------------ --------- ---------- --------- --------- --------
- ------------ --------- ---------- --------- --------- --------
- ------------ --------- ---------- --------- --------- --------
- ------------ --------- ---------- --------- --------- --------
</TABLE>
1 Please use a separate form for each class of securities listed on The Nasdaq
Stock Market. If no plans/anticipated future issuances exist, please write
"None" in the "Specify Type of Plan/Reason for Issuance" column. Attach a
separate sheet if more space is needed. This form may be duplicated to comply
with reporting requirements. No fees are required with this filing.
2 Treasury shares should be excluded in determination of Total Shares
Outstanding.
3 Public Offering
Rights Offering
Subscription Offering
Exchange Offering
Regulation Offering
Private Offering
Underwriter Fees
Private Placement
Acquisition
Merger
Placement Fees
Recapitalization
Debt Conversation
Preferred Stock Conversion
Warrant Exercise
Stock Split
Stock Dividend
Dividend Reinvestment Plan
Stock Option Plan
Employee Stock Purchase Plan
Employee Savings or 401(k) Plan
Professional Services Agreement
Litigation or Settlement
Other - Please specify
4 If original plan/issuance was amended or the Company has undertaken any stock
splits or other adjustments prior to its listing, please state the adjusted
number of shares authorized under the plan/issuance. If reporting a
derivative instrument (e.g., warrants, debentures, preferred stock, etc.),
please use the number of underlying shares when completing this column. If
exact number is not known, please estimate.
5 The Company should list only the number of shares that have been actually
issued and distributed to shareholders. Treasury shares should not be
included in this figure. For option plans, this figure would represent those
shares issued for options that have been granted and exercised.
6 Reserved shares represent shares authorized but not issued or outstanding.
Shares in this column will be issuable in the future. For option plans, this
figure would represent those shares underlying options that have been granted
but not exercised and all other shares available for future option grants.
7 Cancelled shares represent those shares that have expired or have been
cancelled or terminated. Shares in this column will not be issuable in the
future.
<PAGE>
STATE OF DELAWARE
CERTIFICATE OF AMENDMENT
OF CERTIFICATE OF INCORPORATION
TELECOMMUNICATION SERVICES, INC. a corporation organized and existing under and
by virtue of the General Corporation Law of the State of Delaware.
DOES HEREBY CERTIFY:
FIRST: That at a meeting of the Board of Directors of TELECOMMUNICATION
SERVICES, INC resolutions were duly adopted setting forth a proposed amendment
of the Certificate of Incorporation of said corporation, declaring said
amendment to be advisable and calling a meeting of the stockholders of said
corporation for consideration thereof. The resolution setting forth the proposed
amendment is as follows:
RESOLVED, that the Certificate of Incorporation of this corporation be amended
by changing the Article thereof numbered "FIRST" so that, as amended, said
Article shall be and read as follows:
The name of this corporation shall be CyberSentry,Inc.
SECOND: That thereafter, pursuant to resolution of its Board of Directors, a
special meeting of the stockholders of said corporation was duly called and held
upon notice in accordance with Section 222 of the General Corporation Law of the
State of Delaware at which meeting the necessary number of shares as required by
statute were voted in favor of the amendment.
THIRD: That said amendment was duly adopted in accordance with the provisions of
Section 242 of the General Corporation Law of the State of Delaware.
FOURTH: That the capital of said corporation shall not be reduced under or by
reason of said amendment.
IN WITNESS WHEREOF, said TELECOMMUNICATION SERVICES, INC has caused this
certificate to be signed by
Gerald Resnick, President, an Authorized Officer, this 20 (twenth) day of
November, 1998.
By: /s/ Gerald Resnick
--------------------------
Authorized Officer
Name: Gerald Resnick
------------------------
Print or Type
Title: President
-----------------------
<PAGE>
- --------------------(TM)
CUSIP SERVICE BUREAU
- --------------------
Standard & Poors, A Division of The McGraw-Hill Companies
P.O. Box 11326 o Church Street Station o New York, NY 10277-0224
Tel 212 208 8334 o Fax 212 412 0422
Attn: MR FRANK KRISTAN Invoice No: 0295201
PATRIOT ADVISORS INC Date: 11/30/1998
43 DESHON AVENUE Type: C-P29276
BRONXVILLE, NY 10708 Supplement Date: 12/04/1998
Page Number: 1
Dated
Cusip No. Coupon Date Maturity Description Amount
- --------------------------------------------------------------------------------
ISSUER CYBERSENTRY INC.
2325211 10 9 COM 7.00
2325211 20 8 PFD 100.00
Express Fee $32.00 2 Item(s) Total Amount Due: $ 139.00
FOR CUSTOMER SERVICE CALL: (212)-208-8334
SEND CHECK PAYABLE TO CUSIP, P0 BOX 11326 NY NY 10277-0224
FEDERAL TAX ID NUMBER 13-1026995
- --------------------------------------------------------------------------------
PLEASE DETACH AND REMIT WITH YOUR PAYMENT Invoice No: 0295201
Date: 11/30/1998
Type: C-P29276
Supplement Date: 12/04/1998
Attn: MR FRANK KRISTAN
PATRIOT ADVISORS INC
43 DESHON AVENUE
BRONXVILLE, NY 10708
Total Amount Due: $ 139.00
CUSIP Committee on Uniform Security Identification Procedures
A registered trademark of the AMERICAN BANKERS ASSOCIATION
<PAGE>
[LOGO] Templar Corporation
October 24, 1998
David W. Steen, Esq
McWhirter, Reeves etal
100 North Tampa street
Tampa, Florida 33601
Letter of Commitment
Dear David,
This letter is to confirm that pursuant to the pending plan of reorganization of
Telecommunications Services Center, Inc ("TSC") there is a rights offering to
purchase up to 5,000,000 of the new company common shares @ $1.00 per share.
The Templar Corporation, on October 23, 1998, completed the purchase of
Cybersentry ("Cybersentry.com") from The Learning Company (NYSE: "TLC") for
$3,000,000.
The Templar Corporation hereby guarantees that, in the event that the plan is
approved and there is at least 3,000,000 in rights available, it will exchange
Cybersentry for 3,000,000 shares of common stock in the new company.
The purpose of the transaction would be to name the new company "Cybersentry -
the telecommunications gateway to the worldwide web". It would focus on creating
digital certificates for telecommunications transactions and other e-commerce
applications.
The Templar Corporation has received indications of interest to purchase the
balance of the rights offering, in the event that the shareholders do not
exercise their rights. The Templar Corporation owns in excess of USD $3,000,000
of Libertyone Limited common stock ("libertyone.com.au").
If you have any further questions, please do not hesitate to call me on
(914) 395-1351.
Sincerely,
/s/ Frank Kristan
Frank Kristan
President
<PAGE>
[LOGO] PATRIOT ADVISORS INCORPORATED
TERM SHEET
(Page 1 of 3)
NAME: CyberSentry, Inc
SECURITY: Common "when issued basis"
AMOUNT: 500,000 @ $ 1.00 per share - Firm commitment
500,000 @ $ 5.00 per share - Firm commitment
Unexercised rights @ $1.00 per share - No commitment
DATE OFFERED: December 1, 1998 to December 7, 1998
Confirmations issued December 8, 1998
TERMS: (i) Cash subscriptions shall have first priority @ $1.00 per
share,
(ii) In the event of an over-subscription @ $1.00 per share
on cash accounts, the subscribers shall be prorated
equally,
(iii) Subscribers shall have the option, on cash accounts, to
apply the cash balance to purchase additional shares @
$5.00 per share,
(iv) In the event of an over-subscription @ $5.00 per share
on cash accounts, the subscribers shall be prorated
equally,
(v) Subscribers shall have the option, on cash accounts, to
apply the cash balance to purchase any unexercised
rights @ $1.00 per share,
(vi) Indications of Interest shall have second priority to
any cash subscriptions on the terms of the offer,
(vii) Patriot Advisors, Inc reserves the exclusive right to
modify and amend the terms and conditions of this offer
at its sole discretion.
THIS NOT AN OFFER TO BUY OR SELL SECURITIES. AN OFFER TO BUY OR SELL SECURITIES
CAN ONLY BE MADE PURSUANT TO THE TERMS AND CONDITIONS OF AN AMENDED PLAN OF
REORGANIZATION OF TELECOMMUNICATIONS SERVICES CENTER, INC AS FILED IN THE UNITED
STATES BANKRUPTCY COURT IN TAMPA, FLORIDA CASE NUMBER 98-7835-8P1.
<PAGE>
STOCK PURCHASE AGREEMENT
I/ We, the undersigned, hereby agree to purchase the CyberSentry, Inc common
stock from Patriot Advisors, Inc on a "when issued basis" pursuant to the terms
and conditions of the Amended Plan of Reorganization of Telecommununications
Service Center, Inc filed in the United States Bankruptcy Court in Tampa
Florida, Case Number 98-7835-8P1.
Amount of Shares subscribed for @ $1.00 per share: ___________________________
Amount Enclosed (Amount of Shares x $1.00): $___________________________
(Please Circle YES or NO)
In the event of an over subscription @ $1.00 per share, please apply any balance
to the purchase of additional shares @ $5.00 per share
YES NO
In the event of an over subscription @ $5.00 per share please apply any balance
to the purchase of additional shares @ $1.00 per share, if available, from any
unexercised rights
YES NO
In the event of any excess funds or in the event that the plan is not confirmed,
the funds shall be returned to the subscribers.
NAME: ________________________________________________________________________
________________________________________________________________________
ADDRESS:________________________________________________________________________
________________________________________________________________________
__________________________ e- mail:____________________________________
Telephone:________________________ Facsimile:__________________________________
Social Security Number/Tax ID Number:___________________________________________
Date:______________ Signature:_____________________________________________
Title:
<PAGE>
PAYMENT INSTRUCTIONS
WIRE TRANSFER PAYMENT
Marine Midland Bank
74 Pondfield Road
Bronxville, New York 10708
ABA # 028001081
For Credit to: CyberSentry Special Escrow Account
Account # 547 141 530
CHECK PAYMENT
Check Payable to : CyberSentry Special Escrow Account
Mail to:
Patriot Advisors, Inc
43 Deshon Avenue
Bronxville, New York 10708
Telephone: (914) 395-1351
Facsimile: (914) 779-8995
Please fax completed Stock Purchase Agreement to (914) 779-8995 or
(212) 980-9534.
<PAGE>
[LOGO] PATRIOT ADVISORS INCORPORATED
December 4, 1998
David W. Steen, Esq
McWhirter, Reeves etal
100 North Tampa street
Tampa, Florida 33601
Guaranteed Funding Commitment
Dear David,
This letter is issued pursuant to the Plan of Reorganization filed in the United
States Bankruptcy Court for the Middle District of Florida, Tampa Division, Case
No: 98-7835-8P1 for Telecommunications Service Center, Inc ("TSC").
Patriot Advisors, Inc hereby guarantees to CyberSentry, Inc ("CYBS"), the
company formed to make the acquisition, to fund the $500,000 equity commitment
and the $2,000,000 line of credit pursuant to the terms of the plan and the
Stock Purchase Agreement.
Patriot Advisors, Inc has issued and completed guarantees in excess of $10
million dollars.
If you have any questions, please do not hesitate to call me.
Sincerely,
/s/ Frank Kristan
Frank Kristan
President
<PAGE>
[LOGO] PATRIOT ADVISORS INCORPORATED
November 25, 1998
David W. Steen, Esq
McWhirter, Reeves etal
100 North Tampa street
Tampa, Florida 33601
Dear David,
This letter is to confirm that Patriot advisors, Inc has deposited securities
with Merrill Lynch & Co pursuant to the Plan of Reorganization of
Telecommunications Center, Inc to be renamed CyberSentry, Inc ( "CYBS").
This is also to confirm that orders have been placed to sell some of the
securities that would result in net proceeds of in excess of $2,500,000.
Thank you for your consideration.
Sincerely,
/s/ Frank Kristan
Frank Kristan
President
<PAGE>
SECURITIES RECEIPT
----------------------------------------------
[LOGO] Merrill Lynch DATE RECEIVED RECEIVING OFFICE AE NUMBER
Pierce Fenner & Smith Inc. 11/20/98 SCARSDALE/85E NEIL NEWSHAM
- --------------------------------------------------------------------------------
RECIEVED FROM ACCOUNT NUMBER
FRANK KRISTAN 894 - 07A76
- --------------------------------------------------------------------------------
QUANTITY SECURITY DESCRIPTION REGISTERED OWNER(S) CERTIFICATE DESCRIPTION
- --------------------------------------------------------------------------------
1,275,000 TELECOMMUNICATIONS PATRIOT ADVISORS INC
SERVICES INC. [Date Stamped]
NAME CHANGED TO 1998 NOV 30 P 4:45
CYBERSENTRY INC
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
LEGAL DOCUMENTS
STOCK POWER
CERTIFICATE OF AMENDMENT [GRAPHIC OMITTED]
[ILLEGIBLE] TO P/C NEIL NEWSHAM
- --------------------------------------------------------------------------------
TO FACILITATE PROMPT HANDLING OF YOUR SECURITIES, WE WILL TRANSFER THESE
SECURITIES INTO OUR CORPORATE NAME (IF APPLICABLE) PENDING SALE OR OTHER
DISPOSITION THEREOF, UNLESS OTHERWISE INSTRUCTED BY YOU
THESE SECURITIES ARE DETERMINED TO BE IN NON-NEGOTIABLE FORM. PLEASE BE
ADVISED THAT NEW YORK STOCK EXCHANGE RULES PROHIBIT THE RELEASE OF PROCEEDS
RESULTING FROM THE SALE OF NON-NEGOTIABLE SECURITIES UNTIL THEY HAVE CLEARED
TRANSFER
PLEASE RETAIN THIS RECEIPT FOR YOUR RECORDS AND REFER TO IT IF YOU SHOULD HAVE
ANY INQUIRIES REGARDING THE DEPOSIT OF THESE SECURITIES
MERRILL LYNCH, PIERCE, FENNER & SMITH INC. CODE 945 12/81
PRINTED IN USA.
By /s/ T Hooper
---------------------------------------
<PAGE>
[LOGO] PATRIOT ADVISORS INCORPORATED
December 2, 1998
David W. Steen, Esq
McWhirter, Reeves etal
100 North Tampa street
Tampa, Florida 33601
Dear David,
This letter is to confirm the following information.
(1) Telecommunications Services, Inc has changed its name to CyberSentry, Inc.
It has filed an IPO application for the Nasdaq National Market under the symbol
CYBS.
(2) David Veltman and Hal Shankland have agreed not to exercise their combined
three million rights issued pursuant to the plan. The company and Templar
Corporation have agreed to issue the three million shares pursuant to the plan
and the rights offer to Templar Corporation in exchange for any and all right
title and interest in the CyberSentry technology. Templar Corporation and Comtel
Online, Inc have transferred their holdings to Patriot Advisors, Inc.
(3) The common stock shareholding of 12,000,000 shares, as of December I, 1998
is as follows:
Patriot Advisors, Inc .........................................7,275,000 shares
Victory Telecom Holding Corporation ...........................4,275,000 shares
Gerald Resnick ................................................ 225,000 shares
Phillip Gambel ................................................ 225,000 shares
Patriot Advisors, Inc has agreed to sell 500,000 shares @ $1.00 per share and
500,000 shares @ $5.00 per share with the net proceeds, less expenses, of
$2,500,000 to go to the company.
If the balance of the rights offering of 2,000,000 shares @ $1.00 are exercised,
the net proceeds of an additional $2,000,000 would go to the company.
The company and Patriot Advisors, Inc have agreed to pay a 7.5% securities
processing and handling fee to various institutions and entities to assist it in
the processing and completion of the sale of the securities.
<PAGE>
The holdings, post bankruptcy, of 15,000,000 shares would be as follows:
Patriot Advisors, Inc .........................................6,275,000 shares
Victory Telecom Holding Corporation ...........................4,275,000 shares
Shares from other rights exercised ............................2,000,000 shares
Investors from Patriot Advisors sale ..........................1,000,000 shares
Hal Shankland .................................................1,000,000 shares
Gerald Resnick ..................................................225,000 shares
Phillip Gambel ..................................................225,000 shares
Reserved issuances:
Reserved for preferred creditors ..............................5,000,000 shares
Reserved for issuance to Employees / other parties ............1,000,000 shares
The total issuance, on a fully diluted basis, would be 21,000,000 shares.
(4) Patriot Advisors, Inc may enter into separate agreements with third parties
and/or creditors to resolve any outstanding issues.
(5) Patriot Advisors, Inc is using its best efforts to establish market makers
for the securities. Patriot Advisors, Inc makes no representation as to whether
a market will be made in the securities or if a market is commenced that it can
be maintained or that there is liquidity in the market to enable an orderly
purchase or sale of securities.
If you have any question please do not hesitate to contact me on (914) 395-1351.
Sincerely,
/s/ Frank Kristan
Frank Kristan
President
<PAGE>
EXHIBIT 2.1.2
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE MIDDLE DISTRICT OF FLORIDA
TAMPA DIVISION
In Re:
TELECOMMUNICATIONS
SERVICE CENTER, INC.
Debtor Case No: 98-07835-8P1
______________________________________/
SUPPLEMENT TO SECOND AMENDED DISCLOSURE STATEMENT
Telecommunications Service Center, Inc., hereinafter ("TSC") does hereby
file this Supplement to the Second Amended Disclosure Statement, and does hereby
furnish the following information to supplement or clarify such Disclosure
Statement previously filed herein as follows:
1. The preferred shares of stock to be issued to creditors holding the
unsecured claims under the plan will have voting rights whereby each share of
stock will be entitled to one vote. Additionally, the reorganized company will
provide in its bylaws that the unsecured creditors may elect one board member to
participate on the Board of Directors with the same obligations and duties as
all other board members. These provisions of the appropriate documents will
terminate automatically upon payment in full of all unsecured claims under the
plan.
2. The preferred shares to be issued under the plan will not be restricted
with respect to the transfer of shares. Although there is no market for the sale
or purchase of such stock as of this date, the corporation into which the debtor
will be merged under the plan (CyberSentry) is in the process of preparing and
filing its registration and application to be a member of NASDAQ.
3. The appropriate documents of the reorganized debtor shall provide that
there be a provision prohibiting the issuance of non-voting securities. All
classes of creditors shall be entitled to equal votes of one vote per share.
4. Thirty million shares of common stock have been authorized to be
issued; and ten million shares of preferred stock have been authorized to be
issued. It is estimated that between
Page l of 3
<PAGE>
twelve million and fifteen million shares of common stock will be issued as of
confirmation; and that five million of the preferred shares of stock will be
issued as of confirmation. The controlled shares as set forth in the Exhibit
attached to the Second Amended Disclosure Statement are subject to change after
confirmation; but there is no present intent by the company's controlling
stockholders to change their numbers of shares.
5. The operating documents of the reorganized debtor shall reflect that
the dividends to be issued to preferred stock shareholders will be equal to the
dividends issued to common stock shareholders.
6. The operating documents of the reorganized debtor shall reflect that
upon a determination of the number of preferred shares which are necessary to be
issued under the plan, then the number of preferred shares can be increased only
by a vote of the majority of preferred shareholders. It is not currently
anticipated that there will be any such increase or new class of shares created.
7. To the extent that this Supplement or clarification is inconsistent
with any of the information contained in the Second Amended Disclosure
Statement, the items set forth in this Supplement shall prevail. With all other
respects, the Second Amended Disclosure Statement shall remain as stated.
Dated: December 21, 1998
TELECOMMUNICATIONS SERVICE CENTER, INC.
By /s/ HAL SHANKLAND
-----------------------------
HAL SHANKLAND, President
Page 2 of 3
<PAGE>
CERTIFICATE OF SERVICE
I HEREBY CERTIFY that a true and correct copy of the foregoing Application
to Motion to Employ Attorney has been furnished by U. S. Mail this 21 day of
December, 1998 to John Mueller, Esquire, P.O. Box 2939, Tampa, FL 33601-2939;
Dennis Ferguson, Esquire, P.O. Box 2937, Tampa, FL 33601-2937; United States
Trustee, 4919 Memorial Highway, Suite 110, Tampa, FL 33634; and
Telecommunications Service, Inc., 412 E. Madison St., Suite 1200, Tampa, FL
33602.
/s/ DAVID W STEEN
------------------------------
DAVID W STEEN, ESQUIRE
Florida Bar No.: 221546
McWHIRTER REEVES
400 North Tampa Street
Suite 2450
Post Office Box 3350
Tampa, Florida 33601-3350
(813) 224-0866
ATTORNEYS FOR DEBTOR
Page 3 of 3
<PAGE>
EXHIBIT 2.1.3
UNITED STATES BANKRUPTCY COURT
MIDDLE DISTRICT OF FLORIDA
TAMPA DIVISION
IN RE:
CASE NO.: 98-07835-8P1
TELECOMMUNICATIONS SERVICE CENTER, INC
CHAPTER: 11
DEBTOR(S)
_______________________________/
ORDER OF CONDITIONAL CONFIRMATION OF DEBTORS' PLAN
OF REORGANIZATION
THIS CAUSE came before the Court on February 3, 1999 upon the Second
Amended Plan of Reorganization as Supplemented filed by the Debtor, there
appearing David W. Steen, for the Debtor, Scott Stigall for World Com
LDVS/Worldcom, John Lamoureux for Siemens Communications, and John Mueller for
RSL Com U.S.A., Inc., the Court having heard argument of counsel and being
otherwise duly advised in the premises, finds that:
1. The Debtor's Plan of Reorganization complies with the applicable
provisions of Chapter 11 of the Bankruptcy Code;
2. The proponent of the Plan has complied with the applicable provisions
of Chapter 11 of the Bankruptcy Code;
3. The Plan of Reorganization has been proposed in good faith and not by
any means forbidden by law;
4. All payments made or promised by the Debtor or a person issuing
securities or acquiring property under the Plan of Reorganization or by an other
person for services or for costs and expenses in, or in connection with, the
Plan and incident to the case, have been fully disclosed to the Court, except to
the extent that the Court fixes such fees upon application for
<PAGE>
approval of this Court after Confirmation of the Plan:
5. The identity, qualifications and affiliations of the persons who are to
be directors or officers, or voting trustees, in any, of the Debtor after
Confirmation of the Plan, have been fully disclosed, and the appointment of such
persons to such offices, or their continuance therein, would be consistent with
the interests of the creditors and equity security holders and with public
policy;
6. The identity of the insider to be employed or retained by the Debtor
and compensation to such insider has been fully disclosed;
7. Confirmation of the Plan of Reorganization is not likely to be followed
by further financial reorganization of the Debtor or any successor to the Debtor
under the Plan provided that the merger contemplated under the Plan of
Reorganization and the Agreement and Plan of Merger dated as of January 22, 1999
between the Debtor and Cyber Sentry, Inc., (the "Agreement") is consummated as
proposed; it is accordingly,
ORDERED, ADJUDGED AND DECREED that:
1. The Second Amended Plan of Reorganization filed by the Debtor on the
4th day of December, 1998, and Supplemented on 21st day of December, 1998, be
and is hereby conditionally Confirmed.
2. The Court determines that all requirements under 11 U.S.C. section 1129
are satisfied, except the requirement that the Debtor's Plan of Reorganization
is feasible.
3. This Court will enter a Final Order Confirming the Plan of
Reorganization as supplemented provided that feasibility of plan is shown prior
to the Hearing scheduled for
2
<PAGE>
February 23, 1999 at 11:15 a.m. The requirement of feasibility of the plan can
be satisfied by (i) showing that all merger documents for the merger
contemplated by the Plan and the Agreement has been executed, and that such
documents will be filed with the Department of State in Delaware and Florida
upon the entry of this Court's Final Confirmation Order, (ii) this Court has
entered orders approving the settlements between the Debtor and RSL Com U.S.A.,
Inc., successor in interest to the telecommunications business formerly owned by
CBS Corporation, and now doing business as Westinghouse Communications ("RSL" or
"Westinghouse"), and between the Debtor and Sprint Communications Company L.P.
("Sprint") with respect to their claims for administrative expenses, and (iii)
all agreements providing for the payment of administrative expenses to RSL and
to Sprint as well as all necessary documentation required under those agreements
have been executed and delivered by the parties involved, prior to the February
23, 1999 hearing.
4. The Second Amended Plan of Reorganization is supplemented to provide
for the payment terms of the administrative expenses of RSL Com U.S.A., Inc., as
approved in open Court. Following the present text of Article IV, Class One, of
the Second Amended Plan as supplemented, the following paragraphs are inserted:
The administrative claim of RSL Com U.S.A., Inc., successor in
interest to the telecommunications business formerly owned by CBS
Corporation, and now doing business as Westinghouse Communications
("RSL" or "Westinghouse") will be allowed in full as an
administrative claim in the amount of $446,367.01, and its
prepetition claim will be allowed in full in the amount of
$924,699.56 as an unsecured claim. Upon confirmation, Westinghouse
will receive with respect to its allowed Administrative Claim the
sum of $31,245.69 in cash and 276,748 shares of preferred stock in
Cyber Sentry, Inc. from the Debtor, which shares will be valued at
$1.50 per share (hereinafter referred to as the "Administrative
Shares"). Westinghouse has entered into an agreement with Patriot
Advisors, Inc. with respect to the remaining administrative shares
as follows:
3
<PAGE>
(a) Within thirty days after an order by the United States
Bankruptcy Court confirming the Debtor's Second Amended Plan
becomes final (which date for Westinghouse claim purposes
shall be referred to hereafter as the "Confirmation Date"),
Patriot Advisors will purchase from and pay Westinghouse for
53,564 of Westinghouse's Administrative Shares for $1.50 per
share for a total of $80,346. Within ninety days of the
Confirmation Date, Patriot will purchase from and pay
Westinghouse for an additional 74,395 of Westinghouse's
Administrative Shares for a total of $111,592.00. Patriot
Advisors agrees to purchase from and to pay Westinghouse for,
at the sole option of Westinghouse, between 180 days after
the Confirmation Date and the longer of either (i) 455 days
after the Confirmation Date or (ii) 30 days after the date of
an initial public offering of the preferred stock of Cyber
Sentry, the balance or any portion thereof determined by
Westinghouse of Westinghouse's Administrative Shares, which
were not previously converted to common shares, at the price
of $l.50 per share. One day after the longer of the above
referenced time period, if Westinghouse owns any of its
administrative shares, then Westinghouse will sell to and
Patriot will purchase from and pay Westinghouse for all those
remaining administrative shares at $1.50 per share which were
not previously converted to common shares.
5. The Second Amended Plan of Reorganization is supplemented to provide
for the payment terms of the administrative expenses of Sprint Communications
Company, L.P. as approved in open Court. Following the present text of Article
IV, Class One, of the Second Amended Plan as supplemented, and the supplemental
language from paragraph 4 of this Order, the following paragraphs are inserted:
The administrative claim of Sprint Communications Company L.P. will
be allowed in full as an administrative claim in the amount of
$449,325.46, and its prepetition claim will be allowed in full in
the amount of $430,843.94 as an unsecured claim. Upon confirmation,
Sprint will receive with respect to its allowed Administrative Claim
the sum of $31,452.87 in cash and 278,582 shares of preferred stock
in Cyber Sentry, Inc. from the Debtor, which shares will be valued
at $1.50 per share (hereinafter referred to as the "Administrative
Shares"). Sprint has entered into an agreement with Patriot
Advisors, Inc. with respect to
4
<PAGE>
the remaining administrative shares as follows:
(a) Within thirty days after an order by the United States
Bankruptcy Court confirming the Debtor's Second Amended Plan
becomes final (which date for Sprint claim purposes shall be
referred to hereafter as the "Confirmation Date"), Patriot
Advisors will purchase from and pay Sprint for 54,000 of
Sprint's Administrative Shares for $1.50 per share for a total
of $81,000. Within ninety days of the Confirmation Date,
Patriot will purchase from and pay Sprint for an additional
74,807 of Sprint's Administrative Shares for a total of
$l12,209.95. At any time between (i) 180 days after the
Confirmation Date and (ii) 455 days after the Confirmation
Date (which later date (ii) will be extended up to 30 days
after the date of an initial public offering of the preferred
shares of Cyber Sentry, Inc., should such an offering occur),
Patriot Advisors will purchase from Sprint and pay Sprint for
the balance or any portion thereof, determined at the sole
option of Sprint, of Sprint's preferred shares arising from
the administrative expense claim for $1.50 per share. This
provision shall not apply to any preferred shares arising from
the administrative expenses which have been previously
converted to common shares. One day after the longer of the
above referenced period, if Sprint owns any of its
administrative shares, then Sprint will sell to and Patriot
will purchase from and pay Sprint for all those remaining
administrative shares at $1.50 per share which were not
previously converted to common shares.
6. The Second Amended Plan of Reorganization is supplemented pursuant to
the Court's January 28, 1999 Order Granting Debtor's Motion to Assume Unexpired
Lease with Siemens Information and Communications Networks, Inc. and Granting
Allowance of Administrative Expense. The present text of Article III, Class
-----
Four, paragraph 4b., is deleted and the following is substituted in lieu
- -------------------
thereof:
4b. Siemens Information and Communications Networks, Inc. with a
lease on Siemens' switch equipment. Within ten days of the
entry of the Confirmation Order, the Debtor shall make a
$100,000 payment to Siemens to be applied to the amounts owed
by the Debtor to Siemens under the Lease. Upon payment of the
$100,000 by the Debtor to Siemens and payment of all other
obligation due under the Order Granting Debtor's
5
<PAGE>
Motion to Assume Unexpired Lease with Siemens Information and
Communications Networks, Inc. and Granting Allowance of
Administrative Expense Siemens, the parties shall subsequently
enter into an amended Lease wherein the past due pre-petition
arrearage including pre-petition costs, fees, charges and
interest, post-petition arrearage, including post-petition
interest, costs, charges and fees shall be added to the
existing Lease obligations and restructured under an amended
Lease, with such restructured obligation paid out over a
five-year period beginning from the entry of the order
confirming the Debtor's plan of reorganization.
7. Telecommunications Service Center, Inc., is hereby authorized to
proceed with the merger with Cyber Sentry, Inc. as described in the Plan and in
the Agreement.
8. This Order hereby vests all of the property of the estate in the debtor
for the purpose of proceeding with the merger, except as otherwise provided in
the Plan or the Order Confirming Plan, by virtue of Section 1141(d) of the
Bankruptcy Code.
9. Except as otherwise provided in Sections 1141(d)(1), and 1141(d)(2) and
1141(d)(3) of the Bankruptcy Code, the Final Order of Confirmation shall operate
as a discharge of any debt which arose before the date of Confirmation or any
debt specified in Sections 502(g), 502(h) and 502(I) of the Bankruptcy code,
whether or not Proof of Claim was filed or allowed or the holder of such claim
accepted the Plan of Reorganization.
10. The Debtor shall comply with the filing of any reports due to the U.S.
Trustee and any quarterly payments to the U.S. Trustee within ten (10 days) from
the date hereof.
11. This Court retains jurisdiction to determine claims and fee
applications of professionals and for the purpose of implementing the Plan.
12. The issuance by the successor of the Debtor pursuant to the Plan or
the Agreement of
6
<PAGE>
all securities shall be exempt pursuant to 11 U.S.C. sec. 1145 and 11 U.S.C.
sec. 364(f).
DONE AND ORDERED, at Tampa, Florida on FEB 16 1999.
/s/ ALEXANDER L. PASKAY
------------------------------
ALEXANDER L. PASKAY
Chief U.S. Bankruptcy Judge
conformed copies to:
David W. Steen, Esq
U.S. Trustee
Debtor
John J. Lamoureux, Esquire
John H. Mueller, Esquire
Scott Stigall, Esquire
Dennis Ferguson, Esquire
7
<PAGE>
EXHIBIT 2.1.4
UNITED STATES BANKRUPTCY COURT
MIDDLE DISTRICT OF FLORIDA
TAMPA DIVISION
In re:
CASE NO.: 98-7835-8P1
TELECOMMUNICATIONS SERVICE
CENTER, INC.,
CHAPTER: 11
Debtor.
_____________________________________/
FINAL ORDER CONFIRMING DEBTOR'S SECOND
---------------------------------------
AMENDED PLAN OF REORGANIZATION
------------------------------
AS SUPPLEMENTED
---------------
THIS CAUSE came on for hearing on February 3, 1999 and February 23,
1998, to consider confirmation of the Debtor's Second Amended Plan of
Reorganization as Supplemented (the "Plan"). At the conclusion of the hearing,
the Court has made findings of fact and conclusions of law stated orally and
recorded in open Court. It is therefor,
ORDERED that:
1. The Court determines that all requirements of this Court's February
16, 1999 Order of Conditional Confirmation are satisfied.
2. The requirement of feasibility has been satisfied as the Debtor has
shown that (i) all merger documents for the merger contemplated by the Plan and
the Agreement and Plan of Merger dated as of January 22, 1999 between the Debtor
and Cyber Sentry, Inc., (the "Agreement") have been executed, and that such
documents will be filed with the Department of State in Delaware and Florida
upon the entry of this Court's Final Confirmation Order and effectiveness of the
Plan, (ii) this Court entered orders approving the settlements between the
Debtor and RSL Com U.S.A., Inc., successor in interest to the
telecommunications business formerly owned by CBS Corporation, and
<PAGE>
now doing business as Westinghouse Communications "RSL" or "Westinghouse"), and
between the Debtor and Sprint Communications Company L.P. ("Sprint") with
respect to their claims for administrative expenses, (iii) all agreements
providing for the payment of administrative expenses to RSL and to Sprint as
well as all necessary documentation required under those agreements have been
executed and delivered by the parties involved, (iv) all required tax returns
for the period beginning May 7, 1998 have been filed with the United States and
the Florida Department of Revenue, and (v) Debtor's counsel has certified to
this Court that monies have been deposited for the payment of undisputed
administrative expense claims.
3. The Second Amended Plan of Reorganization as supplemented is modified
as orally amended by the Debtor at the hearing. The present text of Article IV,
Class Two, is deleted and the following is substituted in lieu thereof:
- ----- ---
(a) This Class shall be paid in full in sixty (60) equal monthly
payments with the first payment due thirty (30) days after the
Confirmation Date. Payments shall include interest calculated at 7%
percent per annum compounded daily, penalties, and other amounts
provided for in the Bankruptcy Code. All liens held by the Class Two
creditors as of the date of the Petition herein shall be retained.
4. The Second Amended Plan of Reorganization is modified as orally
amended by the Debtor at the hearing. The present text of Article III, Class
----------- -----
Three, paragraph 3b., is deleted and the following is substituted in lieu
- ----- ------------
thereof:
3b. SouthTrust Bank with a Demand Note in the approximate
remaining principal amount of $228,000 and an Installment Note in the
approximate remaining principal amount of $202,356.88 (collectively the
"SouthTrust Notes"), both of which are secured by collateral comprising all of
Debtor's equipment, excepting only that equipment, if any, subject to a pre-
petition validly perfected purchase money security interest having priority over
the security interest of SouthTrust Bank. The SouthTrust Notes shall continue
to be paid in accordance with the terms of the contracts.
5. The Second Amended Plan of Reorganization is modified as orally
amended by the
<PAGE>
Debtor at the hearing. The present text of Article V, Class Three, is hereby
-----------
deleted; and following the present text of Article IV, Class Two the following
---------
paragraph is inserted:
Class Three: The Class 3a. and 3b. creditors shall be paid normal
monthly payments in accordance with the terms of their contracts. All
liens held by the Class Three creditors as of the date of the Petition
herein shall be retained.
6. The Debtor's Second Amended Plan of Reorganization filed on December
4, 1998 (Document #156), as supplemented by the Supplement to the Second Amended
Plan of Reorganization filed on December 21, 1998 (Document #166), and amended
by the Order of Conditional Confirmation signed on February 16, 1999 (Document
#204), and as previously set forth in paragraph numbers three, four, and five
above, is hereby confirmed.
7. The issuance of shares pursuant to the Plan and the Agreement
including shares issued to obtain capital in connection with the Plan and
Agreement shall be exempt pursuant to 11 U.S.C. Sections 1145 and 364(f),
including specifically an exemption from the registration requirements of the
1933 Securities Act.
8. Counsel for the Debtor is directed to immediately serve a copy of
this Order on all creditors using a current mailing matrix obtained from the
Clerk of the Bankruptcy Court; and shall promptly file a Certificate of Service
herein of such mailing.
9. From the date hereof, counsel for the Debtor has twenty days to file
a fee application.
10. Debtor has thirty days from the date of this order to file any
objections to claims.
DONE AND ORDERED at Tampa, Florida, on March 4, 1999
-------------
/s/ Alexander Paskay
---------------------
ALEXANDER PASKAY
CHIEF BANKRUPTCY JUDGE
<PAGE>
Copies to:
David W. Steen, Esq., 400 North Tampa Street, Suite 2450, Tampa, FL 33601.
U.S. Trustee, 501 E. Polk Street, Tampa, FL 33602
Telecommunications Service Center, Inc., 412 E. Madison, Suite 1200, Tampa, FL
33602
John H. Mueller, Esq., P.O. Box 2939, Tampa, FL 33601-2939
Dennis Ferguson, Esq., P.O. Box 2937, Tampa, FL 33601-2937
John J. Lamoureux, Esq., P.O. Box 3239, Tampa, FL 33601
Russell M. Blain, Esq., 110 East Madison St., Suite 200, Tampa, FL 33602-4700
Scott Stigall, Esq., 601 Bayshore Boulevard, Suite 700, Tampa, FL 33606
Robert L. Olsen, Esq., P.O. Box 1438, Tampa, FL 33601
James D. Gibson, Esq., 1800 Second Street, Suite 901, Sarasota, Florida 34236
Richard Malcohn, 401 E. Jackson St., Ste. 2700, Tampa, FL 33602
Patricia Willing, Ass't U.S. Attorney, 400 N. Tampa St., Suite 3200, Tampa, FL
33602-4708
Gordon Kiester, Florida Department of Revenue, P.O. Box 2299, Mango, FL 33550-
2299
Irwin Latner, One Penn Plaza, Suite 2107, New York, New York 10119
<PAGE>
EXHIBIT 2.1.5
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER dated as of January 22, 1999 (this
"Agreement") by and between Telecommunications Service Center, Inc., a Florida
corporation ("TSC") and CyberSentry, Inc., a Delaware corporation ("CyberSentry"
or the "Surviving Corporation", and together with TSC, the "Constituent
Corporations").
WHEREAS, the Boards of Directors of TSC and CyberSentry desire that
TSC merge with and into CyberSentry pursuant to the terms and conditions of this
Agreement and in accordance with Section 252 of the Delaware General Corporation
Law ("DGCL") and Section 607.1107 of the Florida Business Corporation Act (the
"FBCA"), and have adopted and approved this Agreement in accordance with Section
607.1107 of the FBCA and Section 252 of the DGCL, respectively; and
WHEREAS, the Constituent Corporations have agreed to merge pursuant
to and in accordance with the Second Amended Plan of Reorganization (the
"Plan"), dated December 4, 1998, submitted to the United States Bankruptcy Court
for the Middle District of Florida (the "Bankruptcy Court") in connection with
the pending case filed by TSC seeking reorganization under Chapter 11 of the
United States Bankruptcy Code; and
WHEREAS, the stockholders of TSC have adopted and approved this
Agreement in accordance with Sections 607.1107 and 607.1103 of the FBCA, and the
stockholders of CyberSentry have adopted and approved this Agreement in
accordance with Section 252 of the DGCL.
NOW, THEREFORE, in consideration of the premises and agreements
contained herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
ARTICLE I
THE MERGER
Section 1.1. The Merger. TSC shall merge with and into CyberSentry
(the "Merger"). CyberSentry shall be the surviving corporation in the Merger,
and at the Effective Time (as defined below), the separate existence of TSC
shall cease. The corporate existence of CyberSentry, with its purposes, powers
and objects, shall continue unaffected and unimpaired by the Merger, and as the
surviving corporation it shall succeed to all rights, assets, liabilities and
1
<PAGE>
obligations of TSC as and to the extent provided in Section 259 of the DGCL and
Sections 607.1106 and 607.11101 of the FBCA.
Section 1.2. The Effective Time. The Merger shall become effective
(the "Effective Time") upon the filing of (i) a certificate of merger executed
by CyberSentry with the Secretary of State of the State of Delaware pursuant to
Section 252 of the DGCL, the form of which is attached as Annex A and (ii)
articles of merger executed by TSC and CyberSentry with the Florida Department
of State in the form required by Section 607.1105 of the FBCA.
Section 1.3. Certificate of Incorporation. The Certificate of
Incorporation of CyberSentry shall, as of the Effective Time, be the Certificate
of Incorporation of the Surviving Corporation until duly amended.
Section 1.4. By-Laws. The By-Laws of CyberSentry shall, as of the
Effective Time, be the By-Laws of the Surviving Corporation until duly amended.
Section 1.5. Officers and Directors. At the Effective Time, the
directors and officers of the Surviving Corporation shall be as follows:
Name Position(s)
---- -----------
Gerald A. Resnick Chairman of the Board, President and Chief
Executive Officer
Hal Shankland Senior Vice President and Secretary
Kenneth Fedorcek Treasurer and Chief Financial Officer
R. Kent Rutherford Director of Switch Operations
Aamir Qazi Director of Management Information Systems
Stacy Acampora Executive Vice President of Marketing
Philip Gambell Director
Steve Frank Director
The terms and classes of the directors shall be determined by the
Board of Directors of the Surviving Corporation.
Section 1.6. Required Approvals. This Agreement has been adopted and
approved by the stockholders of (i) CyberSentry in accordance with Section 252
of the DGCL, and (ii) TSC in accordance with Section 607.1103 of the FBCA. As of
the date of such approvals, 12,000,000 shares of common stock, par value $.001
per share, of CyberSentry and 100,000 shares of common stock of TSC (the "TSC
Common Shares") were outstanding.
Section 1.7. Corporate Name. The name under which CyberSentry was
originally formed in Delaware was "Telecommunications Services, Inc.".
2
<PAGE>
ARTICLE II
CONVERSION OF SHARES
Section 2.1. Effect of the Merger on Capital Stock. At the Effective
Time, by virtue of the Merger and without any action on the part of the
Constituent Corporations or the holders of any capital stock thereof:
(a) Cancelation of Outstanding Capital Stock of TSC. All issued and
outstanding shares of capital stock of TSC, and all treasury stock owned by
TSC, shall be canceled and cease to exist.
(b) Conversion of TSC Common Shares. All issued and outstanding TSC
Common Shares shall be converted into 1,000,000 Common Shares, par value $.001
per share ("Common Shares"), of the Surviving Corporation and 1,000,000 Class B
Convertible Redeemable Participating Preferred Stock ($1.50 Liquidation Value),
par value $.001 per share (the "Class B Preferred Shares"), of the Surviving
Corporation, which Common Shares and Class B Preferred Shares shall be issued to
existing shareholders of TSC on a pro rata basis in accordance with the Plan.
(c) Issuance of Additional Preferred and Common Shares. Class A
Convertible Redeemable Participating Preferred Stock ($1.50 Liquidation Value),
par value $.001 per share (the "Class A Preferred Shares"), of the Corporation
shall be issued to the Class Five Creditors (as defined in the Plan) in
accordance with the terms of the Plan and pursuant to all related agreements
regarding the payment of administrative expenses. Additional Common Shares of
the Surviving Corporation may be issued to the Class Five Creditors pursuant to
the Rights Offering provided for in the Plan.
(d) Creation of Preferred Shares. The Class A Preferred Shares of
the Surviving Corporation shall be created pursuant to, and the designation and
amount thereof, and the voting powers, preferences and relative, participating,
optional and other special rights of such shares, and the qualifications,
limitations or restrictions thereof, as provided for in the Supplement to the
Plan dated December 21, 1998, shall be set forth in, two Certificates of
Designation which shall be filed at the Effective Time with the Secretary of
State of the State of Delaware.
(e) Continuance of Capital Stock of CyberSentry. Each CyberSentry
Common Share that is issued and outstanding immediately prior to the Effective
Time shall continue to be issued and outstanding. Each CyberSentry preferred
share that is issued and outstanding immediately prior to the Effective Time
shall be converted into one Class B Preferred Share.
Section 2.2. Closing of Transfer Books. From and after the Effective
Time, the stock transfer books of TSC shall be closed and no transfer of any
capital stock of TSC shall thereafter be made. If, after the Effective Time,
certificates representing any shares of such capital stock are presented to the
Surviving Corporation, they shall be canceled and exchanged for the merger
consideration specified in Section 2.1.
3
<PAGE>
ARTICLE III
REPRESENTATIONS AND WARRANTIES
Section 3.1. Representations and Warranties. Each party hereby
represents and warrants to the other that such party: (i) is a corporation duly
organized and in good standing in its jurisdiction of incorporation; (ii) has
obtained the approval of its board of directors to effect the Merger; and (iii)
has full power and authority to execute, deliver and perform this Agreement.
ARTICLE IV
CLOSING CONDITIONS; THE CLOSING
Section 4.1. Closing Conditions. (a) The consummation of the Merger
and the other transactions provided herein is conditioned upon the satisfaction
of the following conditions: (i) the Plan shall have been approved by the
Bankruptcy Court and the Effective Date under the Plan shall have occurred; and
(ii) there shall not be any pending or threatened litigation, action or
proceeding concerning the Merger or any other transaction contemplated by this
Agreement that, in the judgment of the Board of Directors of CyberSentry, would
materially adversely affect any Constituent Corporation or any right of their
respective equity holders. The parties shall use their commercially reasonable
efforts to satisfy the foregoing conditions.
(b) The closing under this Agreement shall occur on a date not more
than ten business days following the satisfaction of the foregoing conditions at
a place mutually agreed by the parties.
ARTICLE V
TERMINATION OR ABANDONMENT OF MERGER
Section 5.1. Termination. This Agreement may be terminated and the
Merger abandoned at any time prior to the Effective Time by the Board of
Directors of CyberSentry, if the Board of Directors of CyberSentry shall
determine for any reason that the consummation of the transactions contemplated
hereby would be inadvisable or not in the best interests of CyberSentry or its
shareholders.
4
<PAGE>
ARTICLE VI
AMENDMENTS
Section 6.1. Amendments. At any time prior to the Effective Time,
the parties hereto may by written agreement amend, modify or supplement any
provision of this Agreement, provided that no such amendment, modification or
supplement may be made if, in the sole judgment of the Board of Directors of
CyberSentry, it would adversely affect the rights and interests of CyberSentry's
shareholders in any material respect.
ARTICLE VII
ACCOMPLISHMENT OF MERGER
Section 7.1. Further Assurances. The parties hereto each agree to
execute such documents and instruments and to take whatever action may be
necessary or desirable to consummate the Merger.
ARTICLE VIII
MISCELLANEOUS PROVISIONS
Section 8.1. Governing Law. This Agreement shall be construed under
and in accordance with the laws of the State of New York applicable to contracts
to be fully performed in such State, without giving effect to choice of law
principles.
Section 8.2. Headings. The headings set forth herein are for
convenience only and shall not be used in interpreting the text of the section
in which they appear.
Section 8.3. Binding Effect; Successors and Assigns. This Agreement
may not be assigned by either party without the written consent of the other
party; this Agreement shall be binding upon and inure to the benefit of the
respective successors and permitted assigns of the parties hereto.
Section 8.4. Counterparts. This Agreement may be executed in
separate counterparts, each of which, when so executed, shall be deemed to be an
original, and such counterparts when taken together shall constitute but one and
the same instrument.
Section 8.5. Extensions of Time. At any time prior to the Effective
Time, the parties hereto may, by written agreement, extend time for the
performance of any of the obligations or other acts of the parties hereto.
Section 8.6. Merger Agreement. A copy of this Agreement is on file
at the principal place of business of CyberSentry, 412 East Madison Street,
Suite 1200, Tampa, Florida 33602, and
5
<PAGE>
will be furnished by the Surviving Corporation, on request and without cost, to
any stockholder or shareholder of either Constituent Corporation.
Section 8.7. Termination of Stock Purchase Agreement. Upon closing
of the Merger under this Agreement, the Stock Purchase Agreement dated as of
August 26, 1998 (the "Purchase Agreement") between TSC and CybeSentry shall,
subject to the following sentence, be terminated and have no further force and
effect, and the $50,000 of the Purchaser Deposit paid to TSC under the Purchase
Agreement shall be returned immediately to Patriot Advisors, Inc. or its
designee. Notwithstanding the foregoing, all representations, warranties and
covenants made by TSC in the Purchase Agreement shall survive until closing of
the Merger under this Agreement, and are hereby incorporated by reference herein
as if fully set forth herein.
Section 8.8. Reimbursement of Expenses. Upon closing of the Merger
under this Agreement, the Surviving Corporation shall promptly reimburse the
officers, directors and shareholders of CyberSentry, as the case may be, for all
costs and expenses incurred by any of such persons in connection with the
Purchase Agreement and the Merger, including without limitation, all legal fees
and expenses.
Section 8.9. Funding. In lieu of the references in the Plan to the
deposit by CyberSentry, upon consummation of the Merger, of $2,500,000 and the
provision of a $1,000,000 operating line of credit, CyberSentry shall contribute
to the Surviving Corporation $500,000 in cash and will provide a working capital
line of credit in the amount of $2,000,000. In addition, the Surviving
Corporation shall have the CyberSentry software technology described in the
Plan.
6
<PAGE>
IN WITNESS WHEREOF, TSC and CyberSentry have caused this Agreement
to be signed by their respective officers thereunto duly authorized as of the
day first above written.
CYBERSENTRY, INC.
By: /s/ Gerald Resnick, Pres.
----------------------------------
Name: Gerald Resnick
Title: President
TELECOMMUNICATIONS SERVICE CENTER, INC.
By:
----------------------------------
Name:
Title:
CERTIFICATION OF SECRETARY
The undersigned, as Secretary of CyberSentry, Inc., hereby certifies
that a majority of the outstanding stock of CyberSentry, Inc. was voted in favor
of the aforesaid Merger pursuant to and in accordance with the terms of the
above Agreement and Plan of Merger.
/s/ Helene Resnick, Secretary
----------------------------------
Secretary
Helene Resnick
7
<PAGE>
IN WITNESS WHEREOF, TSC and CyberSentry have caused this Agreement
to be signed by their respective officers thereunto duly authorized as of the
day first above written.
CYBERSENTRY, INC.
By:
----------------------------------
Name:
Title:
TELECOMMUNICATIONS SERVICE CENTER, INC.
By: /s/ Hal Shankland, President
----------------------------------
Name: Hal Shankland
Title: President
CERTIFICATION OF SECRETARY
The undersigned, as Secretary of CyberSentry, Inc., hereby certifies
that a majority of the outstanding stock of CyberSentry, Inc. was voted in favor
of the aforesaid Merger pursuant to and in accordance with the terms of the
above Agreement and Plan of Merger.
----------------------------------
Secretary
7
<PAGE>
Annex A
CERTIFICATE OF MERGER
Merging
TELECOMMUNICATIONS SERVICE CENTER, INC.
(a Florida corporation)
into
CYBERSENTRY, INC.
(a Delaware corporation)
The undersigned corporation organized and existing under and by
virtue of the General Corporation Law of the State of Delaware (the "DGCL") does
hereby certify, pursuant to Section 252 thereof, that:
FIRST: The names and states of incorporation of the constituent
corporations in the Merger (as defined below) are Telecommuncations Service
Center, Inc., a Florida corporation ("TSC") and CyberSentry Inc., a Delaware
corporation ("CyberSentry" or the "Surviving Corporation", and together with
TSC, the "Constituent Corporations").
SECOND: The Agreement and Plan of Merger (the "Merger Agreement")
dated as of __________________, 1999 by and between TSC and CyberSentry
providing for the merger of TSC with and into CyberSentry (the "Merger"), has
been adopted, approved, certified, executed and acknowledged by TSC and
CyberSentry in accordance with the requirements of Sections 607.1107 and
607.1103 of the Florida Business Corporation Act., and Section 252 of the DGCL,
respectively.
THIRD: The name of the Surviving Corporation is "CyberSentry, Inc.".
FOURTH: The Certificate of Incorporation of the Surviving
Corporation shall be its Certificate of Incorporation.
FIFTH: A copy of the Merger Agreement is on file at the principal
place of business of CyberSentry, 412 East Madison Street, Suite 1200, Tampa,
Florida 33602 , and will be furnished by the Surviving Corporation, on request
and without cost, to any stockholder of either Constituent Corporation.
1
<PAGE>
SIXTH: The authorized capital stock of TSC is _________________
______________ .
IN WITNESS WHEREOF, the undersigned corporation has caused this
Certificate of Merger to be executed by its duly authorized officer on this ____
day of _______, 1999.
CYBERSENTRY, INC.
By:__________________________
Name:
Title:
2
<PAGE>
EXHIBIT 3.1
RESTATED CERTIFICATE OF INCORPORATION
OF
TELECOMMUNICATIONS SERVICES, INC.
The present name of the corporation and the name under which the
corporation was originally incorporated is Telecommunications Services, Inc. The
corporation's original Certificate of Incorporation was filed on August 21, 1998
with the Secretary of State of the State of Delaware. The undersigned hereby
certifies that this Restated Certificate of Incorporation was duly adopted and
approved by the stockholders of the corporation by written consent and by the
directors of the corporation in accordance with the provisions of Sections 228,
245 and 242 of the General Corporation Law of the State of Delaware.
Accordingly, the corporation's Certificate of Incorporation shall hereafter read
in its entirety as follows:
FIRST: The name of the corporation is CyberSentry, Inc. (hereinafter
referred to as the "Corporation").
SECOND: The address of the Corporation's registered office in the
State of Delaware is XL Corporate Services, Inc., 15 East North Street, Dover,
Delaware 19901, County of Kent. The name of its registered agent at such address
is XL Corporate Services, Inc.
THIRD: The purpose of the Corporation is to engage in any lawful act
or activity for which corporations may be organized under the General
Corporation Law of the State of Delaware (hereinafter referred to as the "GCL").
FOURTH: The total number of shares of stock which the Corporation
shall have authority to issue is forty million (40,000,000) shares, consisting
of thirty million (30,000,000)
1
<PAGE>
shares of common stock, par value $.001 per share (hereinafter referred to as
the "Common Stock"), and ten million (10,000,000) shares of preferred stock, par
value $.001 per share (hereinafter referred to as the "Preferred Stock"). The
powers, designations, preferences and relative, participating, optional or other
special rights (and the qualifications, limitations or restrictions thereof) of
the Common Stock and the Preferred Stock are as follows:
(a) Preferred Stock.
The Board of Directors of the Corporation (hereinafter referred to
as the "Board of Directors") is hereby expressly authorized at any time, and
from time to time, to create and provide for the issuance of shares of Preferred
Stock in one or more series and, by filing a certificate pursuant to the GCL
(hereinafter referred to as a "Preferred Stock Designation"), to establish the
number of shares to be included in each such series, and to fix the
designations, preferences and relative, participating, optional or other special
rights of the shares of each such series and the qualifications, limitations or
restrictions thereof, as shall be stated and expressed in the resolution or
resolutions providing for the issue thereof adopted by the Board of Directors,
including, but not limited to, the following:
(A) the designation of and the number of shares constituting such
series, which number the Board of Directors may thereafter (except as
otherwise provided in the Preferred Stock Designation) increase or
decrease (but not below the number of shares of such series then
outstanding);
(B) the dividend rate for the payment of dividends on such
series, if any, the conditions and dates upon which such dividends shall
be payable, the preference or relation which such dividends, if any, shall
bear to the dividends payable on any other class or classes of or any
other series of capital stock, the conditions and dates upon which such
dividends, if any, shall be payable, and whether such dividends, if any,
shall be cumulative or non-cumulative;
2
<PAGE>
(C) whether the shares of such series shall be subject to redemption
by the Corporation, and, if made subject to such redemption, the times,
prices and other terms and conditions of such redemption;
(D) the terms and amount of any sinking fund provided for the
purchase or redemption of the shares of such series;
(E) whether or not the shares of such series shall be convertible
into or exchangeable for shares of any other class or classes of, any
other series of any class or classes of capital stock of, or any other
security of, the Corporation or any other corporation, and, if provision
be made for any such conversion or exchange, the times, prices, rates,
adjustments and any other terms and conditions of such conversion or
exchange;
(F) the extent, if any, to which the holders of the shares of such
series shall be entitled to vote as a class or otherwise with respect to
the election of directors or otherwise;
(G) the restrictions, if any, on the issue or reissue of shares of
the same series or of any other class or series;
(H) the amounts payable on and the preferences, if any, of the
shares of such series in the event of any voluntary or involuntary
liquidation, dissolution or winding up of the Corporation; and
(I) any other relative rights, preferences and limitations of that
series.
(b) Common Stock.
The Common Stock shall be subject to the express terms of any series
of Preferred Stock set forth in the Preferred Stock Designation relating
thereto. Each holder of Common Stock shall have one vote in respect of each
share of Common Stock held by such holder of record on the books of the
Corporation for the election of directors and on all other matters on which
stockholders of the Corporation are entitled to vote. The holders of shares of
Common Stock shall be entitled to receive, when and if declared by the Board of
Directors, out of the assets of the Corporation which are by law available
therefor, dividends payable either in cash, in stock or otherwise.
3
<PAGE>
FIFTH: The Board of Directors is hereby authorized to create and
issue, whether or not in connection with the issuance and sale of any of its
stock or other securities or property, rights entitling the holders thereof to
purchase from the Corporation shares of stock or other securities of the
Corporation or any other corporation, recognizing that, under certain
circumstances, the creation and issuance of such rights could have the effect of
discouraging third parties from seeking, or impairing their ability to seek, to
acquire a significant portion of the outstanding securities of the Corporation,
to engage in any transaction which might result in a change of control of the
Corporation or to enter into any agreement, arrangement or understanding with
another party to accomplish the foregoing or for the purpose of acquiring,
holding, voting or disposing of any securities of the Corporation. The times at
which and the terms upon which such rights are to be issued will be determined
by the Board of Directors and set forth in the contracts or instruments that
evidence such rights. The authority of the Board of Directors with respect to
such rights shall include, but not be limited to, determination of the
following:
(A) the initial purchase price per share or other unit of the stock
or other securities or property to be purchased upon exercise of such
rights;
(B) provisions relating to the times at which and the circumstances
under which such rights may be exercised or sold or otherwise transferred,
either together with or separately from, any other stock or other
securities of the Corporation;
(C) provisions which adjust the number or exercise price of such
rights or amount or nature of the stock or other securities or property
receivable upon exercise of such rights in the event of a combination,
split or recapitalization of any stock of the Corporation, a change in
ownership of the Corporation's stock or other securities or a
reorganization, merger, consolidation, sale of assets or other occurrence
relating to the Corporation or any stock of the Corporation, and
provisions restricting the ability of the Corporation to enter into any
such transaction absent an assumption by the other party or parties
thereto of the obligations of the Corporation under such rights;
4
<PAGE>
(D) provisions which deny the holder of a specified percentage of
the outstanding stock or other securities of the Corporation the right to
exercise such rights and/or cause the rights held by such holder to become
void;
(E) provisions which permit the Corporation to redeem or exchange
such rights, which redemption or exchange may be within the sole
discretion of the Board of Directors, if the Board of Directors reserves
such right to itself; and
(F) the appointment of a rights agent with respect to such rights.
Notwithstanding anything contained in this Certificate of
Incorporation to the contrary, the affirmative vote of at least 80 percent of
the voting power of the then outstanding Voting Stock (as defined below), voting
together as a single class, shall be required to amend, repeal or adopt any
provision inconsistent with this Article FIFTH. For the purposes of this
Certificate of Incorporation, "Voting Stock" shall mean the outstanding shares
of capital stock of the Corporation entitled to vote generally in the election
of directors.
SIXTH: (A) In furtherance, and not in limitation, of the powers
conferred by law, the Board of Directors is expressly authorized and empowered:
(i) to adopt, amend or repeal the Bylaws of the Corporation,
provided, however, that any Bylaws adopted by the Board of Directors under
the powers hereby conferred may be amended or repealed by the Board of
Directors or by the stockholders having voting power with respect thereto;
and
(ii) from time to time to determine whether and to what extent, and
at what times and places, and under what conditions and regulations, the
accounts and books of the Corporation, or any of them, shall be open to
inspection of stockholders; and, except as so determined, or as expressly
provided in this Certificate of Incorporation or in any Preferred Stock
Designation, no stockholder shall have any right to inspect any account,
book or document of the Corporation other than such rights as may be
conferred by law.
(B) The Corporation may in its Bylaws confer powers upon the Board
of Directors in addition to the foregoing and in addition to the powers and
authorities expressly conferred upon the Board of Directors by law.
5
<PAGE>
(C) Notwithstanding anything contained in this Certificate of
Incorporation to the contrary, the affirmative vote of the holders of at least
80 percent of the voting power of the then outstanding Voting Stock, voting
together as a single class, shall be required to amend, repeal or adopt any
provision inconsistent with (i) this Article SIXTH or (ii) Section 2.2, 2.4,
2.5, 2.7 or 2.10 of Article II, Section 3.2, 3.3 or 3.5 of Article III or
Article X of the Bylaws of the Corporation.
SEVENTH: (A) Subject to the rights of the holders of any series of
Preferred Stock or any other series or class of stock as set forth in this
Certificate of Incorporation to elect additional directors under specified
circumstances or to consent to specific actions taken by the Corporation, any
action required or permitted to be taken by the stockholders of the Corporation
may be taken by consent in writing by such stockholders in accordance with the
GCL.
(B) Subject to the rights of the holders of any series of Preferred
Stock or any other series or class of stock as set forth in this Certificate of
Incorporation to elect additional directors under specified circumstances, a
special meeting of the holders of stock of the Corporation entitled to vote on
any business to be considered at any such meeting may be called only by the
Chairman of the Board of the Corporation, and shall be called by the Secretary
of the Corporation at the request of the Board of Directors pursuant to a
resolution adopted by a majority of the total number of directors which the
Corporation would at the time have if there were no vacancies (the "Whole
Board").
(C) Notwithstanding anything contained in this Certificate of
Incorporation to the contrary, the affirmative vote of at least 80 percent of
the voting power of the then outstanding Voting Stock, voting together as a
single class, shall be required to amend, repeal or adopt any provision
inconsistent with this Article SEVENTH.
6
<PAGE>
EIGHTH: (A) Subject to the rights of the holders of any series of
Preferred Stock or any other series or class of stock as set forth in this
Certificate of Incorporation to elect additional directors under specified
circumstances, the number of directors of the Corporation shall be fixed, and
may be increased or decreased from time to time, in such a manner as may be
prescribed by the Bylaws of the Corporation.
(B) Unless and except to the extent that the Bylaws of the
Corporation shall so require, the election of directors of the Corporation need
not be by written ballot.
(C) The directors, other than those who may be elected by the
holders of any series of Preferred Stock or any other series or class of stock
as set forth in this Certificate of Incorporation, shall be divided into three
classes and designated as Class I, Class II and Class III. Class I directors
shall be initially elected for a term expiring at the first annual meeting of
stockholders, Class II directors shall be initially elected for a term expiring
at the second annual meeting of stockholders, and Class III directors shall be
initially elected for a term expiring at the third annual meeting of
stockholders. Members of each class shall hold office until their successors are
elected and qualified. Members of each class shall hold office until their
successors are elected and qualified. At each succeeding annual meeting of the
stockholders of the Corporation, the successors of the class of directors whose
term expires at that meeting shall be elected to hold office for a term expiring
at the annual meeting of stockholders held in the third year following the year
of their election, and until their successors are elected and qualified.
(D) Subject to the rights of the holders of any series of Preferred
Stock or any other series or class of stock as set forth in this Certificate of
Incorporation to elect additional directors under specified circumstances, any
director may be removed from office at any time, but
7
<PAGE>
only for cause and only by the affirmative vote of the holders of at least 80
percent of the voting power of the then outstanding Voting Stock, voting
together as a single class.
(E) Advance notice of stockholder nominations for the election of
directors shall be given in the manner provided in the Bylaws of the
Corporation.
(F) Subject to the rights of the holders of any series of Preferred
Stock or any other series or class of stock as set forth in this Certificate of
Incorporation to elect additional directors under specified circumstances,
vacancies resulting from death, resignation, retirement, disqualification,
removal from office or other cause, and newly created directorships resulting
from any increase in the authorized number of directors, may be filled only by
the affirmative vote of a majority of the remaining directors, though less than
a quorum of the Board of Directors, and directors so chosen shall hold office
for a term expiring at the annual meeting of stockholders at which the term of
office of the class to which they have been elected expires and until such
director's successor shall have been duly elected and qualified. No decrease in
the number of authorized directors constituting the Whole Board shall shorten
the term of any incumbent director.
(G) Notwithstanding anything contained in this Certificate of
Incorporation to the contrary, the affirmative vote of the holders of at least
80 percent of the voting power of the then outstanding Voting Stock, voting
together as a single class, shall be required to amend, repeal or adopt any
provisions inconsistent with this Article EIGHTH.
NINTH: A director of the Corporation shall not be personally liable
to the Corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to the Corporation or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or
8
<PAGE>
a knowing violation of law, (iii) under Section 174 of the GCL or (iv) for any
transaction from which the director derived an improper personal benefit. No
amendment or repeal of this Article NINTH shall adversely affect any right or
protection of a director of the Corporation existing hereunder in respect of any
act or omission occurring prior to such amendment or repeal.
TENTH: Except as may be expressly provided in this Certificate of
Incorporation, the Corporation reserves the right at any time and from time to
time to amend, alter, change or repeal any provision contained in this
Certificate of Incorporation or a Preferred Stock Designation, and any other
provisions authorized by the laws of the State of Delaware at the time in force
may be added or inserted, in the manner now or hereafter prescribed herein or by
law, and all powers, preferences and rights of whatsoever nature conferred upon
stockholders, directors or any other persons whomsoever by and pursuant to this
Certificate of Incorporation in its present form or as hereafter amended are
granted subject to the right reserved in this Article TENTH, provided, however,
that no Preferred Stock Designation shall be amended after the issuance of any
shares of the series of Preferred Stock created thereby, except in accordance
with the terms of such Preferred Stock Designation and the requirements of law.
IN WITNESS WHEREOF, the undersigned corporation has caused this
Restated Certificate of Incorporation to be executed by its duly authorized
officer on this 22nd day of January, 1999.
CYBERSENTRY, INC.
By:__________________________
Name:
Title:
9
<PAGE>
EXHIBIT 3.2
BYLAWS
OF
CYBERSENTRY, INC.
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I
Office and Records
Section 1.1 Delaware Office........................................... 1
Section 1.2 Other Offices............................................. 1
Section 1.3 Books and Records......................................... 1
ARTICLE II
Stockholders
Section 2.1 Annual Meeting............................................ 1
Section 2.2 Special Meetings.......................................... 2
Section 2.3 Notice of Meetings........................................ 3
Section 2.4 Quorum.................................................... 4
Section 2.5 Voting.................................................... 5
Section 2.6 Proxies................................................... 6
Section 2.7 Notice of Stockholder Business and Nominations............ 6
Section 2.8 Inspectors of Elections; Opening and Closing the Polls.... 11
Section 2.9 List of Stockholders...................................... 12
Section 2.10 Stockholder Action by Written Consent..................... 13
ARTICLE III
Directors
Section 3.1 General Powers............................................ 13
Section 3.2 Number, Tenure and Qualifications......................... 14
Section 3.3 Vacancies and Newly Created Directorships................. 15
Section 3.4 Resignation............................................... 15
Section 3.5 Removal................................................... 16
Section 3.6 Meetings.................................................. 16
Section 3.7 Quorum and Voting......................................... 18
Section 3.8 Written Consent of Directors in Lieu of a Meeting. ....... 18
2
<PAGE>
Section 3.9 Compensation.............................................. 18
Section 3.10 Committees of the Board of Directors...................... 19
ARTICLE IV
Officers
Section 4.1 Elected Officers.......................................... 20
Section 4.2 Election and Term of Office............................... 21
Section 4.3 Resignation and Removal................................... 21
Section 4.4 Compensation and Bond..................................... 22
Section 4.5 Chairman of the Board..................................... 22
Section 4.6 President................................................. 23
Section 4.7 Vice Presidents........................................... 23
Section 4.8 Treasurer................................................. 24
Section 4.9 Secretary................................................. 24
Section 4.10 Assistant Treasurers...................................... 25
Section 4.11 Assistant Secretaries..................................... 25
Section 4.12 Delegation of Duties...................................... 25
ARTICLE V
Indemnification and Insurance
Section 5.1 Right to Indemnification.................................. 26
Section 5.2 Right to Advancement of Expenses.......................... 27
Section 5.3 Right of Indemnitee to Bring Suit......................... 28
Section 5.4 Non-Exclusivity of Rights................................. 29
Section 5.5 Insurance................................................. 30
Section 5.6 Indemnification of Employees and Agents of
the Corporation........................................... 30
Section 5.7 Contract Rights........................................... 30
ARTICLE VI
Common Stock
Section 6.1 Certificates.............................................. 31
Section 6.2 Transfers of Stock........................................ 31
Section 6.3 Lost, Stolen or Destroyed Certificates.................... 32
Section 6.4 Stockholder Record Date................................... 32
3
<PAGE>
ARTICLE VII
Seal
Section 7.1 Seal...................................................... 34
ARTICLE VIII
Waiver of Notice
Section 8.1 Waiver of Notice.......................................... 34
ARTICLE IX
Checks, Notes, Drafts, Etc.
Section 9.1 Checks, Notes, Drafts, Etc................................ 35
ARTICLE X
Amendments
Section 10.1 Amendments............................................... 35
4
<PAGE>
BYLAWS
OF
ARTICLE I
CYBERSENTRY, INC.
Office and Records
Section 1.1 Delaware Office. The principal office of the Corporation
in the State of Delaware shall be located in the City of Dover, County of
Kent, and the name and address of its registered agent is XL Corporate Services,
Inc., 15 East North Street, Dover, Delaware.
Section 1.2 Other Offices. The Corporation may have such other
offices, either within or without the State of Delaware, as the Board of
Directors may designate or as the business of the Corporation may from time to
time require.
Section 1.3 Books and Records. The books and records of the
Corporation may be kept at the Corporation's principal executive offices in 412
East Madison Street, Suite 1200, Tampa, Florida, or at such other locations
outside the State of Delaware as may from time to time be designated by the
Board of Directors.
ARTICLE II
Stockholders
1
<PAGE>
Section 2.1 Annual Meeting. The annual meeting of stockholders of
the Corporation shall be held on the 21st day of January of each year, unless
such day shall fall on a legal holiday, in which case such meeting shall be held
on the next day thereafter not a legal holiday. The annual meeting in each year
shall be held at 10:00 A.M., local time, at the principal executive offices of
the Corporation, or at such other date, time and/or place within or without the
State of Delaware as may be fixed by the Board of Directors.
Section 2.2 Special Meetings. Subject to the rights of the holders
of any series of preferred stock, par value $.001 per share, of the Corporation
(the "Preferred Stock"), or any other series or class of stock as set forth in
the Certificate of Incorporation of the Corporation (the "Certificate of
Incorporation") to elect additional directors under specified circumstances, a
special meeting of the holders of stock of the Corporation entitled to vote on
any business to be considered at any such meeting may be called only by the
Chairman of the Board of the Corporation, and shall be called by the Secretary
of the Corporation at the request of the Board of Directors pursuant to a
resolution adopted by a majority of the total number of directors which the
Corporation would at the time have if there were no vacancies (the "Whole
Board"). The Board of Directors may designate the place of meeting for any
special meeting of the stockholders, and if no such designation is made, the
place of meeting shall be the principal executive offices of the Corporation.
Section 2.3 Notice of Meetings. Whenever stockholders are required
or permitted to take any action at a meeting, unless notice is waived as
provided in Section 8.1 of these Bylaws, a written notice of the meeting shall
be given which shall state the place, date and hour of the meeting, and, in the
case of a special meeting, the purpose or purposes for which the meeting is
called.
2
<PAGE>
Unless otherwise provided by law, and except as to any stockholder
duly waiving notice, the written notice of any meeting shall be given personally
or by mail, not less than ten (10) nor more than sixty (60) days before the date
of the meeting to each stockholder entitled to vote at such meeting. If mailed,
notice shall be deemed given when deposited in the mail, postage prepaid,
directed to the stockholder at his or her address as it appears on the records
of the Corporation. Any previously scheduled meeting of the stockholders may be
postponed by resolution of the Board of Directors upon public notice given prior
to the time previously scheduled for such meeting of stockholders.
When a meeting is adjourned to another time or place, notice need
not be given of the adjourned meeting if the time and place thereof are
announced at the meeting at which the adjournment is taken. At the adjourned
meeting the Corporation may transact any business which might have been
transacted at the original meeting. If, however, the adjournment is for more
than thirty (30) days, or if after the adjournment a new record date is fixed
for the adjourned meeting, a notice of the adjourned meeting shall be given to
each stockholder of record entitled to vote at the meeting.
Section 2.4 Quorum. Except as otherwise provided by law or by the
Certificate of Incorporation or by these Bylaws, at any meeting of stockholders
the holders of a majority of the voting power of the outstanding shares of the
Corporation entitled to vote generally in the election of directors (the "Voting
Stock"), either present or represented by proxy, shall constitute a quorum for
the transaction of any business at such meeting, except that when specified
business is to be voted on by a class or series voting as a class, the holders
of a majority of the shares of such class or series shall constitute a quorum
for the transaction of such business. The chairman of the meeting or a majority
of the voting power of the shares of Voting Stock so represented may adjourn
3
<PAGE>
the meeting from time to time, whether or not there is such a quorum (or in the
case of specified business to be voted on as a class or series, the chairman or
a majority of the shares of such class or series so represented may adjourn the
meeting with respect to such specified business). No notice of the time and
place of adjourned meetings need be given except as provided in the last
paragraph of Section 2.3 of these Bylaws. The stockholders present at a duly
organized meeting may continue to transact business until adjournment,
notwithstanding the withdrawal of enough stockholders to leave less than a
quorum.
Section 2.5 Voting. Except as otherwise set forth in the Certificate
of Incorporation with respect to the right of any holder of any series of
Preferred Stock or any other series or class of stock to elect additional
directors under specified circumstances, whenever directors are to be elected at
a meeting, they shall be elected by a plurality of the votes cast at the meeting
by the holders of stock entitled to vote. Whenever any corporate action, other
than the election of directors, is to be taken by vote of stockholders at a
meeting, it shall, except as otherwise required by law or by the Certificate of
Incorporation or by these Bylaws, be authorized by a majority of the votes cast
with respect thereto at the meeting (including abstentions) by the holders of
stock entitled to vote thereon.
Except as otherwise provided by law, or by the Certificate of
Incorporation, each holder of record of stock of the Corporation entitled to
vote on any matter at any meeting of stockholders shall be entitled to one vote
for each share of such stock standing in the name of such holder on the stock
ledger of the Corporation on the record date for the determination of the
stockholders entitled to vote at the meeting.
Upon the demand of any stockholder entitled to vote, the vote for
directors or the vote on any other matter at a meeting shall be by written
ballot, but otherwise the method of voting
4
<PAGE>
and the manner in which votes are counted shall be discretionary with the
presiding officer at the meeting.
Section 2.6 Proxies. Each stockholder entitled to vote at a meeting
of stockholders may authorize another person or persons to act for him or her by
proxy, but no such proxy shall be voted or acted upon after three (3) years from
its date, unless the proxy provides for a longer period. Every proxy shall be
signed by the stockholder or by his duly authorized attorney. Such proxy must be
filed with the Secretary of the Corporation or his or her representative at or
before the time of the meeting.
Section 2.7 Notice of Stockholder Business and Nominations.
(A) Annual Meeting of Stockholders.
(1) Nominations of persons for election to the Board of Directors of
the Corporation and the proposal of business to be considered by the
stockholders may be made at an annual meeting of stockholders (a) by or at the
direction of the Chairman of the Board or the Board of Directors pursuant to a
resolution adopted by a majority of the Whole Board or (b) by any stockholder of
the Corporation who is entitled to vote at the meeting with respect to the
election of directors or the business to be proposed by such stockholder, as the
case may be, who complies with the notice procedures set forth in clauses (2)
and (3) of paragraph (A) of this Section 2.7 and who is a stockholder of record
at the time such notice is delivered to the Secretary of the Corporation as
provided below.
(2) For nominations or other business to be properly brought before
an annual meeting by a stockholder pursuant to clause (b) of paragraph (A)(1) of
this Section 2.7, the stockholder must have given timely notice thereof in
writing to the Secretary of the Corporation and such business must be a proper
subject for stockholder action under the Delaware General
5
<PAGE>
Corporation Law (the "GCL"). To be timely, a stockholder's notice shall be
delivered to the Secretary of the Corporation at the principal executive offices
of the Corporation not less than sixty (60) days nor more than ninety (90) days
prior to the first anniversary of the preceding year's annual meeting; provided,
however, that in the event that the date of the annual meeting is advanced by
more than thirty (30) days, or delayed by more than sixty (60) days, from such
anniversary date, notice by the stockholder to be timely must be so delivered
not earlier than the ninetieth (90th) day prior to such annual meeting and not
later than the close of business on the later of the sixtieth (60th) day prior
to such annual meeting or the tenth (10th) day following the day on which public
announcement of the date of such meeting is first made. Such stockholder's
notice shall set forth (a) as to each person whom the stockholder proposes to
nominate for election or reelection as a director, all information relating to
such person that is required to be disclosed in solicitations of proxies for
election of directors, or is otherwise required, in each case pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), including such person's written consent to being named in the
proxy statement as a nominee and to serving as a director if elected; (b) as to
any other business that the stockholder proposes to bring before the meeting, a
brief description of the business desired to be brought before the meeting, the
reasons for conducting such business at the meeting and any material interest in
such business of such stockholder and the beneficial owner, if any, on whose
behalf the proposal is made; and (c) as to the stockholder giving the notice and
the beneficial owner, if any, on whose behalf the nomination or proposal is made
(i) the name and address of such stockholder, as they appear on the
Corporation's books, and of such beneficial owner and (ii) the class and number
of shares of the Corporation which are owned beneficially and of record by such
stockholder and such beneficial owner.
6
<PAGE>
(3) Notwithstanding anything in the second sentence of paragraph
(A)(2) of this Section 2.7 to the contrary, in the event that the number of
directors to be elected to the Board of Directors is increased and there is no
public announcement naming all of the nominees for director or specifying the
size of the increased Board of Directors made by the Corporation at least eighty
(80) days prior to the first anniversary of the preceding year's annual meeting,
a stockholder's notice required by paragraph (A)(2) of this Section 2.7 shall
also be considered timely, but only with respect to nominees for any new
positions created by such increase, if it shall be delivered to the Secretary of
the Corporation at the principal executive offices of the Corporation not later
than the close of business on the tenth (10th) day following the day on which
such public announcement is first made by the Corporation.
(B) Special Meeting of Stockholders. Nominations of persons for
election to the Board of Directors may be made at a special meeting of
stockholders at which directors are to be elected (i) by or at the direction of
the Chairman of the Board or the Board of Directors pursuant to a resolution
adopted by a majority of the Whole Board or (ii) by any stockholder of the
Corporation who is entitled to vote at the meeting with respect to the election
of directors, who complies with the notice procedures set forth in this
paragraph (B) and who is a stockholder of record at the time such notice is
delivered to the Secretary of the Corporation as provided below. Nominations by
stockholders of persons for election to the Board of Directors may be made at
such a special meeting of stockholders if the stockholder's notice as required
by paragraph (A)(2) of this Section 2.7 shall be delivered to the Secretary of
the Corporation at the principal executive offices of the Corporation not
earlier than the ninetieth (90th) day prior to such special meeting and not
later than the close of business on the later of the sixtieth (60th) day prior
to such special meeting or the tenth (10th) day following the day on which
public announcement is first made of the date of
7
<PAGE>
the special meeting and of the nominees proposed by the Board of Directors to be
elected at such meeting.
(C) General. (1) Only persons who are nominated in accordance with
the procedures set forth in this Section 2.7 shall be eligible to serve as
directors and only such business shall be conducted at a meeting of stockholders
as shall have been brought before the meeting in accordance with the procedures
set forth in this Section 2.7.
(2) Except as otherwise provided by law, the Certificate of
Incorporation or this Section 2.7, the chairman of the meeting shall have the
power and duty to determine whether a nomination or any business proposed to be
brought before the meeting was made in accordance with the procedures set forth
in this Section 2.7 and, if any proposed nomination or business is not in
compliance with this Section 2.7, to declare that such defective nomination or
proposal shall be disregarded.
(3) For purposes of this Section 2.7, "public announcement" shall
mean disclosure in a press release reported by the Dow Jones News Service,
Associated Press or comparable national news service or in a document publicly
filed by the Corporation with the Securities and Exchange Commission pursuant to
Section 13, 14 or 15(d) of the Exchange Act.
(4) Notwithstanding the foregoing provisions of this Section 2.7, a
stockholder shall also comply with all applicable requirements of the Exchange
Act and the rules and regulations thereunder with respect to the matters set
forth in this Section 2.7. Nothing in this Section 2.7 shall be deemed to affect
any rights (i) of stockholders to request inclusion of proposals in the
Corporation's proxy materials with respect to a meeting of stockholders pursuant
to Rule 14a-8 under Exchange Act or (ii) of the holders of any series of
Preferred Stock or any other series or
8
<PAGE>
class of stock as set forth in the Certificate of Incorporation to elect
directors under specified circumstances or to consent to specific actions taken
by the Corporation.
Section 2.8 Inspectors of Elections; Opening and Closing the Polls.
(A) The Board of Directors by resolution shall appoint one or more
inspectors, which inspector or inspectors may include individuals who serve the
Corporation in other capacities, including, without limitation, as officers,
employees, agents or representatives of the Corporation, to act at the meeting
and make a written report thereof. One or more persons may be designated as
alternate inspectors to replace any inspector who fails to act. If no inspector
or alternate has been appointed to act, or if all inspectors or alternates who
have been appointed are unable to act, at a meeting of stockholders, the
chairman of the meeting shall appoint one or more inspectors to act at the
meeting. Each inspector, before discharging his or her duties, shall take and
sign an oath faithfully to execute the duties of his or her ability. The
inspectors shall have the duties prescribed by the GCL.
(B) The chairman of the meeting shall fix and announce at the
meeting the time of the opening and the closing of the polls for each matter
upon which the stockholders will vote at a meeting.
Section 2.9 List of Stockholders. The officer who has charge of the
stock ledger of the Corporation shall prepare and make, at least ten (10) days
before every meeting of stockholders, a complete list of the stockholders
entitled to vote at the meeting, arranged in alphabetical order, and showing the
address of each stockholder and the number of shares registered in the name of
each stockholder. Such list shall be open to the examination of any stockholder
in accordance with Section 220 of the GCL.
9
<PAGE>
Section 2.10 Stockholder Action by Written Consent. Subject to the
rights of the holders of any series of Preferred Stock or any other series or
class of stock as set forth in the Certificate of Incorporation to elect
additional directors under specified circumstances or to consent to specific
actions taken by the Corporation, any action required or permitted to be taken
by the stockholders of the Corporation may be taken by consent in writing by
such stockholders in accordance with the GCL.
ARTICLE III
Directors
Section 3.1 General Powers. The business and affairs of the
Corporation shall be managed by or under the direction of its Board of
Directors. In addition to the powers and authorities by these Bylaws expressly
conferred upon it, the Board of Directors may exercise all such powers of the
Corporation and do all such lawful acts and things as are not by law or by the
Certificate of Incorporation or by these Bylaws required to be exercised or done
by the stockholders.
Section 3.2 Number, Tenure and Qualifications. Subject to the rights
of the holders of any series of Preferred Stock or any other series or class of
stock as set forth in the Certificate of Incorporation to elect directors under
specified circumstances, the number of directors shall be fixed from time to
time exclusively pursuant to a resolution adopted by a majority of the Whole
Board, but shall consist of not less than three (3) directors. The directors,
other than those who may be elected by the holders of any series of Preferred
Stock or any other series or class of stock as set forth in the Certificate of
Incorporation, shall be divided into three classes, and designated as Class I,
Class II and Class III. Class I directors shall be initially elected for a term
expiring at the first annual meeting of stockholders, Class II directors shall
be initially elected for a term expiring
10
<PAGE>
at the second annual meeting of stockholders, and Class III directors shall be
initially elected for a term expiring at the third annual meeting of
stockholders. Members of each class shall hold office until their successors
shall have been duly elected and qualified. At each succeeding annual meeting of
stockholders of the Corporation, the successors of the class of directors whose
term expires at that meeting shall be elected to hold office for a term expiring
at the annual meeting of stockholders held in the third year following the year
of their election, and until their successors are elected and qualified.
Section 3.3 Vacancies and Newly Created Directorships. Subject to
the rights of the holders of any series of Preferred Stock or any other series
or class of stock as set forth in the Certificate of Incorporation to elect
additional directors under specified circumstances, vacancies resulting from
death, resignation, retirement, disqualification, removal from office or other
cause, and newly created directorships resulting from any increase in the
authorized number of directors, may be filled only by the affirmative vote of a
majority of the remaining directors, though less than a quorum of the Board of
Directors, and directors so chosen shall hold office for a term expiring at the
annual meeting of stockholders at which the term of office of the class to which
they have been elected expires and until such director's successor shall have
been duly elected and qualified. No decrease in the number of authorized
directors constituting the Whole Board shall shorten the term of any incumbent
director.
Section 3.4 Resignation. Any director may resign at any time upon
written notice to the Corporation. Any such resignation shall take effect at the
time specified therein or, if the time be not specified, upon receipt thereof,
and the acceptance of such resignation, unless required by the terms thereof,
shall not be necessary to make such resignation effective.
11
<PAGE>
Section 3.5 Removal. Subject to the rights of the holders of any
series of Preferred Stock or any other series or class of stock as set forth in
the Certificate of Incorporation to elect additional directors under specified
circumstances, any director may be removed from office at any time, but only for
cause and only by the affirmative vote of the holders of at least 80 percent of
the voting power of the then outstanding Voting Stock, voting together as a
single class.
Section 3.6 Meetings. Meetings of the Board of Directors, regular or
special, may be held at any place within or without the State of Delaware.
Members of the Board of Directors, or of any committee designated by the Board
of Directors, may participate in a meeting of the Board of Directors or such
committee by means of conference telephone or similar communications equipment
by means of which all persons participating in the meeting can hear each other,
and participation in a meeting by such means shall constitute presence in person
at such meeting. An annual meeting of the Board of Directors shall be held at
the same place and immediately following each annual meeting of stockholders,
and no further notice thereof need be given other than this Bylaw. The Board of
Directors may fix times and places for additional regular meetings of the Board
of Directors and no further notice of such meetings need be given. A special
meeting of the Board of Directors shall be held whenever called by the Chairman
of the Board or by a majority of the Whole Board, at such time and place as
shall be specified in the notice or waiver thereof. The person or persons
authorized to call a special meeting of the Board of Directors may fix the place
and time of the meetings. Notice of any special meeting shall be given to each
director at his or her business or residence in writing or by telegram or by
telephone communication. If mailed, such notice shall be deemed adequately
delivered when deposited in the United States mails so addressed, with postage
thereon prepaid, at least five (5) days before such meeting. If by telegram,
such notice shall be deemed adequately delivered when the telegram is delivered
to the telegraph
12
<PAGE>
company at least twenty-four hours before such meeting. If by facsimile
transmission, such notice shall be transmitted at least twenty-four hours before
such meeting. If by telephone, the notice shall be given at least twelve hours
prior to the time set for the meeting. Neither the business to be transacted at,
nor the purpose of, any regular or special meeting of the Board of Directors
need be specified in the notice of such meeting, except for amendments to these
Bylaws as provided under Section 10.1 of these Bylaws.
Section 3.7 Quorum and Voting. A whole number of directors equal to
at least a majority of the Whole Board shall constitute a quorum for the
transaction of business at any meeting of the Board of Directors, but if there
be less than a quorum, a majority of the directors present may adjourn the
meeting from time to time, and no further notice thereof need be given other
than announcement at the meeting which shall be so adjourned. Except as
otherwise provided by law, by the Certificate of Incorporation, or by these
Bylaws, the vote of a majority of the directors present at a meeting at which a
quorum is present shall be the act of the Board of Directors.
Section 3.8 Written Consent of Directors in Lieu of a Meeting. Any
action required or permitted to be taken at any meeting of the Board of
Directors or of any committee thereof may be taken without a meeting if all
members of the Board of Directors or of such committee, as the case may be,
consent thereto in writing, and the writing or writings are filed with the
minutes of proceedings of the Board of Directors or of such committee.
Section 3.9 Compensation. Directors may receive compensation for
services to the Corporation in their capacities as directors or otherwise in
such manner and in such amounts as may be fixed from time to time by the Board
of Directors.
13
<PAGE>
Section 3.10 Committees of the Board of Directors. The Board of
Directors may from time to time, by resolution passed by majority of the Whole
Board, designate one or more committees, each committee to consist of one or
more directors of the Corporation. The Board of Directors may designate one or
more directors as alternate members of any committee, who may replace any absent
or disqualified member at any meeting of the committee. The resolution of the
Board of Directors may, in addition or alternatively, provide that in the
absence or disqualification of a member of a committee, the member or members
thereof present at any meeting and not disqualified from voting, whether or not
he, she or they constitute a quorum, may unanimously appoint another member of
the Board of Directors to act at the meeting in the place of any such absent or
disqualified member. Any such committee, to the extent provided in the
resolution of the Board of Directors, shall have and may exercise all the powers
and authority of the Board of Directors in the management of the business and
affairs of the Corporation, and may authorize the seal of the Corporation to be
affixed to all papers which may require it, except as otherwise provided by law.
Unless the resolution of the Board of Directors expressly so provides, no such
committee shall have the power or authority to declare a dividend or to
authorize the issuance of stock. Any such committee may adopt rules governing
the method of calling and time and place of holding its meetings. Unless
otherwise provided by the Board of Directors, a majority of any such committee
(or the member thereof, if only one) shall constitute a quorum for the
transaction of business, and the vote of a majority of the members of such
committee present at a meeting at which a quorum is present shall be the act of
such committee. Each such committee shall keep a record of its acts and
proceedings and shall report thereon to the Board of Directors whenever
requested so to do. Any or all members of any such committee may be removed,
with or without cause, by resolution of the Board of Directors, passed by a
majority of the Whole Board.
14
<PAGE>
ARTICLE IV
Officers
Section 4.1 Elected Officers. The elected officers of the
Corporation shall be a Chairman of the Board, a President, a Secretary and a
Treasurer, and may also include one or more Vice Presidents, one or more
Assistant Secretaries and one or more Assistant Treasurers. All officers chosen
by the Board of Directors shall each have such powers and duties as generally
pertain to their respective offices, subject to the specific provisions of this
Article IV, together with such other powers and duties as from time to time may
be conferred by the Board of Directors or any committee thereof. The Chairman of
the Board shall be chosen from among the directors. Any number of such offices
may be held by the same person, but no officer shall execute, acknowledge or
verify any instrument in more than one capacity. The Board of Directors may
appoint, and may delegate power to appoint, such other officers, agents and
employees as it may deem necessary or proper, who shall hold their offices or
positions for such terms, have such authority and perform such duties as may
from time to time be determined by or pursuant to authorization of the Board of
Directors.
Section 4.2 Election and Term of Office. The elected officers of the
Corporation shall be elected annually by the Board of Directors at the regular
meeting of the Board of Directors held after each annual meeting of the
stockholders. If the election of officers shall not be held at such meeting,
such election shall be held as soon thereafter as convenient. Subject to Section
4.3 of these Bylaws, each officer shall hold office until his or her successor
shall have been duly elected and shall have qualified or until his or her death
or until such officer shall resign.
Section 4.3 Resignation and Removal. Any officer may resign at any
time upon written notice to the Corporation. Any elected officer may be removed
by a majority of the
15
<PAGE>
members of the Whole Board, with or without cause, at any time. The Board of
Directors may delegate such power of removal as to officers, agents and
employees not elected by the Board of Directors. Such removal shall be without
prejudice to a person's contract rights, if any, but the appointment of any
person as an officer, agent or employee of the Corporation shall not of itself
create contract rights.
Section 4.4 Compensation and Bond. The compensation of the officers
of the Corporation shall be fixed by the Board of Directors, but this power may
be delegated to any officer in respect of other officers under his or her
control. The Corporation may secure the fidelity of any or all of its officers,
agents or employees by bond or otherwise.
Section 4.5 Chairman of the Board. The Chairman of the Board shall
preside at all meetings of stockholders and of the Board of Directors. The
Chairman of the Board shall be responsible for the general management of the
affairs of the Corporation, shall make reports to the Board of Directors and the
stockholders and shall perform all duties incidental to such office which may be
required by law and all such other duties as are properly required by the Board
of Directors. Except where by law the signature of the President is required,
the Chairman of the Board shall possess the same power as the President to sign
all certificates, contracts and other instruments of the Corporation which may
be authorized by the Board of Directors. The Chairman of the Board shall see
that all orders and resolutions of the Board of Directors and of any committee
thereof are carried into effect.
Section 4.6 President. The President shall act in a general
executive capacity and shall assist the Chairman of the Board in the
administration and operation of the Corporation's business and general
supervision of its policies and affairs. The President shall, in the absence of
16
<PAGE>
or because of the inability to act of the Chairman of the Board, perform all
duties of the Chairman of the Board and preside at all meetings of stockholders
and of the Board of Directors. The President may sign, alone or with the
Secretary or any other proper officer of the Corporation authorized by the Board
of Directors, certificates, contracts and other instruments of the Corporation
as authorized by the Board of Directors.
Section 4.7 Vice Presidents. Each Vice President shall have such
powers and perform such duties as the Board of Directors, the Chairman of the
Board or the President may from time to time prescribe. In the absence or
inability to act of the President, unless the Board of Directors shall otherwise
provide, the Vice President who has served in that capacity for the longest time
and who shall be present and able to act, shall perform all the duties and may
exercise any of the powers of the President.
Section 4.8 Treasurer. The Treasurer shall have charge of all funds
and securities of the Corporation, shall endorse the same for deposit or
collection when necessary and deposit the same to the credit of the Corporation
in such banks or depositaries as the Board of Directors may authorize. He or she
may endorse all commercial documents requiring endorsements for or on behalf of
the Corporation and may sign all receipts and vouchers for payments made to the
Corporation. He or she shall have all such further powers and duties as
generally are incident to the position of Treasurer or as may be assigned to him
or her by the Chairman of the Board, the President or the Board of Directors.
Section 4.9 Secretary. The Secretary shall record all the
proceedings of the meetings of the stockholders and directors in a book to be
kept for that purpose and shall also record therein all action taken by written
consent of directors in lieu of a meeting. He or she shall
17
<PAGE>
attend to the giving and serving of all notices of the Corporation. He or she
shall have custody of the seal of the Corporation and shall attest the same by
his or her signature whenever required. He or she shall have charge of the stock
ledger and such other books and papers as the Board of Directors may direct, but
he or she may delegate responsibility for maintaining the stock ledger to any
transfer agent appointed by the Board of Directors. He or she shall have all
such further powers and duties as generally are incident to the position of
Secretary or as may be assigned to him or her by the President or the Board of
Directors.
Section 4.10 Assistant Treasurers. In the absence or inability to
act of the Treasurer, any Assistant Treasurer may perform all the duties and
exercise all the powers of the Treasurer. An Assistant Treasurer shall also
perform such other duties as the Treasurer or the Board of Directors may assign
to him or her.
Section 4.11 Assistant Secretaries. In the absence or inability to
act of the Secretary, any Assistant Secretary may perform all the duties and
exercise all the powers of the Secretary. An Assistant Secretary shall also
perform such other duties as the Secretary or the Board of Directors may assign
to him or her.
Section 4.12 Delegation of Duties. In case of the absence of any
officer of the Corporation, or for any other reason that the Board of Directors
may deem sufficient, the Board of Directors may confer for the time being the
powers or duties, or any of them, of such officer upon any other officer or upon
any director.
18
<PAGE>
ARTICLE V
Indemnification and Insurance
Section 5.1 Right to Indemnification. Each person who was or is made
a party or is threatened to be made a party to or is otherwise involved in any
action, suit or proceeding, whether civil, criminal, administrative or
investigative (hereinafter a "proceeding"), by reason of the fact that he or she
or a person of whom he or she is the legal representative is or was a director
or an officer of the Corporation or is or was serving at the request of the
Corporation as a director, officer, employee or agent of any other corporation
or of a partnership, joint venture, trust or other enterprise, including service
with respect to any employee benefit plan (hereinafter an "indemnitee"), whether
the basis of such proceeding is an alleged action or failure to act in an
official capacity as a director, officer, employee or agent or in any other
capacity while serving as a director, officer, employee or agent, shall be
indemnified and held harmless by the Corporation to the fullest extent
authorized by the GCL, as the same exists or may hereafter be amended (but, in
the case of any such amendment, only to the extent that such amendment permits
the Corporation to provide broader indemnification rights than said law
permitted the Corporation to provide prior to such amendment), against all
expense, liability and loss (including, without limitation, attorneys' fees,
court costs, judgments, fines, excise taxes or penalties under the Employee
Retirement Income Security Act of 1974, as amended, and amounts paid or to be
paid in settlement) reasonably incurred by such indemnitee in connection
therewith; provided, however, that except as provided in Section 5.3 with
respect to proceedings seeking to enforce rights to indemnification, the
Corporation shall indemnify any such indemnitee seeking indemnification in
connection with a proceeding (or part thereof) initiated by such indemnitee only
if such proceeding (or part thereof) was authorized by the Board of Directors.
19
<PAGE>
Section 5.2 Right to Advancement of Expenses. The right to
indemnification conferred in Section 5.1 shall include the right to be paid by
the Corporation for the expenses (including attorneys' fees) incurred in
defending any such proceeding in advance of its final disposition (hereinafter
an "advancement of expenses"); provided, however, that, if the GCL requires, an
advancement of expenses incurred by an indemnitee in his or her capacity as a
director or officer (and not in any other capacity in which service was or is
rendered by such indemnitee, including, without limitation, service to an
employee benefit plan) shall be made only upon delivery to the Corporation of an
undertaking (hereinafter an "undertaking"), by or on behalf of such indemnitee,
to repay all amounts so advanced if it shall ultimately be determined by final
judicial decision from which there is no further right to appeal (hereinafter a
"final adjudication") that such indemnitee is not entitled to be indemnified for
such expenses under this Section 5.2 or otherwise.
Section 5.3 Right of Indemnitee to Bring Suit. If a claim under
Section 5.1 or Section 5.2 is not paid in full by the Corporation within thirty
(30) days after a written claim has been received by the Corporation, except in
the case of a claim for an advancement of expenses, in which case the applicable
period shall be twenty (20) days, the indemnitee may at any time thereafter
bring suit against the Corporation to recover the unpaid amount of the claim. If
successful in whole or in part in any such suit, or in a suit brought by the
Corporation to recover an advancement of expenses pursuant to the terms of an
undertaking, the indemnitee shall be entitled to be paid also the expense of
prosecuting or defending such suit. In (i) any suit brought by the indemnitee to
enforce a right to indemnification hereunder (but not in a suit brought by the
indemnitee to enforce a right of an advancement of expenses) it shall be a
defense that, and (ii) in any suit brought by the Corporation to recover an
advancement of expenses pursuant to the terms of an undertaking, the Corporation
shall be entitled to recover such expenses upon a final
20
<PAGE>
adjudication that, the indemnitee has not met any applicable standard for
indemnification set forth in the GCL. Neither the failure of the Corporation
(including its Board of Directors, independent legal counsel or stockholders) to
have made a determination prior to the commencement of such action that
indemnification of the indemnitee is proper in the circumstances because the
indemnitee has met the applicable standard of conduct set forth in the GCL, nor
an actual determination by the Corporation (including its Board of Directors,
independent legal counsel or stockholders) that the indemnitee has not met such
applicable standard of conduct, shall create a presumption that the indemnitee
has not met the applicable standard of conduct or, in the case of such a suit
brought by the indemnitee, be a defense to such suit. In any suit brought by the
indemnitee to enforce a right to indemnification or to an advancement of
expenses hereunder, or brought by the Corporation to recover an advancement of
expenses pursuant to the terms of an undertaking, the burden of proving that the
indemnitee is not entitled to be indemnified, or to such advancement of
expenses, under this Article V or otherwise shall be on the Corporation.
Section 5.4 Non-Exclusivity of Rights. The right to indemnification
and the advancement of expenses conferred in this Article V shall not be
exclusive of any other right which any person may have or hereafter acquire
under any statute, provision of the Certificate of Incorporation, provision of
these Bylaws, agreement, vote of stockholders or disinterested directors or
otherwise.
Section 5.5 Insurance. The Corporation may maintain insurance, at
its expense, to protect itself and any director, officer, employee or agent of
the Corporation or another corporation, partnership, joint venture, trust or
other enterprise against any expense, liability or loss, whether or not the
Corporation would have the power to indemnify such person against such expense,
liability or loss under the GCL.
21
<PAGE>
Section 5.6 Indemnification of Employees and Agents of the
Corporation. The Corporation may, to the extent authorized from time to time by
the Board of Directors, grant rights to indemnification, and rights to the
advancement of expenses, to any employee or agent of the Corporation to the
fullest extent of the provisions of this Article V with respect to the
indemnification and advancement of expenses of directors and officers of the
Corporation.
Section 5.7 Contract Rights. The rights to indemnification and to
the advancement of expenses conferred in Section 5.1 and Section 5.2 shall be
contract rights and such rights shall continue as to an indemnitee who has
ceased to be a director, officer, employee or agent and shall inure to the
benefit of the indemnitee's heirs, executors and administrators.
ARTICLE VI
Stock
Section 6.1 Certificates. Certificates for stock of the Corporation
shall be in such form as shall be approved by the Board of Directors and shall
be signed in the name of the Corporation by the Chairman of the Board, the
President or a Vice President, and by the Treasurer or an Assistant Treasurer,
or the Secretary or an Assistant Secretary. Such certificates may be sealed with
the seal of the Corporation or a facsimile thereof. Any of or all the signatures
on a certificate may be a facsimile. In case any officer, transfer agent or
registrar who has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to be such officer, transfer agent or registrar
before such certificate is issued, it may be issued by the Corporation with the
same effect as if he or she were such officer, transfer agent or registrar at
the date of issue.
Section 6.2 Transfers of Stock. Transfers of stock shall be made
only upon the books of the Corporation by the holder, in person or by duly
authorized attorney, and on the
22
<PAGE>
surrender of the certificate or certificates for the same number of shares, with
an assignment and power of transfer endorsed thereon or attached thereto, duly
executed, with such proof of the authenticity of the signature as the
Corporation or its agents may reasonably require. The Board of Directors shall
have the power to make all such rules and regulations, not inconsistent with the
Certificate of Incorporation and these Bylaws and the GCL, as the Board of
Directors may deem appropriate concerning the issue, transfer and registration
of certificates for stock of the Corporation. The Board of Directors may appoint
one or more transfer agents or registrars of transfers, or both, and may require
all stock certificates to bear the signature of either or both.
Section 6.3 Lost, Stolen or Destroyed Certificates. The Corporation
may issue a new stock certificate in the place of any certificate theretofore
issued by it, alleged to have been lost, stolen or destroyed, and the
Corporation may require the owner of the lost, stolen or destroyed certificate
or his or her legal representative to give the Corporation a bond sufficient to
indemnify it against any claim that may be made against it on account of the
alleged loss, theft or destruction of any such certificate or the issuance of
any such new certificate. The Board of Directors may require such owner to
satisfy other reasonable requirements as it deems appropriate under the
circumstances.
Section 6.4 Stockholder Record Date. In order that the Corporation
may determine the stockholders entitled to notice of or to vote at any meeting
of stockholders or any adjournment thereof, or entitled to receive payment of
any dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock,
or for the purpose of any other lawful action, the Board of Directors may fix a
record date, which record date shall not precede the date upon which the
resolution fixing the record date is adopted by
23
<PAGE>
the Board of Directors, and which shall not be more than sixty nor less than ten
(10) days before the date of such meeting, nor more than sixty (60) days prior
to any other action.
If no record date is fixed by the Board of Directors, (l) the record
date for determining stockholders entitled to notice of or to vote at a meeting
of stockholders shall be at the close of business on the day next preceding the
date on which notice is given, or, if notice is waived, at the close of business
on the day next preceding the day on which the meeting is held, and (2) the
record date for determining stockholders for any other purpose shall be at the
close of business on the day on which the Board of Directors adopts the
resolution relating thereto.
A determination of stockholders of record entitled to notice of or
to vote at a meeting of stockholders shall apply to any adjournment of the
meeting; provided, however, that the Board of Directors may fix a new record
date for the adjourned meeting.
Only such stockholders as shall be stockholders of record on the
date so fixed shall be entitled to notice of, and to vote at, such meeting and
any adjournment thereof, or to receive payment of such dividend or other
distribution, or to exercise such rights in respect of any such change,
conversion or exchange of stock, or to participate in such action, as the case
may be, notwithstanding any transfer of any stock on the books of the
Corporation after any record date so fixed.
ARTICLE VII
Seal
Section 7.1 Seal. The seal of the Corporation shall be circular in
form and shall bear, in addition to any other emblem or device approved by the
Board of Directors, the name of the Corporation, the year of its incorporation
and the words "Corporate Seal" and "Delaware". The
24
<PAGE>
seal may be used by causing it or a facsimile thereof to be impressed or affixed
or in any other manner reproduced.
ARTICLE VIII
Waiver of Notice
Section 8.1 Waiver of Notice. Whenever notice is required to be
given to any stockholder or director of the Corporation under any provision of
the GCL or the Certificate of Incorporation or these Bylaws, a written waiver
thereof, signed by the person or persons entitled to notice, whether before or
after the time stated therein, shall be deemed equivalent to the giving of such
notice. In the case of a stockholder, such waiver of notice may be signed by
such stockholder's attorney or proxy duly appointed in writing. Attendance of a
person at a meeting shall constitute a waiver of notice of such meeting, except
when the person attends a meeting for the express purpose of objecting at the
beginning of the meeting, to the transaction of any business because the meeting
is not lawfully called or convened. Neither the business to be transacted at,
nor the purpose of, any regular or special meeting of the stockholders,
directors or members of a committee of directors need be specified in any
written waiver of notice.
ARTICLE IX
Checks, Notes, Drafts, Etc.
Section 9.1 Checks, Notes, Drafts, Etc. Checks, notes, drafts,
acceptances, bills of exchange and other orders or obligations for the payment
of money shall be signed by such officer or officers or person or persons as the
Board of Directors or a duly authorized committee thereof may from time to time
designate.
25
<PAGE>
ARTICLE X
Amendments
Section 10.1 Amendments. These Bylaws may be amended, added to,
rescinded or repealed at any meeting of the Board of Directors or of the
stockholders, provided that notice of the proposed change was given in the
notice of the meeting and, in the case of the Board of Directors, in a notice
given no less than twenty-four hours prior to the meeting; provided, however,
that, in the case of amendments by stockholders, notwithstanding any other
provisions of these Bylaws or any provision of law which might otherwise permit
a lesser vote or no vote, but in addition to any affirmative vote of the holders
of any particular class or series of stock required by law, the Certificate of
Incorporation or these Bylaws, the affirmative vote of the holders of at least
80 percent of the voting power of the then outstanding shares of Voting Stock,
either present or represented by proxy, voting together as a single class, shall
be required to alter, amend or repeal Section 2.2, 2.4, 2.5 2.7 or 2.10 of
Article II, Section 3.2, 3.3, or 3.5 of Article III or Article X of these
Bylaws.
26
<PAGE>
EXHIBIT 4.1
CERTIFICATE OF DESIGNATION
of
CLASS A CONVERTIBLE REDEEMABLE
PARTICIPATING PREFERRED STOCK
of
CYBERSENTRY, INC.
------------------------------------------------------------
Pursuant to Section 151 of the
General Corporation Law of the State of Delaware
------------------------------------------------------------
CYBERSENTRY, INC., a corporation organized and existing under the laws
of the State of Delaware (the "Corporation"), HEREBY CERTIFIES that pursuant to
-----------
the authority conferred upon the Board of Directors of the Corporation by the
provisions of the Certificate of Incorporation of the Corporation (the
"Certificate of Incorporation"), and in accordance with the provisions of
- -----------------------------
Section 151 of the General Corporation Law of the State of Delaware, the
following resolution creating a series of its Preferred Stock, par value $.001
per share, designated as Class A Convertible Redeemable Participating Preferred
Stock has been duly adopted by the Board of Directors of the Corporation:
RESOLVED, that a series of the class of authorized Preferred Stock,
par value $.001 per share, of the Corporation (the "Preferred Stock") be hereby
---------------
created, and that the designation and amount thereof and the voting powers,
preferences and relative, participating, optional and other special rights of
the shares of such series, and the qualifications, limitations or restrictions
of such series, are as follows:
Section 1. Designation and Amount.
----------------------
The shares of such series shall be designated as the "Class A
Convertible Redeemable Participating Preferred Stock" (the "Class A Preferred
-----------------
Stock") and the number of shares initially constituting such series shall be
- -----
7,000,000, which number may be decreased (but not increased) by the Board of
Directors of the Corporation (the "Board of Directors") without a vote of
------------------
stockholders; provided, however, that such number may not be decreased below the
-------- -------
1
<PAGE>
number of then currently outstanding shares of Class A Preferred Stock. The
stated value and liquidation preference per share (the "Liquidation Preference")
----------------------
of the Class A Preferred Stock shall be $1.50.
Section 2. Definitions.
-----------
Capitalized terms used herein shall have the following meanings set
forth in this Section 2:
---------
"Board of Directors" has the meaning ascribed to such term in Section
------------------ -------
1.
- -
"Business Day" means any day other than Saturday, Sunday or a day on
------------
which banking institutions in the State of New York are authorized or obligated
by law or executive order to close.
"By-Laws" means the By-Laws of the Corporation, as they may be amended
-------
or restated from time to time.
"Certificate of Incorporation" means the Certificate of Incorporation
----------------------------
of the Corporation, as it may be amended or restated from time to time.
"Class A Preferred Stock" has the meaning ascribed to such term in
-----------------------
Section 1.
---------
"Class B Preferred Stock" means the series of authorized Preferred
-----------------------
Stock of the Corporation designated as the "Class B Convertible Redeemable
Participating Preferred Stock" and issued contemporaneously with the Class A
Preferred Stock.
"Closing Price per share of Common Stock" on any date shall be the
---------------------------------------
last sale price, regular way, or, in case no such sale takes place on such day,
the average of the closing bid and asked prices, regular way, of the Common
Stock, in either case as reported in the principal consolidated transaction
reporting system with respect to securities listed on the principal national
securities exchange on which the Common Stock is listed or admitted to trading
or, if the Common Stock is not listed or admitted to trading on any national
securities exchange, the last quoted sale price or, if not so quoted, the
average of the high bid and low asked prices in the over-the-counter market, as
reported by the National Association of Securities Dealers, Inc. Automated
Quotations System or such other system then in use, or, if on any such date the
Common Stock is not quoted by any such organization, the average of the closing
bid and asked prices as furnished by a professional market maker making a market
in the Common Stock selected by the Board of Directors. If the Common Stock is
not publicly held or so listed or publicly traded, "Closing Price per share of
--------------------------
Common Stock" shall mean the Fair Market Value per share as determined in good
- ------------
faith by the Board of Directors.
"Common Stock" means the common stock, par value $.001 per share, of
------------
the Corporation.
2
<PAGE>
"Conversion Price" shall be an amount equal to $1.50, as adjusted from
----------------
time to time pursuant to Section 8. Any adjustment of the Conversion Price
---------
pursuant to Section 8 shall be to the nearest one-hundredth (1/100th) of a whole
---------
cent.
"Current Market Price per share of Common Stock" on any date shall be
----------------------------------------------
deemed to be the average of the Closing Prices per share of Common Stock for the
twenty (20) consecutive trading days commencing thirty (30) trading days
immediately prior to such date.
"Current Trading Price" on any date shall, with respect to any
---------------------
security, be the last sale price, regular way, or, in case no such sale takes
place on such day, the average of the closing bid and asked prices, regular way,
of such security, in either case as reported in the principal consolidated
transaction reporting system with respect to securities listed on the principal
national securities exchange on which such security is listed or admitted to
trading or, if not so quoted, the average of the high bid and low asked prices
in the over-the-counter market, as reported by the National Association of
Securities Dealers, Inc. Automated Quotations System.
"DGCL" means the General Corporation Law of the State of Delaware.
----
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
------------
"Fair Market Value" means an amount determined in good faith by the
-----------------
Board of Directors and certified in a resolution sent to all holders of shares
of Class A Preferred Stock.
"Issue Date" means the first date on which shares of Class A Preferred
----------
Stock are issued.
"Junior Stock" means the Common Stock and any other stock of the
------------
Corporation ranking junior to the Class A Preferred Stock with respect to the
payment of dividends and the distribution of assets, whether upon liquidation or
otherwise.
"Liquidation Preference" has the meaning ascribed to such term in
----------------------
Section 1.
- ---------
"Parity Stock" means any stock of the Corporation ranking on a parity
------------
with the Class A Preferred Stock either with respect to the payment of dividends
or the distribution of assets, whether upon liquidation or otherwise.
"Plan" means Second Amended Plan of Reorganization, dated December 4,
----
1998, as supplemented, filed by Telecommunications Service Center, Inc.,
predecessor to the Corporation, with the United States Bankruptcy Court for the
Middle District of Florida.
"Person" means any person or entity of any nature whatsoever,
------
specifically including an individual, a firm, a company, a corporation, a
partnership, a trust or other entity.
"Preferred Stock" means the preferred stock, par value $.001 per
---------------
share, of the Corporation.
3
<PAGE>
"Redemption Price" of any share of Class A Preferred Stock means, as
----------------
of any date, the Liquidation Preference, plus all accrued and unpaid dividends
on such share of Class A Preferred Stock to such date.
"SEC" means the Securities and Exchange Commission.
---
"Secretary" means the Secretary of the Corporation.
---------
"Senior Stock" means any stock of the Corporation ranking prior to the
------------
Class A Preferred Stock either with respect to the payment of dividends or the
distribution of assets, whether upon liquidation or otherwise.
"Set Apart for Payment" means the Corporation shall have deposited
---------------------
with a bank or trust company having a capital and surplus of at least
$50,000,000, in trust for the exclusive benefit of the holders of shares of
Class A Preferred Stock, funds sufficient to satisfy the Corporation's payment
obligation.
"Subsidiary" of any Person means any corporation or other entity of
----------
which a majority of the voting power of the voting equity securities or equity
interest is owned, directly or indirectly, by such Person.
Section 3. Dividends and Distributions.
---------------------------
(a) In case the Corporation shall at any time or from time to time
declare, order, pay or make a dividend or other distribution (including, without
limitation, any distribution of stock or other securities or property or rights
or warrants to subscribe for securities of the Corporation or any of its
Subsidiaries by way of dividend or spinoff) on the Common Stock, other than any
dividend or distribution of shares of Common Stock, then, and in each such case,
the holders of shares of Class A Preferred Stock shall be entitled to receive
from the Corporation, with respect to each share of Class A Preferred Stock
held, the same dividend or distribution received by a holder of the number of
shares (including any fractional shares) of Common Stock into which such share
of Class A Preferred Stock is convertible on the record date for such dividend
or distribution. Any such dividend or distribution shall be declared, ordered,
paid or made on the Class A Preferred Stock at the same time such dividend or
distribution is declared, ordered, paid or made on the Common Stock.
(b) The holders of shares of Class A Preferred Stock shall not be
entitled to receive any dividends or other distributions except as provided in
this Section 3.
---------
Section 4. Voting Rights.
-------------
(a) The holders of shares of Class A Preferred Stock shall be entitled
to vote together with the holders of shares of Common Stock on all matters
requiring a shareholder vote or other shareholder action by the holders of
shares of Common Stock. In any such shareholder vote, the holders of shares of
Class A Preferred Stock shall be entitled to a number of votes, with
4
<PAGE>
respect to each share of Class A Preferred Stock held, equal to the number of
shares (including any fractional shares) of Common Stock into which such share
of Class A Preferred Stock is convertible on the record date for such
shareholder vote or other shareholder action.
(b) (i) The holders of shares of Class A Preferred Stock shall have
the right, notwithstanding anything to the contrary in the Certificate of
Incorporation or the By-Laws, voting together as a single class, to elect one
director of the Corporation, such director to be in addition to the number of
directors constituting the then current Board of Directors, with the remaining
directors to be elected by the other class or classes of stock entitled to vote
therefor at any meeting of the stockholders held for the purpose of electing
directors.
(ii) Such right of the holders of Class A Preferred Stock to vote for
the election of a director may be exercised at any annual meeting of
stockholders of the Corporation or at any special meeting of stockholders of the
Corporation called for such purpose as hereinafter provided or at any
adjournment thereof, or by the written consent, delivered to the Secretary, of
the holders of a majority of all outstanding shares of Class A Preferred Stock
as of the record date of such written consent. Unless such right has been
exercised by written consent of the holders of a majority of the outstanding
shares of Class A Preferred Stock as hereinabove authorized, the Secretary may
call, and upon the written request of the holders of record of at least twenty
percent (20%) of the outstanding shares of Class A Preferred Stock addressed to
the Secretary at the principal executive offices of the Corporation shall call,
a special meeting of the holders of such shares for the election of such
director as provided herein. Such meeting shall be held within thirty (30) days
after delivery of such request to the Secretary, at the place and upon the
notice required for meetings of stockholders provided in the By-Laws or by law
for the holding of meetings of stockholders. No such special meeting or
adjournment thereof shall be held on a date less than thirty (30) days before an
annual meeting of stockholders of the Corporation or any special meeting in lieu
thereof at which the holders of the Class A Preferred Stock are given the
opportunity to elect one director in accordance with this paragraph (b). If at
-------------
any such annual or special meeting or any adjournment thereof the holders of a
majority of the then outstanding shares of Class A Preferred Stock entitled to
vote in such election shall be present or represented by proxy, or if the
holders of a majority of the outstanding shares of Class A Preferred Stock shall
have acted by written consent in lieu of a meeting with respect thereto, then
the authorized number of directors shall be increased by one and the holders of
the Class A Preferred Stock shall be entitled to elect such additional director.
The absence of a quorum of the holders of any other class or series of capital
stock of the Corporation at any such annual or special meeting shall not affect
the exercise by the holders of the Class A Preferred Stock of their right to
elect one director in accordance with this paragraph (b). The director so
-------------
elected shall serve until the next annual meeting of stockholders of the
Corporation or until his or her successor shall be elected and shall qualify.
In case the director elected by the holders of the Class A Preferred Stock
pursuant to this paragraph (b) shall cease to serve as a director for any reason
-------------
prior to the expiration of his or her term, the holders of the Class A Preferred
Stock then outstanding and entitled to vote for such director may, by written
consent as hereinabove provided, or at a special meeting of such holders called
as provided above, elect a successor to hold office for the unexpired term of
such director whose place shall be vacant.
5
<PAGE>
(iii) The rights of the holders of Class A Preferred Stock to elect
one director pursuant to the terms of this paragraph (b) shall not be adversely
-------------
affected by the voting or other rights applicable to any other security of the
Corporation.
(c) So long as any shares of Class A Preferred Stock shall be
outstanding and unless the consent or approval of a greater number of shares
shall then be required by law, without first obtaining the consent or approval
of the holders of a majority of the shares of Class A Preferred Stock then
outstanding, voting as a single class, given in person or by proxy at a meeting
at which the holders of such shares shall be entitled to vote separately as a
class, or by written consent, the Corporation shall not: (i) subsequent to the
Issue Date, issue shares of Class A Preferred Stock in excess of the number of
such shares which are necessary to be issued under the Plan, or issue any non-
voting stock; (ii) authorize or create any class or series, or any shares of any
class or series, of Senior Stock; (iii) authorize or create any class or series,
or any shares of any class or series, of Parity Stock other than the Class B
Preferred Stock; (iv) reclassify any shares of capital stock of the Corporation
into shares of Senior Stock or Parity Stock; (v) authorize any security
exchangeable for, convertible into, or evidencing the right to purchase any
shares of Senior Stock or Parity Stock; or (vi) amend, alter or repeal the
Certificate of Incorporation to alter or change the preferences, rights or
powers of the Class A Preferred Stock so as to affect the Class A Preferred
Stock adversely or to increase the authorized number of shares of Class A
Preferred Stock.
(d) Except as provided in paragraphs (a), (b) and (c) of this Section
--------------------------- -------
4 or in the Certificate of Incorporation, and except for any voting rights
- -
provided by law, the holders of shares of Class A Preferred Stock shall have no
voting rights and their consent shall not be required for the taking of any
corporate action.
Section 5. Redemption.
----------
(a) On each March 1 and September 1 of the years 2000, 2001, 2002.
2003 and 2004 (each such date, an "Optional Redemption Date"), the Corporation
------------------------
shall Set Apart for Payment an amount equal to five cents ($.05) for each share
of Class A Preferred Stock then outstanding. The aggregate amount so Set Apart
for Payment shall be referred to herein as the "Redemption Pool". Each record
---------------
holder of shares of Class A Preferred Stock as of the Optional Redemption Date
shall be entitled to require the Corporation to redeem all or any portion of the
shares of Class A Preferred Stock then held by such holder, up to a maximum
number of shares equal to (x) the number of shares of Class A Preferred Stock
held by such holder as of the Optional Redemption Date, multiplied by (y) $.05
cents per share of Class A Preferred Stock, divided by (z) the Redemption Price
per share of Class A Preferred Stock as of the Optional Redemption Date (with
any fractional shares being rounded up or down to the nearest whole share), by
paying therefor in cash out of the Redemption Pool an amount equal to the
Redemption Price per share as of the Optional Redemption Date.
(b) On or before March 4, 2001, the Corporation shall have the right,
at its sole option and election, to redeem, at any time or from time to time, in
whole or in part, the
6
<PAGE>
outstanding shares of Class A Preferred Stock by paying therefor in cash an
amount per share equal to Redemption Price.
(c) (i) Notice of any redemption of shares of Class A Preferred Stock
pursuant to paragraph (b) of this Section 5 shall be mailed not less than thirty
------------- ---------
(30) nor more than sixty (60) days prior to the redemption date to each holder
of shares of Class A Preferred Stock to be redeemed, at such holder's address as
it appears on the transfer books of the Corporation. Each such notice shall
state: (v) the date fixed for redemption, (w) the place or places where the
redemption price will be paid (if other than the principal executive offices of
the Corporation), (x) if less than all the shares held by any holder are to be
redeemed pursuant to paragraph (b) of this Section 5, the number of shares to be
------------- ---------
redeemed from such holder, (y) the Conversion Price then in effect and (z) that
dividends on the shares of Class A Preferred Stock will cease to accrue on the
date fixed for redemption. In order to facilitate the redemption of shares of
Class A Preferred Stock, the Board of Directors may fix a record date for the
determination of shares of Class A Preferred Stock to be redeemed, not more than
sixty (60) days nor less than thirty (30) days prior to the date fixed for such
redemption. In the case of the redemption of less than all the outstanding
shares of Class A Preferred Stock pursuant to paragraph (b) of this Section 5,
------------- ---------
(I) such redemption shall be of whole shares selected by lot among all then
outstanding shares of Class A Preferred Stock in such manner as may be
prescribed by the Board of Directors, and (II) if fewer than all shares
represented by any certificate are redeemed, a new certificate shall be issued
representing the unredeemed shares without cost to the holder thereof.
(ii) As promptly as practicable after each Optional Redemption Date,
the Corporation shall give notice by mail to each holder of record of Class A
Preferred Stock as of such date, at such holder's address as it appears on the
transfer books of the Corporation, which notice shall set forth each holder's
right to require the Corporation to redeem a portion of the shares of Class A
Preferred Stock held by such holder out of funds held in the Redemption Pool,
the redemption date (which date shall be twenty (20) days following the date of
such mailed notice), and the procedures to be followed by such holder in
exercising such holder's right to cause such redemption. In the event a record
holder of shares of Class A Preferred Stock as of the Optional Redemption Date
shall elect to require the Corporation to redeem a portion of its shares of
Class A Preferred Stock pursuant to paragraph (a) of this Section 5, such holder
------------- ---------
shall deliver within twenty (20) days following the mailing to such holder of
the Corporation's notice described in this subparagraph (ii), a written notice
-----------------
to the Corporation so stating, specifying the number of shares to be redeemed
pursuant to paragraph (a) of this Section 5. The Corporation shall redeem the
------------- ---------
number of shares so specified on the date fixed for redemption. Failure of the
Corporation to give any notice required by this subparagraph (ii), or the formal
-----------------
insufficiency of any such notice, shall not prejudice the rights of any holders
of shares of Class A Preferred Stock to cause the Corporation to redeem any such
shares held by them.
(iii) Notice having been given pursuant to the applicable
subparagraph of this paragraph (d), from and after the date specified therein as
-------------
the date of redemption, unless default shall be made by the Corporation in
providing for the payment of the applicable redemption price, all dividends on
the Class A Preferred Stock thereby called by the Corporation (in the case of
shares to be redeemed pursuant to paragraph (b) of this Section 5) or delivered
------------- ---------
by a holder (in
7
<PAGE>
the case of shares to be redeemed to paragraph (a) of this Section 5), for
------------- ---------
redemption shall cease to accrue, and from and after the date of redemption so
specified, unless default shall be made by the Corporation as aforesaid, or from
and after the date (prior to the date of redemption so specified) on which the
Corporation shall provide for the payment of the Redemption Price by depositing
the requisite amount of moneys (and other property, if applicable) with a bank
or trust company having a capital and surplus of at least $50,000,000, provided
--------
that the notice of redemption shall state the intention of the Corporation to
deposit such moneys (and other property, if applicable) on a date in such notice
specified, all rights of the holders thereof as stockholders of the Corporation,
except the right to receive the applicable redemption price (but without
interest) and except the right to exercise any privileges of conversion, shall
cease and terminate. Any interest allowed on moneys so deposited shall be paid
to the Corporation. Any moneys (and other property, if applicable) so deposited
which shall remain unclaimed by the holders of Class A Preferred Stock at the
end of six (6) years after the redemption date shall become the property of, and
be paid by such bank or trust company to, the Corporation. Except for any
amounts deposited in payment of accrued and unpaid dividends, in the event that
moneys are deposited pursuant to this paragraph in respect of shares of Class A
Preferred Stock that are converted in accordance with the provisions of
Section 8, such moneys shall, upon such conversion, revert to the general funds
- ---------
of the Corporation, and upon demand, such bank or trust company shall pay over
to the Corporation such moneys and shall be relieved of all responsibility to
the holders of such converted shares in respect thereof.
Section 6. Reacquired Shares.
-----------------
Any shares of Class A Preferred Stock converted, redeemed, purchased
or otherwise acquired by the Corporation in any manner whatsoever shall be
retired and canceled promptly after the acquisition thereof, and, if necessary
to provide for the lawful redemption or purchase of such shares, the capital
represented by such shares shall be reduced in accordance with the DGCL. All
such shares shall upon their cancellation become authorized but unissued shares
of Preferred Stock and may be reissued as part of another series of Preferred
Stock.
Section 7. Liquidation, Dissolution or Winding Up.
--------------------------------------
(a) In the event of any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, the holders of shares of Class
A Preferred Stock shall be entitled to receive out of the assets of the
Corporation available for distribution to its stockholders, an amount equal to
the Liquidation Preference per share plus all accrued and unpaid dividends
thereon to the date of such payment, and no distribution shall be made (i) to
the holders of shares of Common Stock or any other capital stock of the
Corporation ranking junior to the Class A Preferred Stock upon liquidation,
dissolution or winding up, unless, prior thereto, the holders of shares of Class
A Preferred Stock shall have received an amount equal to the Liquidation
Preference per share plus all accrued and unpaid dividends thereon to the date
of such payment, or (ii) to the holders of shares of any capital stock of the
Corporation ranking on a parity with the Class A Preferred Stock upon
liquidation, dissolution or winding up, except distributions made ratably on the
Class A Preferred Stock and all such other capital stock in proportion to the
total amounts to which the holders of all such shares are entitled upon such
8
<PAGE>
liquidation, dissolution or winding up of the Corporation. The Class B
Preferred Stock ranks on parity with the Class A Preferred Stock with respect to
the distribution of assets upon any liquidation, dissolution or winding up.
(b) Neither the consolidation, merger or other business combination
of the Corporation with or into any other Person or Persons nor the sale, lease,
exchange or conveyance of all or any part of the property, assets or business of
the Corporation, shall be deemed to be a liquidation, dissolution or winding up
of the Corporation for purposes of this Section 7.
---------
Section 8. Conversion.
----------
Each share of Class A Preferred Stock may, subject to paragraph (e) of
-------------
this Section 8, at any time up to the close of business on October 1, 2004, at
---------
the option of the holder thereof, be converted into shares of Common Stock, on
the terms and conditions set forth in this Section 8.
---------
(a) Each share of Class A Preferred Stock shall be convertible in the
manner hereinafter set forth into a number of fully-paid and nonassessable
shares of Common Stock equal to the result obtained (calculated to the nearest
one-thousandth (1/1,000th) of a share) by dividing the Liquidation Preference by
the Conversion Price.
(b) The Conversion Price shall be adjusted from time to time as
follows:
(i) In case the Corporation shall at any time after the Issue
Date declare a dividend, or make a distribution, on the outstanding shares
of Common Stock in shares of Common Stock or subdivide or reclassify the
outstanding shares of Common Stock into a greater number of shares of
Common Stock or combine or reclassify the outstanding shares of Common
Stock into a smaller number of shares of Common Stock, then, and in each
such case,
(A) the Conversion Price as in effect immediately prior to such
event shall be adjusted by multiplying such Conversion Price by a
fraction, the numerator of which is the number of shares of Common
Stock outstanding immediately prior to such event and the denominator
of which is the number of shares of Common Stock outstanding
immediately after such event; and
(B) an adjustment made pursuant to this subparagraph (i) shall
----------------
become effective (I) in the case of any such dividend or distribution,
immediately after the close of business on the record date for the
determination of holders of shares of Common Stock entitled to receive
such dividend or distribution, or (II) in the case of any such
subdivision, reclassification or combination, at the close of business
on the day upon which such corporate action becomes effective.
9
<PAGE>
(ii) In case the Corporation shall issue shares of Common Stock
(or rights, options or warrants to purchase or other securities convertible
into or exchangeable for shares of Common Stock) at any time after the
Issue Date at a price per share less than the Current Market Price per
share of Common Stock on the date of issuance of such shares (or the date
of issuance of such rights, options, warrants or other convertible or
exchangeable securities) (the "Trigger Price"), other than (w) in a
-------------
transaction to which paragraph (c) of Section 3 or subparagraph (i) of this
------------- --------- ----------------
paragraph (b) is applicable, (x) issuances of shares of Common Stock
-------------
pursuant to rights or options granted under any Employee Benefit Plan or
(y) upon conversion or exchange of shares of Class A Preferred Stock or
upon conversion of Notes in accordance with their terms, then, and in each
such case,
(A) the Conversion Price as in effect immediately prior to such
issuance shall be adjusted by multiplying such Conversion Price by a
fraction, (I) the numerator of which is the sum of (1) the number of
shares of Common Stock outstanding immediately prior to such event and
(2) the number of shares of Common Stock which the aggregate
consideration receivable by the Corporation for the total number of
shares of Common Stock so issued (or issuable upon the exercise or
conversion of any such rights, options, warrants or other convertible
or exchangeable securities) would purchase at the Trigger Price as in
effect immediately prior to such issuance, and (II) the denominator of
which is the sum of (1) the number of shares of Common Stock
outstanding immediately prior to such event and (2) the number of
additional shares of Common Stock issued (or issuable upon the
exercise or conversion of any such rights, options, warrants or other
convertible or exchangeable securities); and
(B) such adjustment shall become effective immediately after the
date of such issuance.
For purposes of this subparagraph (ii), the aggregate
-----------------
consideration receivable by the Corporation in connection with the issuance
of shares of Common Stock or of rights, options or warrants to purchase or
other securities convertible into or exchangeable for shares of Common
Stock shall be deemed to be equal to the sum of the net offering price
(after deduction of underwriting discounts or commissions and expenses
payable to third parties, if any) of all such securities plus the aggregate
amount, if any, payable upon exercise of any such rights, options or
warrants or conversion or exchange of any such convertible or exchangeable
securities into or for shares of Common Stock.
(iii) In case the Corporation shall be a party to any
transaction (including, without limitation, a merger, consolidation, sale
of all or substantially all of the Corporation's assets or recapitalization
of the Common Stock and excluding any transaction to which subparagraph (i)
----------------
or (ii) of this paragraph (b) or paragraph (c) of Section 3 applies) in
------- ------------- ------------- ---------
which the previously outstanding Common Stock shall be changed into or,
pursuant to the operation of law or the terms of the transaction to which
the
10
<PAGE>
Corporation is a party, exchanged for different securities of the
Corporation or common stock or other securities of another corporation or
interests in a noncorporate entity or other property (including cash) or
any combination of any of the foregoing, then, as a condition of the
consummation of such transaction, lawful and adequate provision shall be
made so that each holder of shares of Class A Preferred Stock shall be
entitled, upon conversion, to an amount per share equal to (A) the
aggregate amount of stock, securities, cash and/or any other property
(payable in kind), as the case may be, into which or for which each share
of Common Stock is changed or exchanged times (B) the number of shares of
Common Stock into which a share of Class A Preferred Stock is convertible
immediately prior to the consummation of such transaction.
(c) In case the Corporation shall be a party to a transaction
described in subparagraph (iii) of paragraph (b) above, effective provision
------------------ -------------
shall be made, in the articles or certificate of incorporation of the resulting
or surviving corporation or other corporation issuing or delivering such shares,
other securities or property or otherwise, so that the provisions set forth
herein for the protection of the conversion rights of the Class A Preferred
Stock shall thereafter be applicable, as nearly as reasonably may be, to any
such other shares of stock and other securities and property deliverable upon
conversion of the Class A Preferred Stock remaining outstanding or other
convertible stock or securities received by the holders in place thereof; and
any such resulting or surviving corporation or other corporation issuing or
delivering such shares, other securities or property shall expressly assume the
obligation to deliver, upon the exercise of the conversion privilege, such
shares, securities or property as the holders of the Class A Preferred Stock
remaining outstanding, or other convertible stock or securities received by the
holders in place thereof, shall be entitled to receive, pursuant to the
provisions hereof, and to make provision for the protection of the conversion
right as above provided. In case shares, securities or property other than
Common Stock shall be issuable or deliverable upon conversion as aforesaid, then
all references to Common Stock in paragraph (b) of this Section 8 shall be
------------- ---------
deemed to apply, so far as provided and as nearly as is reasonable, to any such
shares, other securities or property.
(d) The holder of any shares of Class A Preferred Stock may exercise
such holder's right to convert such shares into shares of Common Stock by
surrendering for such purpose to the Corporation, at its principal office or at
such other office or agency maintained by the Corporation for that purpose, a
certificate or certificates representing the shares of Class A Preferred Stock
to be converted accompanied by a written notice stating that such holder elects
to convert all or a specified whole number of such shares in accordance with the
provisions of this Section 8 and specifying the name or names in which such
---------
holder wishes the certificate or certificates for shares of Common Stock to be
issued. In case such notice shall specify a name or names other than that of
such holder, such notice shall be accompanied by payment of all transfer taxes
payable upon the issuance of shares of Common Stock in such name or names.
Other than such taxes, the Corporation will pay any and all issue and other
taxes (other than taxes based on income) that may be payable in respect of any
issue or delivery of shares of Common Stock on conversion of Class A Preferred
Stock pursuant hereto. As promptly as practicable after the surrender of such
certificate or certificates and the receipt of such notice relating thereto and,
if applicable, payment of all transfer taxes (or the demonstration to the
satisfaction of the
11
<PAGE>
Corporation that such taxes have been paid), the Corporation shall deliver or
cause to be delivered (i) certificates representing the number of validly
issued, fully paid and nonassessable full shares of Common Stock to which the
holder of shares of Class A Preferred Stock so converted shall be entitled and
(ii) if less than the full number of shares of Class A Preferred Stock evidenced
by the surrendered certificate or certificates are being converted, a new
certificate or certificates, of like tenor, for the number of shares evidenced
by such surrendered certificate or certificates less the number of shares
converted. Such conversion shall be deemed to have been made at the close of
business on the date of giving of such notice and of such surrender of the
certificate or certificates representing the shares of Class A Preferred Stock
to be converted so that the rights of the holder thereof as to the shares being
converted shall cease except for the right to receive shares of Common Stock,
and the person entitled to receive the shares of Common Stock shall be treated
for all purposes as having become the record holder of such shares of Common
Stock at such time. The Corporation shall not be required to convert, and no
surrender of shares of Class A Preferred Stock shall be effective for that
purpose, while the transfer books of the Corporation for the Common Stock are
closed for any purpose (but not for any period in excess of ten (10) Business
Days); but the surrender of shares of Class A Preferred Stock for conversion
during any period while such books are so closed shall become effective for
conversion immediately upon the reopening of such books, as if the conversion
had been made on the date such shares of Class A Preferred Stock were
surrendered, and at the conversion rate in effect at the date of such surrender.
(e) Shares of Class A Preferred Stock that are called for redemption
by the Corporation may be converted at any time up to the close of business on
the Business Day next preceding the date fixed for redemption of such shares
pursuant to Section 5, unless the Corporation shall have defaulted in its
---------
obligations under such Section to make the redemption payment.
(f) In any case in which paragraph (b) of this Section 8 shall require
------------- ---------
that an adjustment as a result of any event becomes effective after a record
date for such event, the Corporation may elect to defer until after the
occurrence of such event (i) issuing to the holder of any shares of Class A
Preferred Stock converted after such record date and before the occurrence of
such event the additional shares of Common Stock issuable upon such conversion
over and above the shares of Common Stock issuable upon such conversion on the
basis of the conversion rate prior to adjustment and (ii) paying to such holder
any amount in cash in lieu of a fractional share of Common Stock pursuant to
paragraph (h) below; and, in lieu of the shares the issuance of which is so
- -------------
deferred, the Corporation shall issue due bills or other appropriate evidence of
the right to receive such shares.
(g) Holders of shares of Class A Preferred Stock at the close of
business on a record date in respect of a Quarterly Dividend shall be entitled
to receive the dividend payable on such shares (except that holders of shares
called for redemption on a redemption date between such record date and
Quarterly Dividend Payment Date shall not be entitled to receive such dividend
on such Quarterly Dividend Payment Date) on the corresponding Quarterly Dividend
Payment Date notwithstanding the conversion thereof following such record date
and prior to such Quarterly Dividend Payment Date. However, shares of Class A
Preferred Stock
12
<PAGE>
surrendered for conversion during the period between the close of business on
any record date in respect of a Quarterly Dividend and the opening of business
on the corresponding Quarterly Dividend Payment Date (except shares called for
redemption on a redemption date during such period) must be accompanied by
payment of an amount equal to the dividends payable on such shares on such
Quarterly Dividend Payment Date. A holder of shares of Class A Preferred Stock
on a record date in respect of a Quarterly Dividend who tenders any such shares
for conversion on the corresponding Quarterly Dividend Payment Date will receive
the dividend payable by the Corporation on such shares of Class A Preferred
Stock on such date, and the converting holder need not include payment of the
amount of such dividend upon surrender of shares of Class A Preferred Stock for
conversion. Except as provided above, the Corporation shall make no payment or
allowance for unpaid dividends, whether or not in arrears, on converted shares
of Class A Preferred Stock or for dividends on the shares of Common Stock issued
upon such conversion.
(h) In connection with the conversion of any shares of Class A
Preferred Stock, no fractions of shares of Common Stock shall be issued, but in
lieu thereof the Corporation shall pay a cash adjustment in respect of such
fractional interest in an amount equal to such fractional interest multiplied by
the Current Market Price per share of Common Stock on the day on which such
shares of Class A Preferred Stock are deemed to have been converted.
(i) The Corporation shall at all times reserve and keep available out
of its authorized and unissued Common Stock, solely for the purpose of effecting
the conversion of the Class A Preferred Stock, such number of shares of Common
Stock as shall from time to time be sufficient to effect the conversion of all
shares of Class A Preferred Stock then outstanding. The Corporation shall from
time to time, subject to and in accordance with the DGCL, increase the
authorized amount of Common Stock if at any time the number of authorized shares
of Common Stock remaining unissued shall not be sufficient to permit the
conversion at such time of all shares of Class A Preferred Stock then
outstanding. The Corporation shall cause any shares of Common Stock issued upon
conversion of Class A Preferred Stock to be listed for trading on any securities
exchange on which the Common Stock is at the time listed, and shall deliver such
notices as may be required by such exchange in connection with any such
issuance.
(j) Notwithstanding anything to the contrary contained herein, if
adjustments of the Conversion Price have caused the Conversion Price to be lower
than the par value, if any, of the Common Stock, upon any conversion of shares
of Class A Preferred Stock the Corporation shall, to the maximum extent it is
legally able to do so, issue to the converting holder the shares of Common Stock
into which the shares of Class A Preferred Stock being converted are
convertible, and, in addition, the Corporation shall pay the converting holder
an amount in cash equal to the Current Market Price per share of Common Stock
multiplied by the number of shares and fractions thereof of Common Stock which
the converting holder would have been entitled to receive except for the
limitation on lawful issuance described in this paragraph.
(k) Notwithstanding anything to the contrary contained herein, no
adjustment in the Conversion Price pursuant to this Section 8 shall be required
---------
unless such adjustment would require an increase or decrease of at least 1% in
such Conversion Price, provided, however, that
-------- -------
13
<PAGE>
any adjustments which, by reason of this paragraph (k), are not required to be
-------------
made shall be carried forward and taken into account in any subsequent
adjustment.
(l) Upon the expiration of any rights, options or warrants to purchase
or other securities convertible into or exchangeable for shares of Common Stock,
if any thereof shall not have been exercised, converted or exchanged, the
Conversion Price shall, upon such expiration, be readjusted and shall thereafter
be such as it would have been had it been originally adjusted (or had the
original adjustment not been required, as the case may be) on the basis of (i)
the only shares of Common Stock so issued were the shares of Common Stock, if
any, actually issued or sold upon the exercise of such rights, options or
warrants to purchase or securities convertible into or exchangeable for shares
of Common Stock and (ii) such shares of Common Stock, if any, were issued or
sold for the consideration actually received by the Company upon such exercise
plus the consideration, if any, actually received by the Company for the
issuance, sale or grant of all such rights, options or warrants to purchase or
securities convertible into or exchangeable for shares of Common Stock, whether
or not exercised; provided, however, that no such readjustment shall have the
-------- -------
effect of increasing the Conversion Price by an amount in excess of the amount
of the adjustment initially made in respect of the issuance, sale or grant of
such rights, options or warrants to purchase, or securities convertible into or
exchangeable for, shares of Common Stock.
Section 9. Reports as to Adjustments.
-------------------------
Whenever the Conversion Price is adjusted as provided in Section 8,
---------
the Corporation shall promptly mail to the holders of record of the outstanding
shares of Class A Preferred Stock at their respective addresses as the same
shall appear in the Corporation's stock records a notice stating that the
Conversion Price has been adjusted and setting forth the new Conversion Price
and the new number of shares of Common Stock (or describing the new stock,
securities, cash or other property) into which each share of Class A Preferred
Stock is convertible as a result of such adjustment, a brief statement of the
facts requiring such adjustment and the computation thereof, and when such
adjustment became effective.
Section 10. Rank.
----
The Class A Preferred Stock shall rank, with respect to the
distribution of assets upon dissolution, liquidation or winding up of the
Corporation, (i) prior to all shares of Junior Stock (including, without
limitation, the Common Stock) and (ii) prior to all shares of any other series
of Preferred Stock, unless and to the extent such other series, the
authorization and creation of which was approved or consented to by the
requisite holders of Class A Preferred Stock in accordance with the provisions
of paragraph (c) of Section 4, by its terms ranks on a parity with or senior to
------------- ---------
the Class A Preferred Stock in any respect.
* * *
14
<PAGE>
IN WITNESS WHEREOF, CyberSentry, Inc. has caused this Certificate of
Designation of Class A Convertible Redeemable Preferred Stock to be duly
executed by its President this 22 day of March, 1999.
CYBERSENTRY, INC.
By: /s/ Gerald Resnick
-------------------------
Gerald Resnick, President
<PAGE>
EXHIBIT 4.2
CERTIFICATE OF DESIGNATION
of
CLASS B CONVERTIBLE REDEEMABLE
PARTICIPATING PREFERRED STOCK
of
CYBERSENTRY, INC.
------------------------------------------------------------
Pursuant to Section 151 of the
General Corporation Law of the State of Delaware
------------------------------------------------------------
CYBERSENTRY, INC., a corporation organized and existing under the laws
of the State of Delaware (the "Corporation"), HEREBY CERTIFIES that pursuant to
-----------
the authority conferred upon the Board of Directors of the Corporation by the
provisions of the Certificate of Incorporation of the Corporation (the
"Certificate of Incorporation"), and in accordance with the provisions of
- -----------------------------
Section 151 of the General Corporation Law of the State of Delaware, the
following resolution creating a series of its Preferred Stock, par value $.001
per share, designated as Class B Convertible Redeemable Participating Preferred
Stock has been duly adopted by the Board of Directors of the Corporation:
RESOLVED, that a series of the class of authorized Preferred Stock,
par value $.001 per share, of the Corporation (the "Preferred Stock") be hereby
---------------
created, and that the designation and amount thereof and the voting powers,
preferences and relative, participating, optional and other special rights of
the shares of such series, and the qualifications, limitations or restrictions
of such series, are as follows:
Section 1. Designation and Amount.
----------------------
The shares of such series shall be designated as the "Class B
Convertible Redeemable Participating Preferred Stock" (the "Class B Preferred
-----------------
Stock") and the number of shares initially constituting such series shall be
- -----
3,000,000, which number may be decreased (but not increased) by the Board of
Directors of the Corporation (the "Board of Directors") without a vote of
------------------
stockholders; provided, however, that such number may not be decreased below the
-------- -------
1
<PAGE>
number of then currently outstanding shares of Class B Preferred Stock. The
stated value and liquidation preference per share (the "Liquidation Preference")
----------------------
of the Class B Preferred Stock shall be $1.50.
Section 2. Definitions.
-----------
Capitalized terms used herein shall have the following meanings set
forth in this Section 2:
---------
"Board of Directors" has the meaning ascribed to such term in Section
------------------ -------
1.
- -
"Business Day" means any day other than Saturday, Sunday or a day on
------------
which banking institutions in the State of New York are authorized or obligated
by law or executive order to close.
"By-Laws" means the By-Laws of the Corporation, as they may be amended
-------
or restated from time to time.
"Certificate of Incorporation" means the Certificate of Incorporation
----------------------------
of the Corporation, as it may be amended or restated from time to time.
"Class A Preferred Stock" means the series of authorized Preferred
-----------------------
Stock of the Corporation designated as the "Class A Convertible Redeemable
Participating Preferred Stock" and issued contemporaneously with the Class B
Preferred Stock.
"Class B Preferred Stock" has the meaning ascribed to such term in
-----------------------
Section 1.
- ---------
"Closing Price per share of Common Stock" on any date shall be the
---------------------------------------
last sale price, regular way, or, in case no such sale takes place on such day,
the average of the closing bid and asked prices, regular way, of the Common
Stock, in either case as reported in the principal consolidated transaction
reporting system with respect to securities listed on the principal national
securities exchange on which the Common Stock is listed or admitted to trading
or, if the Common Stock is not listed or admitted to trading on any national
securities exchange, the last quoted sale price or, if not so quoted, the
average of the high bid and low asked prices in the over-the-counter market, as
reported by the National Association of Securities Dealers, Inc. Automated
Quotations System or such other system then in use, or, if on any such date the
Common Stock is not quoted by any such organization, the average of the closing
bid and asked prices as furnished by a professional market maker making a market
in the Common Stock selected by the Board of Directors. If the Common Stock is
not publicly held or so listed or publicly traded, "Closing Price per share of
--------------------------
Common Stock" shall mean the Fair Market Value per share as determined in good
- ------------
faith by the Board of Directors.
"Common Stock" means the common stock, par value $.001 per share, of
------------
the Corporation.
2
<PAGE>
"Conversion Price" shall be an amount equal to $1.50, as adjusted from
----------------
time to time pursuant to Section 8. Any adjustment of the Conversion Price
---------
pursuant to Section 8 shall be to the nearest one-hundredth (1/100th) of a whole
---------
cent.
"Current Market Price per share of Common Stock" on any date shall be
----------------------------------------------
deemed to be the average of the Closing Prices per share of Common Stock for the
twenty (20) consecutive trading days commencing thirty (30) trading days
immediately prior to such date.
"Current Trading Price" on any date shall, with respect to any
---------------------
security, be the last sale price, regular way, or, in case no such sale takes
place on such day, the average of the closing bid and asked prices, regular way,
of such security, in either case as reported in the principal consolidated
transaction reporting system with respect to securities listed on the principal
national securities exchange on which such security is listed or admitted to
trading or, if not so quoted, the average of the high bid and low asked prices
in the over-the-counter market, as reported by the National Association of
Securities Dealers, Inc. Automated Quotations System.
"DGCL" means the General Corporation Law of the State of Delaware.
----
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
------------
"Fair Market Value" means an amount determined in good faith by the
-----------------
Board of Directors and certified in a resolution sent to all holders of shares
of Class B Preferred Stock.
"Issue Date" means the first date on which shares of Class B Preferred
----------
Stock are issued.
"Junior Stock" means the Common Stock and any other stock of the
------------
Corporation ranking junior to the Class B Preferred Stock with respect to the
payment of dividends and the distribution of assets, whether upon liquidation or
otherwise.
"Liquidation Preference" has the meaning ascribed to such term in
----------------------
Section 1.
- ---------
"Parity Stock" means any stock of the Corporation ranking on a parity
------------
with the Class B Preferred Stock either with respect to the payment of dividends
or the distribution of assets, whether upon liquidation or otherwise.
"Plan" means Second Amended Plan of Reorganization, dated December 4,
----
1998, as supplemented, filed by Telecommunications Service Center, Inc.,
predecessor to the Corporation, with the United States Bankruptcy Court for the
Middle District of Florida.
"Person" means any person or entity of any nature whatsoever,
------
specifically including an individual, a firm, a company, a corporation, a
partnership, a trust or other entity.
"Preferred Stock" means the preferred stock, par value $.001 per
---------------
share, of the Corporation.
3
<PAGE>
"Redemption Price" of any share of Class B Preferred Stock means, as
----------------
of any date, the Liquidation Preference, plus all accrued and unpaid dividends
on such share of Class B Preferred Stock to such date.
"SEC" means the Securities and Exchange Commission.
---
"Secretary" means the Secretary of the Corporation.
---------
"Senior Stock" means any stock of the Corporation ranking prior to the
------------
Class B Preferred Stock either with respect to the payment of dividends or the
distribution of assets, whether upon liquidation or otherwise.
"Set Apart for Payment" means the Corporation shall have deposited
---------------------
with a bank or trust company having a capital and surplus of at least
$50,000,000, in trust for the exclusive benefit of the holders of shares of
Class B Preferred Stock, funds sufficient to satisfy the Corporation's payment
obligation.
"Subsidiary" of any Person means any corporation or other entity of
----------
which a majority of the voting power of the voting equity securities or equity
interest is owned, directly or indirectly, by such Person.
Section 3. Dividends and Distributions.
---------------------------
(a) In case the Corporation shall at any time or from time to time
declare, order, pay or make a dividend or other distribution (including, without
limitation, any distribution of stock or other securities or property or rights
or warrants to subscribe for securities of the Corporation or any of its
Subsidiaries by way of dividend or spinoff) on the Common Stock, other than any
dividend or distribution of shares of Common Stock, then, and in each such case,
the holders of shares of Class B Preferred Stock shall be entitled to receive
from the Corporation, with respect to each share of Class B Preferred Stock
held, the same dividend or distribution received by a holder of the number of
shares (including any fractional shares) of Common Stock into which such share
of Class B Preferred Stock is convertible on the record date for such dividend
or distribution. Any such dividend or distribution shall be declared, ordered,
paid or made on the Class B Preferred Stock at the same time such dividend or
distribution is declared, ordered, paid or made on the Common Stock.
(b) The holders of shares of Class B Preferred Stock shall not be
entitled to receive any dividends or other distributions except as provided in
this Section 3.
---------
Section 4. Voting Rights.
-------------
(a) The holders of shares of Class B Preferred Stock shall be entitled
to vote together with the holders of shares of Common Stock on all matters
requiring a shareholder vote or other shareholder action by the holders of
shares of Common Stock. In any such shareholder vote, the holders of shares of
Class B Preferred Stock shall be entitled to a number of votes, with
4
<PAGE>
respect to each share of Class B Preferred Stock held, equal to the number of
shares (including any fractional shares) of Common Stock into which such share
of Class B Preferred Stock is convertible on the record date for such
shareholder vote or other shareholder action.
(b) So long as any shares of Class B Preferred Stock shall be
outstanding and unless the consent or approval of a greater number of shares
shall then be required by law, without first obtaining the consent or approval
of the holders of a majority of the shares of Class B Preferred Stock then
outstanding, voting as a single class, given in person or by proxy at a meeting
at which the holders of such shares shall be entitled to vote separately as a
class, or by written consent, the Corporation shall not: (i) authorize or
create any class or series, or any shares of any class or series, of Senior
Stock; (ii) authorize or create any class or series, or any shares of any class
or series, of Parity Stock other than the Class A Preferred Stock; (iii)
reclassify any shares of capital stock of the Corporation into shares of Senior
Stock or Parity Stock; (iv) authorize any security exchangeable for, convertible
into, or evidencing the right to purchase any shares of Senior Stock or Parity
Stock; or (v) amend, alter or repeal the Certificate of Incorporation to alter
or change the preferences, rights or powers of the Class B Preferred Stock so as
to affect the Class B Preferred Stock adversely or to increase the authorized
number of shares of Class B Preferred Stock.
(c) Except as provided in paragraphs (a) and (b) of this Section 4 or
---------------------- ---------
in the Certificate of Incorporation, and except for any voting rights provided
by law, the holders of shares of Class B Preferred Stock shall have no voting
rights and their consent shall not be required for the taking of any corporate
action.
Section 5. Redemption.
----------
(a) On or before March 4, 2001, the Corporation shall have the right,
at its sole option and election, to redeem, at any time or from time to time, in
whole or in part, the outstanding shares of Class B Preferred Stock by paying
therefor in cash an amount per share equal to Redemption Price.
(b) (i) Notice of any redemption of shares of Class B Preferred Stock
pursuant to paragraph (a) of this Section 5 shall be mailed not less than thirty
------------- ---------
(30) nor more than sixty (60) days prior to the redemption date to each holder
of shares of Class B Preferred Stock to be redeemed, at such holder's address as
it appears on the transfer books of the Corporation. Each such notice shall
state: (v) the date fixed for redemption, (w) the place or places where the
redemption price will be paid (if other than the principal executive offices of
the Corporation), (x) if less than all the shares held by any holder are to be
redeemed pursuant to paragraph (a) of this Section 5, the number of shares to be
------------- ---------
redeemed from such holder, (y) the Conversion Price then in effect and (z) that
dividends on the shares of Class B Preferred Stock will cease to accrue on the
date fixed for redemption. In order to facilitate the redemption of shares of
Class B Preferred Stock, the Board of Directors may fix a record date for the
determination of shares of Class B Preferred Stock to be redeemed, not more than
sixty (60) days nor less than thirty (30) days prior to the date fixed for such
redemption. In the case of the redemption of less than all the outstanding
shares of Class B Preferred Stock pursuant to paragraph (a) of this Section 5,
------------- ---------
(I) such
5
<PAGE>
redemption shall be of whole shares selected by lot among all then outstanding
shares of Class B Preferred Stock in such manner as may be prescribed by the
Board of Directors, and (II) if fewer than all shares represented by any
certificate are redeemed, a new certificate shall be issued representing the
unredeemed shares without cost to the holder thereof.
(ii) Notice having been given pursuant to subparagraph (i) of this
paragraph (b), from and after the date specified therein as the date of
- -------------
redemption, unless default shall be made by the Corporation in providing for the
payment of the applicable redemption price, all dividends on the Class B
Preferred Stock thereby called by the Corporation for redemption shall cease to
accrue, and from and after the date of redemption so specified, unless default
shall be made by the Corporation as aforesaid, or from and after the date (prior
to the date of redemption so specified) on which the Corporation shall provide
for the payment of the Redemption Price by depositing the requisite amount of
moneys (and other property, if applicable) with a bank or trust company having a
capital and surplus of at least $50,000,000, provided that the notice of
--------
redemption shall state the intention of the Corporation to deposit such moneys
(and other property, if applicable) on a date in such notice specified, all
rights of the holders thereof as stockholders of the Corporation, except the
right to receive the applicable redemption price (but without interest) and
except the right to exercise any privileges of conversion, shall cease and
terminate. Any interest allowed on moneys so deposited shall be paid to the
Corporation. Any moneys (and other property, if applicable) so deposited which
shall remain unclaimed by the holders of Class B Preferred Stock at the end of
six (6) years after the redemption date shall become the property of, and be
paid by such bank or trust company to, the Corporation. Except for any amounts
deposited in payment of accrued and unpaid dividends, in the event that moneys
are deposited pursuant to this paragraph in respect of shares of Class B
Preferred Stock that are converted in accordance with the provisions of Section
-------
8, such moneys shall, upon such conversion, revert to the general funds of the
- -
Corporation, and upon demand, such bank or trust company shall pay over to the
Corporation such moneys and shall be relieved of all responsibility to the
holders of such converted shares in respect thereof.
Section 6. Reacquired Shares.
-----------------
Any shares of Class B Preferred Stock converted, redeemed, purchased
or otherwise acquired by the Corporation in any manner whatsoever shall be
retired and canceled promptly after the acquisition thereof, and, if necessary
to provide for the lawful redemption or purchase of such shares, the capital
represented by such shares shall be reduced in accordance with the DGCL. All
such shares shall upon their cancellation become authorized but unissued shares
of Preferred Stock and may be reissued as part of another series of Preferred
Stock.
Section 7. Liquidation, Dissolution or Winding Up.
--------------------------------------
(a) In the event of any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, the holders of shares of Class
B Preferred Stock shall be entitled to receive out of the assets of the
Corporation available for distribution to its stockholders, an amount equal to
the Liquidation Preference per share plus all accrued and unpaid dividends
thereon to the date of such payment, and no distribution shall be made (i) to
the
6
<PAGE>
holders of shares of Common Stock or any other capital stock of the Corporation
ranking junior to the Class B Preferred Stock upon liquidation, dissolution or
winding up, unless, prior thereto, the holders of shares of Class B Preferred
Stock shall have received an amount equal to the Liquidation Preference per
share plus all accrued and unpaid dividends thereon to the date of such payment,
or (ii) to the holders of shares of any capital stock of the Corporation ranking
on a parity with the Class B Preferred Stock upon liquidation, dissolution or
winding up, except distributions made ratably on the Class B Preferred Stock and
all such other capital stock in proportion to the total amounts to which the
holders of all such shares are entitled upon such liquidation, dissolution or
winding up of the Corporation. The Class A Preferred Stock ranks on parity with
the Class B Preferred Stock with respect to the distribution of assets upon any
liquidation, dissolution or winding up.
(b) Neither the consolidation, merger or other business combination
of the Corporation with or into any other Person or Persons nor the sale, lease,
exchange or conveyance of all or any part of the property, assets or business of
the Corporation, shall be deemed to be a liquidation, dissolution or winding up
of the Corporation for purposes of this Section 7.
---------
Section 8. Conversion.
----------
Each share of Class B Preferred Stock may, subject to paragraph (e) of
-------------
this Section 8, at any time up to the close of business on October 1, 2004, at
---------
the option of the holder thereof, be converted into shares of Common Stock, on
the terms and conditions set forth in this Section 8.
---------
(a) Each share of Class B Preferred Stock shall be convertible in the
manner hereinafter set forth into a number of fully-paid and nonassessable
shares of Common Stock equal to the result obtained (calculated to the nearest
one-thousandth (1/1,000th) of a share) by dividing the Liquidation Preference by
the Conversion Price.
(b) The Conversion Price shall be adjusted from time to time as
follows:
(i) In case the Corporation shall at any time after the Issue
Date declare a dividend, or make a distribution, on the outstanding shares
of Common Stock in shares of Common Stock or subdivide or reclassify the
outstanding shares of Common Stock into a greater number of shares of
Common Stock or combine or reclassify the outstanding shares of Common
Stock into a smaller number of shares of Common Stock, then, and in each
such case,
(A) the Conversion Price as in effect immediately prior to such
event shall be adjusted by multiplying such Conversion Price by a
fraction, the numerator of which is the number of shares of Common
Stock outstanding immediately prior to such event and the denominator
of which is the number of shares of Common Stock outstanding
immediately after such event; and
7
<PAGE>
(B) an adjustment made pursuant to this subparagraph (i) shall
----------------
become effective (I) in the case of any such dividend or distribution,
immediately after the close of business on the record date for the
determination of holders of shares of Common Stock entitled to receive
such dividend or distribution, or (II) in the case of any such
subdivision, reclassification or combination, at the close of business
on the day upon which such corporate action becomes effective.
(ii) In case the Corporation shall issue shares of Common Stock
(or rights, options or warrants to purchase or other securities convertible
into or exchangeable for shares of Common Stock) at any time after the
Issue Date at a price per share less than the Current Market Price per
share of Common Stock on the date of issuance of such shares (or the date
of issuance of such rights, options, warrants or other convertible or
exchangeable securities) (the "Trigger Price"), other than (w) in a
-------------
transaction to which paragraph (c) of Section 3 or subparagraph (i) of this
------------- --------- ----------------
paragraph (b) is applicable, (x) issuances of shares of Common Stock
-------------
pursuant to rights or options granted under any Employee Benefit Plan or
(y) upon conversion or exchange of shares of Class B Preferred Stock or
upon conversion of Notes in accordance with their terms, then, and in each
such case,
(A) the Conversion Price as in effect immediately prior to such
issuance shall be adjusted by multiplying such Conversion Price by a
fraction, (I) the numerator of which is the sum of (1) the number of
shares of Common Stock outstanding immediately prior to such event and
(2) the number of shares of Common Stock which the aggregate
consideration receivable by the Corporation for the total number of
shares of Common Stock so issued (or issuable upon the exercise or
conversion of any such rights, options, warrants or other convertible
or exchangeable securities) would purchase at the Trigger Price as in
effect immediately prior to such issuance, and (II) the denominator of
which is the sum of (1) the number of shares of Common Stock
outstanding immediately prior to such event and (2) the number of
additional shares of Common Stock issued (or issuable upon the
exercise or conversion of any such rights, options, warrants or other
convertible or exchangeable securities); and
(B) such adjustment shall become effective immediately after the
date of such issuance.
For purposes of this subparagraph (ii), the aggregate
-----------------
consideration receivable by the Corporation in connection with the issuance
of shares of Common Stock or of rights, options or warrants to purchase or
other securities convertible into or exchangeable for shares of Common
Stock shall be deemed to be equal to the sum of the net offering price
(after deduction of underwriting discounts or commissions and expenses
payable to third parties, if any) of all such securities plus the aggregate
amount, if any, payable upon exercise of any such rights, options or
warrants or conversion or exchange of any such convertible or exchangeable
securities into or for shares of Common Stock.
8
<PAGE>
(iii) In case the Corporation shall be a party to any
transaction (including, without limitation, a merger, consolidation, sale
of all or substantially all of the Corporation's assets or recapitalization
of the Common Stock and excluding any transaction to which subparagraph (i)
----------------
or (ii) of this paragraph (b) or paragraph (c) of Section 3 applies) in
------- ------------- ------------- ---------
which the previously outstanding Common Stock shall be changed into or,
pursuant to the operation of law or the terms of the transaction to which
the Corporation is a party, exchanged for different securities of the
Corporation or common stock or other securities of another corporation or
interests in a noncorporate entity or other property (including cash) or
any combination of any of the foregoing, then, as a condition of the
consummation of such transaction, lawful and adequate provision shall be
made so that each holder of shares of Class B Preferred Stock shall be
entitled, upon conversion, to an amount per share equal to (A) the
aggregate amount of stock, securities, cash and/or any other property
(payable in kind), as the case may be, into which or for which each share
of Common Stock is changed or exchanged times (B) the number of shares of
Common Stock into which a share of Class B Preferred Stock is convertible
immediately prior to the consummation of such transaction.
(c) In case the Corporation shall be a party to a transaction
described in subparagraph (iii) of paragraph (b) above, effective provision
------------------ -------------
shall be made, in the articles or certificate of incorporation of the resulting
or surviving corporation or other corporation issuing or delivering such shares,
other securities or property or otherwise, so that the provisions set forth
herein for the protection of the conversion rights of the Class B Preferred
Stock shall thereafter be applicable, as nearly as reasonably may be, to any
such other shares of stock and other securities and property deliverable upon
conversion of the Class B Preferred Stock remaining outstanding or other
convertible stock or securities received by the holders in place thereof; and
any such resulting or surviving corporation or other corporation issuing or
delivering such shares, other securities or property shall expressly assume the
obligation to deliver, upon the exercise of the conversion privilege, such
shares, securities or property as the holders of the Class B Preferred Stock
remaining outstanding, or other convertible stock or securities received by the
holders in place thereof, shall be entitled to receive, pursuant to the
provisions hereof, and to make provision for the protection of the conversion
right as above provided. In case shares, securities or property other than
Common Stock shall be issuable or deliverable upon conversion as aforesaid, then
all references to Common Stock in paragraph (b) of this Section 8 shall be
------------- ---------
deemed to apply, so far as provided and as nearly as is reasonable, to any such
shares, other securities or property.
(d) The holder of any shares of Class B Preferred Stock may exercise
such holder's right to convert such shares into shares of Common Stock by
surrendering for such purpose to the Corporation, at its principal office or at
such other office or agency maintained by the Corporation for that purpose, a
certificate or certificates representing the shares of Class B Preferred Stock
to be converted accompanied by a written notice stating that such holder elects
to convert all or a specified whole number of such shares in accordance with the
provisions of this Section 8 and specifying the name or names in which such
---------
holder wishes the certificate or certificates for shares of Common Stock to be
issued. In case such notice shall specify a name or names other than that of
such holder, such notice shall be accompanied by payment of all transfer
9
<PAGE>
taxes payable upon the issuance of shares of Common Stock in such name or names.
Other than such taxes, the Corporation will pay any and all issue and other
taxes (other than taxes based on income) that may be payable in respect of any
issue or delivery of shares of Common Stock on conversion of Class B Preferred
Stock pursuant hereto. As promptly as practicable after the surrender of such
certificate or certificates and the receipt of such notice relating thereto and,
if applicable, payment of all transfer taxes (or the demonstration to the
satisfaction of the Corporation that such taxes have been paid), the Corporation
shall deliver or cause to be delivered (i) certificates representing the number
of validly issued, fully paid and nonassessable full shares of Common Stock to
which the holder of shares of Class B Preferred Stock so converted shall be
entitled and (ii) if less than the full number of shares of Class B Preferred
Stock evidenced by the surrendered certificate or certificates are being
converted, a new certificate or certificates, of like tenor, for the number of
shares evidenced by such surrendered certificate or certificates less the number
of shares converted. Such conversion shall be deemed to have been made at the
close of business on the date of giving of such notice and of such surrender of
the certificate or certificates representing the shares of Class B Preferred
Stock to be converted so that the rights of the holder thereof as to the shares
being converted shall cease except for the right to receive shares of Common
Stock, and the person entitled to receive the shares of Common Stock shall be
treated for all purposes as having become the record holder of such shares of
Common Stock at such time. The Corporation shall not be required to convert, and
no surrender of shares of Class B Preferred Stock shall be effective for that
purpose, while the transfer books of the Corporation for the Common Stock are
closed for any purpose (but not for any period in excess of ten (10) Business
Days); but the surrender of shares of Class B Preferred Stock for conversion
during any period while such books are so closed shall become effective for
conversion immediately upon the reopening of such books, as if the conversion
had been made on the date such shares of Class B Preferred Stock were
surrendered, and at the conversion rate in effect at the date of such surrender.
(e) Shares of Class B Preferred Stock that are called for redemption
by the Corporation may be converted at any time up to the close of business on
the Business Day next preceding the date fixed for redemption of such shares
pursuant to Section 5, unless the Corporation shall have defaulted in its
---------
obligations under such Section to make the redemption payment.
(f) In any case in which paragraph (b) of this Section 8 shall require
------------- ---------
that an adjustment as a result of any event becomes effective after a record
date for such event, the Corporation may elect to defer until after the
occurrence of such event (i) issuing to the holder of any shares of Class B
Preferred Stock converted after such record date and before the occurrence of
such event the additional shares of Common Stock issuable upon such conversion
over and above the shares of Common Stock issuable upon such conversion on the
basis of the conversion rate prior to adjustment and (ii) paying to such holder
any amount in cash in lieu of a fractional share of Common Stock pursuant to
paragraph (h) below; and, in lieu of the shares the issuance of which is so
- -------------
deferred, the Corporation shall issue due bills or other appropriate evidence of
the right to receive such shares.
10
<PAGE>
(g) Holders of shares of Class B Preferred Stock at the close of
business on a record date in respect of a Quarterly Dividend shall be entitled
to receive the dividend payable on such shares (except that holders of shares
called for redemption on a redemption date between such record date and
Quarterly Dividend Payment Date shall not be entitled to receive such dividend
on such Quarterly Dividend Payment Date) on the corresponding Quarterly Dividend
Payment Date notwithstanding the conversion thereof following such record date
and prior to such Quarterly Dividend Payment Date. However, shares of Class B
Preferred Stock surrendered for conversion during the period between the close
of business on any record date in respect of a Quarterly Dividend and the
opening of business on the corresponding Quarterly Dividend Payment Date (except
shares called for redemption on a redemption date during such period) must be
accompanied by payment of an amount equal to the dividends payable on such
shares on such Quarterly Dividend Payment Date. A holder of shares of Class B
Preferred Stock on a record date in respect of a Quarterly Dividend who tenders
any such shares for conversion on the corresponding Quarterly Dividend Payment
Date will receive the dividend payable by the Corporation on such shares of
Class B Preferred Stock on such date, and the converting holder need not include
payment of the amount of such dividend upon surrender of shares of Class B
Preferred Stock for conversion. Except as provided above, the Corporation shall
make no payment or allowance for unpaid dividends, whether or not in arrears, on
converted shares of Class B Preferred Stock or for dividends on the shares of
Common Stock issued upon such conversion.
(h) In connection with the conversion of any shares of Class B
Preferred Stock, no fractions of shares of Common Stock shall be issued, but in
lieu thereof the Corporation shall pay a cash adjustment in respect of such
fractional interest in an amount equal to such fractional interest multiplied by
the Current Market Price per share of Common Stock on the day on which such
shares of Class B Preferred Stock are deemed to have been converted.
(i) The Corporation shall at all times reserve and keep available out
of its authorized and unissued Common Stock, solely for the purpose of effecting
the conversion of the Class B Preferred Stock, such number of shares of Common
Stock as shall from time to time be sufficient to effect the conversion of all
shares of Class B Preferred Stock then outstanding. The Corporation shall from
time to time, subject to and in accordance with the DGCL, increase the
authorized amount of Common Stock if at any time the number of authorized shares
of Common Stock remaining unissued shall not be sufficient to permit the
conversion at such time of all shares of Class B Preferred Stock then
outstanding. The Corporation shall cause any shares of Common Stock issued upon
conversion of Class B Preferred Stock to be listed for trading on any securities
exchange on which the Common Stock is at the time listed, and shall deliver such
notices as may be required by such exchange in connection with any such
issuance.
(j) Notwithstanding anything to the contrary contained herein, if
adjustments of the Conversion Price have caused the Conversion Price to be lower
than the par value, if any, of the Common Stock, upon any conversion of shares
of Class B Preferred Stock the Corporation shall, to the maximum extent it is
legally able to do so, issue to the converting holder the shares of Common Stock
into which the shares of Class B Preferred Stock being converted are
convertible, and, in addition, the Corporation shall pay the converting holder
an amount in cash
11
<PAGE>
equal to the Current Market Price per share of Common Stock multiplied by the
number of shares and fractions thereof of Common Stock which the converting
holder would have been entitled to receive except for the limitation on lawful
issuance described in this paragraph.
(k) Notwithstanding anything to the contrary contained herein, no
adjustment in the Conversion Price pursuant to this Section 8 shall be required
---------
unless such adjustment would require an increase or decrease of at least 1% in
such Conversion Price, provided, however, that any adjustments which, by reason
-------- -------
of this paragraph (k), are not required to be made shall be carried forward and
-------------
taken into account in any subsequent adjustment.
(l) Upon the expiration of any rights, options or warrants to purchase
or other securities convertible into or exchangeable for shares of Common Stock,
if any thereof shall not have been exercised, converted or exchanged, the
Conversion Price shall, upon such expiration, be readjusted and shall thereafter
be such as it would have been had it been originally adjusted (or had the
original adjustment not been required, as the case may be) on the basis of (i)
the only shares of Common Stock so issued were the shares of Common Stock, if
any, actually issued or sold upon the exercise of such rights, options or
warrants to purchase or securities convertible into or exchangeable for shares
of Common Stock and (ii) such shares of Common Stock, if any, were issued or
sold for the consideration actually received by the Company upon such exercise
plus the consideration, if any, actually received by the Company for the
issuance, sale or grant of all such rights, options or warrants to purchase or
securities convertible into or exchangeable for shares of Common Stock, whether
or not exercised; provided, however, that no such readjustment shall have the
-------- -------
effect of increasing the Conversion Price by an amount in excess of the amount
of the adjustment initially made in respect of the issuance, sale or grant of
such rights, options or warrants to purchase, or securities convertible into or
exchangeable for, shares of Common Stock.
Section 9. Reports as to Adjustments.
-------------------------
Whenever the Conversion Price is adjusted as provided in Section 8,
---------
the Corporation shall promptly mail to the holders of record of the outstanding
shares of Class B Preferred Stock at their respective addresses as the same
shall appear in the Corporation's stock records a notice stating that the
Conversion Price has been adjusted and setting forth the new Conversion Price
and the new number of shares of Common Stock (or describing the new stock,
securities, cash or other property) into which each share of Class B Preferred
Stock is convertible as a result of such adjustment, a brief statement of the
facts requiring such adjustment and the computation thereof, and when such
adjustment became effective.
Section 10. Rank.
----
The Class B Preferred Stock shall rank, with respect to the
distribution of assets upon dissolution, liquidation or winding up of the
Corporation, (i) prior to all shares of Junior Stock (including, without
limitation, the Common Stock) and (ii) prior to all shares of any other series
of Preferred Stock, unless and to the extent such other series, the
authorization and creation of which was approved or consented to by the
requisite holders of Class B Preferred Stock in
12
<PAGE>
accordance with the provisions of paragraph (b) of Section 4, by its terms ranks
-------------
on a parity with or senior to the Class B Preferred Stock in any respect.
* * *
13
<PAGE>
IN WITNESS WHEREOF, CyberSentry, Inc. has caused this Certificate of
Designation of Class B Convertible Redeemable Preferred Stock to be duly
executed by its President this 22 day of March, 1999.
CYBERSENTRY, INC.
By: /s/ Gerald Resnick
---------------------------
Gerald Resnick, President
<PAGE>
EXHIBIT 4.3
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
CYBERSENTRY, INC.
CyberSentry, Inc. (the "Corporation"), a corporation organized and existing
under and by virtual of the General Corporation Law of the State of Delaware,
DOES HEREBY CERTIFY:
FIRST: That by the unanimous written consent of the members of the Board of
Directors of the Corporation, resolutions were duly adopted setting forth a
proposed amendment of the Certificate of Incorporation of the Corporation and
declaring said amendment to be advisable. The resolution setting forth the
proposed amendment is as follows:
RESOLVED, that the Corporation's Certificate of Incorporation be amended in
accordance with Section 242 of the General Corporation Law of the State of
Delaware to effect the following changes in said Certificate of Incorporation:
(1) The first sentence of Section 8 of the Certificate of
Designations of the Class A Convertible Redeemable Participating
Preferred Stock of the Corporation shall be amended to read in its
entirety as follows: "Each share of Class A Preferred Stock may, subject
to paragraph (e) of this Section 8, at any time from and after the open
------------- ---------
of business on March 25, 2001 and up to the close of business on March
24, 2004, at the option of the holder thereof, be converted into shares
of Common Stock, on the terms and conditions set forth in this
Section 8."
---------
(2) The first sentence of Section 8(b)(ii) of the Certificate of
Designations of the Class A Convertible Redeemable Participating
Preferred Stock of the Corporation shall be amended adding the following
clause immediately prior to clause (w) of such sentence: "(v) issuances
of shares of Common Stock to independent third parties in an arms'-
length transactions,".
(3) The first sentence of Section 8 of the Certificate of
Designations of the Class B Convertible Redeemable Participating
Preferred Stock of the Corporation shall be amended to read in its
entirety as follows: "Each share of Class B Preferred Stock may, subject
to paragraph (e) of this Section 8, at any time from and after the open
------------- ---------
of business on March 25, 2001 and up to the close of business on March
24, 2004, at the option of the holder thereof, be converted into shares
of Common Stock, on the terms and conditions set forth in this
Section 8."
---------
<PAGE>
(4) The first sentence of Section 8(b)(ii) of the Certificate of
Designations of the Class B Convertible Redeemable Participating
Preferred Stock of the Corporation shall be amended adding the following
clause immediately prior to clause (w) of such sentence: "(v) issuances
of shares of Common Stock to independent third parties in arms'-length
transactions,".
SECOND: That in lieu of a meeting and vote of stockholders, the holders of
outstanding stock of the Corporation having not less than the minimum number of
votes that would be necessary to authorize said amendment at a meeting at which
all shares entitled to vote thereon were present and voted have given written
consent to said amendment in accordance with the provisions of Section 228 of
the General Corporation Law of the State of Delaware.
THIRD: That said amendment was duly adopted in accordance with the
provisions of Sections 228 and 242 of the General Corporation Law of the State
of Delaware.
FOURTH: That the capital of the Corporation will not be reduced under or by
reason of said amendment.
IN WITNESS WHEREOF, the Corporation has caused this certificate to be
signed by its President, and attested by its Secretary, this 11th day of May,
1999.
By: /s/ Gerald A. Resnick
-------------------------------
Gerald A. Resnick, President
Attest: /s/ Hal Shankland
---------------------------
Hal Shankland, Secretary
<PAGE>
EXHIBIT 10.1.1
REVOLVING NOTE
RENEWAL
300,000.00 St Petersburg FL 04/01/96
- ------------- ------------------------------ ---------------------------
(City) (State) (Date)
For value received, the undersigned (whether one or more, hereinafter called the
"Obligors") promise(s) to pay to the order of SouthTrust Bank of Florida,
National Association (hereinafter called the "Bank" or, together with any other
Holder of this note, ("Holder"), at any office of the Bank in St Petersburg, FL,
or at such other place as the Holder may designate, the sum of THREE HUNDRED
THOUSAND AND NO/100 Dollars, [ILLEGIBLE] with interest thereon at the rate and
on the date(s) provided below from the date of this note until maturity, and
with interest on the aggregate unpaid principal and accrued interest after
maturity at the rate which is 2 percent per annum in excess of the rate stated
below or the maximum rate allowed by law, whichever is less, from maturity until
said aggregate indebtedness is paid in full.
VARIABLE RATE
Interest will accrue on the above-stated principal sum at the rate per annum
which is .750 percentage points in excess of the Base Rate. As used in this
note, the "Base Rate" means the rate of interest designated by the Bank
periodically as its Base Rate. The Base Rate is not necessarily the lowest rate
charged by the Bank. The Base Rate on the date of this note is 8.250 percent.
The rate of interest payable under this note will change to reflect any change
in the Base Rate:
[ILLEGIBLE] on any day the Base Rate changes.
|_| on the _____ day of each month thereafter.
[ILLEGIBLE] on the day each payment of interest is due as provided below.
|_|______________________________________________________________
Obligors may prepay this note in full at any time without penalty.
[ILLEGIBLE] FIXED RATE Interest will accrue on the above-stated principal sum at
the rate of _______________ percent per annum from the date of this note until
maturity [ILLEGIBLE] above-stated principal sum shall be paid in full:
[ILLEGIBLE] on _______________________ |X| on demand. |_| on demand, but if no
demand is made, then on _______________________.
[ILLEGIBLE] interest on the unpaid balance of the principal sum shall be paid:
[ILLEGIBLE] monthly on the 1ST day of each month beginning MAY 1, 1996, and at
maturity, quarterly beginning on ____________, on the same day every three
months thereafter, and at maturity. [ILLEGIBLE] the earlier of maturity of this
note, or the occurrence of any event giving Bank the right to accelerate
maturity of this note as provided below, or written or oral notice to any
[ILLEGIBLE] or of Bank's election to terminate the line of credit (which notice
Bank may give at its discretion), the undersigned may borrow hereunder, prepay
the principal sum in whole or in part without penalty, and reborrow hereunder,
so long as the aggregate unpaid principal balance of such borrowings does not
exceed the principal amount of this note at any [ILLEGIBLE]
Bank may require that borrowings be made only upon at least one banking day's
written notice to Bank. For the privilege of having such credit available, the
undersigned agrees to pay Bank a commitment fee of n/a percent per annum on the
unused portion of the principal sum of this note, such fee to be [ILLEGIBLE] and
payable as follows:_____________________________________________________________
________________________________________________________________________________
[ILLEGIBLE] the principal sum will be calculated at the rate set forth above on
the basis of a |X| 360 |_| 365 day year and the actual number of days elapsed by
multiplying the principal sum by the per annum rate set forth above, multiplying
the product thereof by the actual number of days elapsed, and dividing the
product so obtained by |X} 360 |_| 365.
[ILLEGIBLE] FEE (this provision applicable only if completed): A loan fee in
the amount of $1,500.00 has been |_| advanced to Obligors as a loan under this
note [ILLEGIBLE] paid to the Bank |X| paid to the Bank by cash or check at
closing. The loan fee is earned by the Bank when paid and is not subject to
refund except to the extent required by [ILLEGIBLE].
[ILLEGIBLE] CHARGE: If a payment of the principal sum is late 10 days or more,
in addition to interest after maturity as provided above, Obligors promise to
pay a late charge equal to one half of one percent (1/2%) of the amount of the
payment which is late, subject to a minimum late charge of $.50 and a maximum
late charge of $250.00.
[ILLEGIBLE] note is secured by every security agreement, pledge, assignment,
stock power and/or mortgage covering personal or real property (all of which are
hereinafter included in [ILLEGIBLE] "Separate Agreements") which secures an
obligation so defined as to include this note, including without limitation all
such Separate Agreements which are of even date [ILLEGIBLE] and delivered to the
Bank and/or described in the space below. In addition, as security for the
payment of any and all liabilities and obligations of the Obligors to the
[ILLEGIBLE] including the indebtedness evidenced by this note and all
extensions, renewals, and substitutions thereof) and all claims of every nature
of the Holder against the Obligors, past, present or future, and whether joint,
several, absolute, contingent, matured, unmatured, liquidated, unliquidated,
direct or indirect (all of the foregoing are hereinafter [ILLEGIBLE] in the term
"Obligations") the Obligors hereby grant to the Holder a security interest in
and security title to the property described below: (Describe Separate
Agreements [ILLEGIBLE] collateral)
As further described in Security Agreement dated 08/16/95
Cross-Collaterialized and Cross-Defaulted with Loan #9520773-00002
[ILLEGIBLE] this note is payable on demand, or on demand but not later than a
stated date, all of the Obligations shall be due and payable in full upon demand
by Holder, whether or not [ILLEGIBLE] default described below has occurred and
whether or not the Holder reasonably deems itself to be insure. If this note has
no provision for payment on demand, the following [ILLEGIBLE] apply: If default
occurs in the payment of any of the Obligations when due or with respect to any
condition or agreement contained in this note; or if for any reason whatever
[ILLEGIBLE] collateral shall cease to be satisfactory to the Holder; or in the
event of death (if an individual) or dissolution (if a partnership or
corporation) of, insolvency of, general [ILLEGIBLE] by, filing of petition under
any chapter of the Federal Bankruptcy Code by or against, filing of application
in any court for receiver for, judgment against, issuance of a [ILLEGIBLE]
execution, attachment or garnishment against, or against any of the property of,
any Obligor or any indorser or guarantor of this note; or if there occurs any
default or event authorizing acceleration as contained in any Separate
Agreement; or if at any time in the sole opinion of the Holder the financial
responsiblity of any Obligor or any Indorser or [ILLEGIBLE] of this note shall
become impaired; then, if any of the foregoing occur, all unpaid amounts of any
and all of the Obligations shall, at the option of the Holder and without
[ILLEGIBLE] demand, become immediately due and payable, notwithstanding any time
or credit allowed under any of the Obligations or under any instrument
evidencing the same.
[ILLEGIBLE] respect to any and all Obligations, the Obligors and any indorsers
of this note severally waive the following: (1) all rights of exemption of
property from levy or sale under [ILLEGIBLE] or other process for the collection
of debts under the constitution and laws of the United States or of any state
thereof; (2) demand, presentment, protest, notice of [ILLEGIBLE] suit against
any party and all other requirements necessary to charge or hold any Obligor
liable on any Obligation; (3) any further receipt for or acknowledgment of the
[ILLEGIBLE] now or hereafter deposited or statement of indebtedness; (4) all
statutory provisions and requirements for the benefit of any Obligor, now or
hereafter in force (to the [ILLEGIBLE] that same may be waived); (5) the right
to interpose any set-off or counterclaim of any nature or description in any
litigation in which the Holder and any Obligor shall be [ILLEGIBLE] parties. The
Obligors severally agree that any Obligations of any Obligor may, from time to
time, in whole or in part, be renewed, extended, modified, accelerated,
compromised, discharged or released by the Holder, and any Collateral, lien
and/or right of set-off securing any Obligation may, from time to time, in whole
or in part, be [ILLEGIBLE], sold, or released, all without notice to or further
reservations of rights against any Obligor and all without in any way affecting
or releasing the liability of any Obligor. Obligors jointly and severally agree
to pay all filing fees and taxes in connection with this note or the Collateral
and all costs of collecting or securing or attempting to collect or [ILLEGIBLE]
any Obligations, including a reasonable attorney's fee if an attorney, not a
salaried employee of the Holder, is consulted with reference to suit or
otherwise.
[ILLEGIBLE] Obligors shall be jointly and severally liable for all indebtedness
represented by this note and have subscribed their names hereto without
condition that anyone else should [ILLEGIBLE] become bound hereon and without
any other condition whatever being made. The provisions printed on the back of
this page are a part of this note. The provisions of this [ILLEGIBLE] are
binding on the heirs, executors, administrators, assigns and successors of each
and every Obligor and shall inure to the benefit of the Holder, its successors
and assigns. [ILLEGIBLE] is executed under the seal of each of the Obligors and
of the indorsers, if any.
Telecommunications Service Center, Inc.
---------------------------------------(SEAL)
[ILLEGIBLE] 20773-00001 By /s/ Harold Shankland President
- -------------------------- -------------------------------------------
Harold Shankland Title
Vicki Spears Signature /s/ David Veltman
- -------------------------- ------------------------------(SEAL)
David Veltman, Director
Corporate Signature /s/ Raoul Boielle
- -------------------------- ------------------------------(SEAL)
Raoul Boielle, CEO
The provisions on the reverse side are a part of this note.
[ILLEGIBLE] SouthTrust Corporation (5/90)
<PAGE>
SouthTrust Bank [LOGO]
West Florida
P.O. Box 15708
St. Petersburg, Florida 33733-5708
(813) 694-1035
August 7, 1997
Mr. David Veltman, Director
Telecommunications Service Center, Inc.
412 East Madison Street
Suite 1215
Tampa, Florida 33602
Re: Line of Credit
Dear Mr. Veltman:
I am pleased to inform you that SouthTrust Bank N.A. has committed to provide
the following credit facilities subject to the terms and conditions outlined in
this letter.
1. Borrower(s): Telecommunication Service Center, Inc. and David
Veltman
2. Loan Amount: $300,000.00
3. Use of Proceeds: Carry accounts receivable and provide
short term working capital.
4. Term: On demand; interest only, payable monthly with an
annual review of 5/30/98. Thirty day (30) day out of debt
period is required in any twelve (12) month period.
5. Interest Rate: The interest rate will be SouthTrust Base rate plus
3/4% floating daily.
6. Commitment Fee: One half of one percent which equals $1,500.00.
7. Collateral: Unsecured; cross-collaterized and cross-defaufted with
Term note #9520773-02.
8. Guarantors: Harold L. Shankland, Raoul Boielle each shall jointly and
severally guarantee $150,000.00 of the indebtedness of the
borrower.
MEMBER F.D.I.C
<PAGE>
Mr. David Veltman
Page 2
August 7, 1997
9. Other Loan Terms
and Conditions: Borrower shall provide the following:
(i) Quarterly company prepared financial statements
to be received within thirty (30) days of the end
of the quarter.
(ii) Monthly aging of accounts receivable.
(iii) Annual fiscal year-end financial statements
by an independent CPA to be received by the Bank
no later than one hundred twenty (120) after
fiscal year end.
(iv) Annual personal financial statements and federal
tax return for all borrowers and guarantors.
(v) Stockholder loan in the amount of $1,995,000.00
shall be subordinated to SouthTrust Bank during
the term of the loans.
10. Fees and Expenses: Borrower will be responsible for all costs and expenses
incurred in connection with the renewal,including but
not limited to documentary stamps, recording fees and
attorney's fees as required.
11. Adverse Change: Lender shall not be obligated to renew the loan
contemplated herein if the financial condition of the
Borrower has substantially and adversely changed from
the time the Lender considered the issuance of the
commitment.
12. Expiration: Unless otherwise extend in writing by the Lender, this
commitment shall be deemed null and void if not accepted
by August 15, 1997.
SouthTrust Bank, N.A. is very pleased to provide this commitment to you. The
terms and condition of this loan are not limited to those above. Those matters
not covered above will be incorporated in the final closing documents. The terms
of this commitment shall survive the closing of the transactions described
herein.
<PAGE>
Mr. David Veltman
Page 3
August 7, 1997
If this commitment is acceptable, please acknowledge by executing and returning
this letter with the commitment fee in the amount of $1,500.00 no later than
August 15, 1997.
Sincerely,
/s/ Vicki A. Spears
Vicki A. Spears
Senior Vice President
SOUTHTRUST BANK, N.A.
<PAGE>
SouthTrust Bank [LOGO]
of West Florida
P.O. Box 15708
St. Petersburg, Florida 33733-5708
(813) 694-1035
May 1, 1996
Mr. David Veltman, Director
Telecommunication Service Center, Inc.
412 East Madison Street
Suite 1215
Tampa, Florida 33602
Re: Loan Commitment
Dear Mr. Veltman:
I am pleased to inform you that SouthTrust Bank of Florida, N.A. has committed
to provide the following credit facilities subject to the terms and conditions
outlined in this letter.
1. Borrower(s): (a) Telecommunication Service Center, Inc.
(b) Telecommunication Service Center, Inc. and
David Veltman
2. Loan Amount(s): (a) $300,000.00
(b) $400,000.00
3. Use of Proceeds: Carry accounts receivable and permanent working
capital
4. Term: (a) On demand; interest only, payable monthly
with an annual review of 4/30/97. Thirty day
(30) day out of debt period is required in
any twelve (12) month period.
(b) Five years, sixty monthly principal and
interest payments of approximately
$8,254.89.
5. Interest Rate: (a) The interest rate will be SouthTrust Base
rate plus 3/4%, floating daily.
(b) The interest rate will be 8.75%, fixed.
6. Commitment Fee: (a) One half of one percent which equals
$1,500.00.
(b) One half of one percent which equals
$2,000.00.
MEMBER F.D.I.C.
<PAGE>
Telecommunication Service Centers, Inc.
May 1, 1996
Page 2 of 4
7. Collateral (a) Blanket line on accounts receivable of
Telecommunications Service Centers, Inc.
(b) First security interest in all furniture,
fixtures and equipment of
Telecommunications Service Center, Inc.
Both loans cross-collateralized and cross-
defaulted.
8. Guarantors: (a) David Veltman shall jointly and severally
guarantee the indebtedness of the borrower.
Harold L. Shankland, Raoul Boielle each
shall jointly and severally guarantee
$150,000.00 of the indebtedness of the
borrower.
(b) Harold L. Shankland and Raoul Boielle each
shall guarantee the indebtedness of the
borrower jointly and severally.
9. Other Loan Terms
and Conditions: The following conditions apply to both loan (a)
the line of credit and loan (b) the term loan.
(I) Quarterly company prepared financial
statements to be received within thirty
(30) days of the end of the quarter.
(ii) Monthly aging of accounts receivable.
(iii) Annual fiscal year end financial statements
reviewed by and independent CPA to be
received by the Bank no later than ninety
(90) days after fiscal year end.
(iv) Annual personal financial statements and
federal tax returns for all guarantors.
(v) Stockholder loan in the amount of
$673,675.00 shall be subordinated to
SouthTrust Bank during the term of the
loans.
10. Fees and
Expenses: Borrower will be responsible for all costs and
expenses incurred in connection with the loans,
including but not limited to documentary stamps,
recording fees and attorney's fees as required.
<PAGE>
Telecommunication Service Centers, Inc.
May 1, 1996
Page 3 of 4
11. Adverse Change: Lender shall not be obligated to closed the loans
contemplated herein if the financial condition of
the Borrower has substantially and adversely
changed form the which at the time the Lender
considered the issuance of the commitment.
12. Expiration: Unless otherwise extend in writing by the Lender,
this commitment shall be deemed null and void if
not accepted by May 5, 1996.
SouthTrust Bank of Florida, N.A. is very pleased to provide this commitment to
you. The terms and conditions of this loan are not limited to the above terms
and conditions. Those matters not covered above will be incorporated in the
final closing documents. The terms of this commitment shall survive the closing
of the transactions described herein,
If this commitment is acceptable, please acknowledge by executing and returning
this letter with the commitment fee in the amount of $3,500.00 no later than May
5, 1996.
Sincerely,
SOUTHTRUST BANK OF FLORIDA, N.A.
/s/ Vicki A. Spears
Vicki A. Spears
Vice President
<PAGE>
Telecommunication Service Centers, Inc.
May 1, 1996
Page 4 of 4
ACKNOWLEDGMENT
The foregoing terms and conditions are hereby accepted this 3rd day of May,
1996.
(a) $300,000.00 Revolving Line of Credit
BORROWER
Telecommunication Service Centers, Inc.
By: /s/ [ILLEGIBLE]
------------------------------------
Print Name:
-------------------------
As its:
-----------------------------
GUARANTORS
By: /s/ Harold L. Shankland
------------------------------------
Harold L. Shankland
By: /s/ Raoul Boielle
------------------------------------
Raoul Boielle
By: /s/ David Veltman
------------------------------------
David Veltman
(b) $400,000.00 Term Loan
BORROWER
Telecommunication Service Centers, Inc.
By: /s/ [ILLEGIBLE]
------------------------------------
Print Name:
-------------------------
As its:
-----------------------------
By: /s/ David Veltman
------------------------------------
David Veltman
GUARANTORS
By: /s/ Harold L. Shankland
------------------------------------
Harold L. Shankland
By: /s/ Raoul Boielle
------------------------------------
Raoul Boielle
<PAGE>
FURTHER ASSURANCE AND COMPLIANCE AGREEMENT
For and in consideration of Ten Dollars ($10.00) and other good and
valuable consideration, and the funding of that certain Loan of even date in the
amount of $300,000.00 from SOUTHTRUST BANK OF Florida, National Association
(herein, "Bank") to the borrower agrees to cooperate, adjust, initial,
re-execute and re-deliver any and all closing documents, including but not
limited to any notes, mortgages, deeds, affidavits and closing statements if
deemed necessary or desirable in the sole discretion of the bank in order to
consummate or complete the Loan from the Bank to Borrower or to perfect the
Bank's lien or mortgage. It is the intention of the Borrower that all
documentation for the Loan shall be an accurate reflection of the Bank's
requirements.
The Borrower agrees and convenants to assure that the Loan and its
documentation will conform to the Bank's requirements. The Bank is relying upon
this Agreement and the convenants contained herein in closing this transaction
and funding the Loan to Borrower.
Bank shall have the right to bring suit to enforce the obligations
incurred in connection with this Agreement, and in the event any suit is brought
to enforce this Agreement, the Bank shall be entitled to recover all costs and
expenses incurred, including a reasonable attorney fee.
DATED this 1ST day of APRIL, 1996
WITNESSES: "BORROWER(S)":
Telecommunications Service Center, Inc.
- --------------------------------
/s/ [ILLEGIBLE] /s/ Harold L. Shankland
- -------------------------------- ------------------------------------
Harold L. Shankland, President
/s/ [ILLEGIBLE] /s/ David Veltman
- -------------------------------- ------------------------------------
David Veltman, Director
- --------------------------------
/s/ [ILLEGIBLE] /s/ Raoul Boielle
- -------------------------------- ------------------------------------
Raoul Boielle, CEO
Loan # 9520773-00O01
--------------------------
<PAGE>
EXHIBIT 10.1.2
INSTALLMENT NOTE
$ 400,000.00 St Petersburg FL May 1, 1996
- ------------- ------------------------------ ---------------------------
(City) (State) (Date)
For value received, the undersigned (whether one or more, hereinafter called the
"Obligors") promise(s) to pay to the order of SouthTrust Bank of Florida,
National Association (hereinafter called the "Bank" or, together with any other
holder of this note, the "Holder"), at any office of the Bank in St Petersburg,
FL, or at such other place as the Holder may designate, the principal sum of
FOUR HUNDRED THOUSAND AND NO/100 Dollars, together with interest thereon at the
rate and on the date(s) provided below from the date of this note (or other
interest accrual date shown below) until maturity, and with interest on the
unpaid principal balance after maturity at the rate which is 2 percent per annum
in excess of the rate stated below or the maximum rate allowed by law, whichever
is less, from maturity until said indebtedness is paid in full. Interest will
accrue beginning on the date of this note unless another date is shown
here:________________________________________.
INTEREST RATE.
|_| Variable Rate --
Interest from date
The above-stated sum shall accrue interest as follows (check applicable
box(es)):
Interest will accrue on the above-stated principal sum at the rate per annum
which is _________________ percentage points in excess of the Index Rate. Unless
another rate is made applicable below, the "Index Rate" is the rate of interest
designated by the Bank periodically as its Base Rate. The Base Rate is not
necessarily the lowest rate charged by the Bank. The Base Rate on the date of
this note is _____________________ percent.
|_| (check box if applicable) The "Index Rate" is the weekly auction average
yield of ____________ -week U.S. Treasury Bills at the most recent auction
prior to the data the Index Rate is calculated. The Index Rate on the date
of this note is____________ percent. The rate of interest payable under
this note will change to reflect any change in the Index Rate:
|_| on any day the Index Rate changes.
|_| on the _____________ day of each month hereafter.
|_| on the day each payment of interest is due as provided below.
|_|_______________________________________________________
Obligors may prepay this note in full at any time without penalty.
|X| Fixed Rate --
Interest from date
Interest will accrue on the above-stated principal sum at the rate of 8.75%
percent per annum.
Interest on the principal sum will be calculated at the rate set forth
above on the basis of a |X| 360 |_| 365 day year and the actual number of days
elapsed by multiplying the principal sum by the per annum rate set forth above,
multiplying the product thereof by the actual number of days elapsed, and
dividing the product so obtained by |X| 360 |_| 365.
PAYMENT SCHEDULE. The above-stated principal sum and interest thereon shall be
paid as follows (check applicable box(es)):
|_| Installments
of Principal,
Interest Paid
Separately
The Obligors promise to pay the above-stated principal sum in ________________
consecutive |_| monthly installments |_| quarterly installments |_|_____________
installments in the amount of $_____________________ each,
beginning_______________________ and continuing on the same day of each month,
quarter, or other period (as applicable) thereafter until __________________ at
which time the unpaid balance of the principal sum and all accrued bid unpaid
interest thereon shall be due and payable.
The Obligors promise to pay accrued interest on the principal sum: |_| monthly
|_| quarterly |_| ___________________ beginning ______________________ and
continuing on the same day of each month, quarter, or other period (as
applicable) thereafter until maturity.
|X| Installments
of Principal and
Interest
The Obligors promise to pay the above-stated principal sum and interest thereon
in 59 consecutive |X| monthly installments |_| quarterly installments |_|
__________________installments in the amount of $ 8,254.89 each, beginning June
1, 1996 and continuing on the same day of each month, quarter, or other period
(as applicable) thereafter until May 1, 2001 at which time the unpaid balance of
the principal sum and all accrued but unpaid interest thereon shall be due and
payable.
LOAN FEE. (This provision applicable only if completed):
A loan fee in the amount of $2,000.00 has been |_| included in the amount
of this note and paid to the Bank from the loan proceeds. |X| paid to the Bank
by cash or check at closing. The loan fee is earned by the Bank when paid and is
not subject to refund except to the extent required by law.
LATE CHARGE.
If any scheduled payment is in default 10 days or more, Obligors agree to
pay a late charge equal to 5% of the amount of the payment which is in default,
but not less than $.50 or more than the maximum amount allowed by applicable
law.
PREPAYMENT.
If the interest rate on this note is a variable rate, Obligors may prepay
this note in full at any time without premium or penalty. If the interest rate
on this note is a fixed rate, unless the paragraph which follows is applicable,
prepayment of the principal sum of this note in whole or in part is not
permitted.
|_| If this box is checked, and if the interest rate on this note is a fixed
rate, Obligors may not prepay this note in whole or in part during the first
year after the date of this note. Thereafter, prepayment will be permitted on
any scheduled payment date on condition that the amount of the prepayment must
equal the sum of (a) the principal amount prepaid plus (b) accrued interest on
the amount prepaid plus (c) a premium equal to 1% of the principal amount
prepaid multipled times the number of years or parts of a year remaining until
final scheduled maturity of this note. No prepayment premium need be paid if
prepayment is made within one year prior to the final scheduled maturity of this
note.
If prepayment in full without penalty or premium is required to be
permitted by applicable law, the foregoing provisions will not apply and
prepayment will be allowed in accordance with such law.
COLLATERAL
This note is secured by every security agreement, pledge, assignment,
stock power, mortgage, deed of trust, security deed and/or other instrument
covering personal or real property (all of which are, hereinafter included in
the term "Separate Agreements") which secures an obligation so defined as to
include this note, including without limitation all such Separate Agreements
which are of even date herewith and/or described in the space below. In
addition, as security for the payment of any and all liabilities and obligations
of the Obligors to the Holder (including this note and the indebtedness
evidenced by this note and all extensions, renewals and modifications thereof,
and all writings delivered in substitution therefor) and all claims of every
nature of the Holder against the Obligors, whether present or future, and
whether joint, several, absolute, contingent, matured, liquidated, unliquidated,
and direct or indirect (all of the foregoing are hereinafter included in the
term "Obligations") the Obligors hereby assign to the Holder and grant to the
Holder a security interest in and security title to the property (the
"Collateral") described below: (Describe Separate Agreements and Collateral.)
As further described in Security Agreement dated May 1, 1996
and Security Agreement dated 8/16/95 filed under loan #9520773-00001;
Cross-Collateralized and Cross-Defaulted with Loan #9520773-00001
The Obligors are jointly and severally liable for the payment of this note
and have subscribed their names hereto without condition that anyone else should
sign or become bound hereon and without any other condition whatever being made.
The provisions printed on the back of this page are a part of this note. The
provisions of this note are binding on the heirs, executors, administrators,
successors and assigns of each and every Obligor and shall inure to the behalf
of the Holder, its successors and assigns. This note is executed under the seal
of each of the Obligors and of the indorsers, if any.
The provisions on the reverse side are a part of this note.
CAUTION - IT IS IMPORTANT THAT YOU THOROUGHLY READ THE CONTRACT BEFORE YOU
SIGN IT.
Address of Obligor:
<TABLE>
<S> <C>
Telecommunications Service Center, Inc.
412 East Madison St. Ste. 1215 and David Veltman
- ------------------------------------ ----------------------------------------(SEAL)
Tampa, FL 33602
- ------------------------------------
By /s/ Harold Shankland President
- ------------------------------------ -------------------------------------------
Harold Shankland Title
No. 9520773-00002 Signature /s/ David Veltman
- ------------------------------------ ------------------------------(SEAL)
David Veltman, Director
Officer: Vicki Spears Signature /s/ Raoul Boielle
- ------------------------------------ ------------------------------(SEAL)
Raoul Boielle, CEO
Branch: Corporate
- ------------------------------------
</TABLE>
SF52709 (R) SouthTrust Corporation Rev. 11/90
<PAGE>
Additional Terms and Conditions of Installment Note
(Terms Continued from Reverse Side)
If the Obligors fail to pay any installment of principal or interest or
any other sum under this note exactly when it is due or fail to perform any
other covenant under this note when due (time being of the essence of every term
of this note), or if any of the Obligors or any guarantor or indorser of this
note shall die (if an individual) or dissolve or cease to do business (if a
partnership or corporation), or if any of the Obligors or any guarantor or
indorser of this note becomes insolvent, or makes a general assignment for the
benefit of creditors, or files or has filed against him or if a petition under
any chapter of the Federal Bankruptcy Code, or files or has filed against him or
if an application in any court for the appointment of a receiver or trustee of
any substantial part of his or its property or assets, or if a judgment is
entered against any of the Obligors or any such guarantor or indorser of a levy,
writ of execution, attachment or garnishment is issued against any of the
Obligors or any such guarantor or indorser or any of his or its property or
assets: or if any Obligor, indorser or guarantor of this note transfers all or
any valuable part of his, her or its assets outside the ordinary course of
business, or wastes, loses, or dissipates or permits waste, loss or dissipation
of any valuable part of such person's assets; or if any Obligors, indorser or
guarantor of this note is a partnership, and any general partner of such
partnership withdraws or is removed; or if any Obligor, indorser or guarantor of
this note is a corporation and ownership or power to vote more than 50 percent
of the voting stock of such corporation is transferred, directly or indirectly
(including through any voting trust, irrevocable proxy, or the like), during any
12 month period; of if any default or breach occurs, under any of the Separate
Agreements, or if at any time in the opinion of the Holder the financial
responsibility of any Obligor or any guarantor or indorser of this note becomes
impaired, then, if any of the foregoing shall occur, the entire unpaid principal
sum of this note and all accrued but unpaid interest thereon shall, at the
option of the Holder and without requirement of notice or demand, become due and
payable immediately, notwithstanding any time or credit allowed under this note
or under any other agreement made by the Holder with the Obligors.
As additional Collateral for the payment of all Obligations, the Obligors
jointly and severally transfer, assign, pledge, and set over to the Holder, and
grant the Holder a continuing lien upon and security interest in, any and all
property of each Obligor that for any purpose, whether in trust for any Obligor
or for custody, pledge, collection or otherwise, is now or hereafter in the
actual or constructive possession of, or in transit to, the Holder in any
capacity, its correspondents or agents, and also a continuing lien upon and
right of set-off against deposits and credits of each Obligor with, and all
claims of each Obligor against, the Holder now or at any time hereafter
existing. The Holder is hereby authorized at any time or times and without prior
notice to apply such property, deposits, credits, and claims, in whole or in
part and in such order as the Holder may elect, to the payment of, or as a
reserve against, one or more of the Obligations whether other Collateral
therefor is deemed adequate or not. All such property, deposits, credits and
claims of the Obligors are included in the term Collateral, and the Holder shall
have (unless prohibited by law) the same rights with respect to such Collateral
as it has with respect to other Collateral.
Without the necessity for any further notice to or consent of any Obligor,
the Holder may exercise any rights of any of the Obligors with respect to any
Collateral, including without limitation thereto the following rights: (1) to
record or register in, or otherwise transfer into, the name of the Holder or its
nominee any part of the Collateral, without disclosing that the Holder's
interest is that of a secured party; (2) to pledge or otherwise transfer any or
all of the Obligations and/or Collateral, whereupon any pledgee or transferee
shall have all the rights of the Holder hereunder, and the Holder shall
thereafter be fully discharged and relieved from all responsibility and
liability for the Collateral so transferred but shall retain all rights and
powers thereunder as to all Collateral not so transferred; (3) to take
possession of any Collateral and to receive any proceeds of and dividends and
income on any Collateral, including money, and to hold the same as Collateral or
apply the same to any of the Obligations, the manner, order and extent of such
application to be in the sole discretion of the Holder; (4) to exercise any and
all rights of voting, conversion, exchange, subscription and other rights or
options pertaining to any Collateral; and (5) to liquidate, demand, sue for,
collect, compromise, receive and give receipt for the cash or surrender value of
any Collateral. If for any reason whatsoever the Collateral shall cease to be
satisfactory to the Holder, the Obligors shall upon demand deposit with the
Holder additional Collateral satisfactory to the Holder. Surrender of this note,
upon payment or otherwise, shall not affect the right of the Holder to retain
the Collateral as security for other Obligations. Upon default, the Obligors
agree to assemble the Collateral and make it available to Holder at such place
or places as the Holder shall designate.
The Holder shall be deemed to have exercised reasonable care in the
custody and preservation of any of the Collateral which is in its possession if
it takes such reasonable actions for that purpose as the pledgor of such
Collateral shall request in writing, but the Holder shall have the sole
discretion to determine whether such actions are reasonable. Any omission to do
any act not requested by the pledgor shall not be deemed a failure to exercise
reasonable care. The Obligors shall be responsible for the preservation of the
Collateral and shall take all steps to preserve rights against prior parties.
The Holder shall not be liable for, and no Obligor, indorser, or guarantor shall
be discharged to any extent on account of, any failure to realize upon, or to
exercise any right or power with respect to, any of the Obligations or
Collateral, or for any delay in so doing.
The Holder, without making any demand whatsoever, shall have the right to
sell all or any part of the Collateral, although the Obligations may be
contingent or unmatured, whenever the Holder considers such sale necessary for
its protection. Sale of the Collateral may be made, at any time and from time to
time, at any public or private sale at the option of the Holder, without
advertisement or notice to any Obligor, except such notice as is required by law
and cannot be waived. The Holder may purchase the Collateral at any such sale
(unless prohibited by law) free from any equity of redemption and from all other
claims. After deducting all expenses including legal expenses and attorney's
fees as provided below, for maintaining or selling the Collateral and collecting
the proceeds of sale, the Holder shall have the right to apply the remainder of
said proceeds in payment of, or as a reserve against, any of the Obligations,
the manner, order and extent of such application to be in the sole discretion of
the Holder. To the extent notice of any sale or other disposition of the
Collateral is required by law to be given to any Obligor and cannot be waived,
the requirement of reasonable notice shall be met by sending such notice, as
provided below, at least ten (10) calendar days before the time of sale or
disposition. The Obligor shall remain liable to the Holder for the payment of
any deficiency with interest at the rate provided hereinabove. However, the
Holder shall not be obligated to resort to any Collateral but, at its election,
may proceed to enforce any of the Obligations in default against any or all of
the Obligors.
With respect to any and all Obligations, to the extent permitted by
applicable law, the Obligors and any indorsers of this note jointly and
severally waive the following: (1) all rights of exemption of property from levy
or sale under execution or other process for the collection of debts under the
constitution and laws of the United States or of any state thereof; (2) demand,
presentment, protest, notice of dishonor, suit against any party and all other
requirements necessary to charge or hold any Obligor or indorser liable on any
Obligation; (3) any further receipt for or acknowledgment of the Collateral now
or hereafter deposited and any statement of indebtedness; (4) all statutory
provisions and requirements for the benefit of any Obligor or indorser, now or
hereafter in force (to the extent that same may be waived); (5) the right to
interpose any set-off or counterclaim of any nature or description in any
litigation in which the Holder and any Obligor or indorser shall be adverse
parties; and (6) notice of any intended public or private sale or sales or other
intended disposition by the Holder of the Collateral or any part thereof. The
Obligors and indorsers agree that any Obligations of any Obligor may, from time
to time, in whole or in part, be renewed, extended, modified, accelerated,
compromised, discharged or released by the Holder, and any Collateral, lien
and/or right of set-off securing any Obligation may from time to time, in whole
or in part, be exchanged, sold, released, or otherwise impaired, all without
notice to or further reservations of rights against any Obligor or any other
person and all without in any way affecting or discharging the liability of any
Obligor or indorser. The Obligors jointly and severally agree to pay all filing
fees and taxes in connection with this note or the Collateral and all costs of
collecting or securing or attempting to collect or secure any of the
Obligations, including an attorney's fee in the amount which is 15% of the
unpaid balance of this note if this note is referred to an attorney, not a
salaried employee of the Holder, for collection following any default hereunder
by the Obligors.
The Holder shall not by any act, delay, omission or otherwise be deemed to
have waived any of its rights or remedies, and no waiver of any kind shall be
valid, unless in writing and signed by the Holder. All rights and remedies of
the Holder under the terms of this note and under statutes or rules of law are
cumulative and may be exercised successively or concurrently. The Obligors
jointly and severally agree that the Holder shall be entitled to all rights of a
holder in due course of a negotiable instrument. This note shall be governed by
and construed in accordance with the substantive laws of the United States and
the state where the office of the Bank set forth above in the first paragraph of
this note is located, without regard to the rules of such state governing
conflicts of law. Any provision of this note which may be unenforceable or
invalid under any law shall be ineffective to the extent of such
unenforceability or invalidity without affecting the enforceability or validity
of any other provision hereof. Any notice required to be given to any person
shall be deemed sufficient if delivered to such person or if mailed, postage
prepaid, to such person's address as it appears on this note or, if none
appears, to any address of such person in the Holder's files. The Holder shall
have the right to correct patent errors in this note. A photocopy of this note
may be filed as a financing statement in any public office.
The Obligors understand that the Bank may enter into participation
agreements with participating banks where the Bank will sell undivided interests
in this note to such other banks. The Obligors consent that the Bank may furnish
information regarding the Obligors, including financial information, to such
banks from time to time and also to prospective participating banks in order
that such banks may make an informed decision whether to purchase a
participation in this note. The Obligors hereby grant to each such participating
bank, to the extent of its participation in this Note, the right to set off
deposit accounts maintained by the Obligors, or any of them, with such bank,
against unpaid sums owed under this Note. Upon written request from the Holder,
the Obligors agree to make each payment under this note directly to each such
participating bank in proportion to the participant's interest in this Note as
set forth in such request from the Holder.
If, at any time, the rate or amount of interest, late charge, attorney's
fee or any other charge payable under this note shall exceed the maximum rate or
amount permitted by applicable law, then, for such time as such rate or amount
would be excessive, its application shall be suspended and there shall be
charged instead the maximum rate or amount permitted under such law, and any
excess interest or other charge paid by the Obligors or collected by the Holder
shall be refunded to the Obligors or credited, against the principal sum of this
note, at the election of the Holder or as required by applicable law. Obligors
agree that the late charge provided in this note is a reasonable estimate of
probable additional unanticipated internal costs to the Holder of reporting and
accounting for the late payment, that such costs are difficult or impossible to
estimate accurately, and that the agreement to pay a late charge is a reasonable
liquidated damages provision.
Notwithstanding any provision of this note to the contrary, if the
Obligors are one or more natural persons and the loan is used for personal,
family, or household use other than for the purchase of real property, the
following provisions are applicable: (a) the waivers of exemption of property
from levy or sale under execution or other process for the collection of debts,
as hereinabove provided, applies only with respect to the Collateral, if any,
for this note; (b) to the extent that any Separate Agreement covers property
which is "household goods", as that term is defined in 12 C.F.R. Section
227.12(d), and to the extent the proceeds of the loan evidenced by this note
were not used to purchase such property, such "household goods" do not
constitute any part of Collateral for the Obligations, and (c) whether or not
the loan is used to purchase real property, no consumer protection provision of
applicable law and no limitation on the remedy of garnishment provided under
federal or state law is waived hereby. Notwithstanding any provision of this
note to the contrary, if the proceeds of the loan evidenced by this note are
used primarily for personal, family, household or agricultural purposes, and if
Florida law governs this note, the agreement hereinabove made to pay an
attorney's fee for collection following default applies only if the original
principal balance of the loan exceeds $300, and the attorney's fee shall be a
reasonable fee not exceeding 15% of the unpaid balance of this note after
default and referral of this note to an attorney, not a salaried employee of the
Holder, for collection.
EACH INDORSER OF THIS NOTE AGREES TO BE BOUND BY THE PROVISIONS PRINTED OR
OTHERWISE APPEARING ABOVE AND ON THE FACE OF THIS NOTE, INCLUDING THE PROVISION
FOR PAYMENT OF ATTORNEY'S FEES FOR COLLECTION.
CAUTION - IT IS IMPORTANT THAT YOU THOROUGHLY READ THE
CONTRACT BEFORE YOU SIGN IT.
Signature See Separate Guaranty Dated May 1, 1996 (SEAL)
------------------------------------------
Address
------------------------------------------------
Signature (SEAL)
------------------------------------------
Address
------------------------------------------------
Signature (SEAL)
------------------------------------------
Address
------------------------------------------------
Signature (SEAL)
------------------------------------------
Address
------------------------------------------------
<PAGE>
SECURITY AGREEMENT
DEBTOR: [Last name(s) first, if individual(s)] SECURED PARTY:
Telecommunications Service Center, Inc. SouthTrust Bank of Florida,
National Association
- ------------------------------------------ ---------------------------
and David Veltman P.O. Box 15708
- ----------------------------------------- ---------------------------
412 East Madison St. Ste. 1215 St. Petersburg, FL 33733
- ----------------------------------------- ---------------------------
mailing address
Tampa Hillsborough FL 33602 Date: May 1, 1996
- ----------------------------------------- ---------------------
City County State Zip
1. For valuable consideration, receipt of which is hereby acknowledged,
and in further consideration of the Secured Obligations (as hereinafter
defined), the undersigned whether one or more than one, hereinafter referred to
as "Debtor") hereby grants, bargains, sells, conveys, assigns, and sets over to
the Secured Party named above (hereinafter referred to as "Secured Party"), and
grants to Secured Party a security interest in, the following property and
rights of Debtor (check applicable box(es)):
| | A. all inventory of Debtor, whether now owned or hereafter acquired
(Inventory and by Debtor and wherever located, including, without limitation,
Documents) all goods, merchandise, raw materials, work in process, finished
goods, and other tangible personal property held for sale or
lease or furnished under contracts of service or used or consumed
in Debtors business and returned and repossessed goods; all
Documents now or hereafter evidencing any such inventory; and all
proceeds and products of the foregoing; and
|X| B. all Accounts, General Intangibles, Instruments, and Chattel
(Accounts, Paper, whether now owned or hereafter acquired by Debtor and
Intangibles, whether now existing or hereafter arising, and all proceeds of
Instruments, the foregoing, whether cash or non-cash, including returned and
Chattel Paper) repossessed goods; and
|X| C. all Equipment, including, without limitation, all machinery,
(Equipment) computer equipment and peripherals, furniture, furnishings, and
motor vehicles, and all replacements thereof and substitutes
therefor, and all accessories, additions, attachments and other
goods now or hereafter installed in or affixed thereto or used in
connection therewith, whether any of the foregoing now owned or
hereafter acquired by Debtor and wherever located, and all
proceeds thereof (but inclusion of proceeds shall not be deemed
to imply that Secured Party authorizes the sale or other transfer
or disposition of any such Equipment); |X| If this box is
checked, the term "Equipment" as used in this agreement also
includes Fixtures, including leasehold improvements and machinery
and appliances which are attached to the real property in such a
manner as to become Fixtures; and
| | D. all crops (whether annual or perennial) and all livestock
(Farm (including fowl) and all natural increase thereof, all feed,
Products) seed, fertilizer and other supplies used or produced in farming
operations, and all products of crops and livestock in their
unmanufactured states, whether any of the foregoing is now owned
or hereafter acquired by Debtor and wherever located, all
contracts for the sale by Debtor of any of the foregoing, and all
crop or acreage allotments, price supports or supplements and
rights under governmental programs, and all proceeds of all of
the foregoing, provided that no security interest attaches
hereunder to crops which become such more than one year after
this Security Agreement is executed unless the security interest
in crops is given in conjunction with a lease or a land purchase
or improvement transaction evidenced by a separate contract,
mortgage, deed of trust or deed to secure debt. The security
interest herein granted covers, without limitation, all crops
growing or to be grown on the real property described on any
Exhibit attached hereto.
(All of the property and rights described In A, B, C, and D above (as
applicable) are sometimes hereinafter referred to collectively as "the
Collateral.")
2. This agreement and the security interest herein granted, secures the
payment and performance of every loan and other extension of credit heretofore,
now, or hereafter made to Debtor by Secured Party, any extensions or renewals
thereof, all interest due or to become due to Secured Party on each such loan or
other extension of credit, every note or other writing now or hereafter
evidencing the obligation of Debtor to repay any such loan or other extension of
credit and/or the interest thereon, every guaranty of payment or collection of
the debt of another heretofore, now, or hereafter entered into by Debtor with
Secured Party, every letter of credit reimbursement agreement heretofore, now,
or hereafter entered into by Debtor with Secured Party, every lease of personal
property heretofore, now, or hereafter entered into by Debtor with Secured
Party, the payment and performance of all of Debtor's obligations under this
agreement, and all other indebtedness and other obligations of Debtor to Secured
Party, including all sums paid to Secured Party for Debtor's account by Debtor
or any other person which are later recovered back from Secured Party by Debtor
or any creditor of Debtor or any representative of Debtor or of Debtor's
creditors, such as a trustee in bankruptcy, whether any of the foregoing debts
and other obligations are joint or several, primary or secondary, direct or
indirect, otherwise secured or unsecured, whether originally payable or owed to
Secured Party or acquired by Secured Party from another (the terms "with Secured
Party" and "by Secured Party" in this sentence being expressly intended to
include Secured Party's assignors and predecessors in interest), and whether now
existing or hereafter incurred prior to termination of this agreement as
hereinafter provided. (All of the debts and other obligations described in the
preceding sentence are hereinafter referred to collectively as the "Secured
Obligations.")
3. Debtor represents and warrants to Secured Party that:
(a) Debtor's Inventory, Equipment and/or Farm Products are kept or stored
only at the address shown below Debtor's name at the beginning of this agreement
and at the following address(es) (use separate schedule if necessary):
- --------------------------------------------------------------------------------
Street Address City County State Zip
(Failure to list any address where Inventory, Equipment or Farm Products are
kept shall not limit Secured Party's security interest, which covers all
Inventory, Equipment and/or Farm Products of Debtor, wherever located.)
Debtor agrees not to keep or store any Inventory, Equipment and/or Farm Products
at any address other than those set forth above except upon not less than 10
days advance notice in writing to Secured Party and upon compliance with the
remaining terms of this agreement.
(b) The address where the records concerning Debtor's Accounts are kept
and the address of Debtor's chief executive office is the address shown below
Debtor's name at the beginning of this agreement. Debtor agrees not to change
the address where the records concerning Debtor's Accounts are kept or the
address of Debtor's chief executive office except upon not less than 10 days
advance notice in writing to Secured Party and compliance with the remaining
terms of this agreement
(c) If Debtor is a corporation, Debtor is duly organized and existing in
good standing under the laws of the state of its incorporation and is duly
qualified and in good standing in every other state in which the nature of its
business or the ownership of its properties makes qualification necessary.
(d) If Debtor is a corporation, the execution, delivery, and performance
of this agreement are within Debtor's corporate powers, have been duly
authorized, are not in contravention of law or the terms of Debtor's certificate
of Incorporation, by-laws, or other incorporation papers, or of an Indenture,
agreement or undertaking to which Debtor is a party or by which Debtor is bound.
(e) Except for the security interest granted herein, and except as
otherwise noted in writing herein or on a schedule attached hereto, Debtor is,
and, as to Collateral acquired after the date hereof, will be, the owner of the
Collateral free from any adverse lien, security interest or encumbrance.
4. If paragraph 1.A, 1.C., or 1.D. above is marked, Debtor agrees with
Secured Party as follows:
Debtor will maintain insurance at all times with respect to all
Inventory, Equipment and Farm Products against risk of fire (including so-called
extended coverage), theft, water damage and such other risks as Secured Party
may require from time to time and, in the case of motor vehicles, against risk
of collision and vandalism, in such form, for such perils, and written by such
companies as may be satisfactory to Secured Party. Secured Party shall be named
as loss payee under such policies of insurance. Debtor may furnish such
insurance through an existing policy or a policy independently obtained and paid
for by Debtor. All policies of insurance shall provide for a minimum of 10 days
written notice to Secured Party before cancellation. At request of Secured
Party, Debtor will deliver such policies, or at Secured Party's option,
certificates thereof, to Secured Party to be held by it. Debtor hereby appoints
Secured Party the attorney-in-fact for Debtor for purposes of obtaining,
adjusting, settling, and cancelling such insurance and of endorsing in Debtor's
name and giving receipt for checks and drafts issued in payment of losses and as
return premiums. In the event Debtor fails to provide any insurance as required
herein, Secured Party may, at its option, purchase such insurance or, at Secured
Party's option after 10 days' notice to Debtor, insurance covering only Secured
Party's interest in the Inventory, Equipment and Farm Products. Debtor agrees to
reimburse Secured Party on demand for the cost of such insurance. Debtor hereby
assigns all insurance policies at any time covering the Inventory, Equipment or
Farm Products and all return or unearned premiums thereon to Secured Party as
additional collateral for the Secured Obligations.
5. If paragraph 1.A. above is marked, Debtor agrees with Secured Party as
follows:
(a) Debtor will allow Secured Party and any of its officers, agents,
attorneys, or accountants to examine or inspect the inventory wherever located
at all reasonable times and to examine, inspect and make extracts from Debtor's
books and records.
(b) Debtor will keep the Inventory, all Documents with respect
thereto, and proceeds of both free from any adverse lien, security interest or
encumbrance, except that Debtor may, with Secured Party's written consent
obtained in advance, grant a security interest in its Accounts, General
Intangibles, Instruments, and/or Chattel Paper to another creditor. Debtor will
keep the inventory in good condition, and will not waste or destroy any of the
same. Debtor will not use the Inventory in violation of any statute or
ordinance.
(c) Until the occurrence of a default hereunder, Debtor may use the
Inventory in any lawful manner which is consistent with Debtor's usual business
and is not inconsistent with this agreement or with the terms or conditions of
any policy of insurance thereon, and may sell the Inventory in the ordinary
course of business. A sale in the ordinary course of business does not include a
transfer in partial or total satisfaction of a debt. Until the occurrence of a
default, Debtor may also use and consume any raw materials or supplies, the use
and consumption of which is necessary in order to carry on Debtor's usual
business.
IN WITNESS WHEREOF, Debtor has executed this agreement under seal, or the
officers or agents of Debtor thereunto duly authorized have executed this
agreement on behalf of Debtor, on or as of the date set forth above.
The provisions on the reverse side and on any attachments are part of this
agreement.
ATTEST OR WITNESS: Telecommunications Service Center, Inc.
and David Veltman
----------------------------------(SEAL)
- ------------------------- By /s/ Harold Shankland President
-------------------------------------
Harold Shankland Title
Signature David Veltman
------------------------(SEAL)
David Veltman, Director
Page 1 of 3
Additional signers on Page 3 Initials: [ILLEGIBLE]
<PAGE>
(d) Upon request of Secured Party at any time, Debtor will deliver
to Secured Party lists or copies of all Accounts which are proceeds of Inventory
or Farm Products promptly after they arise. Unless Secured Party shall have
otherwise agreed with Debtor in writing, Debtor will deliver to Secured Party,
promptly upon receipt, all proceeds (except goods) of the Inventory or Farm
Products received by Debtor, including proceeds of such Accounts, in precisely
the form received by Debtor, except for the endorsement of Debtor where
necessary to permit the collection of such proceeds (which endorsement Debtor
hereby agreed to make) Debtor agrees not to mingle any proceeds of the Inventory
or Farm Products with any of Debtor's own funds, goods or property, and at all
times to hold such proceeds upon express trust for the Secured Party until
delivery thereof is made to Secured Party. To evidence Secured Party's rights
hereunder, Debtor will assign or endorse proceeds to Secured Party in such form
as Secured Party may request and Secured Party shall have the full power and
authority to collect, compromise, endorse, sell, or otherwise deal with proceeds
in its own name or that of Debtor. Secured Party in its discretion may apply
cash proceeds to the payment of any of the Secured Obligations or may release
such cash proceeds to Debtor for use in the operation of Debtor's business.
(e) With respect to proceeds of the Collateral in the form of
Accounts, Secured Party may at any time before or after default notify account
debtors that the Accounts have been assigned to Secured Party and shall be paid
to Secured Party. Upon request of Secured Party at any time Debtor will so
notify such account debtors and will indicate on all invoices to such account
debtors that the Accounts are payable to Secured Party.
6. If paragraph 1.B. is marked above, Debtor hereby agrees with Secured
Party as follows:
(a) For the consideration recited in paragraph 1 above, Debtor
hereby leases to Secured Party, during the term of this agreement, all file
cabinets, books, ledgers, microfilm, microfiche, magnetic tapes, magnetic discs,
and other information retrieval or storage systems, on which, or in which, any
of Debtor's records concerning its Accounts, General Intangibles, Instruments,
and Chattel Paper, are kept or stored. Debtor agrees to deliver all of the
foregoing property, or any part thereof specified by Secured Party, to Secured
Party upon request. Debtor agrees that Secured Party may come on any premises
where any of such property is located at any reasonable time to take possession
of such property, and that the entry of such premises by Secured Party will not
constitute a trespass and the taking of such property by Secured Party will not
constitute a trespass to, or a conversion of, any such property.
(b) Secured Party shall have the right at any time, whether before
before or after the occurrence of a default hereunder by Debtor, to notify any
or all account debtors on the Accounts or General Intangibles, and any or all
obligors on the instruments or Chattel Paper, to make payment directly to
Secured Party, or to make payment to an address (a "lock box") under the
exclusive control of Secured Party. Upon request of Secured Party, Debtor agrees
immediately to notify such account debtors and obligors to make payment directly
to Secured Party or to such lock box and to place Secured Party's address or
such lock box's address on Debtor's invoices and statements as the address to
which payment should be made. To the extent Secured Party does not so elect to
notify, or does not request Debtor to notify, the account debtor or obligors,
Debtors shall continue to collect the Collateral. Debtor agrees not to mingle
any proceeds of any of the Collateral with any of Debtor's own funds, goods or
property, and at all times to hold such proceeds upon express trust for the
Secured Party until delivery thereof is made to Secured Party. Debtor agrees to
deliver all proceeds of the Collateral, in precisely the form received by
Debtor, except for the endorsement of Debtor where necessary to permit the
collection of such proceeds (which endorsement Debtor hereby agrees to make).
Secured Party may apply such proceeds to any of the Secured Obligations, whether
or not such Secured Obligations shall have matured by their terms, or Secured
Party may, at its option, release such proceeds to Debtor for use in Debtor's
business. Secured Party need not apply nor give credit for any item included in
such proceeds until Secured Party has received final payment therefor at its
offices in cash or solvent credits acceptable to Secured Party.
(c) Weekly, monthly, or at such other intervals as Secured Party
shall designate, Debtor will deliver to Secured Party lists and agings of all of
Debtor's Accounts in such form, and in such detail, as Secured Party shall
require, together with copies of invoices, delivery receipts, bills of lading,
and such other documents in support of Debtor's Accounts as Secured Party shall
require.
(d) If any of the Accounts arise out of contracts with the United
States or any agency thereof, Debtor agrees to notify Secured Party thereof and
to execute such documents as shall be necessary to permit Secured Party to
perfect its right to receive payment under the federal Assignment of Claims Act.
(e) Upon request of Secured Party, Debtor will purchase insurance
covering the loss of, and cost of reconstruction of, Debtor's records of its
Accounts, General Intangibles, Chattel Paper and Instruments, such insurance to
be issued by an insurer acceptable to Secured Party and to contain such coverage
provisions as Secured Party shall request.
7. Debtor hereby covenants, represents, and warrants as follows:
(a) Debtor agrees to keep all records concerning the Collateral in a
fireproof and safe place and, upon request of Secured Party, to make such
records available to Secured Party, its agents, attorneys, and accountants, at
any reasonable time and without hindrance or delay to allow Secured Party to
inspect, audit, check or make extracts from such records.
(b) Debtor hereby represents, warrants and agrees with Secured Party
that: (i) (except as otherwise noted in writing hereon or in a schedule attached
to this agreement) Debtor is the owner of the Collateral, free and clear of all
liens and encumbrances, and has the full right and power to transfer the
Collateral to Secured Party and to grant to Secured Party the security interest
provided in this agreement; (ii) Debtor will not make any other assignments of
the Collateral, nor create any other security interest therein, nor permit any
other financing statement to be filed in any public office with respect thereto
(except as otherwise expressly agreed in writing by Secured Party), nor permit
either Debtor's or Secured Party's rights therein to be reached by attachment,
levy, garnishment, or other judicial process; (iii) each debt owing to Debtor
which is a part of the Collateral, and all names of all account debtors, amounts
owing, due dates, and other facts appearing on Debtor's records relating
thereto, are true, correct and genuine and are what they purport to be, and each
such debt arises out of a bona fide sale of goods or other property sold and
delivered to, or out of services heretofore tendered by Debtor to, the account
debtors so indicated, and the amount of each such debt is unconditionally owed
to Debtor by each such account debtor, except for normal cash discounts, and is
not subject to any offset, credit, deduction, or counterclaim, and Debtor is the
sole owner thereof; (iv) Debtor will promptly notify Secured Party in writing in
the event any such account debtor refuses to accept or returns any goods which
are the subject of any debt owed to Debtor which is a part of the Collateral,
and of the bankruptcy, insolvency, or cessation of business of or by any such
account debtor, and of any Claim asserted against Debtor for credit allowance,
adjustment, offset or counterclaim by any such account debtor; (v) Debtor agrees
not to sell or otherwise dispose of any Equipment except worn out or obsolete
Equipment which are immediately replaced with other Equipment of equivalent
function and of equal or greater value (and if a motor vehicle, upon which the
lien of Secured Party has been properly noted on the certificate of title
therefor); (vi) Debtor agrees not to sell, collect, assign, negotiate, or
otherwise transfer any of Debtors Inventory, Accounts, General Intangibles,
Instruments, or Chattel Paper outside the ordinary course of Debtor's business
as conducted on the date of this agreement; and (vii) all of Debtor's Inventory
is and will be produced in compliance with the federal Fair Labor Standards Act.
(c) Debtor hereby irrevocably makes, constitutes, and appoints
Secured Party and any of its officers or designees as Debtor's true and lawful
attorney-in-fact with full power and authority to do any and all acts necessary
or proper to carry out the intent of this agreement, including, without
limitation, the right, power and authority (i) to receive and give receipt for
any amount or amounts due or to become due to Debtor on account of the
Collateral and to endorse and negotiate in the name of Debtor any check or other
item issued in payment or on account thereof, and in the name of Secured Party
or of Debtor to enforce by suit or otherwise, compromise, settle, discharge,
extend the time of payment, file claims or otherwise participate in bankruptcy
proceedings, and otherwise deal in and with the collateral and any proceeds
thereof; (ii) to open mail addressed to Debtor, remove any Collateral or
proceeds of the Collateral therefrom, and deliver the remainder of such mail to
Debtor, and (iii) to do all acts and things deemed by Secured Party to be
appropriate to protect, preserve and realize upon Secured Party's security
interest hereunder; but Secured Party shall not be under any duty to exercise
such authority or power or in any way responsible for collecting or realizing
upon the Collateral. Debtor hereby ratifies and confirms all that Secured Party,
its officers or designees, shall do as such attorney-in-fact by virtue of the
foregoing powers, which power is coupled with an interest and are irrevocable
until this agreement has been terminated as hereinafter provided.
8. (a) Debtor shall do, make, execute, and deliver to Secured Party all
such additional and further acts, things, assignments, assurances, and
instruments as Secured Party may require to more completely vest in and assure
to Secured Party its rights hereunder and in or to the Collateral and the
proceeds thereof. Debtor will deliver all Instruments, Documents, and Chattel
Paper which constitute a part of the Collateral to Secured Party upon request,
duly endorsed by Debtor to the order of Secured Party or in blank in form
satisfactory to Secured Party.
(b) Debtor will pay promptly when due all taxes and assessments upon
the Collateral or any part thereof, upon its use or operation, upon the proceeds
thereof, upon this Security Agreement, or upon any note or notes evidencing the
Secured Obligations. At its option, Secured Party may discharge any taxes,
liens, security interests or other encumbrances at any item levied or placed on
the Collateral or any part thereof and may pay for the maintenance and
preservation of the Collateral, but Secured Party shall not be under any duty to
exercise any such authority. Debtor agrees to reimburse Secured Party, upon
demand, for any payment made or any expense incurred by the Secured Party
pursuant to the foregoing authorization.
(c) All sums expended by Secured Party which Debtor is obligated to
reimburse Secured Party under this agreement shall bear interest from the date
reimbursement is due until the date paid at the rate provided in the note
evidencing the Secured Obligation with respect to which the sum was expended by
Secured Party, or if no single such note exists or is identifiable, then at the
rate which is two percentage points in excess of the average of the prime rate
of the three largest banks in New York City three business days before the
expenditure was made, but in any event not more than the maximum rate allowed by
law. All such sums and the interest thereon shall be secured by the security
interest granted in this agreement.
(d) At the request of Secured Party, Debtor will execute financing
statements pursuant to the Uniform Commercial Code in form and number
satisfactory to Secured Party and will pay the cost of filing the same in all
public offices where filing is deemed by Secured Party to be necessary or
desirable. Debtor agrees that a carbon or photostatic copy of this agreement may
be filed as a financing statement in any public office. If certificates of title
are issued or outstanding with respect to any of the Collateral, Debtor will
cause the interest of Secured Party to be properly noted thereon at Debtor's
expense. Without the written consent of Secured Party, Debtor will not allow any
adverse financing statement covering any of the Collateral to be on file in any
public office. Secured Party may elect not to perfect its security interest in
all or any part of the Collateral without discharging or otherwise impairing its
rights against Debtor or any other party.
9. Any or all Of the Secured Obligations shall, at the option of Secured
Party and notwithstanding the stated maturity date of any instrument evidencing
any such Secured Obligation, become immediately due and payable without notice
or demand upon the occurrence of any of the following events, each of which
shall constitute a default hereunder;
(a) Debtor's failure to pay or perform as and when due any of the
Secured Obligations or any note evidencing the same;
(b) Debtor's failure to pay or perform as and when due any covenant
contained in this agreement or if any warranty or representation made or any
writing furnished to Secured Party by or on behalf of Debtor in or in connection
with this agreement is breached or is false or inaccurate in any material
respect when made or furnished;
(c) Any event occurs which results in the acceleration of the
maturity of any indebtedness of Debtor to others under any indenture, agreement,
or undertaking;
(d) Loss, theft, damage, or destruction of any material part of the
Collateral, or any levy, seizure, garnishment or attachment thereof or thereon;
(e) Death, dissolution, termination of existence, insolvency,
cessation or business, or appointment of a receiver for any part of the property
of, general assignment for the benefit of creditors by, or the commencement of
any proceeding under any chapter of the Federal Bankruptcy Code or any
insolvency laws by or against, Debtor or any guarantor or surety for Debtor on
any of the Secured Obligations.
SF52712 (C) SouthTrust Corporation Rev. 10/90
Page 2 of 3 /s/ [Illegible] Initials
---------------
<PAGE>
10. Upon the occurrence of any event of default set forth in the preceding
paragraph, and at any time thereafter, Secured Party shall have the right to
take possession of all or any part of the Collateral and, with or without taking
possession thereof, to sell the Collateral at one or more public or private
sales, at Secured Party's option and collect the Accounts, Instruments, Chattel
Paper, and General Intangibles which are a part of the Collateral. At Secured
Party's request, Debtor agrees to assemble the Collateral and to make it
available to Secured Party at a place to be designated by Secured Party which is
reasonably convenient to both parties. Debtor waives any notice of sale or other
disposition of the Collateral and agrees that notice of sale or other
disposition of the Collateral hereunder, or any part thereof, which cannot be
waived shall be sufficient if such notice is delivered to Debtor or mailed,
postage prepaid, to the address of Debtor shown at the beginning of this
agreement, or such other address as Debtor shall have furnished Secured Party in
writing for such purpose, at least ten (10) calendar days before the time of the
sale or disposition. Debtor agrees to pay Secured Party on demand any and all
expenses, including attorneys' fees in the amount of 15% of the unpaid balance
of the Secured Obligations at the time of default (or the maximum fee allowed by
law, if less than 15%, or a reasonable attorney's fee if applicable law does not
permit the parties to agree to the amount of the attorney's fee prior to
default) incurred or paid by Secured Party in protecting or enforcing the
Secured Obligations and the rights of Secured Party hereunder, including Secured
Party's right to take possession of and sell or dispose of the Collateral, and
in repossessing and storing the Collateral, collecting the Collateral, preparing
the Collateral for sale, advertising and conducting such sale, and collecting
the proceeds of such sale. Payment of all such expenses and the interest thereon
shall be secured by the security interest granted in this agreement. The
proceeds of any sale or other disposition or collection of the Collateral shall
be applied, first, to the payment of all costs and expenses incurred by Secured
Party in connection with such sale or other realization including, without
limitation, attorneys' fees as specified above and all costs of litigation, and
to the repayment of all advances made by Secured Party hereunder for the account
of Debtor and the payment of all costs and expenses paid or incurred by Secured
Party in connection with this agreement or in the exercise of any right or
remedy hereunder or under applicable law, to the extent that such advances,
costs and expenses have not previously been paid to Secured Party upon demand to
Debtor therefor; second, to the payment of the Secured Obligation in such order
as Secured Party may elect; and third, to Debtor, or the person then entitled
thereto, or as a court of competent jurisdiction may direct. No sale or other
disposition of any of the Collateral shall extinguish any of the Secured
Obligations except to the extent that the net proceeds of such sale or
disposition are applied thereto. Debtor will remain obligated to pay any
deficiency.
11. Secured Party shall have the right to set off the Secured Obligations
against any indebtedness or liability of Secured Party to Debtor at any time
existing. As additional security for the Secured Obligations, Debtor hereby
transfers and assigns to Secured Party, and grants to Secured Party a security
interest in, all account balances, credits, deposits, and rights of withdrawal
of Debtor with Secured Party, whether now owned or hereafter acquired, and
whether jointly or severally held, and Debtor agrees that Secured Party shall
have a lien upon and security interest in all property of Debtor of every kind
now or hereafter in the possession or control of Secured Party for any reason.
12. (a) Secured Party's rights and remedies hereunder, under other
agreements or instruments, and under applicable law (including the Uniform
Commercial Code) are cumulative and may be exercised successively or
concurrently. Secured Party shall not be deemed to have waived any of its rights
hereunder, under any other agreement or instrument, or under law except in a
writing signed by Secured Party. No delay or omission on the part of Secured
Party in exercising any right or remedy shall operate as a waiver thereof, and a
written waiver on any one occasion shall not be construed as a bar or waiver of
any right or remedy on any future occasion.
(b) Whenever there is no outstanding Secured Obligation and no
commitment on the part of Secured Party under any agreement which might give
rise to a Secured Obligation, Secured Party will deliver to Debtor a written
termination of this agreement upon written request therefor from Debtor. Prior
to such termination this shall be a continuing agreement in every respect.
(c) This agreement and all rights and obligations hereunder,
including matters of construction, validity, and performance, shall be governed
by the laws of the state where the address of Secured Party set forth above is
located. This agreement is effective when signed by Debtor and delivered to
Secured Party, and binds Debtor and inures to the benefit of Secured Party and
their respective heirs, successors, and assigns. The provisions of this
agreement are severable, and the invalidity or unenforceability of any provision
hereof shall not affect the remaining provisions of this agreement.
(d) All terms used in this agreement which are not expressly defined
herein shall have the meaning, if any, assigned to them in Article 9 of the
Uniform Commercial Code.
(e) Time is of the essence of every provision of this agreement.
Additional Signers for Telecommunications Service Center, Inc. and David
Veltman:
/s/ Raoul Boielle
- -----------------------------------
Raoul Boielle, CEO
/s/ David Veltman
- ----------------------------------
David Veltman, Individually
SF52712 (C) SouthTrust Corporation Rev. 10/90
Page 3 of 3 /s/ [Illegible] Initials
---------------
<PAGE>
FURTHER ASSURANCE AND COMPLIANCE AGREEMENT
For and in consideration of Ten Dollars ($10.00) and other good and
valuable consideration, and the funding of that certain Loan of even date in the
amount of $400,000.00 from SOUTHTRUST BANK OF Florida, National Association
(herein, "Bank") to the borrower agrees to cooperate, adjust, initial,
re-execute and re-deliver any and all closing documents, including but not
limited to any notes, mortgages, deeds, affidavits and closing statements if
deemed necessary or desirable in the sole discretion of the bank in order to
consummate or complete the Loan from the Bank to Borrower or to perfect the
Bank's lien or mortgage. It is the Intention of the Borrower that all
documentation for the Loan shall be an accurate reflection of the Bank's
requirements.
The Borrower agrees and convenants to assure that the Loan and its
documentation will conform to the Bank's requirements. The Bank is relying upon
this Agreement and the convenants contained herein in closing this transaction
and funding the Loan to Borrower.
Bank shall have the right to bring suit to enforce the obligations
incurred in connection with this Agreement, and in the event any suit is brought
to enforce this Agreement, the Bank shall be entitled to recover all costs and
expenses incurred, including a reasonable attorney fee.
DATED this 1st day of May, 1996
WITNESSES: "BORROWER(S)":
Telecommunications Service Center,
- ------------------------------- Inc. and David Veltman
/s/ W C Chase, Jr. /s/ Harold Shankland
- ------------------------------- -------------------------------------
Harold Shankland, President
/s/ [Illegible] /s/ David Veltman
- ------------------------------- -------------------------------------
David Veltman, Director
- ------------------------------
/s/ [Illegible] /s/ Raoul Boielle
-------------------------------------
Raoul Boielle, CEO
Loan # 9520773-00002
-----------------------
/s/ David Veltman
-------------------------------------
David Veltman
SF 1035 3/90
<PAGE>
EXHIBIT 10.2.1
LEASE AGREEMENT
This LEASE AGREEMENT, is effective on April 17, 1996 between
TELECOMMUNICATIONS FINANCE GROUP (hereinafter "Lessor"), and TELECOMMUNICATIONS
SERVICE CENTER, INC., a Florida corporation with its principal office located at
412 East Madison St., Ste. 1200, Tampa, FL 33602, (hereinafter "Lessee").
1. Lease.
Lessor, subject to the conditions set forth in Section 25 hereof, agrees
to lease to Lessee and Lessee agrees to lease from Lessor hereunder, those items
of personal property (the "equipment") which are described on Schedule 1 of
Exhibit A hereto and amendments to Schedule 1. Lessee agrees to execute and
deliver to Lessor a certificate of delivery and acceptance in substantively the
form of Exhibit A hereto (a "Delivery Certificate") immediately after Turnover
of the equipment, and such execution shall constitute Lessee's irrevocable
acceptance of such items of equipment for all purposes of this Lease. The
Delivery Certificate shall constitute a part of this Lease to the same extent as
if the provisions thereof were set forth herein.
2. Definitions.
"Amortization Deductions" as defined in Section 11(b)(i) hereof.
"Appraisal Procedure" shall mean the following procedure for determining
the Fair Market Sale Value of any item of equipment. If either Lessor or
Lessee shall request by notice (the "Appraisal Request") to the other that
such value be determined by the Appraisal Procedure, (i) Lessor and Lessee
shall, within 15 days after the Appraisal Request, appoint an independent
appraiser mutually satisfactory to them. or (ii) if the parties are unable
to agree on a mutually acceptable appraiser within such time, Lessor and
Lessee shall each appoint one independent appraiser (provided that if
either party hereto fails to notify the other party hereto of the identity
of the independent appraiser chosen by it within 30 days after the
Appraisal Request, the determination of such value shall be made by the
independent appraiser chosen by such other party), and (iii) if such
appraisers cannot agree on such value within 20 days after their
appointment and if one appraisal is not within 5% of the other appraisal,
Lessor and Lessee shall choose a third independent appraiser mutually
satisfactory to them (or, if they fall to agree upon a third appraiser
within 25 days after the appointment of the first two appraisers, such
third independent appraiser shall within 20 days thereafter be appointed
by the American Arbitration Association), and such value shall be
determined by such third independent appraiser within 20 days after his
appointment, after consultation with the other two independent appraisers.
If the first two appraisals are within 5% of each other, then the average
of the two appraisals shall be the Fair Market Sale Value. The fees and
expenses of all appraisers shall be paid by Lessee.
"Business Day" shall mean a day other than a Saturday, Sunday or legal
holiday under the laws of the State of Florida.
"Code" shall mean the Internal Revenue Code of 1954, as amended, or any
comparable successor law.
"Commencement Date" as defined in Section 3 hereof.
"Default" shall mean any event or condition which after the giving of
notice or lapse of time or both would become an Event of Default.
"Delivery Certificate" as defined in Section 1 hereof.
"Equipment" as defined in Section 1 hereof.
"Event of Default" as defined in Section 18 hereof.
"Event of Loss" shall mean, with respect to any item of equipment, the
actual or constructive total loss of such item of equipment or the use
thereof, due to theft, destruction, damage beyond repair or rendition
thereof permanently unfit for normal use from any reason whatsoever, or
the condemnation, confiscation or seizure of, or requisition of title to
or use of, such item of equipment.
"Fair Market Sale Value" shall, at any time with respect to any item of
equipment, be equal to the sale value of such item of equipment which
would be obtained in an arm's-length transaction between an informed and
willing seller under no compulsion to sell and an informed and willing
buyer-user (other than a lessee currently in possession or a used
equipment or scrap dealer). For purposes of Section 7(b) hereof, Fair
Market Sale Value shall be determined by (i) an independent appraiser (at
Lessee's expense) selected by Lessor or (ii) by the Appraisal Procedure if
the Appraisal Request is made at least 90 days (but not more than 360
days) prior to the termination or expiration of the Lease Term, as the
case may be, which determination shall be made (a) without deduction for
any costs or expenses of dismantling or removal; and (b) on the assumption
that such item of equipment is free and clear of all Liens and is in the
condition and repair in which it is required to be returned pursuant to
Section 7 (a) hereof. For purposes of Section 19(c) hereof, Fair Market
Sale Value shall be determined (at Lessee's expense) by an independent
appraiser selected by Lessor, on an "as-is, where-is" basis, without
regard to the provisions of clauses (a) and (b) above; provided that if
Lessor shall have sold any item of equipment pursuant to Section 19(b)
hereof prior to giving the notice referred to in Section 19(c) hereof,
Fair Market Sale Value of such item of equipment shall be the net proceeds
of such sale after deduction of all costs and expenses incurred by Lessor
in connection therewith; provided further, that if for any reason Lessor
is not able to obtain possession of any item of equipment pursuant to
Section 19(a) hereof, the Fair Market Sale Value of such item of equipment
shall be zero.
"Imposition" as defined in Section 11 (a) hereof.
-1-
<PAGE>
"Indemnitee" as defined in Section 17 hereof.
"Late Charge Rate" shall mean an interest rate per annum equal to the
higher of two percent (2%) over the Reference Rate or eighteen percent
(18%), but not to exceed the highest rate permitted by applicable law.
"Lease" and the terms "hereof", "herein", "hereto" and "hereunder", when
used in this Lease Agreement, shall mean and include this Lease Agreement,
Exhibits and the Delivery Certificate hereto as the same may from time to
time be amended, modified or supplemented.
"Lease Term" shall mean, with respect to any item of equipment, the term
of the lease of such item of equipment hereunder specified in Section 3
hereof.
"Lessee" as defined in the introductory paragraph to this Lease.
"Lessor" as defined in the introductory paragraph of this Lease.
"Lessor's Value" shall mean, with respect to any item of equipment and
installation if applicable, the total amount set forth in Schedule 1 of
Exhibit A hereto.
"Lessor's Liens" shall mean (i) any mortgage, pledge, lien, security
interest, charge, encumbrance, financing statement, title retention or any
other right or claim of any person claiming through or under Lessor, not
based upon or relating to ownership of the equipment or the lease thereof
hereunder and (ii) any mortgage, pledge, lien, security interest, charge,
encumbrance, financing statement, title retention or any other right or
claim of Owner (other than Lessor) claiming through or under Lessor in
connection with the transactions described in Section 21(b) hereof.
"Liens" shall mean any mortgage, pledge, lien, security interest, charge,
encumbrance, financing statement, title retention or any other right or
claim of any person, other than any Lessor's Lien.
"Loss Payment Date" shall mean with respect to any item of equipment the
date on which payment, as described in Section 16 (b) hereof, is made to
the Lessor by the Lessee as the result of an Event of Loss with respect to
such item. The Loss Payment Date shall be within ninety (90) days of the
said Event of Loss.
"Owner" shall mean the entity or person having ownership interest to the
equipment as contemplated by the provisions of Section 21(b) hereof and
may be a person other than Lessor.
"Owner's Economics" shall mean the after-tax yield and periodic after-tax
cash flow anticipated by Owner as of the date of this Lease, in connection
with the transactions contemplated by this Lease as determined by Owner
unless Lessor shall have transferred its interest in the equipment to
another person as contemplated by the provisions of Section 21(b) hereof
in which case "Owner's Economics" shall mean the after-tax yield and
periodic after-tax cash flow anticipated by such person as of the date of
the lease between such person and Lessor contemplated by said provisions,
in connection with the transactions contemplated by such lease as
determined by such person.
"Recovery Deductions" as defined in Section 11(b)(i) hereof.
"Reference Rate" shall mean the rate of interest publicly announced by
Citibank, N.A. in New York, New York from time to time as its prime rate.
The reference rate is not intended to be the lowest rate of interest
charged by Citibank, N.A. in connection with extensions of credit to
debtors. The Reference Rate shall be determined at the close of business
on the 15th day of each calendar month (if the 15th day is not a Business
Day, then on the next preceding Business Day) and shall become effective
as of the first day of the calendar month succeeding such determination
and shall continue in effect to, and including, the last day of said
calendar month.
"Rent Payment Date" shall mean each date on which an installment of rent
is due and payable pursuant to Section 5(a) hereof.
"Stipulated Loss Value" shall mean, with respect to any item of equipment,
the amount determined by multiplying the Lessor's Value of such item of
equipment by the percentage set forth in Schedule A hereto opposite the
applicable Rent Payment Date; provided, that for purposes of Sections
16(b) and 19(c) hereof, any determination of Stipulated Loss Value as of a
date occurring after the final Rent Payment Date with respect to such item
of equipment, shall be made as of such final Rent Payment Date.
"Tax Benefits" shall mean the right to claim such deductions, credits, and
other benefits as are provided by the Code to an owner of property,
including the Recovery Deductions and Amortization Deductions.
"Turnover" shall mean that point in time when the equipment installation
personnel complete testing of the equipment, or when the equipment is
placed into service, whichever first occurs.
All accounting terms not specifically defined herein shall be construed in
accordance with generally accepted accounting principles.
3. Lease Term.
-2-
<PAGE>
The term of the lease of the equipment hereunder shall commence on the
Commencement Date specified in the Delivery Certificate ("Commencement Date")
and, unless earlier terminated pursuant to the provisions hereof or at law or
equity, shall continue for a term of sixty (60) months from such Commencement
Date. The Commencement Date specified in the Delivery Certificate shall be the
date on which Turnover occurs at a site provided by Lessee in accordance with
the provisions of Section 4 hereof.
4. Installation.
Lessor shall arrange for installation of the equipment, the cost of which
installation shall be deemed to be part of Lessor's Value. Exhibit A hereto
shall indicate whether such cost is included or excluded from the monthly rent
payments due in accordance with Section 5(a) hereof. If excluded from such
monthly rent payments, Lessor shall separately invoice Lessee for such
installation upon completion thereof and Lessee shall pay such invoice within
thirty (30) days from the date thereof. Lessee shall be obligated to timely
provide a suitable site for the installation of the equipment in accordance with
the equipment manufacturer's practices attached hereto as Exhibit C. Lessee
shall be responsible for compliance with environmental requirements and central
office grounding procedures specified in Exhibit C hereto and for providing
adequate space, lighting, heating, air conditioning and A/C power at the
installation site. Unavailability of Lessee furnished facilities shall be cause
for adjustments to the installation price set forth in Schedule 1 of Exhibit A
hereto.
5. Rents; Unconditional Obligations.
(a) Lessee agrees to pay to Lessor, at the address specified in Section 24
hereof or at such other address as Lessor may specify, rent for the initial
equipment at a rate not to exceed $21.993 per $1,000 of the total Lessor's Value
of such items of equipment, as set forth in Schedule 1 of Exhibit A dated April
17, 1996, (plus applicable sales or use taxes) per month, in sixty (60)
consecutive monthly installments, with the first installment of rent being due
on the Commencement Date unless the Commencement Date is other than the first
day of a calendar month, in which event the first installment of rent shall be
due on the first day of the month following the Commencement Date, and
succeeding installments being due on the same date of each month thereafter. In
the event of any additions to the initially leased equipment, the rental rate on
any additional equipment will be the rate as shown on the Amendment to Schedule
1 of Exhibit A adding the equipment to the lease.
(b) Lessee shall also pay to Lessor, on demand, interest at the Late
Charge Rate on any installment of rent and on any other amount owing hereunder
which is not paid on its due date, for any period for which the same shall be
overdue. Each payment made under this Lease shall be applied first to the
payment of interest then owing and then to rent or other amounts owing
hereunder. Interest shall be computed on the basis of a 360-day year and actual
days elapsed.
(c) This Lease is a net lease, and Lessee's obligation to pay all rent and
all other amounts payable hereunder is ABSOLUTE AND UNCONDITIONAL under any and
all circumstances and shall not be affected by any circumstances of any
character whatsoever, including, without limitation, (i) any set-off,
counterclaim, recoupment, defense, abatement or reduction or any right which
Lessee may have against Lessor, the manufacturer or supplier of any of the
equipment or anyone else for any reason whatsoever; (ii) any defect in the
title, condition, design, or operation of, or lack of fitness for use of, or any
damage to, or loss of, all or any part of the equipment from any cause
whatsoever; (iii) the existence of any Liens with respect to the equipment; (iv)
the invalidity, unenforceability or disaffirmance of this Lease or any other
document related hereto; or (v) the prohibition of or interference with the use
or possession by Lessee of all or any part of the equipment, for any reason
whatsoever, including without limitation, by reason of (1) claims for patent,
trademark or copyright infringement; (2) present or future governmental laws,
rules or orders; (3) the insolvency, bankruptcy or reorganization of any person;
and (4) any other cause whether similar or dissimilar to the foregoing, any
present or future law to the contrary notwithstanding. Lessee hereby waives, to
the extent permitted by applicable law, any and all rights which it may now have
or which may at any time hereafter be conferred upon it, by statute or
otherwise, to terminate, cancel, quit or surrender the lease of any equipment.
If for any reason whatsoever this Lease or any Supplement, other than pursuant
to Section 16(b) hereof, shall be terminated in whole or in part by operation of
law or otherwise, Lessee will nonetheless pay to Lessor an amount equal to each
installment of rent at the time such installment would have become due and
payable in accordance with the terms hereof. Each payment of rent or other
amount paid by Lessee hereunder shall be final and Lessee will not seek to
recover all or any part of such payment for Lessor for any reason whatsoever.
6. WARRANTY DISCLAIMER; ASSIGNMENT OF WARRANTIES.
(a) LESSOR NEITHER MAKES NOR SHALL BE DEEMED TO HAVE MADE AND LESSEE
HEREBY EXPRESSLY WAIVES ANY WARRANTY OR REPRESENTATION, EITHER EXPRESS OR
IMPLIED, AS TO THE EQUIPMENT, INCLUDING, WITHOUT LIMITATION, ANY WARRANTY OF
MERCHANTABILITY OR FITNESS OF THE EQUIPMENT FOR ANY PARTICULAR PURPOSE, FREEDOM
FROM INTERFERENCE OR INFRINGEMENT OR THE LIKE, OR AS TO THE TITLE TO OR LESSOR'S
OR LESSEE'S INTEREST IN THE EQUIPMENT OR AS TO ANY OTHER MATTER RELATING TO THE
EQUIPMENT OR ANY PART THEREOF.
LESSEE CONFIRMS THAT IT HAS SELECTED THE EQUIPMENT AND EACH PART THEREOF
ON THE BASIS OF ITS OWN JUDGMENT AND EXPRESSLY DISCLAIMS RELIANCE UPON ANY
STATEMENTS, REPRESENTATIONS OR WARRANTIES MADE BY LESSOR.
LESSOR NEITHER MAKES NOR SHALL BE DEEMED TO HAVE MADE ANY REPRESENTATION
OR WARRANTY AS TO THE ACCOUNTING TREATMENT TO BE ACCORDED TO THE TRANSACTIONS
CONTEMPLATED BY THIS LEASE OR AS TO ANY TAX CONSEQUENCES AND/OR TAX TREATMENT
THEREOF.
(b) LESSOR HEREBY ASSIGNS TO LESSEE SUCH RIGHTS AS LESSOR MAY HAVE (TO
EXTENT LESSOR MAY VALIDLY ASSIGN SUCH RIGHTS) UNDER ALL MANUFACTURERS' AND
SUPPLIERS' WARRANTIES WITH RESPECT TO THE EQUIPMENT; PROVIDED, HOWEVER, THAT THE
FOREGOING RIGHTS SHALL AUTOMATICALLY REVERT TO LESSOR UPON THE
-3-
<PAGE>
OCCURRENCE AND DURING THE CONTINUANCE OF ANY EVENT OF DEFAULT HEREUNDER, OR UPON
THE RETURN OF THE EQUIPMENT TO LESSOR, LESSEE AGREES TO SETTLE ALL CLAIMS WITH
RESPECT TO THE EQUIPMENT DIRECTLY WITH THE MANUFACTURERS OR SUPPLIERS THEREOF,
AND TO GIVE LESSOR PROMPT NOTICE OF ANY SUCH SETTLEMENT AND THE DETAILS OF SUCH
SETTLEMENT. HOWEVER, IN THE EVENT ANY WARRANTIES ARE NOT ASSIGNABLE, THE LESSOR
AGREES TO ACT ON BEHALF OF THE LESSEE IN SETTLING CLAIMS ARISING UNDER THE
WARRANTY WITH THE MANUFACTURER OR SUPPLIER.
(c) IN NO EVENT SHALL LESSOR BE LIABLE FOR LOSS OF REVENUE OR PROFITS,
SPECIAL, INDIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGES OF ANY NATURE OR FROM ANY
CAUSE EVEN IF LESSOR HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
7. Disposition of Equipment.
(a) Return.
Lessee shall, upon the expiration or earlier termination of the Lease Term
of each item of equipment, subject to paragraph (b) below, return such item of
equipment to Lessor at such place within the continental United States of
America as Lessor shall designate in writing to Lessee. Until such item of
equipment is returned to Lessor pursuant to the provisions of this Section, all
of the provisions of this Lease with respect thereto shall continue in full
force and effect. Lessee shall pay all the costs and expenses in connection with
or incidental to the return of the equipment, including, without limitation, the
cost of removing, assembling, packing, insuring and transporting the equipment.
At the time of such return, the equipment shall be in the condition and repair
required to be maintained by Section 12 hereof and free and clear of all Liens.
(b) Purchase Option.
So long as no Default or Event of Default shall have occurred and be
continuing, Lessee may, by written notice given to Lessor at least 120 days (but
not more than 360 days) prior to the expiration date of the Lease Term of any
item of equipment (which notice shall be irrevocable), elect to purchase such
item of equipment on such expiration date for a cash purchase price equal to the
Fair Market Sale Value of such item of equipment determined as of such
expiration date, plus an amount equal to all taxes (other than income taxes on
any gain on such sale), costs and expenses (including legal fees and expenses)
incurred or paid by Lessor in connection with such sale. Upon payment by Lessee
of such purchase price, and of all other amounts then due and payable by Lessee,
Lessor shall transfer title, if any, to such items of equipment except computer
software to Lessee on an "as-is, where-is" basis, without recourse and without
representation or warranty of any kind, express or implied, other than a
representation and warranty that such item of equipment is free and clear of any
Lessor's Liens.
8. Representation and Warranties.
In order to induce Lessor to enter into this Lease and to lease the
equipment to Lessee hereunder, Lessee represents and warrants that:
(a) Organization.
Lessee is duly organized, validly existing and in good standing under the
laws of the State of Florida and is duly qualified to do business and is in good
standing in the State in which the equipment will be located.
(b) Power and Authority.
Lessee has full power, authority and legal right to execute, deliver and
perform this Lease, and the execution, delivery and performance hereof has been
duly authorized by Lessee's governing body or officer(s).
(c) Enforceability.
This Lease has been duly executed and delivered by Lessee and constitutes
a legal, valid and binding obligation of Lessee enforceable in accordance with
its terms.
(d) Consents and Permits.
The execution, delivery and performance of this Lease does not require any
approval or consent of any trustee, shareholder, partner, sole proprietor, or
holders of any indebtedness or obligations of Lessee, and will not contravene
any law, regulation, judgment or decree applicable to Lessee, or the certificate
of partnership or incorporation or by-laws of Lessee, or contravene the
provisions of, or constitute a default under, or result in the creation of any
Lien upon any property of Lessee under any mortgage, instrument or other
agreement to which Lessee is a party or by which Lessee or its assets may be
bound or affected; and no authorization, approval, license, filing or
registration with any court or governmental agency or instrumentality is
necessary in connection with the execution, delivery, performance, validity and
enforceability of this Lease.
(e) Financial Condition of the Lessee.
The financial statements and any other financial information of Lessee
heretofore furnished to Lessor are complete and correct and fairly present the
financial condition of Lessee and the results of its operations for the
respective periods covered thereby, them are no known
-4-
<PAGE>
contingent liabilities or liabilities for taxes of Lessee which are not
reflected in said financial statements and since the date thereof, there has
been no material adverse change in such financial condition or operations.
(f) No Litigation.
There is no action, suit, investigation or proceeding by or before any
court, arbitrator, administrative agency or other governmental authority pending
or threatened against or affecting Lessee (A) which involves the transactions
contemplated by this Lease or the equipment; or (B) which, if adversely
determined, could have a material adverse effect on the financial condition,
business or operations of Lessee.
(g) United States Source Income.
No item of equipment shall be used in a way that results in the creation
of an item of income to Lessor, the source of which for Federal Income Tax
purposes is without the United States.
9. Liens.
Lessee will not directly or indirectly create, incur, assume, suffer, or
permit to exist any Lien on or with respect to the equipment.
10. Insurance
Lessee shall maintain at all times on the equipment, at its expense,
property damage, direct damage and liability insurance in such amounts, against
such risks, in such form and with such insurers as shall be reasonably
satisfactory to Lessor and any other Owner; provided, that the amount of direct
damage insurance shall not on any date be less than the greater of the full
replacement value or the Stipulated Loss Value of the equipment as of such date.
Each insurance policy will, among other things, name Lessor and any other Owner
as an additional insured or as loss payee (as the case may be) as their
interests may appear, require that the insurer give Lessor and any such Owner at
least thirty (30) days prior written notice of any alteration in or cancellation
of the terms of such policy, and require that the interest of Lessor and any
such Owner continue to be insured regardless of any breach of or violation by
Lessee of any warranties, declarations or conditions contained in such insurance
policy. Lessee shall furnish to Lessor and such Owner a certificate or other
evidence satisfactory to Lessor that such insurance coverage is in effect
provided, however, that Lessor and such Owner shall be under no duty to
ascertain the existence or adequacy of such insurance.
11. Taxes.
(a) General Tax Provisions.
Lessee shall timely pay, and shall indemnify and hold Lessor harmless from
and against, all fees, taxes (whether sales, use, excise, personal property or
other taxes), imposts, duties, withholdings, assessments and other governmental
charges of whatever kind or character, however designated (together with any
penalties, fines or interest thereon), all of the foregoing being herein
collectively called "Impositions", which are at any time levied or imposed
against Lessor, Lessee, this Lease, the equipment or any part thereof by any
Federal, State, or Local Government or taxing authority in the United States or
by any foreign government or any subdivision or taxing authority thereof upon,
with respect to, as a result of or measured by (i) the equipment (or any part
thereof), or this Lease or the interests of the Lessor therein; or (ii) the
purchase, ownership, delivery, leasing, possession, maintenance, use, operation,
return, sale or other disposition of the equipment or any part thereof; or (iii)
the rentals, receipts or earnings payable under this Lease or otherwise arising
from the equipment or any part thereof; excluding, however, taxes based on or
measured by the net income of Lessor that are imposed by (1) the United States
of America, or (2) the State of Florida or any political subdivision of the
State of Florida, or (3) any other State of the United States of America or any
political subdivision of any such State in which Lessor is subject to
Impositions as the result (whether solely or in part) of business or
transactions unrelated to this Lease. In case any report or return is required
to be filed with respect to any obligation of Lessee under this Section or
arising out of this Section, Lessee will notify Lessor of such requirement and
make such report or return in such manner as shall be satisfactory to Lessor;
provided, that the payment of any use taxes shall be made in such manner as
specified by Lessor in writing to Lessee; or (iv) The provisions of this Section
shall survive the expiration or earlier termination of this Lease.
(b) Special Tax Provisions.
(i) The Owner of the items of equipment, shall be entitled to take
into account in computing its Federal income tax liability, Current Tax Rate and
such deductions, credits, and other benefits as are provided by the Code to an
owner of property, including, without limitation:
(A) Recovery deductions ("Recovery Deductions") under Section 168(a)
of the Code for each item of equipment in an amount determined, commencing with
the 1996 taxable year, by multiplying the Owner's Cost of such item of equipment
by the percentages applicable under Section 168(b) of the Code with respect to
"(5)-year property" within the meaning of Section 168(c)(2) of the Code;
(B) Amortization of expenses ("Amortization Deductions") paid or to
be paid by Owner in connection with this Lease at a rate no less rapid than
straight line over the Lease Term.
(ii) For the purposes of this Subsection 11(b) only, the term
"Owner" shall include the "common parent" and all other corporations included in
the affiliated group, within the meaning of Section 1504 of the Code (or any
other successor section thereto), of which Owner is or becomes a member.
12. Compliance with Laws; Operation and Maintenance.
-5-
<PAGE>
(a) Lessee will use the equipment in a careful and proper manner, will
comply with and conform to all governmental laws, rules and regulations relating
thereto, and will cause the equipment to be operated in accordance with the
manufacturer's or supplier's instructions or manuals.
(b) Lessee will, at its own expense, keep and maintain the equipment in
good repair, condition and working order and furnish all parts, replacements,
mechanisms, devices and servicing required therefor so that the value, condition
and operating efficiency therefor will at all times be maintained and preserved,
reasonable wear and tear excepted. Lessee will, at its own expense, perform all
required acts necessary to maintain any manufacturer's warranties and guarantees
respecting the equipment. All such repairs, parts, mechanisms, devices and
replacements shall immediately, without further act, become the property of
Lessor and part of the equipment.
(c) Lessee will not make or authorize any improvement, change, addition or
alteration to the equipment (1) if such improvement, change, addition or
alteration will impair the originally intended function or use of the equipment
or impair the value of the equipment as it existed immediately prior to the
improvement, change, addition or alteration; or (ii) if any parts installed in
or attached to or otherwise becoming a part of the equipment as a result of any
such improvement, change, addition or alteration shall not be readily removable
without damage to the equipment. Any part which is added to the equipment
without violating the provisions of the immediately preceding sentence and which
is not a replacement or substitution for any property which was a part of the
equipment, shall remain the property of Lessee and may be removed by Lessee at
any time prior to the expiration or earlier termination of the Lease Term. All
such parts shall be and remain free and clear of any Liens. Any such part which
is not so removed prior to the expiration or earlier termination of the Lease
Term shall, without further act, become the property of Lessor.
13. Inspection.
Upon prior notice, Lessor or its authorized representatives may at any
reasonable time or times inspect the equipment when it deems it necessary to
protect its interest therein.
14. Identification.
Lessee shall at its expense, attach to each item of equipment a notice
satisfactory to Lessor disclosing Owner's ownership of such item of equipment.
15. Personal Property.
Lessee represents that the equipment shall be and at all times remain
separately identifiable personal property. Lessee shall, at its expense, take
such action (including the obtaining and recording of waivers) as may be
necessary to prevent any third party from acquiring any right to or interest in
the equipment by virtue of the equipment being deemed to be real property or a
part of real property or a part of other personal property, and if at any time
any person shall claim any such right or interest, Lessee shall, at its expense,
cause such claim to be waived in writing or otherwise eliminated to Lessor's
satisfaction within 30 days after such claim shall have first become known to
Lessee.
16. Loss or Damage.
(a) All risk of loss, theft, damage or destruction to the equipment or any
part thereof, however incurred or occasioned, shall be borne by Lessee and,
unless such occurrence constitutes an Event of Loss pursuant to paragraph (b) of
this Section, Lessee shall promptly give Lessor written notice hereof and shall
promptly cause the affected part or parts of the equipment to be replaced or
restored to the condition and repair required to be maintained by Section 12
hereof.
(b) If an Event of Loss with respect to any item of equipment shall occur,
Lessee shall promptly give Lessor written notice thereof, and Lessee shall pay
to Lessor as soon as it receives insurance proceeds with respect to said Event
of Loss but in any event no later than 90 days after the occurrence of said
Event of Loss an amount equal to the sum of (i) the Stipulated Loss Value of
such item of equipment computed as of the Rent Payment Date with respect to such
item of equipment on or immediately preceding the date of the occurrence of such
Event of Loss; and (ii) all rent and other amounts due and owing hereunder for
such item of equipment on or prior to the Loss Payment Date. Upon payment of
such amount to Lessor, the lease of such item of equipment hereunder shall
terminate, and Lessor will transfer within forty days to Lessee, Lessor's right,
title, if any, and interest in and to such item of equipment, on an "as-is,
where-is" basis, without recourse and without representation or warranty,
express or implied, other than a representation and warranty that such item of
equipment is free and clear of any Lessor's Liens.
(c) Any payments received at any time by Lessor or Lessee from any insurer
with respect to loss or damage to the equipment shall be applied as follows: (i)
if such payments are received with respect to an Event of Loss they shall be
paid to Lessor, but to the extent received by Lessor, they shall reduce or
discharge, as the case may be, Lessee's obligation to pay the amounts due to
Lessor under Section 16(b) hereof with respect to such Event of Loss; or (ii) if
such payments are received with respect to any loss of or damage to the
equipment other than an Event of Loss, such payments shall, unless a Default or
Event of Default shall have occurred and be continuing, be paid over to Lessee
to reimburse Lessee for its payment of the costs and expenses incurred by Lessee
in replacing or restoring pursuant to Section 16(a) hereof the part or parts of
the equipment which suffered such loss or damage.
17. General Indemnity.
Lessee assumes liability for, and shall indemnify, protect save and keep
harmless Lessor, the partners comprising Lessor, its and their directors,
officers, employees, agents, servants, successors and assigns (an "Indemnitee")
from and against any and all liabilities, obligations, losses, damages,
penalties, claims, actions, suits, costs and expenses, including reasonable
legal expenses, of whatsoever kind and nature, imposed on, incurred by or
asserted against any Indemnitee, in any way relating to or arising out of this
Lease or the enforcement hereof, or the manufacture,
-6-
<PAGE>
purchase, acceptance, rejection, ownership, possession, use, selection,
delivery, lease, operation, condition, sale, return or other disposition of the
equipment or any part thereof (including, without limitation, latent or other
defects, whether or not discoverable by Lessee or any other person, any claim in
tort whether or not for strict liability and any claim for patent, trademark,
copyright or other intellectual property infringement); provided, however, that
Lessee shall not be required to indemnify any Indemnitee for loss or liability
arising from acts or events which occur after the equipment has been returned to
Lessor in accordance with the Lease, or for loss or liability resulting solely
from the willful misconduct or gross negligence of such Indemnitee. The
provisions of this Section shall survive the expiration or earlier termination
of this Lease.
18. Events of Default.
The following events shall each constitute an event of default (herein
called "Event of Default") under this Lease:
(i) Lessee shall fail to execute and deliver to Lessor (or Lessor's agent)
the "Delivery Certificate" within twenty-four (24) hours of Turnover of the
equipment to Lessee.
(ii) Lessee shall fail to commence lease payments on the first day of the
month following the Commencement Date, or such other initiation of lease
payments as specified in Section 5 of this Lease.
(iii) Lessee shall fail to make any payment of rent or other amount owing
hereunder or otherwise after notice has been given that payment is past due; or
(iv) Lessee shall fail to maintain the insurance required by Section 10
hereof or to perform or observe any of the covenants outlined in Sections 21 or
22 hereof; or
(v) Lessee shall fail to perform or observe any other covenant, condition
or agreement to be performed or observed by it with respect to this Lease or any
other agreement between Lessor and Lessee and such failure shall continue
unremedied for 30 days after the earlier of (a) the date on which Lessee
obtains, or should have obtained knowledge of such failure; or (b) the date on
which notice thereof shall be given by Lessor to Lessee; or
(vi) Any representation or warranty made by Lessee herein or in any
document, certificate or financial or other statement now or hereafter furnished
Lessor in connection with this Lease shall prove at any time to have been
untrue, incomplete or misleading in any material respect as of the time when
made; or
(vii) The entry of a decree or order for relief by a court having
jurisdiction in respect of Lessee, adjudging Lessee a bankrupt or insolvent, or
approving as properly filed a petition seeking a reorganization, arrangement,
adjustment or composition of or in respect of Lessee in an involuntary
proceeding or case under the Federal bankruptcy laws, as now or hereafter
constituted, or any other applicable Federal or State bankruptcy, insolvency or
other similar law, or appointing a receiver, liquidator, assignee, custodian,
trustee or sequestrator (or similar official) of Lessee or of any substantial
part of its property, or ordering the winding-up or liquidation of its affairs,
and the continuance of any such decree order unstayed and in effect for a period
of 30 days; or
(viii) The institution by Lessee of proceedings to be adjudicated a
bankrupt or insolvent, or the consent by it to the institution of bankruptcy or
insolvency proceedings against it, or the commencement by Lessee of a voluntary
proceeding or case under the Federal bankruptcy laws, as now or hereafter
constituted, or any other applicable Federal or state bankruptcy, insolvency or
other similar law, or the consent by it to the filing of any such petition or to
the appointment of or taking possession by a receiver, liquidator, assignee,
trustee, custodian or sequestrator (or other similar official) of Lessee or of
any substantial part of its property, or the making by it of any assignment for
the benefit of creditors or the admission by it of its inability to pay its
debts generally as they become due or its willingness to be adjudicated a
bankrupt or the failure of Lessee generally to pay its debts as they become due
or the taking of corporate action by Lessee in furtherance of any of the
foregoing.
19. Remedies.
If an Event of Default specified in Subsection 18(vii) or (viii) above
shall occur, then, and in any such event, Lessor shall not be obligated to
purchase or lease any of the equipment and this Lease shall, without any
declaration or other action by Lessor, be in default. If an Event of Default,
other than an Event of Default specified in Subsection 18(vii) or (viii) above,
shall occur, Lessor may, at its option, declare this Lease to be in default. At
any time after this Lease is in default under the first sentence of this Section
19, Lessor has declared this Lease to be in default under the second sentence of
this Section 19, Lessor and/or its representative may do any one or more of the
following with respect to all of the equipment or any part thereof as Lessor in
its sole discretion shall elect, to the extent permitted by applicable law then
in effect:
(a) demand that Lessee, and Lessee shall at its expense upon such demand,
return the equipment promptly to Lessor at such place in the continental United
States of America as Lessor shall specify, or Lessor and/or its agents, at its
option, may with or without entry upon the premises where the equipment is
located and disable the equipment, or make the equipment inoperable permanently
or temporarily in Lessor's sole discretion, and/or take immediate possession of
the equipment and remove the same by summary proceedings or otherwise, all
without liability for or by reason of such entry or taking of possession,
whether for the restoration of damage to property caused by such taking or for
disabling or otherwise;
(b) sell the equipment at public or private sale, with or without notice,
advertisement or publication, as Lessor may determine, or otherwise dispose of,
hold, use, operate, lease to others or keep idle the equipment as Lessor in its
sole discretion may determine, all free and clear of any rights of Lessee and
without any duty to account to Lessee with respect to such action or inaction or
for any proceeds with respect thereto;
(c) by written notice to Lessee specifying a payment date which shall be
not earlier than 20 days after the date of such notice, demand
-7-
<PAGE>
that Lessee pay to Lessor, and Lessee shall pay to Lessor, on the payment date
specified in such notice, as liquidated damages for loss of a bargain and not as
a penalty, all accrued and unpaid rent for the equipment due on all Rent Payment
Dates up to and including the payment date specified in such notice plus an
amount (together with interest on such amount at the late Charge Rate, from the
payment date specified in such notice to the date of actual payment) equal to
the excess, if any, of the Stipulated Loss Value of the equipment as of the
payment date specified in such notice over the Fair Market Sale Value of the
equipment as of such date;
(d) Lessor may exercise any other right or remedy which may be available
to it under applicable law or proceed by appropriate court action to enforce the
terms hereof or to recover damages for the breach hereof or to rescind this
Lease. Lessor is entitled to recover any amount that fully compensates the
Lessor for any damage to or loss of the Lessor's residual interest in the
equipment caused by the Lessee's default
In the event any present value discounting is applied, the discount rate
used shall be the Federal Reserve Board Discount Rate.
In addition, Lessee shall be liable for any and all unpaid rent and other
amounts due hereunder before or during the exercise of any of the foregoing
remedies and for all reasonable legal fees and other costs and expenses incurred
by reason of the occurrence of any Event of Default or the exercise of Lessor's
remedies with respect thereto, including all reasonable costs and expenses
incurred in connection with the placing of the equipment in the condition
required by Section 12 hereof.
No remedy referred to in this Section 19 is intended to be exclusive, but
each shall be cumulative and in addition to any other remedy referred to herein
or otherwise available to Lessor at law or in equity; and the exercise or
beginning of exercise by Lessor of any one or more of such remedies shall not
preclude the simultaneous or later exercise by Lessor of any or all such other
remedies. No express or implied waiver by Lessor of an Event of Default shall in
any way be, or be construed to be, a waiver of any future or subsequent Event of
Default. To the extent permitted by applicable law, Lessee hereby waives any
rights now or hereafter conferred by statute or otherwise which may require
Lessor to sell or lease or otherwise use the equipment in mitigation of Lessor's
damages or losses or which may otherwise limit or modify any of Lessor's rights
or remedies under this Lease.
20. Lessor's Right to Perform.
If Lessee fails to make any payment required to be made by it hereunder or
fails to perform or comply with any of its other agreements contained herein,
Lessor may itself make such payment or perform or comply with such agreement,
and the amount of such payment and the amount of the reasonable expenses of
Lessor incurred in connection with such payment or the performance of or
compliance with such agreement, as the case may be, together with interest
thereon at the Late Charge Rate, shall be deemed to be additional rent, payable
by Lessee within 30 days of notice.
21. LOCATION; ASSIGNMENT OR SUBLEASE; TITLE TRANSFER.
(a) LESSEE WILL NOT REMOVE THE EQUIPMENT FROM THE LOCATION SPECIFIED IN
SCHEDULE 1 OF EXHIBIT A WITHOUT THE PRIOR WRITTEN CONSENT OF LESSOR, SUCH
CONSENT NOT TO BE UNREASONABLY WITHHELD, EXCEPT REMOVAL OUTSIDE THE CONTINENTAL
U.S. IS NOT PERMITTED. THE EQUIPMENT SHALL AT ALL TIMES BE IN THE SOLE
POSSESSION AND CONTROL OF LESSEE AND LESSEE WILL NOT, WITHOUT THE PRIOR WRITTEN
CONSENT OF LESSOR, ASSIGN THIS LEASE OR ANY INTEREST HEREIN OR SUBLEASE OR
OTHERWISE TRANSFER ITS INTEREST IN ANY OF THE EQUIPMENT, AND ANY ATTEMPTED
ASSIGNMENT, SUBLEASE OR OTHER TRANSFER BY LESSEE IN VIOLATION OF THESE
PROVISIONS SHALL BE VOID.
(b) LESSOR AND LESSEE ACKNOWLEDGE THAT LESSOR (i) MAY TRANSFER ITS
INTEREST IN THE EQUIPMENT TO AN OWNER OTHER THAN LESSOR. LESSOR MAY
CONTEMPORANEOUSLY THEREWITH LEASE THE EQUIPMENT BACK FROM SUCH OWNER AND (ii)
MAY ASSIGN THIS LEASE. LESSEE HEREBY CONSENTS TO EACH OF THE ABOVE-DESCRIBED
TRANSACTIONS. FURTHER LESSEE DOES HEREBY ACKNOWLEDGE (i) THAT ANY SUCH TRANSFER
AND/OR ASSIGNMENT BY LESSOR DOES NOT MATERIALLY CHANGE LESSEE'S DUTIES AND
OBLIGATIONS HEREUNDER, (ii) THAT SUCH TRANSFER AND/OR ASSIGNMENT DOES NOT
MATERIALLY INCREASE THE BURDENS OR RIGHTS IMPOSED ON THE LESSEE, AND (iii) THAT
THE ASSIGNMENT IS PERMITTED EVEN IF THE ASSIGNMENT COULD BE DEEMED TO MATERIALLY
AFFECT THE INTEREST OF THE LESSEE.
22. Status Changes In Lessee.
Lessee will not without thirty (30) days prior written notice to Lessor,
(a) enter into any transaction of merger or consolidation unless it is the
surviving corporation or after giving effect to such merger or consolidation its
net worth equals or exceeds that which existed prior to such merger or
consolidation; or (b) change the form of organization of its business; or (c)
change its name or its chief place of business. Lessee must obtain Lessor's
prior written concurrence before Lessee may undertake any actions to (a)
liquidate, dissolve or any such similar action of the Lessee's organization, or
(b) sell, transfer or otherwise dispose of all or any substantial part of
Lessee's assets.
-8-
<PAGE>
23. Further Assurances; Financial Information.
(a) Lessee will, at its expense, promptly and duly execute and deliver to
Lessor such further documents and assurances and take such further action as
Lessor may from time to reasonably request in order to establish and protect the
rights, interests and remedies created or intended to be created in favor of
Lessor hereunder, including, without limitation, the execution and filing of
Uniform Commercial Code financing statements covering the equipment and proceeds
therefrom in the jurisdictions in which the equipment is located from time to
time. To the extent permitted by applicable law, Lessee hereby authorizes Lessor
to file any such financing statements without the signature of Lessee.
(b) Lessee will qualify to do business and remain qualified in good
standing, in each jurisdiction in which the equipment is from time to time
located.
(c) Lessee will furnish to Lessor as soon as available, but in any event
not later than 90 days after the end of each fiscal year of Lessee, a
consolidated balance sheet of Lessee as at the end of such fiscal year, and
consolidated statements of income and changes in financial position of Lessee
for such fiscal year, all in reasonable detail, prepared in accordance with
generally accepted accounting principles applied on a basis consistently
maintained throughout the period involved. These reports will not be disclosed
to anyone other than the Lessor and/or the Owner as provided in Section 21 (b).
24. Notices.
All notices, demands and other communications hereunder shall be in
writing, and shall be deemed to have been given or made when deposited in the
United States mail, first class postage prepaid, addressed as follows or to such
other address as any of the authorized representatives of the following entities
may from time to time designate in writing to the other listed below:
Lessor: TELECOMMUNICATIONS FINANCE GROUP
400 Rinehart Road
Lake Mary, Florida 32746
Lessee: TELECOMMUNICATIONS SERVICE CENTER, INC.
412 East Madison St., Ste. 1200
Tampa, FL 33602
25. Conditions Precedent:
(a) Lessor dull not be obligated to lease the items of equipment described
herein to Lessee hereunder unless:
(i) Such Uniform Commercial Code financing statements covering
equipment and proceeds therefrom and landlord and/or mortgagee waivers or
disclaimers and/or severance agreements with respect to the items of equipment
covered by this Lease as Lessor shall deem necessary or desirable in order to
perfect and protect its interests therein shall have been duly executed and
filed, at Lessee's expense, in such public offices as Lessor shall direct;
(ii) All representations and warranties of Lessee contained herein
or in any document or certificate furnished Lessor in connection herewith shall
be true and correct on and as of the date of this Lease with the same force and
effect as if made on and as of such date; no Event of Default or Default shall
be in existence on such date or shall occur as a result of the lease by Lessee
of the equipment specified in Schedule 1 of Exhibit A;
(iii) In the sole judgment of Lessor, them shall have been no
material adverse change in the financial condition or business of Lessee;
(iv) All proceedings to be taken in connection with the transactions
contemplated by this Lease, and all documents incidental thereto, shall be
satisfactory in form and substance to Lessor and its counsel;
(v) Lessor shall have received from Lessee, in form and substance
satisfactory to it, such other documents and information as Lessor shall
reasonably request;
(vi) All legal matters in connection with the transactions
contemplated by this Lease shall be satisfactory to Lessor's counsel; and
(vii) No Change in Tax Law, which in the sole judgment of Lessor
would adversely affect Lessor's Economics, shall have occurred or shall appear,
in Lessor's good faith judgment, to be imminent.
26. Software License.
Reference is made to the form of Software Product License Agreement
attached hereto as Exhibit B (the "License Document"). Lessor has arranged for
the equipment manufacturer to grant Lessee a license to use the Software as
defined in the License Document in conjunction with the equipment leased
hereunder in accordance with the terms of the License Document. The original
license fee is contained in the lease rate. To avail itself of the license
grant, Lessee must execute the License Document, upon Commencement of the Lease.
"Buyer" and "Licensee" as used in the License Document am synonymous with
lessee.
-9-
<PAGE>
27. LIMITATION OF LIABILITY.
LESSOR SHALL NOT BE LIABLE FOR LOST PROFITS OR REVENUE, SPECIAL, INDIRECT,
INCIDENTAL, CONSEQUENTIAL OR PUNITIVE DAMAGES OF ANY NATURE OR FROM ANY CAUSE
WHETHER BASED IN CONTRACT OR TORT, INCLUDING NEGLIGENCE, OR OTHER LEGAL THEORY
EVEN IF LESSOR HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. LESSEE
HEREBY AGREES THAT LESSOR WILL NOT BE LIABLE FOR ANY LOST PROFITS OR REVENUE OR
FOR ANY CLAIM OR DEMAND AGAINST LESSEE BY ANY OTHER PARTY.
28. Miscellaneous.
(a) Any provision of this Lease which is prohibited or unenforceable in
any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provisions in any
other jurisdiction. To the extent permitted by applicable law, Lessee hereby
waives any provision of law which renders any provision hereof prohibited or
unenforceable in any respect.
(b) No terms or provisions of this Lease may be changed, waived,
discharged or terminated orally, but only by an instrument in writing signed by
the party against which the enforcement of the change, waiver, discharge or
termination is sought. No delay or failure on the part of Lessor to exercise any
power or right hereunder shall operate as a waiver thereof, nor as an
acquiescence in any default, nor shall any single or partial exercise of any
power or right preclude any other or further exercise thereof, or the exercise
of any other power or right. After the occurrence of any Default or Event of
Default, the acceptance by Lessor of any payment of rent or other sum owed by
Lessee pursuant hereto shall not constitute a waiver by Lessor of such Default
or Event of Default, regardless of Lessor's knowledge or lack of knowledge
thereof at the time of acceptance of any such payment, and shall not constitute
a reinstatement of this Lease, if this Lease shall have been declared in default
by Lessor pursuant to Section 18 hereof or otherwise, unless Lessor shall have
agreed in writing to reinstate the Lease and to waive the Default or Event of
Default.
In the event Lessee tenders payment to Lessor by check or draft containing a
qualified endorsement purporting to limit or modify Lessee's liability or
obligations under this Lease, such qualified endorsement shall be of no force
and effect even if Lessor processes the check or draft for payment.
(c) This Lease with exhibits contains the full, final and exclusive
statement of the agreement between Lessor and Lessee relating to the lease of
the equipment.
(d) This Lease shall constitute an agreement of an operating lease, and
nothing herein shall be construed as conveying to Lessee any right, title or
interest in the equipment except as Lessee only.
(e) This Lease and the covenants and agreements contained herein shall be
binding upon, and inure to the benefit of, Lessor and its successors and assigns
and Lessee and, to the extent permitted by Section 21 hereof, its successors and
assigns.
(f) The headings of the Sections are for convenience of reference only,
are not a part of this Lease and shall not be deemed to affect the meaning or
construction of any of the provisions hereof.
(g) This Lease may be executed by the parties hereto on any number of
separate counterparts, each of which when so executed and delivered shall be an
original, but all such counterparts shall together constitute but one and the
same instrument.
(h) This Lease is deemed made and entered into in the State of Florida and
shall be governed by and construed under and in accordance with the laws of the
State of Florida as if both parties were residents of Florida.
(i) Lessee hereby irrevocably consents and agrees that any legal action,
suit, or proceeding arising out of or in any way in connection with this Lease
shall be instituted or brought in the courts of the State of Florida, or the
United States Courts for the District of Florida, and by execution and delivery
of this Lease, Lessee hereby irrevocably accepts and submits to, for itself and
in respect of its property, generally and unconditionally, the non-exclusive
jurisdiction of any such court, and to all proceedings in such courts. Lessee
irrevocably consents to service of any summons and/or legal process by
registered or certified United States mail, postage prepaid, to Lessee at the
address set forth in Section 24 hereof, such method of service to constitute, in
every respect, sufficient and effective service of process in any legal action
or proceeding. Nothing in this Lease shall affect the right to service of
process in any other manner permitted by law or limit the right of Lessor to
bring actions, suits or proceedings in the court of any other jurisdiction.
Lessee further agrees that final judgment against it in any such legal action,
suit or proceeding shall be conclusive and may be enforced in any other
jurisdiction, within or outside the United States of America, by suit on the
judgment, a certified or exemplified copy of which shall be conclusive evidence
of the fact and the amount of the liability.
-10-
<PAGE>
IN WITNESS WHEREOF, Lessor and Lessee have each caused this Lease to be duly
executed as of the day and year first above written and by its signature below
Lessee expressly acknowledges that this Lease may not be modified unless done so
in a writing signed by each of the parties hereto or their successors in
interest.
TELECOMMUNICATIONS SERVICE CENTER, INC. (Lessee)
By: /s/ Harold Shankland
--------------------------------------------
Harold Shankland, Pres.
------------------------------------------------
(Name & Title)
Date Signed: May 1, 1996
-----------------------------------
TELECOMMUNICATIONS FINANCE GROUP (Lessor)
By: /s/ C.C. Callaway
--------------------------------------------
------------------------------------------------
Authorized Representative
Date Signed: 28 May 1996
-----------------------------------
-11-
<PAGE>
TELECOMMUNICATIONS SERVICE CENTER, INC.
SITE: TAMPA, FLORIDA
LEASE PAYMENTS
ADDENDUM TO LEASE AGREEMENT DATED April 17,1996 BETWEEN
TELECOMMUNICATIONS FINANCE GROUP AND
TELECOMMUNICATIONS SERVICE CENTER, INC.
<TABLE>
<S> <C> <C>
EFFECTIVE OCTOBER 1, 1996 (60 MONTHLY LEASE PAYMENTS)
ORIGINAL VALUE OF EQUIPMENT $644,083.75
RATE FACTOR PER $ 1,000 $21.993
ORIGINAL MONTHLY LEASE PAYMENT $14,165.33
EFFECTIVE NOVEMBER 1, 1996 (59 MONTHLY LEASE PAYMENTS REMAINING)
ADDITION I $120,211.05
RATE FACTOR PER $ 1,000 $22.269
ADDITION I MONTHLY LEASE PAYMENT $ 2,676.98
TOTAL MONTHLY LEASE PAYMENT $16,842.31
EFFECTIVE NOVEMBER 1, 1996 (59 MONTHLY LEASE PAYMENTS REMAINING)
ADDITION II $217,804.40
RATE FACTOR PER $ 1,000 $22.269
ADDITION II MONTHLY LEASE PAYMENT $ 4,850.29
TOTAL MONTHLY LEASE PAYMENT $21,692.60
EFFECTIVE JANUARY 1, 1997 (57 MONTHLY LEASE PAYMENTS REMAINING)
ADDITION III $69,658.50
RATE FACTOR PER $ 1,000 $22.851
ADDITION III MONTHLY LEASE PAYMENT $ 1,591.77
TOTAL MONTHLY LEASE PAYMENT $23,284.37
EFFECTIVE JULY 1, 1997 (51 MONTHLY LEASE PAYMENTS REMAINING)
ADDITION IV $183,953.76
RATE FACTOR PER $ 1,000 $24.880
ADDITION IV MONTHLY LEASE PAYMENT $ 4,576.77
TOTAL MONTHLY LEASE PAYMENT $27,861.14
EFFECTIVE DECEMBER 1, 1997 (46 MONTHLY LEASE PAYMENTS REMAINING)
ADDITION V $254,716.00
RATE FACTOR PER $ 1,000 $26.984
ADDITION V MONTHLY LEASE PAYMENT $ 6,873.26
TOTAL MONTHLY LEASE PAYMENT $34,734.40
EFFECTIVE MARCH 1, 1998 (43 MONTHLY LEASE PAYMENTS REMAINING)
ADDITION VI $ 37,000.00
RATE FACTOR PER $ 1,000 $28.485
ADDITION VI MONTHLY LEASE PAYMENT $ 1,053.95
TOTAL MONTHLY LEASE PAYMENT $35,788.35
TOTAL VALUE OF EQUIPMENT $1,527,427.46 ==========
=============
</TABLE>
SUMMARY OF TOTAL LEASE PAYMENTS:
1 @ $14,165.33 = $ 14,165.33
2 @ $21,692.60 = $ 43,385.20
6 @ $23,284.37 = $ 139,706.22
5 @ $27,861.14 = $ 139,305.70
3 @ $34,734.40 = $ 104,203.20
43 @ $35,788.35 = $1,538,899.05
- -- -------------
60 $1,979,664.70
ACCEPTED BY: /s/ Hal Shankland
----------------------
DATE: 2/5/99
-----------------------------
<PAGE>
ASSIGNMENT OF PURCHASE ORDER
This Assignment between TELECOMMUNICATIONS SERVICE CENTER, INC.
("Company") and TELECOMMUNICATIONS FINANCE GROUP ("Lessor").
WHEREAS, the Company and Lessor have, or will shortly, execute a Lease
Agreement ("Lease"); and
WHEREAS, the Company has executed and delivered a certain purchase
contract covering the property described therein (the "Equipment"), a copy of
which purchase contract is attached hereto as Attachment A ("Purchase Order");
and
WHEREAS, the Company desires to assign to Lessor all of its rights and
interests under the Purchase Order for that equipment listed on Schedule 1, as
amended from time to time, of Exhibit A of the Lease so that Lessor might
purchase and take title to such equipment in the Company's stead.
NOW, THEREFORE, for valuable consideration, receipt of which is hereby
acknowledged, the parties hereto agree as follows:
1. This Assignment shall be effective as of the date the Company executes
Exhibit A entitled "Certificate of Delivery and Acceptance" of the Lease.
2. The Company (a) represents and warrants that the Purchase Order constitutes
the entire understanding of the parties thereto with respect to the purchase and
sale of the Equipment covered thereby; (b) hereby assigns to Lessor all of its
rights under the Purchase Order as to the equipment listed on Schedule 1, as
amended from time to time, of Exhibit A of the Lease; (c) hereby assigns to
Lessor and Lessor hereby assumes and agrees, so long as a Company complies with
the provisions of the Lease and otherwise performs its obligations under the
Purchase Order, to perform Company's obligations under the Purchase Order to pay
the price of the equipment listed on Schedule 1, as amended from time to time,
of Exhibit A of the Lease; and (d) represents and warrants that neither notice
to nor consent from the respective vendor is required in connection with the
execution, delivery and performance of this Assignment or for the validity or
enforceability of this Assignment.
3. Pursuant to this Assignment, the Company hereby agrees with Lessor that the
Company shall continue to be responsible for the performance of all obligations
under the Purchase Order, except for, subject to the condition provided in
Paragraph 1 above, the obligation to pay the price as provided in Paragraph 2
above, and the Company agrees to hold harmless and indemnify Lessor from all
liability, loss, damage, and expense arising from or directly or indirectly
attributable to such obligations.
IN WITNESS WHEREOF, the parties have duly executed this Assignment under
seal by their authorized representatives as of the date opposite their
respective signatures.
TELECOMMUNICATIONS FINANCE GROUP TELECOMMUNICATIONS SERVICE CENTER, INC.
By: /s/ CC Callaway By: /s/ Harold Shankland
---------------------------- -----------------------------------
Harold Shankland, Pres
- ------------------------------- ---------------------------------------
Authorized Representative (Name & Title)
Date Signed: Date Signed: 6/20/97
------------------- --------------------------
<PAGE>
ATTACHMENT A
EQUIPMENT LIST # TFG-97248 DATED: June 2, 1997
COMPANY: TELECOMMUNICATIONS SERVICE CENTER. INC.
ADDITION: IV
SITE LOCATION: TAMPA, FLORIDA
PART NO./DESCRIPTION QUANTITY AMOUNT
- -------------------- -------- ------
SS-C
"MAX OUT" SYSTEM (DTF-03/DTF-04/CCS-03);
ADDITIONAL POWER SYSTEM (S.O.#071386)
AS FOLLOWS:
MATERIAL 1 LOT $138,974.00
INSTALLATION 18,200.00
FREIGHT 462.26
RELEASE 15.0 UPGRADE (S.O.#069800) 1 LOT 0.00
THIRD PARTY VENDOR - TELE-FLEX
INFO ON DEMAND MODULE SOFTWARE 1 LOT 26,317.50
---------
TOTAL $183,953.76
===== ===========
<PAGE>
OCC CONTRACT
SIEMENS
Stromberg-Carlson
400 Rinehart Road
Lake Mary, Florida 32746
(407) 942-5000
Buyer: Telecommunications Service Center, INC. DATE: 07/30/96
INSTALLATION SITE: Tampa, FL
This Contract is subject to the terms and conditions set forth herein, and
includes the following:
1. Continuation pages 2, 3 and 4 which include a Disclaimer of Warranties and
a Software Product License.
2. Technical Proposal No. DCO-883152, issue 1, dated, 07/30/96
3. Payment Terms:
o 100% of equipment price upon delivery, F.O.B. Lake Mary, Florida
o 100% of installation price upon installation turnover.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
Delivery
Unit (Month ARO)
Item Description Quantity Price Total Schedule
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
01 Proposal for a fully equipped
DTF-02 Frame (1152 Ports), per
DCO-683l52, Issue 1, dated
07/30/96. Material $60,000
Installation 8,600
-------
TOTAL $68,600
02 "Max Out" System Material $120,000
(DTF-03/DTF-04/CCS-03) Installation 12,600
--------
TOTAL $132,600
</TABLE>
NOTE: This form must be signed and returned by Buyer within 30 days of the first
date above written.
- --------------------------------------------------------------------------------
This Contract is agreed to for item(s): 01,02,03
By: /s/ Hal Shankland, Pres 10/31/96
---------------------------------------------
Authorized Representative & Title Date
For: Telecommunications Service Center
--------------------------------------------
(Buyer/Licensee)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Siemens Stromberg-Carlson Home Office
Acceptances
By: /s/ [Illegible] 10/31/96
----------------------------------------------
Date
- --------------------------------------------------------------------------------
Receipt of $ from
----------------------------
Buyer is Hereby Acknowledged
By:
---------------------------------------------
Date
- --------------------------------------------------------------------------------
<PAGE>
SIEMENS CONTRACT
Stromberg-Carlson CONTINUATION
SHEET
Telecommunications Service Center, INC. DCO-683152
Issue: 01
Date: 07/30/96
Page 2a
Item Description Qty. Unit Pr. Total
- --------------------------------------------------------------------------------
03 Additional Power System Material $18,974
Installation 5,600
-------
TOTAL $24,574
04 Additional Service Circuits Material $18,495
Installation 800
------
TOTAL $19,295
NOTES:
IF PURCHASED, A 10% DEPOSIT IS REQUIRED ON ORDER ENTRY. IF LEASED FROM
TELECOMMUNICATIONS FINANCE GROUP, A 5% DEPOSIT IS REQUIRED ON ORDER ENTRY.
THIS 5% DEPOSIT WILL BE APPLIED AGAINST LEASE PAYMENTS.
Siemens Stromberg-Carlson reserves the right to change the hardware
elements in accordance with our ongoing development program. The hardware
necessary to support the functionality specified will be provided at time
of shipment in accordance with our then current hardware configuration
policy.
PRICES DO NOT INCLUDE TAXES AND FREIGHT.
<PAGE>
ASSIGNMENT OF PURCHASE ORDER
This Assignment between TELECOMMUNICATIONS SERVICE CENTER, INC.
("Company") and TELECOMMUNICATIONS FINANCE GROUP ("Lessor").
WHEREAS, the Company and Lessor have, or will shortly, execute a Lease
Agreement ("Lease"); and
WHEREAS, the Company has executed and delivered a certain purchase
contract covering the property described therein (the "Equipment"), a copy of
which purchase contract is attached hereto as Attachment A ("Purchase Order");
and
WHEREAS, the Company desires to assign to Lessor all of its rights and
interests under the Purchase Order for that equipment listed on Schedule 1, as
amended from time to time, of Exhibit A of the Lease so that Lessor might
purchase and take title to such equipment in the Company's stead.
NOW, THEREFORE, for valuable consideration, receipt of which is hereby
acknowledged, the parties hereto agree as follows:
1. This Assignment shall be effective as of the date the Company executes
Exhibit A entitled "Certificate of Delivery and Acceptance" of the Lease.
2. The Company (a) represents and warrants that the Purchase Order constitutes
the entire understanding of the parties thereto with respect to the purchase and
sale of the Equipment covered thereby; (b) hereby assigns to Lessor all of its
rights under the Purchase Order as to the equipment listed on Schedule 1, as
amended from time to time, of Exhibit A of the Lease; (c) hereby assigns to
Lessor and Lessor hereby assumes and agrees, so long as a Company complies with
the provisions of the Lease and otherwise performs its obligations under the
Purchase Order, to perform Company's obligations under the Purchase Order to pay
the price of the equipment listed on Schedule 1, as amended from time to time,
of Exhibit A of the Lease; and (d) represents and warrants that neither notice
to nor consent from the respective vendor is required in connection with the
execution, delivery and performance of this Assignment or for the validity or
enforceability of this Assignment.
3. Pursuant to this Assignment, the Company hereby agrees with Lessor that the
Company shall continue to be responsible for the performance of all obligations
under the Purchase Order, except for, subject to the condition provided in
Paragraph 1 above, the obligation to pay the price as provided in Paragraph 2
above, and the Company agrees to hold harmless and indemnify Lessor from all
liability, loss, damage, and expense arising from or directly or indirectly
attributable to such obligations.
IN WITNESS WHEREOF, the parties have duly executed this Assignment under
seal by their authorized representatives as of the date opposite their
respective signatures.
TELECOMMUNICATIONS FINANCE GROUP TELECOMMUNICATIONS SERVICE CENTER, INC.
By: /s/ CC Callaway By: /s/ Hal Shankland
---------------------------- -----------------------------------
- ------------------------------- ---------------------------------------
Authorized Representative (Name & Title)
Date Signed: 2/12/98 Date Signed:
------------------- --------------------------
<PAGE>
SWITCHING PRODUCTS
SIEMENS CONTRACT
900 Broken Sound Parkway
Boca Raton, Florida 33487
(561) 955-5000
To: TSC Date: January 5, 1998
412 E. Madison St., Suite 1215
Tampa. FL 33602
This contract is subject to the terms and conditions set forth herein and
includes the following:
1. Page(s) 1 through 1a and pages 2 through 4 which include a Disclaimer of
Warranties, a Software License, and a Limitation of Liabilities.
2. Technical Proposal No. 825022, Issue 1, dated 01/05/98.
3. Payment Terms:
o 100% of equipment, software, and engineering price upon delivery,
F.O.B. Lake Mary, Florida.
o 100% of installation price upon installation turnover.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
Delivery
Unit (Month ARO)
Item Description Quantity Price Total Schedule
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
01 Contract for 3 Turbo Processors with PXA *
Memory at Tampa, FL per DCO-825022, Issue
1, dated 01/05/98.
Material $10,000
Installation 5,000
-------
TOTAL $15,000
- -------------------------------------------------------------------------------------------------
</TABLE>
This Offer is valid for a period of 30 days from the above date.
- --------------------------------------------------------------------------------
BUYER'S ORDER
This order is made as to the Item(s):
- ----------------------------------------
subject to the terms and conditions herein and in the continuation pages
referenced above. I have received and read the continuation pages referenced
above.
By: /s/ Hal Shankland 1/16/98
----------------------------------------------
Authorized Representative Date
For:
--------------------------------------------
(Buyer/Licensee)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Please return Order to:
Siemens Telecom Networks
1600 RiverEdge Pkwy., Suite 901
Atlanta, GA 30328
Attn: Mr. Joe Sebeck
Buyer's receipt of Seller's signed Acknowledgment of the Order shall indicate
Seller's acceptance of this Contract.
- --------------------------------------------------------------------------------
Siemens Telecom Networks
Form 380-006 (10/97) Page 1
<PAGE>
SIEMENS CONTRACT
CONTINUATION SHEET
Continuation Page 1a of 1a Proposal No.: 825022
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Delivery
(Month ARO)
Item Description Quantity Unit Price Total Schedule
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NOTES:
Siemens Telecom Networks reserves the right to change
the hardware elements in accordance with our ongoing
development program. The hardware necessary to support
the functionality specified will be provided at time of
shipment in accordance with our then current hardware
configuration policy.
PRICES DO NOT INCLUDE TAXES AND
FREIGHT.
*To be determined at time of Order Entry.
- -------------------------------------------------------------------------------------------------------------
</TABLE>
Siemens Telecom Networks
Form 380-006 (10/97)
<PAGE>
ASSIGNMENT OF PURCHASE ORDER
This Assignment between TELECOMMUNICATIONS SERVICE CENTER, INC.
("Company") and TELECOMMUNICATIONS FINANCE GROUP ("Lessor").
WHEREAS, the Company and Lessor have, or will shortly, execute a Lease
Agreement ("Lease"); and
WHEREAS, the Company has executed and delivered a certain purchase
contract covering the property described therein (the "Equipment"), a copy of
which purchase contract is attached hereto as Attachment A ("Purchase Order");
and
WHEREAS, the Company desires to assign to Lessor all of its rights and
interests under the Purchase Order for that equipment listed on Schedule 1, as
amended from time to time, of Exhibit A of the Lease so that Lessor might
purchase and take title to such equipment in the Company's stead.
NOW, THEREFORE, for valuable consideration, receipt of which is hereby
acknowledged, the parties hereto agree as follows:
1. This Assignment shall be effective as of the date the Company executes
Exhibit A entitled "Certificate of Delivery and Acceptance" of the Lease.
2. The Company (a) represents and warrants that the Purchase Order constitutes
the entire understanding of the parties thereto with respect to the purchase and
sale of the Equipment covered thereby; (b) hereby assigns to Lessor all of its
rights under the Purchase Order as to the equipment listed on Schedule 1, as
amended from time to time, of Exhibit A of the Lease; (c) hereby assigns to
Lessor and Lessor hereby assumes and agrees, so long as a Company complies with
the provisions of the Lease and otherwise performs its obligations under the
Purchase Order, to perform Company's obligations under the Purchase Order to pay
the price of the equipment listed on Schedule 1, as amended from time to time,
of Exhibit A of the Lease; and (d) represents and warrants that neither notice
to nor consent from the respective vendor is required in connection with the
execution, delivery and performance of this Assignment or for the validity or
enforceability of this Assignment.
3. Pursuant to this Assignment, the Company hereby agrees with Lessor that the
Company shall continue to be responsible for the performance of all obligations
under the Purchase Order, except for, subject to the condition provided in
Paragraph 1 above, the obligation to pay the price as provided in Paragraph 2
above, and the Company agrees to hold harmless and indemnify Lessor from all
liability, loss, damage, and expense arising from or directly or indirectly
attributable to such obligations.
IN WITNESS WHEREOF, the parties have duly executed this Assignment under
seal by their authorized representatives as of the date opposite their
respective signatures.
TELECOMMUNICATIONS FINANCE GROUP TELECOMMUNICATIONS SERVICE CENTER, INC.
By: /s/ CC Callaway By: /s/ Hal Shankland
---------------------------- -----------------------------------
Pres.
- ------------------------------- ---------------------------------------
Authorized Representative (Name & Title)
Date Signed: 31 Jan 1997 Date Signed: 12/19/96
------------------- --------------------------
<PAGE>
OCC CONTRACT
SIEMENS
Stromberg-Carlson
ATTACHMENT A
400 Rinehart Road
Lake Mary, Florida 32746
(407) 942-5000
Buyer: Telecommunications Service Center, INC. DATE: 07/30/96
INSTALLATION SITE: Tampa, FL
This Contract is subject to the terms and conditions set forth herein, and
includes the following:
1. Continuation pages 2, 3 and 4 which include a Disclaimer of Warranties and
a Software Product License.
2. Technical Proposal No. DCO-683152, Issue 1, dated, 07/30/96
3. Payment Terms:
o 100% of equipment price upon delivery, F.O.B. Lake Mary, Florida
o 100% of installation price upon installation turnover.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
Delivery
Unit (Month ARO)
Item Description Quantity Price Total Schedule
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
01 Proposal for a fully equipped
DTF-02 Frame (1152 Ports), per
DCO-683152, Issue 1, dated
07/30/96. Material $60,000
Installation 8,600
-------
TOTAL $68,600
02 "Max Out" System Material $120,000
(DTF-03/DTF-04/CCS-03) Installation 12,600
--------
TOTAL $132,600
- ---------------------------------------------------------------------------------------------
</TABLE>
NOTE: This form must be signed and returned by Buyer within 30 days of the first
date above written.
- --------------------------------------------------------------------------------
This Contract is agreed to for item(s): 01, 02, 03
By: /s/ Hal Shankland, Pres 10/31/96
---------------------------------------------
Authorized Representative & Title Date
For: Telecommunications Service Center
--------------------------------------------
(Buyer/Licensee)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Siemens Stromberg-Carlson Home Office
Acceptance
By: /s/ [Illegible] 10/31/96
---------------------------------------------
- --------------------------------------------------------------------------------
Receipt of $ from
-------------------------------
Buyer is Hereby Acknowledged
By:
---------------------------------------------
Date
- --------------------------------------------------------------------------------
<PAGE>
EXHIBIT 10.2.2
EXHIBIT B
SOFTWARE LICENSE AGREEMENT
Lessee (hereinafter referred to as "Licensee") will acquire under lease certain
Siemens Stromberg-Carlson (hereinafter referred to as "Licensor") products the
"Designated Product" (defined below), which utilizes the "Software Product" in
the operation of the Designated Product. The Software Product is furnished
pursuant to the following terms and conditions.
1. DEFINITIONS
In addition to definitions contained elsewhere herein, certain terms shall
have meanings as follows:
1.1 "Affiliate" means any other entity directly or indirectly
controlling or controlled by a party hereto or directly or
indirectly controlled by a parent entity in common with such party.
Control means the ownership of at least fifty (50) percent of the
voting rights in such entity. And, as to Licensor, includes the
partners comprising it and their parents, subsidiaries and
subsidiaries of such parents.
1.2 "Designated Product" means the Siemens Stromberg-Carlson equipment
supplied to the Licensee under a lease of which this Software
License Agreement forms a part.
1.3 "Modification" means any change to the Software Product.
1.4 "Modification Grant-Back Rights" means royalty-free, worldwide
non-exclusive rights to make, have made, license (including
disposition to an end-user) and use under copyrights to software,
patents, copyrights to firmware and semiconductor mask registration
rights in and to Modifications and to make derivative works with the
right to sub-license to Affiliates (such sublicense to survive any
subsequent termination of the affiliation).
1.5 "Software Product" means the software computer program, including
activated and non-activated features, which is provided for use in
the operation of the Designated Product and which includes the
following materials: (i) a set of machine readable computer program
instructions recorded on magnetic tape or other storage media; (ii)
a source code listing of the data base portion (if any) of the
computer program instructions, augmented by the programmer's
annotations; (iii) an releases, issues or short sequences of
computer program instruction modifications ("patches") furnished by
Licensor to the Licensee as a replacement for, or for the
modification of, previously furnished materials; (iv) all derivative
works or Modifications, by whomever made, of any of the foregoing;
and (v) all copies of any of the foregoing, in whole or in part, by
whomever made.
2. LICENSE GRANT
In consideration of the right-to-use fee stated in the Licensor's invoice
for the Designated Product, the Licensor grants for as long as Licensee or
its authorized assignee uses the Designated Product in the manner provided
below, and the Licensee accepts, an indivisible, non-exclusive and
non-transferable (except as provided in Section 2.1) license in each
Software Product furnished hereunder to use the Software Product, less the
non-activated features, only on the Designated Product for the sole
purpose of operating the Designated Product as a public telecommunications
switching system subject to the following conditions.
2.1 The Licensee Agrees: (i) to limit its use of each Software Product
solely to the operation of the Designated Product on which it was
originally installed and no other purpose; (ii) to limit its making
of copies of the Software Product, in whole or in part, to copies
reasonably necessary for the operation of the Designated Product and
for archival purposes and shall make none other; (iii) to reproduce
all proprietary notices, including the copyright notices of the
Licensor, which appear on or are encoded within the Software Product
in the form or forms in which the Software Product is received from
the Licensor, upon all copies, derivative works or other
modifications which the Licensee shall make; (iv) that the Software
Product (physical materials, including all copies by whomever made)
shall be the property of the Licensor, (v) not to do, cause or
permit to be done, anything to activate any of the subsisting
non-activated computer instruction steps therein; (vi) not to, nor
attempt to, decompile or reverse assemble all or any portion of the
Software Product, nor shall it authorize or permit any others to do
so; and vii) that the Software Product is the proprietary material
of Licensor and Licensee shall keep the Software Product
confidential, treat it as it does its own proprietary materials and
disclose it only to its employees that have a need to know and third
parties who are needed to maintain the Designated Product provided
such third parties have agreed in writing to keep the Software
Product confidential.
2.2 Licensor reserves to itself the exclusive right to cause the
subsisting non-enabled program instruction steps to be activated (by
the issuance under this License of a version of Software Product
having the applicable additional computer instruction steps enabled)
pursuant to standard right-to-use software license upgrade fees or,
in the absence of a standard upgrade fee, for an upgrade fee to be
negotiated.
2.3 As an additional fee required hereunder for the Software Product,
the Licensee shall further pay to the Licensor any state or local
taxes, however designated, levied against and paid by the Licensor,
based upon this transaction or based upon Licensor's or the
Licensee's interests in the Software Product, including sales,
privilege, use, personal, property or intangible property taxes,
exclusive, however, of taxes based upon net income.
2.4 Notwithstanding any other provision hereof, in the event Licensor
develops or makes, or has developed or made, Modification(s) to the
Software Product which represent, in Licensor's sole judgment, value
added to the Designated Product or which represent an improvement of
performance of the Designated Product, the Licensor reserves the
right to market the Modification(s) as a separate offering requiring
payment of an additional right-to-use fee and which, at the
Licensor's option, may require the Licensee to execute a new
Software License Agreement.
<PAGE>
2.5 The Licensee hereby grants and agrees to grant to the Licensor, to
the extent it lawfully may, Modification Grant-Back Rights related
to any development, whether made by the Licensor, Licensee or agents
of the Licensee, of all or any portion of any Software Product
furnished hereunder pursuant to any request or specifications by the
Licensee for a design different from Licensor's design, and
regardless of whether or not the Licensee has compensated the
Licensor for its performance of such development. Title to patents,
copyrights, trade secrets and mask registrations developed by
Licensor pursuant to any request or specification by the Licensee,
and regardless of whether the Licensee has compensated the Licensor
for its performance of such development, shall vest in Licensor.
Licensee, however, shall receive a royaltyfree license of the same
scope as this Software License Agreement to the results of such
development.
2.6 The Licensee shall not merge any Software Product with other
software computer program materials to form a derivative work or
otherwise make Modifications or alter a Software Product in any
manner whatsoever.
2.7 The Licensee agrees that any communication or other disclosure of
information it makes to the Licensor related to a
request/specification for any Modification to Licensor's design of
the Software Product shall be made upon a non-confidential basis
without any manner of restriction of the Licensor in its use or
dissemination of received information.
2.8 The Licensor or the Licensee shall have the right to terminate this
License in the event of any default by the other party which the
defaulting party fails to correct within a period of sixty (60) days
after the receipt of notice thereof from the non-defaulting party,
or immediately and without notice in the event that any bankruptcy
arrangement for the benefit of creditors or insolvency proceedings
are commenced by or against the Licensee, or in the event of the
appointment of an assignee for the benefit of creditors or a
receiver of the Licensee or its properties. However, in the event at
the time the Licensor shall be entitled to exercise the foregoing
right to immediately and without notice terminate this License, and
such termination would cause interruption of service to
governmentally franchised telephone common carrier subscribers, the
Licensor agrees in good faith (but with due regard to the protection
of licensed interests) to provide its best efforts to cooperate with
the enfranchising authority to avoid disruption of such services. No
termination hereunder shall prejudice any of the non-defaulting
party's rights arising prior thereto or shall limit in any way the
other remedies available to the non-defaulting party.
2.9 Upon cessation of use of the Designated Product, the Licensee shall,
as instructed by the Licensor, either return the Software Product to
the Licensor or destroy the Software Product.
2.10 Should any obligation of either party under this License be found
illegal or unenforceable in any respect, such illegality or
unenforceability shall not affect any other provision of this
License, all of which shall remain enforceable in accordance with
their terms. Should any obligations of either party under this
License be found illegal or unenforceable by reason of being
excessive in extent or breadth with respect to duration, scope or
subject matter, such obligations shall be deemed and construed to be
reduced to the maximum duration, to the end that such obligations
shall be and remain enforceable to the maximum extent allowable.
2.11 Any notice or other communication required or permitted to be made
or given hereunder to either party hereto shall be sufficiently made
or given on the date of mailing, if sent to such party by certified
mail, return receipt requested, postage prepaid, addressed to it at
its address set forth in this Agreement.
2.12 The Licensee's rights hereunder are assignable, but only as part of
a transaction in which ownership of the Designated Product is
transferred to an Affiliate of Licensee or as part of a sale or
transfer of substantially all of the assets of Licensee. It is
agreed that as a condition to the exercise of the Licensee's right
to assign this License, the Licensee shall have previously obtained
and provided to Licensor a written assignment in which the assignor
identifies and incorporates by reference this License and
intermediate assignments prior to any physical transfer or Turnover
of the Software Product to such assignee.
3. PATENT OR COPYRIGHT OR TRADEMARK INFRINGEMENT
Licensor agrees, at its expense, to defend and indemnify Licensee in any
suit, claim or proceeding brought against Licensee alleging that any
Software Product licensed hereunder directly infringes any U.S. Letters
Patent, U.S. Copyright or U.S. Trademark, provided Licensor is promptly
notified, given assistance required and permitted to direct the defense.
Further, Licensor agrees to pay any judgment based on infringement
rendered in such suit by final judgment of a court of last resort, but
Licensor shall have no liability for settlements or costs incurred without
its consent. Should the use of the Software Product by Licensee be
enjoined, or in the event that Licensor desires to minimize its liability
hereunder, Licensor may fulfill its obligations hereunder by either
substituting non-infringing equivalent software or modifying the
infringing Software Product or portion thereof so that it no longer
infringes, but remains functionally equivalent, or to obtain for Licensee,
at the expense of Licensor, the right to continue use of such Software
Product, or if in the sole judgment of Licensor none of the foregoing is
feasible, Licensor may take back the Software Product and refund to
Licensee the undepreciated amount of any paid-up fee that has been paid to
Licensor. The foregoing states the entire liability of Licensor for
patent, copyright or trademark infringement or for any breach of warranty
of non-infringement, express or implied. The foregoing indemnity shall not
apply to any suit, claim or proceedings based upon allegations that a
process or method claim of a patent is infringed, nor to Infringements
arising from modification of the Software Product by anyone other than
Licensor, or to allegations of infringement based on the combination of
the Software Product with software or products supplied by Licensee or
others, nor to infringements arising from Software Products made to the
specification or design of Licensee, and Licensee agrees to indemnify
Licensor to an extent equivalent to that provided to the Licensee
hereinabove in the event that any suit, claim or proceeding is brought
against Licensor based upon any of the foregoing infringement
circumstances which are excluded from the Licensor's indemnification to
the Licensee.
<PAGE>
4. WARRANTY AND DISCLAIMER OF WARRANTY
4.1 Licensor warrants that the Software Products, other than the data
base portion of the Software Product covered by this Agreement,
will, at the time of Turnover, substantially conform to its
functional description in Licensor's technical proposal. Licensee's
sole remedy and Licensor's sole obligation shall be to deliver any
amendments or alterations required to correct any such
non-conforming Software which is found to be defective within a
period of one (1) year after Turnover and which significantly
affects its performance.
4.2 Licensor warrants that the data base portion of the Software Product
covered by this License shall substantially conform to the site
dependent data submitted by Licensee. Licensee's sole remedy and
Licensor's sole obligation shall be to correct any nonconforming
data base which is found to be defective within a period of ninety
(90) days after Turnover.
4.3 The foregoing warranties do not extend to defects or
non-conformities from any cause, including but not limited to,
abuse, acts of God, improper installation, modifications or
maintenance (if performed by other than Licensor) and other defects
traceable to Licensee's acts or omissions; or defects or
nonconformities in software, firmware or data base traceable to
Licensee's errors, modifications or system changes.
4.4 THE FOREGOING WARRANTIES ARE IN LIEU OF ALL OTHER WARRANTIES,
EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO, THE IMPLIED
WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.
BUYER FURTHER AGREES THAT LICENSOR WILL NOT BE LIABLE FOR ANY LOSS
OF DATA OR USE, LOST PROFITS OR REVENUE, OR FOR ANY CLAIM OR DEMAND
AGAINST BUYER BY ANY OTHER PARTY. IN NO EVENT WILL LICENSOR BE
LIABLE FOR CONSEQUENTIAL DAMAGES, EVEN IF LICENSOR HAS BEEN ADVISED
OF THE POSSIBILITY OF SUCH DAMAGES.
5. LIMITATION OF LIABILITY
5.1 LICENSOR SHALL NOT BE LIABLE FOR SPECIAL, INDIRECT, INCIDENTAL OR
CONSEQUENTIAL DAMAGES OF ANY NATURE AND FROM ANY CAUSE, WHETHER
BASED ON CONTRACT, TORT (INCLUDING NEGLIGENCE), INFRINGEMENT OF
STATUTORY PROPRIETARY RIGHTS, INCLUDING PATENT, COPYRIGHT OR
TRADEMARK (EXCEPT AS EXPRESSLY PROVIDED IN SECTION 3 ABOVE), OR ANY
OTHER LEGAL THEORY, EVEN IF LICENSOR HAS BEEN ADVISED OF THE
POSSIBILITY OF SUCH DAMAGES. LICENSEE FURTHER AGREES THAT LICENSOR
WILL NOT BE LIABLE FOR ANY LOSS OF DATA OR USE, LOST PROFITS OR
REVENUE, OR FOR ANY CLAIM OR DEMAND AGAINST LICENSEE BY ANY OTHER
PARTY.
5.2 LICENSEE ASSUMES SOLE RESPONSIBILITY FOR ENSURING THAT THE BILLING
CENTER CAN CORRECTLY READ CALL RECORDS. LICENSEE'S RESPONSIBILITY
INCLUDES READING DAILY THE AMA FRAME AND/OR POLLING SYSTEM TAPE(S)
BY THE BILLING SYSTEM COMPUTER TO ENSURE ALL TICKET INFORMATION IS
PRESENT. RISK OF LOSS FOR ANY DATA, USE, REVENUE OR PROFIT
ASSOCIATED THEREWITH IS ON LICENSEE.
6. CHOICE OF LAW AND JURISDICTION
The validity, performance and construction of these terms and conditions
shall be governed by the laws of the State of Florida without regard to
its Choice of Law provisions. Licensee hereby irrevocably consents and
agrees that any legal action, suit or proceeding arising out of or in any
way in connection with this Software License Agreement shall be brought in
the courts of the State of Florida or in the United States court sitting
in the State of Florida and hereby irrevocably accepts and submits to, for
itself and in respect of its property, generally and unconditionally, the
jurisdiction of any such court and to all proceedings in such court.
7. INTEGRATION
This Software License Agreement constitutes the entire understanding of
the parties hereto and supersedes all previous communications,
representations and understandings between the parties with respect to the
subject matter of this Software License Agreement.
WHEREFORE, the parties hereto manifest their agreement to the terms and
conditions hereinabove, effective on the date first above written, by affixing
hereto the signatures of their respective authorized representatives
hereinbelow.
SIEMENS STROMBERG-CARLSON TELECOMMUNICATIONS SERVICE CENTER, INC.
(LICENSOR) (LICENSEE)
By: /s/ [ILLEGIBLE] By: /s/ Harold Shankland
--------------------- -----------------------------------
Harold Shankland, Pres.
- ------------------------- ---------------------------------------
(Name & Title) (Name & Title)
Date Signed: 28 May 1996 Date Signed: May 1, 1996
------------ --------------------------
<PAGE>
Exhibit 10.3
[LOGO] IBM Credit Corporation
General Business Lease Agreement
FAX NUMBER: 800-426-9299
Page 1 of 4
[GRAPHIC]
Agreement No: G00267669
Date Prepared: 06/11/96
Program Name: General Business Lease
Quote Letter No: Q0129239201
Attachment No:
Lessor Cust. No: 4692384
B/O No: BKA
CUSTOMER
Customer No: 8749279
Company Name: TELECOMMUNICATIONS SERVICE
CENTER INC
Address: 412 E MADISON 1200
TAMPA, FL 33602-4619
Tel. No.: 813-228-0668
Attn. Hal Shankland
INSTALLED AT LOCATION
Reference No:
Company Name: TELECOMMUNICATIONS SERVICE
CENTER INC
Address: 412 E MADISON 1200
TAMPA, FL 33602-4619
Tel. No.: 813-228-0668
Attn. Hal Shankland
FOR THESE RATES TO BE VALID, THIS AGREEMENT MUST BE SIGNED AND RECEIVED BY US
BY: 06M/96.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
Description - Leased Item (Machine, Model), Trans Maint. (A) (B) Single (C = AxB)
Financed Item Code Includ. QTY Unit Price Price
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
5716-QU1 QUERY FOR OS/400 V3 S 1 4,800.00 4,800.00
- -------------------------------------------------------------------------------------------------
5716-SS1 OPERATING SYSTEM/400 (R) S 1 5,600.00 5,600.00
- -------------------------------------------------------------------------------------------------
5716-XA1 CLIENT ACCESS FOR OS/400 S 1 1,500.00 1,500.00
- -------------------------------------------------------------------------------------------------
5755-AS4 SYSTEM PROGRAM ORDER S 1 35.00 35.00
- -------------------------------------------------------------------------------------------------
7857-017 MODEM B$ 1 1,500.00 1,500.00
- -------------------------------------------------------------------------------------------------
(Additional Items may be listed on a
Continuation Sheet) Page Total 13,435.00
- -------------------------------------------------------------------------------------------------
(D) Total Amount (E) Term in (F) Interim (G) Payment (H) Payment Amount
Financed Months Rent Frequency Taxes May Apply
(All Pages) Applies:
Monthly
130,912.00 36 NO in Arrears 4,061.00
- -------------------------------------------------------------------------------------------------
Required if Checked (I) Security (J) End of (K) Commencement
Deposit Lease (EOL) by:
*$37,893.00 Designation 06/96
-------------------
Direct Debit |X| FM |_| (L) Rent
Security Deposit |X| $1 |X| Commencement
Guaranty |_| 16,244.00 % ___ Date: 07/22/96
- -------------------------------------------------------------------------------------------------
</TABLE>
(*) In the State of Texas the interest rate charges will not exceed the stated
Interest rate.
THIS AGREEMENT CONTAINS THE TERMS FOR THIS TRANSACTION. BY SIGNING BELOW, BOTH
PARTIES ACKNOWLEDGE THAT THEY HAVE READ AND UNDERSTAND THIS AGREEMENT AND AGREE
TO TERMS CONTAINED ON THIS PAGE AND THE FOLLOWING PAGES. FURTHER, YOU AGREE THAT
THESE TERMS SUPERSEDE ALL PROPOSALS OR PRIOR AGREEMENTS, ORAL OR WRITTEN, AND
ALL OTHER COMMUNICATIONS BETWEEN BOTH PARTIES. DELIVERY OF AN EXECUTED
COUNTERPART OF THIS AGREEMENT BY FACSIMILE OR ANY OTHER RELIABLE MEANS SHALL BE
DEEMED TO BE AS EFFECTIVE FOR ALL PURPOSES AS DELIVERY OF THE MANUALLY EXECUTED
COUNTERPART. YOU UNDERSTAND THAT WE MAY MAINTAIN A COPY OF THIS AGREEMENT IN
ELECTRONIC FORM AND AGREE THAT A COPY PRODUCED FROM THE ELECTRONIC FORM OR BY
ANY OTHER RELIABLE MEANS (FOR EXAMPLE, PHOTOCOPY OR FACSIMILE) SHALL IN ALL
RESPECTED BE CONSIDERED EQUIVALENT TO AN ORIGINAL.
Accepted by:
IBM Credit Corporation
For or as Lessor:
By:
-----------------------------------------
Authorized Signature
- ---------------------------------------------
Name (Type or Print) Date
TELECOMMUNICATIONS SERVICE CENTER INC
- ---------------------------------------------
Customer
By: /s/ Harold Shankland
- ---------------------------------------------
Authorized Signature
HAROLD SHANKLAND 6/19/96
- ---------------------------------------------
Name (Type or Print) Date
- --------------------------------------------------------------------------------
GUARANTY
To Induce us to enter into this Agreement the undersigned jointly and severally
("Guarantor(s)") unconditionally guarantees the prompt payment when due of all
the Customer's obligations to us under the Lease. We shall not be required to
proceed against the Customer or the Leased Item or enforce any other remedy
before proceeding against the Guarantor(s). The Guarantor(s) agrees to pay all
attorney's fees and other expenses incurred by us by reason of default by the
Customer or the Guarantor(s). The Guarantor(s) waives notice of acceptance
hereof and all other notices or demands of any kind to which the Guarantor(s)
may be entitled. The Guarantor(s) consents to any extensions or modifications of
the the Customer's obligations and release and/or compromise of any obligations
to the Customer or any other obligors or guarantors without in any way releasing
the Guarantor(s) from its obligations hereunder. This guaranty shall bind the
heirs, administrators, representatives, successors, and assigns of the
Guarantor(s), and may be enforced by or for the benefit of any assignee of ours.
THE GUARANTOR(S) CONSENTS TO THE JURISDICTION OF ANY FEDERAL OR STATE COURT,
LOCATED IN THE STATE OF NEW YORK, WITH RESPECT TO ANY LEGAL ACTION COMMENCED
HEREUNDER. THE GUARANTOR(S) EXPRESSLY WAIVES ANY RIGHTS TO A TRIAL BY JURY.
X
- ---------------------------------------------
Guarantor Signature Date
X
- ---------------------------------------------
Guarantor Signature Date
- --------------------------------------------------------------------------------
<PAGE>
IBM Credit Corporation
General Business Lease Agreement
(Continuation Form)
FAX NUMBER: 800-426-9299
Page 2 of 4
Agreement No: G00267669
Date Prepared: 06/11/96
Program Name: General Business Lease
Quote Letter No: Q0129239201
Attachment No:
Lessor Cust. No: 4692384
B/O No: BKA
CUSTOMER
Customer No: 8749279
Company Name: TELECOMMUNICATIONS SERVICE
CENTER INC
Address: 412 E MADISON 1200
TAMPA, FL 33602-4619
Tel. No.: 813-228-0668
Attn. Hal Shankland
INSTALLED AT LOCATION
Reference No:
Company Name: TELECOMMUNICATIONS SERVICE
CENTER INC
Address: 412 E MADISON 1200
TAMPA, FL 33602-4619
Tel. No.: 813-228-0668
Attn. Hal Shankland
FOR THESE RATES TO BE VALID, THIS AGREEMENT MUST BE SIGNED AND RECEIVED BY US
BY: 06M/96.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
Description - Leased Item (Machine, Model), Trans Maint. (A) (B) Single (C = AxB)
Financed Item Code Includ. QTY Unit Price Price
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
9406-500 'LIC' SYSTEM UNIT B$ 1 74,751.00 74,751.00
- -------------------------------------------------------------------------------------------------
9993-005 FINANCING OF SALES TAX S 1 4,600.00 4,600.00
- -------------------------------------------------------------------------------------------------
9994-001 COMPLEMENTARY FINANCING CHAR T 1 38,126.00 38,126.00
- -------------------------------------------------------------------------------------------------
*$37,893 Irrevocable Letter of Credit
- -------------------------------------------------------------------------------------------------
Page Total 117,477.00
- -------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Supp. No.: G00267669 ADDITIONAL TERMS Page 3 of 4
1. OUR OFFERINGS. Under this General Business Lease Agreement ("Agreement") we
will lease machines and finance charges listed on the face of this Agreement.
You agree to keep these items (as specified on the face of this Agreement) free
from encumbrances of any kind, except those established by us under this
Agreement. For licensed Programs, we finance the one-time charge for the Program
license.
2. THE TRANSACTION. Each leased or financed line-item listed on the face of this
Agreement (each a "Transaction") is initiated and effective when you sign and we
accept this Agreement. When you sign this Agreement, you assign to us the
exclusive right to purchase the specified Leased Item (as specified on the face
of this Agreement) from the Supplier under the terms of the Supplier's purchase
agreement. Upon installation of the Item, you will provide us a certificate of
acceptance. At our option, the receipt of Supplier's notification may satisfy
our requirement to receive the certificate of acceptance and you shall become
fully obligated to make payments under this Agreement for the item at that time
without having to execute any additional documents. If you fail to provide such
certificate of acceptance or we are not notified by Supplier of the installation
of the item, we shall have no obligation to purchase, lease or finance the items
for which such document or notification are requested. You shall reimburse us,
on demand, any sums we may have paid the Supplier and any expenses we may have
incurred in connection with such Item or Items. When we receive and approve the
certificate of acceptance or Supplier's notification, we will pay Supplier for
the Item, unless otherwise notified by you. After we pay the Supplier for the
Items, you retain all other rights, obligations and limitations under Supplier's
purchase or license agreement in effect at the time we accept this Agreement.
3. TERM AND PAYMENT. The monthly payment amount is specified in Section "H" on
the face of this Agreement ("Payment Amount"). The Transaction will begin on the
date the item is installed or accepted by you whichever comes first
("Transaction Commencement Date"). Rent shall commence on the Rent Commencement
Date. If Section "F" indicating if Interim Rent Applies is marked "NO" on the
face of this Agreement, the Rent Commencement Date shall be the Transaction
Commencement Date, unless otherwise indicated in Section "L" on the face of this
Agreement. If section "F" is marked "YES" the Rent Commencement Date shall be
the first day of the first full payment period following the Transaction
Commencement Date and you shall pay Interim rent for the period of time between
the Transaction Commencement Date and the rent Commencement Date, unless
otherwise indicated in section "L" on the face of this Agreement. The Interm
rent shall be based on the Payment Amount prorated based on a 30-day month. The
Interim rent shall be billed and due as specified on the first invoice. The
Initial term of the Transaction ("Term") begins on the Rent Commencement Date
and continues for the number of months in Section "E" on the face of this
Agreement.
4. PAYMENT PROTECTION. The Payment Amount stated in Section "H" on the face of
this Agreement is fixed, as long as the Transaction Commencement Date Occurs
within the month stated in Section "K" on the face of this Agreement and your
Supplier does not change any Single Unit Price indicated in Section "B" on the
face of this Agreement. If your Supplier changes any Single Unit Price, we will
adjust the Single Unit Price, the Price in Section "C" and the Payment Amount in
Section "H" on the face of this Agreement.
5. DELINQUENT PAYMENTS. It you do not make a payment by its due date, you must
pay us a late charge, ("Late Charge") on demand. The Late Charge is an
additional 2% of the Payment Amount due or the maximum allowed by law, whichever
is less. The Late Charge will accrue on a cumulative basis until the outstanding
Payments and the Late Charges are paid in full.
6. MAXIMUM RATE. It is the parties' intent to enter into a lease. If, however, a
court of competent jurisdiction determines that a Transaction is subject to
usury laws, it is the parties' intention to comply with such laws. Accordingly,
it is agreed at in no event shall any transaction require the payment or permit
the collection of interest in excess of the maximum amount permitted by
applicable law. If any such excess interest is contracted for, charged or
received, then neither you nor any other party liable for payments under this
Agreement shall be obligated to pay such interest in excess of the maximum
amount of interest permitted by applicable law
7. YOUR OBLIGATION TO PAY. Once effective, the Transaction cannot be canceled.
Your obligation to pay all amounts specified in this Agreement is absolute and
unconditional until fully satisfied and will not be affected by any right of
offset or defense of any kind whatsoever. If an item is unsatisfactory for any
reason, you will make any claims you may have solely against the Supplier under
the terms of the Supplier's purchase agreement. Once all payments due and
payable under this Agreement have been made, your obligations under this
Agreement will be satisfied.
8. SECURITY DEPOSIT. Any Security Deposit specified in "I" on the face of this
Agreement shall be held as security until you have satisfied all of your
obligations under this Agreement. We may, at our discretion, apply any Security
Deposit to cure any payment default by you under this Agreement.
9. DIRECT DEBIT AUTHORIZATION. You authorize us to initiate orders for the
payment of money ("Debit Entries") from your deposit account, the same account
on which the Security Deposit check is drawn or which is indicated on an
attached voided check, for all payments under this Agreement. You agree that
this account is and during the Term of the Lease will he maintained for business
purposes, and not for personal, family or household purposes. You agree to
notify us in writing at least sixty (60) days prior to any changes in account
information affecting the processing of Debit Entries. Both parties agree to be
bound by the National Automated Clearing House Association rules relating to
Corporate Trade Payment Entries in the administration of these Debit Entries.
Each Debit Entry amount will be the total amount from an invoice rendered at the
beginning of the calendar month plus any prior Late Charges. The Debit Entry
will be initiated on the last business day of the Calendar month invoiced.
10. OWNERSHIP. All Leased Items and their associated Parts are our personal
property and you will not allow them to become a fixture or realty.
11. INSPECTION AND MARKING. Upon our request, you will permit us to inspect the
Items, their Parts, and their maintenance records. According to our
instructions, you must affix to any Leased Item any identifying labels, tags or
plates we supply.
12. SELECTION AND USE. You are responsible for the selection of, use of, and
results obtained from, any Item. You represent and warrant that the Item will be
used solely for business or commercial purposes and not for personal, family,
consumer or household purposes.
13. DELIVERY AND INSTALLATION. You are responsible for all of the following: a)
arranging for delivery and installation of the Item; b) and delivery and
installation charges; c) inspecting the Item when delivered; d) notifying the
Supplier if any Item is not in good condition or does not correspond to
specifications; e) providing reasonable assistance to identify and correct any
defect or discrepancy; f) complying with all laws, ordinances, rules and
regulations relating to the possession, use, modification or maintenance of the
Item; and g) cooperating with us in the preparation and filing of any protective
UCC-1 financing statements evidencing our interest in the Leased Item.
14. TRANSFER OF WARRANTIES FOR LEASED ITEMS. For Leased Items, we will transfer
to you the benefit of any applicable warranties and patent and copyright
protection available under the Supplier's agreement. If you are not in default
under this Agreement, we warrant that neither we nor anyone acting or claiming
through us, by assignment or otherwise, will interfere with your quiet enjoyment
of the use of the Leased Items. EXCEPT FOR OUR WARRANTY OF QUIET ENJOYMENT, WE
MAKE NO WARRANTY, EXPRESS OR IMPLIED, ABOUT ANY MATTER, INCLUDING, BUT NOT
LIMITED TO, THE IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE AS TO LESSOR, YOU LEASE THE LEASED ITEM AND TAKE ANY PROGRAM
IN AN "AS IS, WHERE IS" CONDITION IN NO EVENT WILL WE HAVE ANY LIABILITY FOR,
NOR WILL YOU HAVE ANY REMEDY AGAINST US FOR, CONSEQUENTIAL DAMAGES, ANY LOSS OF
PROFITS OR SAVINGS, LOSS OF USE, OR ANY OTHER COMMERCIAL LOSS.
15. MAINTENANCE. You will keep and operate each Item according to the
manufacturer's specifications or recommendations. You will keep the Items in
good repair and operating condition, ordinary wear and tear excepted. For any
Transactions that include maintenance coverage (indicated under the column
headed "Maint. Includ." on the face of this Agreement), we will arrange for
basic maintenance Service on the Item. Coverage will begin at the end of the
manufacturer's warranty period and discontinue at the end of the initial Term.
The cost will be included in the Payment Amount. Coverage beyond the basic
maintenance will be your responsibility. All Parts installed in connection with
warranty and maintenance services will become our property.
16. LEASED ITEM MODIFICATIONS AND ALTERATIONS. You may alter or modify any
Leased Item only with prior written notification to us. Any Lessor-owned Parts
you remove shall remain our property and you are not permitted to make such
Parts available for sale, transfer, exchange or other disposition without our
prior written consent. Before you return a Leased Item to us, you must restore
the Leased Item to its original, unaltered or unmodified condition. At your
expense, you must remove any Alteration or Modification that we do not own, and
restore any original Parts that you have removed. It we consent to a disposition
of the removed parts, the restoration must be with Parts we own or supply, or
those supplied by a source approved by us. All Alterations and Modifications not
removed when a Leased Item is returned to us shall become our property, without
charge, free of encumbrances. You shall have no further interest in such
Alteration or Modification or its proceeds
17. ASSIGNMENT, SUBLEASE AND RELOCATION. You are not permitted to assign,
transfer, sublease or otherwise dispose of this Agreement, any Transaction or
any Item, in whole or in part. Any attempt to do so is void. You may relocate
any Item anywhere in the United States except Arkansas with prior notice to us.
We may assign or grant a security interest(s) in this Agreement, any Transaction
or any Item, in whole or in part. Any claims you have under this Agreement may
be brought only against us, and not against our assignees.
18. END OF LEASE TRANSACTION OPTIONS. To effect an end of lease option, you must
give us one (1) month prior written notice of your desired end of lease option.
If you do not notify us of your end of lease option, or if you elect to conclude
the Transaction and a Leased Item is not returned to us within twelve (12) days
following the end of the Term, the Transaction will automatically extend as
described in Section 19 below. If you are not at default under this Agreement,
you may choose any one of the following options:
Renew the Transaction. You may renew a Transaction with an EOL Designation (as
indicated in Section "J" on the face of the Agreement) of "FM" one or more
times, up to six (6) years from the expiration at the initial Term. The Payment
Amount will be determined using the Fair Market Rental Value of the Leased Item
projected as of the current Transaction expiration date. You may renew a
Transaction with an EOL Designation of a prestated percentage for a renewal Term
of one (1) year. The Payment Amount will be one half (1/2) of the EOL
Designation percentage multiplied by the Single Unit Price for the Leased Item.
The renewal will be paid annually and due in advance.
Purchase the Leased Item. You may purchase a Leased Item at the end of the Term.
For a Leased item with an EOL Designation of "FM", the purchase price will be
determined using the projected Fair Market Sales Value as of the Transaction
expiration date. For a Leased Item with an EOL Designation of a prestated
percentage, the purchase price will be the prestated percentage multiplied by
the Single Unit Price for the Leased Item. For a Leased Item with an EOL
Designation of "$1", the purchase price will be one dollar ($1). You will pay
any applicable taxes, Payment Amounts due through the day before the date of
purchase, any other amounts due, and you will prepay all Financed Items listed
on the face of this Agreement. Upon our receipt of all amounts due under this
Agreement, we will transfer to you our right, title, and interest in and to such
Leased Item on an "As Is, Where Is" basis. We will warrant the title
<PAGE>
Supp. No.: G00267669 ADDITIONAL TERMS Page 4 of 4
free and clear only of all encumbrances created by us. Upon your written request
we will provide to you a bill of sale.
Conclude the Transaction. You may end the Transaction on its expiration date.
You will have the Leased Items packed and available for pickup within two (2)
business days of such expiration date.
19. LEASE TRANSACTION EXTENSION. it you are not in default under the Agreement,
the Lease Transaction will automatically extend unless you notify us of your
choice of an end of lease option at least one (1) month prior to the end of the
Term or if you elect to conclude the Transaction and the Leased Item is not
returned to us within twelve (12) days following the end of the Term. The
extension will be under the same terms and conditions then in effect, except
that for Leased Items with an EOL Designation of "FM", the Payment Amount will
not be less than the Fair Market Rental Value. The extension will continue until
terminated by either party with one (1) month's prior written notice or six (6)
years after the expiration of the initial Term, whichever comes first.
20. RETURN OF A LEASED ITEM. Unless otherwise agreed. you will be responsible
for all of the following: a) arranging for the deinstallation and return of a
Leased item, freight prepaid, to a location we specify in the continental United
States; b) the cost to qualify any Leased Item for the manufacturer's machine
maintenance service, if available, or the cost to return any Leased Item to good
repair and operating condition if the manufacturer does not offer machine
maintenance service; and c) the cost of any Part or accessory that is not
returned.
21. RISK OF DAMAGE, LOSS OR THEFT. We will pay for, and maintain insurance
covering verified theft of, or damage to, the Leased Items ("Casualty Loss").
The deductible will be $5,000 per incident per location. In the event of a
Casualty Loss, you will promptly notify us. If the Casualty Loss occurs before
the Transaction Commencement Date, the Transaction will terminate without
penalty. If the Casualty Loss occurs on or after the Transaction Commencement
Date and we determine that the Leased Item can be economically repaired, you
will have it repaired and we will reimburse you the reasonable cost of the
repair, less the deductible. If the Leased Item can not be economically
repaired, you will pay us the lesser of $5,000 or the Fair Market Sales Value of
the Leased Item immediately before the Casualty Loss occurred. The Transaction
will terminate effective as of the date of the Casually Loss. At the expiration
of the Transaction Term, it you claim a loss or theft of a Leased Item but have
no police or fire department report to substantiate the loss or theft, we will
consider it an end of lease purchase. You will pay the full purchase price as of
the end of the Term. The insurance and $5,000 deductible will not apply.
22. TAXES AND ADDITIONAL CHARGES. You will pay, as additional Payment Amount,
all taxes and charges levied by any government body in connection with any
Transaction. If requested by us or required by a government body, you will make
these payments directly to the government body and upon request, you will
provide us with proof of payment. It you do not, we reserve the right to make
the payment, whereupon you will reimburse us for the tax or charge and all
related costs. You will not be responsible for taxes based on our net income on
any Item.
23. INDEMNITY. This Agreement is a net lease. You indemnify us for any
[ILLEGIBLE], liability, claim, damage, and expense ("Claim") regarding any
matter arising out of the Transaction, including reasonable legal and collection
fees and expenses. You agree that, upon notice from us of the Claim, you shall
assume full responsibility for the defense the Claim. You shall not be
responsible for any Claim that results only from our sole negligence or willful
misconduct. Your payment shall be in an amount such that after we pay any
required taxes, including taxes on or measured by our net income, the balance
will equal the Claim. The obligations under this Section will survive the
expiration or termination of the Transaction.
24. LIABILITY INSURANCE. You will obtain and maintain liability insurance and
name us as additional insured and loss payee. We shall credit any insurance
benefits paid to us against your obligations under this Agreement. Upon our
request, you will provide us proof of insurance.
25. SUBSTITUTE PERFORMANCE. If you do not maintain liability insurance, pay
taxes and charges as required under this Agreement or discharge any encumbrance
created by you on any Item, we reserve the right to substitute performance. You
will pay us the cost thereof, as additional Payment Amount, together with all
fees and expenses we incur rendering substitute performance on your behalf.
26. AUTHORIZATION TO SIGN FINANCING STATEMENTS. You authorize us to act as your
agent and attorney-in-fact for the limited purpose of preparing, executing in
your name, and filing on your behalf, financing statements or other documents
covering the Transaction for the purpose of evidencing our interest in an Item.
27. EVENTS OF DEFAULT. You will be in default if: a) you do not pay any amount
due under this Agreement within seven (7) days after its due date; b) you
encumber, pledge, sell, assign, transfer, or dispose of this Agreement, any
Transaction or any Lease Item or its Parts; c) you fail to maintain insurance as
required under this Agreement; d) you or any Guarantor of your obligations under
this Agreement make any misrepresentation in a credit application you give us;
e) you make an assignment for the benefit of creditors; f) a trustee or receiver
is appointed for you or for a substantial part of your property, with or without
your consent; g) any petition or proceeding is filed by or against you under any
bankruptcy, insolvency, or similar law; h) you or any Guarantor of your
obligations under this Agreement cease doing business; or i) you or any
Guarantor of your obligations under this Agreement breach any other provision of
this Agreement or of any guaranty of your obligations under this Agreement, or
any other agreement with us, and that breach continues for fifteen (15) days
after we send you written notice.
28. REMEDIES. If you are in default, we may do one or more of the following: a)
declare the Transaction to be in default and all amounts that are due or shall
be due under this Agreement to be immediately due and payable; b) terminate the
Transaction; c) recover from you all amounts that are or will be due; d) attempt
to satisfy amounts due with any Security Deposit or any other collateral pledged
as security; e) repossess or render unusable any or all Items and retain all
payments made as partial compensation for their use and depreciation; f) require
you, at your expense, to assemble and ship any Item to a location we specify; g)
require you to pay an amount equal to then current Payment Amount prorated based
on a 30-day month, for each day any Item is not returned after the twelfth
(12th) day following our request for the Item's return; h) recover from you all
attorney's fees and legal expenses incurred in exercising any of our rights
under this Agreement. If we repossess a Modification, you are responsible for
restoring the remaining machine, at your expense, to good working order. Upon
repossession or return of an Item following a default, we will dispose of it in
a commercially reasonable manner. We will apply the net proceeds of such a
disposition to the unpaid amounts due under the Transaction, after deducting the
following from the proceeds of the disposition: a) in case of a sale, the
estimated Fair Market Sales Value of the Leased Item as of the scheduled
expiration of the Transaction; b) in case of a subsequent lease, the rental
amounts due for any period beyond the scheduled expiration of the Transaction;
and c) our expenses for the repossession and disposition, including reasonable
attorney's fees and expenses. You will pay us any deficiency between the net
proceeds and the unpaid amounts due. We will retain any excess net proceeds. We
may pursue any other remedy available at law or in equity.
29. INVALID OR UNENFORCEABLE PROVISIONS; NO WAIVER. If any provision of this
Agreement is held to be invalid or unenforceable, all other provisions remain in
effect. If we fail to require full performance or if we waive any provision in
this Agreement, that shall not prevent us from requiring full performance of all
provisions in the future.
30. CHANGES. You authorize us to complete any identification information for any
listed item on the face of this Agreement without further authorization from
you. You also authorize us to modify the Single Unit Price, Price and Payment
Amount on the face of this Agreement if your Supplier charges its price to you
for any Item. For any other changes to this Agreement to be valid, both parties
must mutually agree in writing.
31. NOTICES. All notices, consents, and approvals from us will be given by us or
by IBM. They will be delivered personally or mailed to the address specified on
the face of this Agreement or in your monthly billing statement. Notices and
requests from you to us must be submitted to the inquiry at address on your
periodic invoice.
32. YOUR ADDITIONAL REPRESENTATIONS. You represent and covenant that you and any
Guarantor of your obligations under this Agreement are, for Financed Items
located in: a) Ohio, Maryland, Mississippi, Virginia, or West Virginia, a
corporation as defined by the applicable state law; b) Pennsylvania, a business
corporation as defined by Pennsylvania laws; and c) Alabama or Wisconsin, not
purchasing the Financed Item for agricultural purposes.
33. GOVERNING LAW. THIS AGREEMENT WILL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. BOTH PARTIES TO THIS
AGREEMENT WAIVE ALL RIGHTS TO TRIAL BY JURY IN ANY ACTION, PROCEEDING,
COUNTERCLAIM OR ON ANY MATTER ARISING OUT OF, IN CONNECTION WITH, OR RELATED TO
THIS AGREEMENT.
34. DEFINITIONS.
Alteration is any change made to an Item that deviates from the manufacturer's
design.
Deductions are the maximum Accelerated Cost Recovery System deductions for
5-year property and/or deductions for interest expense incurred to finance the
purchase of Leased Items, as defined under the Internal Revenue Code of 1986, as
amended.
Fair Market Rental Value is the value that would be obtained in an arm's length
transaction between an informed and willing lessee and lessor under no
compulsion to lease.
Fair Market Sales Value is the value that would be obtained in an arm's length
transaction between an informed and willing buyer and seller under no compulsion
to buy or sell.
Financed Item is any item you finance with us under the terms of this Agreement
and is listed on the face of this Agreement with a Trans. Code of S or T.
IBM is International Business Machines Corporation
Item is a Leased or Financed Item
Leased Item is any item you lease from us under the terms of this Agreement and
is listed on the face of this Agreement with a Trans. Code of B,B .B+ .B$ .C,C
.C+ ,C$ or L.
Modification is any manufacturer's field installable upgrade, feature, or
accessory added to any Leased Item or Financed Item.
Part is any portion or integral element of a Leased Item.
Program is the following, including features and any whole or partial copies: a)
machine-readable instructions, b) a collection of machine-readable data, such as
a data base; and c) related materials, including documentation and listings, in
any form. The term "Program" includes any Program we finance under this
Agreement.
Supplier is the provider of the Item.
You, Your or Lessee refer to you, our Customer.
We, Us, Our or Lessor refer to: a) IBM Credit Corporation ("IBM Credit"), its
subsidiaries or affiliates; b) a partnership in which IBM Credit is a partner;
c) a business enterprise for which IBM Credit is an agent; or d) a corporation
affiliated with or which files a consolidated or combined tax return with IBM
Credit.
<PAGE>
290 Harbor Drive
Stamford, CT 06904
IBM Credit Corporation (203) 973-5100
- --------------------------------------------------------------------------------
ATTACHMENT TO GENERAL BUSINESS LEASE AGREEMENT
Enterprise No. 8749279 General Business
Lease Agreement No. G00267669
---------
Customer No. 8749279
These terms amend those in the referenced General Business Lease Agreement:
AS/400 TECHNOLOGY UPGRADE OPTION
This Technology Upgrade Option gives you the opportunity to upgrade an Advanced
Series AS/400 to the next generation of technology with a total Payment Amount
for the New Machine (as defined herein) that is the same as your current Payment
Amount. This "flat payment" opportunity applies when the Amount Financed for the
Eligible Upgrade (as defined below) equals a percentage of the Original Amount
Financed (as defined below) as follows:
Initial Lease Term Percent of Original Amount Financed
36 months 30%
48 months 21%
60 months 15%
If the Amount Financed for the Eligible Upgrade is higher or lower than the
above percentage, the "flat payment" financing rate will apply and the Payment
Amount for the Eligible Upgrade will be calculated by multiplying this rate by
the Amount Financed for the Eligible Upgrade. This upgrade option, if exercised,
results in a 12 month extension of the Transaction for the Eligible Machine (the
"Extension Period"). The Transaction for the Eligible Upgrade will be
coterminous with the Eligible Machine extension.
- --------------------------------------------------------------------------------
NO CHANGES TO THIS ATTACHMENT ARE AUTHORIZED
June 6, 1996 Attachment No. Q01292392-01
1
<PAGE>
290 Harbor Drive
Stamford, CT 06904
IBM Credit Corporation (203) 973-5100
- --------------------------------------------------------------------------------
DEFINITIONS
For the purposes of this Attachment:
a) The following machines and upgrades are eligible under this AS/400
Technology Upgrade Option:
Upgrade From: Upgrade To:
Eligible Machines Eligible Upgrades
-------------- --------------
Type Model Type Model
---- ----- ---- -----
940X 200, 20S 940X 400, 40S
940X 300, 310, 320 940X 500, 510, 530
30S 50S, 53S
940X 400, 40S, 500 Will include any upgrade
510, 530, 50S paths announced by IBM after
February 1, 1996
b) "Original Amount Financed" is the amount stated on the applicable
Transaction.
c) "New Machine" is Equipment resulting from an upgrade of an Eligible
Machine with an Eligible Upgrade. In the case of an upgrade to an Eligible
Machine, modifications installed prior to the acceptance of the Technology
Upgrade Option will not be treated as an Eligible Upgrade ("Non-Eligible
Upgrade").
OPTION
At any time between 6 months and 18 months after installation of an Eligible
Machine, you may, upon one month prior written notice to us, exercise the
Technology Upgrade Option subject to the following conditions:
a) Only Eligible Machines qualify for this option when upgraded with an
Eligible Upgrade.
b) The Term of the Transaction for an Eligible Machine which becomes a New
Machine hereunder shall be extended for the Extension Period.
c) The Transaction for Non-Eligible Upgrades shall be extended for the
- --------------------------------------------------------------------------------
NO CHANGES TO THIS ATTACHMENT ARE AUTHORIZED
June 6, 1996 Attachment No. Q01292392-01
2
<PAGE>
290 Harbor Drive
Stamford, CT 06904
IBM Credit Corporation (203) 973-5100
- --------------------------------------------------------------------------------
DEFINITIONS
For the purposes of this Attachment:
a) The following machines and upgrades are eligible under this AS/400
Technology Upgrade Option:
Upgrade From: Upgrade To:
Eligible Machines Eligible Upgrades
-------------- --------------
Type Model Type Model
---- ----- ---- -----
940X 200, 20S 940X 400, 40S
940X 300, 310, 320 940X 500, 510, 530
30S 50S, 53S
940X 400, 40S, 500 Will include any upgrade
510, 530, 50S paths announced by IBM after
February 1, 1996
b) "Original Amount Financed" is the amount stated on the applicable
Transaction.
c) "New Machine" is Equipment resulting from an upgrade of an Eligible
Machine with an Eligible Upgrade. In the case of an upgrade to an Eligible
Machine, modifications installed prior to the acceptance of the Technology
Upgrade Option will not be treated as an Eligible Upgrade ("Non-Eligible
Upgrade").
OPTION
At any time between 6 months and 18 months after installation of an Eligible
Machine, you may, upon one month prior written notice to us, exercise the
Technology Upgrade Option subject to the following conditions:
a) Only Eligible Machines qualify for this option when upgraded with an
Eligible Upgrade.
b) The Term of the Transaction for an Eligible Machine which becomes a New
Machine hereunder shall be extended for the Extension Period.
c) The Transaction for Non-Eligible Upgrades shall be extended for the
- --------------------------------------------------------------------------------
NO CHANGES TO THIS ATTACHMENT ARE AUTHORIZED
June 6, 1996 Attachment No. Q01292392-01
2
<PAGE>
EXHIBIT 10.4
PATENT AND KNOW HOW
SUB-CONTRACT AND
COMMERCIALIZATION
AGREEMENT
Comtel Telecommunications Pty. Ltd.
("Licensor")
CyberSentry, Inc.
("Licensee")
GERALD A. RESNICK
ATTORNEY AT LAW
420 EAST 64TH STREET
NEW YORK, NEW YORK 10021
TEL 212-832-6825
FAX. 212-980-9534
email:[email protected]
Page 3
<PAGE>
SUB-CONTRACT AND
COMMERCIALIZATION AGREEMENT
Date: Effective as of September 8, 1998
Parties: Comtel Telecommunications Pty Ltd.
(ACN 079 729918) of Level 2,
80 McLachlan Avenue,
Rushcutters Bay, Sydney NSW 2011 ("Licensor").
CyberSentry, Inc., a Delaware corporation, with offices
c/o Gerald Resnick, Esq.
420 East 64th Street
New York, New York 10021 ("Licensee")
Recitals:
A. The Licensor is the licensee of the Patent Rights and Licensor Technical
Information described in this Agreement, pursuant to a Patent and Know How
License and Commercialization Agreement (hereinafter referred to as the "Primary
License"), dated February 4, 1998, by and between Licensor and Telstra
Corporation Limited, which Agreement is annexed hereto and made part hereof as
if set forth in full; and
B. The Licensor has agreed to grant to the Licensee, the right to develop the
Licensed Technology and for the manufacture, maintenance, marketing, sale and
distribution of the Licensed Products (or parts of the Licensed Products) on
behalf of the Licensor, subject to Licensee attorning to all of the terms and
conditions of the Primary License and subject to the terms and conditions
hereinafter set forth; and
C. The Licensee will research the possibilities for commercialization of the
Licensed Technology for the purpose of developing Licensed Products; and
D. The Licensee will pay a royalty to the Licensor for each Licensed Product
sold, on the terms set forth hereinafter, and upon the express condition
precedent that the exclusive rights to distribute Licensed Products in Australia
and New Zealand are reserved to the licensor under the Primary License.
E. This Agreement supercedes all preceeding agreements by and between the
Licensor and Licensee, whether oral or written entered into prior hereto.
Operative provisions:
1. INTERPRETATION.
Definitions
1.1 The following words have these meanings in this Agreement unless the
contrary intention appears:
Affiliate of a Party means a related body corporate of that Party
under the Corporations Law.
Approved Purpose means for the development, use, manufacture,
maintenance, marketing, sale and distribution of Licensed products for use in
facilitating connection to public and private Asynchronous Transfer Mode (ATM)
networks.
Page 4
<PAGE>
Confidential Information of
(a) the Licensor means Licensor Confidential Information:
(b) the Licensee means Licensee Confidential Information:
Dollars and $ means U.S. dollars.
Effective Date means the date of execution of this Agreement.
Exploit means, in relation to a patent or an invention the subject
of a patent, the exercise of the rights exclusively granted to the holder of
that patent by the patent legislation of the jurisdiction in which the patent is
granted.
Force Majeure means an Act of God, fire, lightning, explosions,
flood, subsistence, insurrection or civil disorder or military operations,
government or quasi-government restraint, expropriation, prohibition,
intervention, direction or embargo, inability or delay in obtaining governmental
or quasi-governmental approvals, consents, permits, licenses or authorities,
strikes, lock-outs, or other industrial disputes of any kind and, any other
cause whether similar or not to the foregoing, outside of the affected Party's
control.
Improvement means any development, modification, adaptation, or
improvement of the Invention, the Licensor Technical Information or the Licensor
Technical Documentation made or acquired by a Party during the term of this
Agreement.
Intellectual property rights means copyright and neighboring rights:
all rights in relation to inventions (including patents and patent
applications), registered and unregistered trade marks, registered and
unregistered designs, circuit layouts and confidential information; and all
other rights resulting from intellectual activity in the industrial, scientific,
literary or artistic fields.
Invention means any invention the subject of the Patent Rights.
Licensed Product means new goods or products (or any part of a good
or product) and any new techniques which applies, or is made according to, or
developed from, all or any part of the Licensed Technology.
Licensed Technology means:
(a) the Invention and the Patent Rights; and
(b) the Licensor Technical Information; and
(c) the Licensor Technical Documentation; and
(d) all intellectual property rights of the Licensor Technical
Information or the Licensor Technical Documentation.
Licensee Confidential Information means any information relating to
improvements of the business or affairs of the Licensee, which is or has been:
(a) disclosed by the Licensee to the Licensor, whether orally,
electronically, in writing or otherwise; or
(b) otherwise obtained by, the Licensor from the
Page 5
<PAGE>
Licensee, other than any such information which:
(c) was generally known to the public at the time of its provision
by the Licensee;
(d) became part of the public domain after its provision by the
Licensee, otherwise than through a disclosure by the Licensor or any person to
whom the Licensor has disclosed Confidential Information (whether or not) the
disclosure is made in breach of this Agreement or any undertaking by which the
relevant person is bound); or
(e) is or came lawfully into the possession of the Licensor
otherwise than as a result of a disclosure in breach of an obligation of
confidence.
Licensor Confidential Information means any Licensor Technical
Information or other information relating to Improvements, the Patent Rights, or
the business or the affairs of the Licensor, which is or has been:
(a) disclosed by the Licensor to the Licensee, whether orally,
electronically, in writing or otherwise; or
(b) otherwise obtained by, the Licensee from the Licensor,
other than any such information which the Licensee can establish:
(i) was in the public domain at the time of its provision by the
Licensor; or
(ii) became part of the public domain after its provision by the
Licensor, otherwise than through a disclosure by the Licensee or any person to
whom the Licensee has disclosed Confidential Information (whether or not) the
disclosure is made in breach of this Agreement or any undertaking by which the
relevant person is bound); or
(iii) is or came lawfully into the possession of the Licensee
otherwise than as a result of a disclosure in breach of an obligation of
confidence.
Licensor Technical Documentation means any material form in which
Licensor Technical Information is contained or embodied, or from which it can be
reproduced.
Licensor Technical Information means drawings, specifications,
designs, research and development results, test results, and other technical
information relating to the Invention, any Improvement or the use, operation or
manufacture of Licensed Products, from time to time supplied or disclosed by the
Licensor to the Licensee, and included, but is not limited to, the information
described in Schedule 2 of the Primary License.
Patent Rights means:
(a) the patent and patent applications described in Schedule 1 of
the Primary License; and
(b) all patents which may be granted pursuant to any of the patent
applications referred to in paragraph (a).
Prescribed Terms means terms, conditions and warranties implied by
law into some
Page 6
<PAGE>
contracts for the supply of goods or services and which the law expressly
provides:
(a) may not be excluded, restricted or modified; or
(b) may be excluded, restricted or modified only to a limited
extent.
Previous Agreement means the Patent and Know How sub-contract and
commercialization agreement between the Licensor and Licensee dated, 4 February
1998.
Publication means any brochure, booklet, mass mailer, poster or
other publication or advertising material whatsoever relating to the Licensed
Products or the Licensed Technology.
Representative of a Party means the officers, employees, agents and
contractors of that Party.
Royalty Period means the period commencing on the Effective Date and
ending twelve (12) months later and each subsequent period of twelve (12)
months.
Sales Price means, in relation to a sale of a Licensed Product by or
on behalf of the Licensee in an an arms-length bona fide commercial transaction,
the gross invoice price of the Licensed Product. If the sale is not made in an
arms-length bona fide commercial transaction, the Sales Price will be deemed to
to be the fair market price (if higher) of the relevant Licensed Product in the
country in which the sale takes place.
Sell means, in relation to Licensed Products, to sell, hire out,
distribute, lease, supply commercially, or otherwise dispose of, the Licensed
Products.
Sub-Contract means a person to whom the Licensor has granted a
sub-contract under clause 2.5 of the Primary License, including specifically the
Licensee hereunder.
Tax means taxes, levies, imposts, deductions, charges, withholdings
and duties (including, but not limited to, stamp and transaction duties),
together with any related interest, penalties, fines and other statutory
charges.
Third Party Infringement has the meaning given in clause 6.2 of the
Primary License.
Third Party Claim has the meaning given in clause 6.5 of the Primary
License.
General Interpretation of various terms and phrases has the meanings
set forth in clause 1.2 of the Primary License.
Headings:
1.3 Headings are inserted for convenience and do not affect the
interpretation of this Agreement.
2. License.
Patent Rights and Licensor Technical Information:
The Licensor grants to the Licensee during the term
Page 7
<PAGE>
specified in clause 10.1 of the Primary License, a non-transferable,
non-exclusive sub-licence, subject to the Licensee recognizing and attorning in
all respects to the terms of the Primary License Agreement:
(a) to design and develop Licensed Products under the Patent Rights
in the countries in which patent applications have been made or patents have
been granted at the date of this Agreement for Approved Purposes; and
(b) to use the Licensed Information and Licensed Technical
Documentation anywhere in the world for the purpose of designing and developing
Licensed Products for Approved Purposes; and
(c) to market and sell Licensed Products developed under
sub-paragraphs (a) or (b) in the United States and Canada.
2.2 The Licensee may not sub-licence any of the rights licenced to it
under this agreement.
3. Licensor's Approval, Licensor's First Right of Refusal and Calculation of
Royalty Rates.
3.1 No less than 90 days before commercially exploiting any Licensed
Product developed using or incorporating the Licensed Technology, the Licensee
must submit each Licensed Product with relevant technical specifications and
marketing plans for the Licensed Product to the Licensor.
3.2 Within 60 days after submission of the Licensed Product under clause
3.1, the parties must meet to determine:
(a) the royalty payable by the Licensee to the Licensor in respect
of each Licensed Product to be sold in the United States and Canada; and
3.3 The Royalty payable to the Licensor by the Licensee, (as well as, by
the Licensee to the Licensor under the Primary License) shall be as set forth on
Exhibit "A," taking into consideration the criteria specified in clauses 3.4,
3.5, 3.6, 3.7, 3.8 and 3.9 of the Primary License.
4. Payments.
4.1 Royalties are payable by the Licensee within thirty (30) days after
the end of each Royalty Period and shall be calculated by reference to the
quantity of Licensed Products sold during the Royalty Period. Each payment of
Royalties must be accompanied by a statement signed by an authorized officer of
Licensee showing the quantity and respective Sales Prices of Licensed Products
sold during, and the calculation of the Royalties payable in respect of, that
Royalty Period.
Method and Payment of Taxes.
4.2 All payments to be made by the Licensee under this Agreement must be
made:
Page 8
<PAGE>
(a) in the currency specified and in immediately available, freely
transferable, cleared funds to the Licensor's nominated bank account as
specified by the Licensor from time to time; and
(b) without any set-off or deduction, unless the Licensee is
required to make such a payment subject to the deduction or withholding of tax,
in which case the sum payable by the Licensee shall be increased to the extent
necessary to ensure that, after the making of such a deduction or withholding,
the Licensor receives and retains (free from any liability in respect of such
deduction or withholding) a net sum equal to the sum which it would have
received and so retained had no such deduction or withholding for taxes been
made or required to be made.
4.3 Accounts and inspection shall be as set forth in clause 4.3 of the
Primary License.
4.4 Sales Price shall be as set forth in clauses 4.4 and 4.5 of the
Primary License.
5. Licensee's Obligations.
5.1 The Licensee must
(a) use its best efforts to:
(i) Develop Licensed Products; and
(ii) Sell the Licensed Products in the United States and
Canada and such other countries as may be subsequently agreed to by the Parties
hereto.
(b) submit one Licensed Product to the Licensor within 2 years after
the Effective Date under the Primary Licence; and
(c) comply with all acts, regulations, orders or directives of
authorities relating to the importation, distribution, sale, supply or
manufacture of Licensed Products into the United States and Canada; and
(d) manufacture Licensed products in a good and workmanlike manner
and so that each Licensed Product meets or exceeds the requirements and
specifications of any quality or other standards applicable in the United
States, Canada or any country where the particular Licensed Product is to be
sold; and
(e) will not and shall ensure that each of its Affiliates do not,
either by itself or through or in conjunction with any other person directly or
indirectly concern itself in any activity which would or might have an adverse
effect on the sales of Licensed Products other than any activity by way of fair
competition.
Product Liability
5.2 The Licensee will abide by the terms of clause 5.2 of the Primary
License and shall indemnify and hold harmless the Licensor and the Primary
Agreement licensor, respectively, pursuant to such clause and will name both
such Licensors', as additional insured under the terms of the requisite product
liability insurances.
Page 9
<PAGE>
6. Patents.
The Licensee herein attorns to and assumes all obligations of the licensee
as set forth in detail as the Grant and Maintenance of the Patents in clauses
6.1, 6.2, 6.3, 6.4, 6.5, 6.6 and 6.7 of the Primary License as if the terms
therein were set forth herein at length and in detail.
7. Warranties.
The warranties and representations of the Licensor and Licensee under
clause 7 of the Primary License are hereby assumed and accepted by the Licensor
and Licensee, respectively, as if fully set forth at length herein.
8. Ownership of Intellectual Properties.
The ownership of Licensed Technology by the Licensor and Licensee shall be
as set forth in detail in clause 8 of the Primary License and the obligations
therein contained are hereby assumed and accepted by the Parties hereto,
respectively, as if fully set forth at length herein.
9. Confidentiality.
9.1 Each Party acknowledges that Confidential Information of the other
Party is valuable to the other Party and undertakes to keep the Confidential
Information of the other Party secret and to protect and preserve the
confidential nature and secrecy of the Confidential Information of the other
Party and to honor the particular obligations set forth in clause 9.2, 9.3, 9.4,
9.5, 9.6, 9.7, 9.8, 9.9 and 9.10 as if set fully set forth at length herein.
10. Term and termination.
10.1 Subject to clauses 10.2 and 10.3:
(a) the license of the Patent Rights granted under clause 2.1(a)
commences on the Effective Date and continues in force in respect of each
specified country, to wit; the United States and Canada for the duration of the
last to expire of the Patent Rights in those countries; and
(b) the license of the Licensor Technical Information and Licensor
Technical Documentation granted under clause 2.1(b), commences on the Effective
Date, continues for the duration of the last to expire of the Patent Rights in
all countries in the Territory, and after that date, for a further period of ten
years; and
(c) the license to market and sell Licensed Products given under
clause 2.1(c) continues until expiry under clause 10.1(b) of the license for the
Licensor Technical Information and Licensor Technical Documentation.
The Licensee expressly covenants to be bound by the terms of clauses 10.2,
10.3, 10.4, 10.5 and 10.6, of the Primary License as if said clauses where set
forth herein at length .
11. Force Majeure.
Suspension of Obligations.
Page 10
<PAGE>
11.1 An obligation of a Party under this Agreement (other than an
obligation to pay money) shall be suspended during the time and to the extent
that the party is prevented from or delayed in complying with that obligation by
an event of Force Majeure.
Mitigation of Force Majeure.
11.2 A Party affected by an event of Force Majeure must give to the other
Party particulars of the event of Force majeure and take reasonable steps to
remove or mitigate the relevant event of Force Majeure, except that the Party
will not be obligated to settle a strike, lock-out, boycott or other industrial
dispute.
12. Assignment.
Assignment by Licensee.
12.1 The Licensee may not transfer, assign, mortgage, charge, or otherwise
encumber or dispose of any of its rights under this Agreement.
13. Further assurances.
The Licensee shall at the Licensor's request, do everything reasonably
necessary to give effect to this Agreement and the transactions contemplated by
it, including, but, not limited to, the execution of documents, as well as,
assuming the obligations of Licensee under the Primary License.
14. Termination and Release.
14.1 The Licensor and Licensee agree:
(a) to terminate the Previous Agreement from the date of this
Agreement; and
(b) to release each other, and each other's directors, officers,
employees and agents, past and present, from any claim, action, liability, cost
or expense whatsoever arising out of or related directly or indirectly to the
Previous Agreement.
15. General.
No Agency or Partnership
15.1 Nothing in this Agreement shall be deemed to constitute the Licensee
as the agent, partner, or joint venturer of the Licensor.
Exercise of Rights
Page 11
<PAGE>
15.2 A Party may exercise a right, power or remedy at its discretion, and
separately or concurrently with another right, power, or remedy. A single or
partial exercise of a right, power or remedy by a Party does not prevent a
further exercise of that or any other right, power or remedy. Failure by a Party
to exercise or delay in exercising a right, power or remedy does not prevent its
exercise.
Waiver and Variation
15.3 A provision of or a right created under his Agreement may not be:
(a) waived except in writing signed by the Party granting the
waiver; or
(b) varied except in writing signed by the Parties.
Remedies Cumulative
15.4 The rights, powers and remedies provided in this Agreement are
cumulative with and not exclusive of the rights, powers or remedies provided by
law independently of this Agreement.
Survival of Indemnities
15.5 Each indemnity in this Agreement is a continuing obligation, separate
and independent from other obligations of the Parties and survive termination of
this Agreement.
Infringement of Indemnities.
15.6 It is not necessary for a Party to incur expenses or make payments
before enforcing a right of indemnity conferred by this Agreement.
Costs and expenses.
15.7 Damages incurred and liability suffered by a Party covered by
indemnification by another Party under this Agreement shall include costs and
other expenses relating thereto (including legal fees and expenses).
Costs and stamp duties.
15.8 Each Party must pay its own legal costs in connection with the
Agreement. The Licensee must pay any stamp duty assessed (including penalties)
on the Agreement.
16. Notices.
Types of Notice.
16.1 A notice, approval, consent or other communication in connection with
this Agreement:
(a) must be in writing;
(b) must be marked for the attention of the specified contact
person; and
(c) must be left at the address of the addressee, or sent by prepaid
post (airmail if posted outside Australia), return receipt
Page 12
<PAGE>
requested, addressed to the address of the addressee or sent by facsimile to the
facsimile number of the addressee which is specified in this clause or if the
addressee notifies the Parties hereto of another address or facsimile number
then to that address of facsimile number.
Addresses:
16.2 The address and facsimile number of each party is:
Primary Agreement Licensor:
Enhanced CPE, Retail Products and Marketing
Telstra Corporation Limited
Level 5, 242 Exhibition Street
Melbourne, VIC 3000
Facsimile (03)96343474
Licensor:
Comtel Telecommunications Pty Limited
Level 2, 80 McLachlan Avenue, Rushcutters Bay
Sydney NSW 2011
Facsimile: 011-613-96500051
Attn: Graham Bristow
Licensee:
CyberSentry, Inc.
c/o Gerald A. Resnick, Esq.
420 East 64th Street
New York, New York 10021-7853
Tel. (212)832-6825
Facsimile (212)980-9534
Notice takes effect
16.3 a notice, approval, consent or other communication takes effect from
the time it is received unless a later time is specified in it.
Deemed received.
16.4 A letter or facsimile is taken to be received:
(a) in the case of a posted letter, on the third (seventh, if posted
to or from a place outside Australia) day after posting; and
(b) in the case of facsimile, on Licensed Production of a
transmission report by the machine from which the facsimile was sent which
indicates that the facsimile was sent in its entirety to the facsimile number of
the recipient.
17. Governing Law.
17.1 This Agreement and the transaction contemplated by this Agreement are
governed by the law in force in Victoria, Australia.
17.2 Each Party irrevocably and unconditionally submits to the
non-exclusive
Page 13
<PAGE>
jurisdiction of the courts of Victoria and courts of appeal from them for
determining any dispute concerning this Agreement or the transactions
contemplated by this Agreement. Each Party waives any right it has to object to
an action being brought in those courts including, but not limited to claiming
that the action has been brought in an inconvenient forum or that those courts
do not have jurisdiction.
17.3 Without preventing any other mode of service, any document in an
action (including but not limited to, any writ of summons or other originating
process or any third or other party notice) may be served on any Party by being
delivered to or left for that Party at its address for service of notices under
clause 16.
Executed as an Agreement:
Comtel Telecommunications Pty Ltd CyberSentry, Inc.
Company
By: /s/ [ILLEGIBLE] By: /s/ GERALD A. RESNICK
------------------------------ ---------------------------------------
GERALD A. RESNICK, President
PRESIDENT
DIRECTOR
Consented to:
Victory Telecom Corp. Holding
/s/ Gerald Resnick
- ---------------------------------
By: Gerald Resnick, President
Effective Date: December 30, 1998
Page 14
<PAGE>
jurisdiction of the courts of Victoria and courts of appeal from them for
determining any dispute concerning this Agreement or the transactions
contemplated by this Agreement. Each Party waives any right it has to object to
an action being brought in those courts including, but not limited to claiming
that the action has been brought in an inconvenient forum or that those courts
do not have jurisdiction.
17.3 Without preventing any other mode of service, any document in an
action (including but not limited to, any writ of summons or other originating
process or any third or other party notice) may be served on any Party by being
delivered to or left for that Party at its address for service of notices under
clause 16.
Executed as an Agreement:
Comtel Telecommunications Pty Ltd CyberSentry, Inc.
Company
By: By:
------------------------------ ---------------------------------------
GERALD A. RESNICK, President
PRESIDENT
Consented to:
Victory Telecom Corp. Holding
- ---------------------------------
By: Gerald Resnick, President
Effective Date: September 8, 1998
Page 14
<PAGE>
EXHIBIT A
SCHEDULE OF ROYALTY PAYMENTS
AND
ROYALTY PERIODS
1. Initial Royalty Payment: An initial payment in the form of Three Million
($3,000,000.00) Dollars, payable in the form of two million shares of fully paid
non-assessable $1.50 Preferred Shares of CyberSentry, Inc., a Delaware
corporation.
2. Additional Payments: Such other Royalty payments in accordance with the
Primary License, plus and additional ten (10%) of the royalty payment paid to
Licensor. Example: If royalty due to licensor under Primary License is $1.00,
then payment due to Licensor hereunder shall be $1.10 from Victory Telecom
Corporation Holding Company, on Licensed Product sold.
Page 15
<PAGE>
EXHIBIT 10.5
ASSIGNMENT OF SOFTWARE LICENSE
AGREEMENT
This Assignment of Software License Agreement is entered into effective as
of November 20, 1998 by and between Templar Corporation, a Delaware corporation
( "Templar"), with offices at 43 Deshon Avenue, Bronxville, New York 10708, and
CyberSentry, Inc., a Delaware corporation, c/o Gerald Resnick, Esq., 420 East
64th Street, New York, New York 10021 ("CYBS").
WHEREAS, Templar acquired for publication and distribution original
computer programs from Learning Company Properties, Inc. (hereinafter
"LCP") under a License Agreement, dated October 2,1998 (the "LCP License");
and
WHEREAS, the LCP License includes specifically, each and every version of
the CyberSentry program, together with the trademark, "CyberSentry;" and
WHEREAS, Templar desires that CYBS publish and distribute Templar's
programs and CYBS desires to publish and distribute the programs subject
to and in accordance with the terms of this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants contained herein,
the parties hereto agree as follows:
1. DEFINITIONS.
1.1 "Licensed Media" shall mean all computer-readable media now known or
hereafter to become known including, without limitation, magnetic media storage
devices, CD-ROM, CD-DVD and other optical disks, electronic downloading, on-line
and any other human or machine readable medium.
1.2 "Program" or "Programs" shall mean the source code, object code,
including all data and/or resources therein, whether visual or numeric, of those
one or more computer software programs of Templar which were licensed to Templar
under the LCP License, and all related documentation.
1.3 "Trademarks" shall mean the trademark "CyberSentry."
2. ASSIGNMENT.
2.1 Assignment. Templar hereby assigns to CYBS (the "Assignment") all
of
<PAGE>
Templar's right, title and interest in and to the LCP License, including
without limitation, Templar's exclusive, worldwide, right and license to
publish, use, distribute and sublicense the Programs incorporating the
Trademarks throughout the world and in the Licensed Media, subject to CYBS
hereby covenanting and agreeing to attorn to all of the terms and conditions of
the TLC License and subject to the terms and conditions hereinafter set forth.
2.2 Right to Modify the Software Programs. The rights assigned to CYBS
herein shall include the right to modify the Programs (including the source
code) in order to prepare derivative works and future versions of the Programs
2.3 Upgrades and Maintenance. Templar shall be under no obligation to
provide any upgrades to the Programs. Templar may provide software engineering
support to CYBS through September 30, 1999, provided, however, CYBS shall pay to
LCP $150,000, in consideration of the software engineering support under this
Section 2.3.
2.4 Closing Deliveries. CYBS shall have received at or prior to the
execution of this Agreement each of the following documents:
(i) copies of all technical data, product literature and other
documentation relating to the Programs, all in form and substance as provided to
Templar by the Learning Company; and
(ii) copies of all film, electronic files for all collateral
materials, gold masters, source code and related documentation and materials
relating to the Programs.
2.5 Delivery of Masters. CYBS acknowledges receipt of all golden masters
of the various versions of the Programs.
3. Purchase Price. In consideration of the Assignment granted hereunder, as
soon as practicable after the date hereof, CYBS shall issue to Templar or its
designee 3,000,000 shares of its Common Stock.
4. REPRESENTATIONS AND WARRANTIES.
4.1 Templar. Templar hereby represents and warrants to CYBS that:
(a) Templar has all right, title and interest in and to the Programs,
including the sole and exclusive right to grant the Assignment, and such right,
title and interest shall be valid throughout the Term;
(b) the Programs do not infringe any copyright, trademark, trade secret or
other proprietary and intellectual property rights of any other person; and
2
<PAGE>
(c) Templar has the requisite authority to enter into this Agreement and
the granting of the Assignment and rights under this Agreement will not result
in the violation of: (i) the organizational documents or Bylaws of Templar, (ii)
any agreement, contract, lease, license, document or other commitment, written
or oral, with respect to the Programs to which Templar is a party or may become
bound, or (iii) any applicable law, rule, license or regulation.
4.2 CYBS. CYBS hereby represents and warrants to Templar that CYBS has
the requisite authority to enter into this Agreement and the performance of its
obligations under this Agreement will not result in the violation of: (i) the
organizational documents or Bylaws of CYBS, (ii) any agreement, contract, lease,
license, document or other commitment, written or oral, with respect to the
Programs to which CYBS is a party or may become bound, or (iii) any applicable
law, rule, license or regulation. All of the shares of Common Stock issued
pursuant to Section 3 shall be duly authorized, validly issued and fully paid
shares.
5. ACKNOWLEDGMENTS.
Templar hereby acknowledges and agrees that CYBS has full discretion with
respect to the Programs pursuant to the Assignment set forth above including,
but not limited to the Trademarks and that CYBS may charge for the use of the
Programs or trademark. Templar and CYBS hereby agree that CYBS may transfer or
sublicense the Programs and its rights under the LCP License.
6. INDEMNITY.
6.1 CYBS. CYBS shall indemnify and hold Templar harmless from and
against all claims, suits, demands, actions and proceedings, judgments,
penalties, damages, costs and expenses (including reasonable legal fees and
costs), losses or liabilities of any kind ("Damages") which may arise or result
from (a) the marketing or servicing by CYBS of the Programs, except for matters
referred to in Section 6.2; and (b) from a material breach of any
representation, warranty or agreement of CYBS. CYBS may in its sole discretion
transfer, assign, mortgage, charge, or otherwise encumber or dispose of any of
its rights under this Agreement .
6.2 Templar. Templar shall indemnify and hold CYBS harmless from and
against all Damages which may arise or result from (a) the Programs, or any part
thereof, infringing the copyright, trademark, trade secret or other proprietary
or intellectual property rights of any other person or entity; and (b) from a
material breach of any representation, warranty or agreement of Templar.
6.3 Litigation. With respect to any claims falling within the scope of
the foregoing indemnifications:
(a) each party agrees to notify the other promptly of and keep the other
fully advised with respect to such claims and the progress of any suits in which
the other party is not
3
<PAGE>
participating;
(b) the indemnifying party shall have the right to defend any suit
instituted against the indemnified party;
(c) the indemnifying party shall have the right to participate, at its
expense, in the defense of a claim or suit made or filed against the indemnified
party; and
(d) a party participating in or assuming the defense of a claim or suit
against the other party shall not settle such claim or suit without the prior
written approval of the other party, which approval will not be unreasonably
withheld or delayed.
6.4 Indemnification Limits. Neither party shall be required to make any
indemnification payment pursuant to this Section 6 until such time as the total
amount of all Damages that have been directly suffered or incurred by such party
exceeds US $25,000.
7. CONFIDENTIALITY.
Neither party shall issue a press release relating to this Agreement
without the prior written consent of the other party. The terms of this
Agreement are confidential and shall not be disclosed to any other party without
the written consent of the other party. Each party shall (and shall take such
reasonable action to ensure that its employees) preserve in strict confidence
any information obtained by the other party or its employees, concerning its
business or any of its affiliates including, without limitation to, trade
secrets and proprietary information, and agrees, except as expressly permitted
herein, to refrain (and shall take such reasonable action to assure that its
employees) from disclosing, during the term of this Agreement or at any time
thereafter, any such information to any person or persons, or business
organizations.
8. NOTICES.
Notices permitted or required under this Agreement shall be sent to the
addresses set forth below and shall be sent by hand delivery, by telecopier
followed with written confirmation sent by mail, by overnight courier or by
registered or certified mail, return receipt requested. Notices shall be deemed
to have been given on the date actually received if sent by hand delivery or
overnight courier, on the date sent if sent by telecopier, or three (3) days
after mailing if sent by registered or certified mail.
If to:
CyberSentry, Inc.
c/o Gerald A. Resnick,Esq.
420 East 64th Street, E.PH.E
New York, New York 10021
4
<PAGE>
Telephone: (212) 832-6825
Facsimile: (212) 980-9534
If to:
Templar Corporation
43 Deshon Avenue
Bronxville, New York 10708
Telephone 914-395-1351
Facsimile 914-779-8995
9. DISPUTE RESOLUTION.
9.1 Arbitration. Any dispute, controversy or claim arising out of or in
connection with this Agreement shall be determined and settled by arbitration in
New York, New York pursuant to the rules then in effect of the American
Arbitration Association, and each party hereby consents to the jurisdiction
thereof. Any award rendered shall be final and conclusive upon the parties and
a judgment thereon may be entered in a court having competent jurisdiction. The
party submitting such dispute shall request the American Arbitration Association
to: appoint an arbitrator who is knowledgeable in the microcomputer area and
familiar with the data processing industry and who will follow substantive rules
of the law; allow for the parties to request discovery pursuant to the rules
then in effect under the Federal Rules of Civil Procedure for a period not to
exceed sixty (60) days; require the testimony to be transcribed; and require the
award to be accompanied by findings of fact and a statement of reasons for the
decision. All costs and expenses, including attorney's fees, of all parties
incurred in any dispute which is determined and/or settled by arbitration
pursuant to this Section 13 shall be borne by the party determined to be liable
in respect of such dispute; provided, however, that if complete liability is not
assessed against any one party, the parties shall share the total costs in
proportion to their respective amounts of liability so determined.
9.2 Injunctive Relief. Notwithstanding Section 9.1, the parties hereto
further agree that any breach of this Agreement is likely to result in
irreparable injury to the other and each party agrees that the other shall be
entitled, if it so elects, to institute and prosecute proceedings in any court
of competent jurisdiction to enforce the specific performance of this Agreement
by such party, or to enjoin such party from activities in violation of this
Agreement.
10. MISCELLANEOUS.
10.1 Entire Agreement. This Agreement contains the entire understanding of
the parties hereto relating to the Program, supersedes any prior written or oral
agreement or understandings between the parties with respect to the Programs,
and cannot be changed or terminated orally. This Agreement may be amended only
by a writing signed by the parties
5
<PAGE>
hereto.
10.2 Enforceability. The invalidity or unenforceability of any provision
of this Agreement will not affect the validity or enforceability of any other
provision of this Agreement.
10.3 Assignment. Except as set forth herein, neither this Agreement nor
the rights or obligations hereunder may be assigned by either party without the
prior written consent of the other party, which consent shall not be
unreasonably withheld; provided however, that this Agreement may be assigned by
either party to an Affiliate of such party, or upon the merger of the party or
the sale of such party's business, all without the consent of the other party,
upon providing notice to the other party.
10.4 Independent Contractors. Templar and CYBS shall perform their duties
pursuant to this Agreement as independent contractors. Nothing in this
Agreement shall be construed to create a joint venture, partnership or other
joint relationship between Templar and CYBS. Neither party shall have the
ability to incur any obligation on behalf of the other party.
10.5 Successors. All rights and obligations arising out of this Agreement
shall enure to the benefit of, and be binding on and enforceable by the parties
and their respective successors and permitted assigns.
10.6 Governing Law. This Agreement and its validity, construction and
performance shall be governed in all respects by the internal laws of the State
of New York.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed under seal as of the date first set forth above.
CyberSentry,Inc.
By: /s/ Gerald A. Resnick
------------------------------------
Gerald A. Resnick, President
Templar Corporation
By: /s/ Frank Kristan
-----------------------------------
Frank Kristan, President
6
<PAGE>
EXHIBIT 10.6
SOFTWARE SUB-LICENSE
AGREEMENT
This Software License Agreement is entered into effective as of January
1, 1999 by and between CyberSentry, Inc., a Delaware corporation (hereinafter
"CYBS" or the Licensor), with offices c/o Sadis & Goldberg, L.L.C. One Penn
Plaza, Suite 2107, New York, New York 10119 and Digital Rights International,
Inc., a Delaware corporation,c/o LibertyOne Limited,(ACN 079 729918) of Level 2,
80 McLachlan Avenue, Rushcutters Bay , Sydney NSW 2011 (hereinafter "DRI" or
"Licensee").
WHEREAS, the Templar Corporation, a Delaware corporation,(hereinafter
"Templar") acquired for publication and distribution original computer programs,
from Learning Company Properties, Inc. (hereinafter "TLC") under a License
Agreement, dated October 2,1998, a copy of which is annexed hereto and made part
hereof as Exhibit "A";
WHEREAS, Templar assigned all of its right, title and interest to the
Software License to CyberSentry, Inc., a Delaware corporation, under a letter
agreement dated, October, 1998, a copy of which is annexed as Exhibit "B."
WHEREAS, CYBS is the owner of the computer software programs listed on
Exhibit A attached hereto and the related documentation; and
WHEREAS, CYBS desires that DRI publish and distribute CYBS's programs
and DRI desires to publish and distribute the programs subject to and in
accordance with the terms of this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants contained
herein, the parties hereto agree as follows:
1. DEFINITIONS.
1.1 "Licensed Media" shall mean all computer-readable media now
known or hereafter to become known including, without limitation, magnetic media
storage devices, CD-ROM, CD-DVD and other optical disks, electronic downloading,
on-line and any other human or machine readable medium.
1.2 "Program" or "Programs" shall mean the source code, object code,
including all data and/or resources therein, whether visual or numeric, of those
one or more computer software programs of CYBS which are identified on Exhibit
A, and all related documentation.
Page 1
<PAGE>
1.3 "Trademarks" shall mean those trademarks listed on Exhibit A.
2. LICENSE AND RIGHTS.
2.1 Non-Exclusive License. CYBS hereby grants to DRI a non-transferable,
non-exclusive, worldwide, right and license to publish and use the Programs
incorporating the Trademarks throughout the world and in the Licensed Media,
during the Term, solely for the protection of celebrity digital rights and
content related thereto on the websites owned or operated by DRI, subject to
Licensee hereby covenanting and agreeing to attorn to all of the terms and
conditions of the Primary License and subject to the terms and conditions
hereinafter set forth; and
2.3 Right to Modify the Software Programs. The rights licensed to DRI herein
shall include the right to modify the Programs (including the source code) in
order to prepare derivative works and future versions of the Programs
2.4 Upgrades and Maintenance. CYBS shall be under no obligation to provide
any upgrades to the Programs. CYBS shall however provide software engineering
support to DRI through September 30, 1999. Provided, however, DRI shall pay to
CYBS $150,000 in consideration of the software engineering support to be
provided by CYBS, which services are to be subcontracted to The Learning
Company under this section 2.4.
2.5 Closing Deliveries. DRI shall have received at or prior to the execution
of this Agreement each of the following documents:
(i) copies of all technical data, product literature and other
documentation relating to the Programs, all in form and substance as provided to
CYBS by the Learning Company; and
(ii) copies of all film, electronic files for all collateral
materials, gold masters, source code and related documentation and materials
relating to the Programs.
2.6 Delivery of Masters. DRI acknowledges receipt of all golden
masters of the various versions of the Programs.
3. OWNERSHIP OF PRODUCTS, COPYRIGHT AND TRADEMARK NOTICES.
Page 2
<PAGE>
DRI acknowledges that CYBS and TLC retains all right, title and ownership to
each of the Programs and the Trademarks and no such rights shall pass to DRI,
except to the extent to which such rights are expressly granted under this
Agreement. DRI may file copyright registrations for each new version of the
Program that DRI releases with respect to the original work that DRI contributes
to such versions.
4. OBLIGATIONS
4.1 Support. CYBS has contracted with The Learning Company and shall
be responsible for the support of the Programs which it distributed prior to the
effective date of this Agreement. DRI shall be responsible the support of the
Programs which it distributes after the effective date of this Agreement
4.2 License Fee. The license fee for the Programs shall be equal to One U.S.
Dollar (U.S. $1.00) (the "License Fee"). The License Fee shall be settled in
U.S. Dollars.
5. TERM AND TERMINATION.
5.1 Term. This Agreement shall continue indefinitely unless
terminated as provided in this Section 5 (the "Term").
5.2 Termination For Cause. Either party may terminate this
Agreement, without further notice, for cause as follows:
(a) Bankruptcy. Either party may immediately terminate this
Agreement upon written notice to the other party in the event that proceedings
in bankruptcy or insolvency are instituted by or against the other party, or a
receiver is appointed, or if any substantial part of the assets of the other
party is the object of attachment, sequestration or other type of comparable
proceeding, and such proceeding is not vacated or terminated within sixty (60)
days after its commencement or institution.
(b) Material Breach. Either party may terminate this Agreement if
one party commits a material breach of any of the terms or provisions of this
Agreement and does not cure such breach within thirty (30) days after receipt of
written notice given by the other party.
Page 3
<PAGE>
5.3 Late Payment/Non-performance. CYBS may terminate this Agreement
without notice or cure period if DRI fails to fulfill any of its obligations
under the Binding Term Sheet. In such event the parties specifically acknowledge
that the entire license fee shall immediately become due and payable and any
legal fees and other costs incurred by CYBS in collecting such amount shall be
paid by DRI.
5.4 Survival of Terms. Sections 3, 6, 8, 9, 10, 11 and 12 of this
Agreement shall survive any termination of this Agreement.
6. REPRESENTATIONS AND WARRANTIES.
6.1 CYBS. CYBS hereby represents and warrants to DRI that:
(a) CYBS has all right, title and interest in and to the Programs,
including the sole and exclusive right to grant the License, and such right,
title and interest shall be valid throughout the Term;
(b) the Programs do not infringe any copyright, trademark, trade
secret or other proprietary and intellectual property rights of any other
person; and
(c) CYBS has the requisite authority to enter into this Agreement
and the granting of the License and rights under this Agreement will not result
in the violation of: (i) the organizational documents or Bylaws of CYBS, (ii)
any agreement, contract, lease, license, document or other commitment, written
or oral, with respect to the Programs to which CYBS is a party or may become
bound, or (iii) any applicable law, rule, license or regulation.
6.2 DRI. DRI hereby represents and warrants to CYBS that DRI has the
requisite authority to enter into this Agreement and the performance of its
obligations under this Agreement will not result in the violation of: (i) the
organizational documents or Bylaws of DRI, (ii) any agreement, contract, lease,
license, document or other commitment, written or oral, with respect to the
Programs to which DRI is a party or may become bound, or (iii) any applicable
law, rule, license or regulation.
7. ACKNOWLEDGMENTS.
Page 4
<PAGE>
CYBS hereby acknowledges and agrees that DRI has full discretion with
respect to the Programs pursuant to the license set forth in section 1 above
including, but not limited to the the charges that DRI may charge its celebrity
web pages for the use of the Programs. CYBS and DRI hereby agree to agree on any
charges that DRI may charge to third parties desiring to sublicense the
Programs, provided the parties agree on the suitability of the proposed customer
as well as the royalty which shall be charged and collected by DRI and the
portion thereof which shall be reserved for and payable to CYBS as a license
fee, as more particularly set forth on Exhibit "C," "Distribution of the
Programs". CYBS also acknowledges that nothing in this Agreement shall require
DRI to begin to market, or, once begun, to continue to market, the Programs if
DRI, in its sole discretion, determines that it would not be commercially
reasonable to do so.
8. INDEMNITY.
8.1 DRI. DRI shall indemnify and hold CYBS harmless from and against
all claims, suits, demands, actions and proceedings, judgments, penalties,
damages, costs and expenses (including reasonable legal fees and costs), losses
or liabilities of any kind ("Damages") which may arise or result from (a) the
marketing or servicing by DRI of the Programs, except for matters referred to in
Section 8.2, and (b) from a material breach of any representation, warranty or
agreement of DRI. DRI may not transfer, assign, mortgage, charge, or otherwise
encumber or dispose of any of its rights under this Agreement.
8.2 CYBS. CYBS shall indemnify and hold DRI harmless from and
against all Damages which may arise or result from (a) the Programs, or any part
thereof, infringing the copyright, trademark, trade secret or other proprietary
or intellectual property rights of any other person or entity, and (b) from a
material breach of any representation, warranty or agreement of CYBS.
8.3 Litigation. With respect to any claims falling within the scope
of the foregoing indemnifications:
(a) each party agrees to notify the other promptly of and keep the
other fully advised with respect to such claims and the progress of any suits in
which the other party is not participating;
Page 5
<PAGE>
(b) the indemnifying party shall have the right to defend any suit
instituted against the indemnified party;
(c) the indemnifying party shall have the right to participate, at
its expense, in the defense of a claim or suit made or filed against the
indemnified party; and
(d) a party participating in or assuming the defense of a claim or
suit against the other party shall not settle such claim or suit without the
prior written approval of the other party, which approval will not be
unreasonably withheld or delayed.
8.4 Indemnification Limits. Neither party shall be required to make
any indemnification payment pursuant to this Section 8 until such time as the
total amount of all Damages that have been directly suffered or incurred by such
party exceeds US $25,000.
9. CONFIDENTIALITY.
Neither party shall issue a press release relating to this Agreement
without the prior written consent of the other party.
The terms of this Agreement are confidential and shall not be disclosed
to any other party without the written consent of the other party. Each party
shall (and shall take such reasonable action to ensure that its employees)
preserve in strict confidence any information obtained by the other party or its
employees, concerning its business or any of its affiliates including, without
limitation to, trade secrets and proprietary information, and agrees, except as
expressly permitted herein, to refrain (and shall take such reasonable action to
assure that its employees) from disclosing, during the term of this Agreement or
at any time thereafter, any such information to any person or persons, or
business organizations.
10. NOTICES.
Notices permitted or required under this Agreement shall be sent to the
addresses set forth below and shall be sent by hand delivery, by telecopier
followed with written confirmation sent by mail, by overnight courier or by
registered or certified mail, return receipt requested. Notices shall be deemed
to have been given on the date actually received if sent by hand delivery ,or
overnight courier, on the date sent if sent by telecopier, or three (3) days
after mailing if
Page 6
<PAGE>
sent by registered or certified mail.
If to CYBS:
CyberSentry, Inc.
c/o Gerald A. Resnick,Esq.
420 East 64th Street, E.PH.E
New York, New York 10021
Telephone: (212) 832-6825
Facsimile: (212) 980-9534
If to: Digital Rights International, Inc.
c/o LibertyOne Limited
Phone + 612 9361 0600
Fax + 612 9360 7254
Level 2 - 80 McLachlan Avenue
Rushcutters Bay Sydney
New South Wales 2011
Australia(ACN 079 729918)
11. DISPUTE RESOLUTION.
11.1 Arbitration. Any dispute, controversy or claim arising out of or
in connection with this Agreement shall be determined and settled by arbitration
in Wilmington, Delaware pursuant to the rules then in effect of the American
Arbitration Association, and each party hereby consents to the jurisdiction
thereof. Any award rendered shall be final and conclusive upon the parties and a
judgment thereon may be entered in a court having competent jurisdiction. The
party submitting such dispute shall request the American Arbitration Association
to: appoint an arbitrator who is knowledgeable in the microcomputer area and
familiar with the data processing industry and who will follow substantive rules
of the law; allow for the parties to request discovery pursuant to the rules
then in effect under the Federal Rules of Civil Procedure for a period not to
exceed sixty (60) days; require the testimony to be transcribed; and require the
award to be accompanied by findings of fact and a statement of reasons for the
decision. All costs and expenses, including attorney's fees, of all parties
Page 7
<PAGE>
incurred in any dispute which is determined and/or settled by arbitration
pursuant to this Section 13 shall be borne by the party determined to be liable
in respect of such dispute; provided, however, that if complete liability is not
assessed against any one party, the parties shall share the total costs in
proportion to their respective amounts of liability so determined.
11.2 Injunctive Relief. Notwithstanding Section 11.1, the parties
hereto further agree that any breach of Sections 6, 8 and 9 of this Agreement is
likely to result in irreparable injury to the other and each party agrees that
the other shall be entitled, if it so elects, to institute and prosecute
proceedings in any court of competent jurisdiction to enforce the specific
performance of this Agreement by such party, or to enjoin such party from
activities in violation of this Agreement.
12. MISCELLANEOUS.
12.1 Entire Agreement. This Agreement contains the entire
understanding of the parties hereto relating to the Program, supersedes any
prior written or oral agreement or understandings between the parties with
respect to the Programs, and cannot be changed or terminated orally. This
Agreement may be amended only by a writing signed by the parties hereto.
12.2 Enforceability. The invalidity or unenforceability of any
provision of this Agreement will not affect the validity or enforceability of
any other provision of this Agreement.
12.3 Assignment. Neither this Agreement nor the rights or obligations
hereunder may be assigned by either party without the prior written consent of
the other party, which consent shall not be unreasonably withheld; provided
however, that this Agreement may be assigned by either party to an Affiliate of
such party, or upon the merger of the party or the sale of such party's
business, all without the consent of the other party, upon providing notice to
the other party.
12.4 Independent Contractors. CYBS and DRI shall perform their duties
pursuant to this Agreement as independent contractors. Nothing in this Agreement
shall be construed to create a joint venture, partnership or other joint
relationship between CYBS and DRI. Neither party shall have the ability to incur
any obligation on behalf of the other party.
Page 8
<PAGE>
12.5 Successors. All rights and obligations arising out of this
Agreement shall enure to the benefit of, and be binding on and enforceable by
the parties and their respective successors and permitted assigns.
12.6 Governing Law. This Agreement and its validity, construction
and performance shall be governed in all respects by the internal laws of the
State of Delaware.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed under seal as of the date first set forth above.
CyberSentry, Inc.
By: /s/ Gerald A. Resnick
---------------------------------
Gerald A. Resnick, President
Digital Rights International, Inc.
By: /s/ Graham Breston
----------------------------------
Name: Graham Breston
Title: Director
Page 9
<PAGE>
EXHIBIT A-
l. Learning Company License Agreement-Annexed hereto and made part hereof.
2. Programs:
Each and every version of the Cyber Sentry program.
3. The Trademarks: "Cyber Sentry"
Page 10
<PAGE>
EXHIBIT B-
Templar Assignment to CYBS
Page 11
<PAGE>
EXHIBIT C
DISTRIBUTION AGREEMENT
SCHEDULE OF ROYALTY PAYMENTS
ROYALTY PERIODS
1. Initial Royalty Payment: An initial payment in the form of One
Dollar and other good and valuable consideration, receipt of which is
acknowledged.
2. Additional Payments: Such other Royalty payments shall be paid in an
amount equal to ten (10%) of the royalty or any usage payment paid to DRI.
Example: If royalty or usage fees due to DRI under any third party agreement is
$1.00, then payment due to CYBS hereunder shall be $0.10 from DRI on Licensed
Programs sold.
3. The Licensee may not transfer or assign any of the rights licenced to it
under this agreement without the prior written consent of CYBS.
4. Licensor's Approval, Licensor's First Right of Refusal and Calculation
of Royalty Rates.
(A) No less than 90 days before commercially exploiting any Licensed Program
developed using or incorporating the Licensed Programs, DRI must submit each
Licensed Product Line with relevant technical specifications and marketing plans
for the Licensed Program to CYBS for approval, which approval will not be
unreasonably witheld or delayed.
A.1 Within 60 days after submission of the Licensed Program under
clause 4(A), the parties must meet to determine:
(a) The program is suitable and will not adversely reflect upon the
integrity or image of CyberSentry ie. pornography and to determine the royalty
payable by DRI to CYBS in respect of each Licensed Program; and
5. Payments.
5.1 Royalties and fees are payable by DRI within thirty (30) days
after the receipt of each Royalty or fee and shall be calculated by reference to
the Licensed Program used during the Period. Each payment must be accompanied by
a statement signed by an authorized officer of DRI showing the quantity and
respective Royalty or fee of Licensed Programs used during, and the calculation
of the Royalties or fees payable in respect of, that Royalty Period.
Method and Payment of Taxes.
5.2 All payments to be made by DRI under this Agreement must be
made:
(a) in U.S. currency and in immediately available, freely
transferable, cleared funds to CYBS's nominated bank account as specified by
CYBS from time to time; and
(b) without any set-off or deduction, unless DRI is required
to make such a payment subject to the deduction or withholding of tax, in which
case the sum payable by DRI shall be increased to the extent necessary to ensure
that, after the making of such a deduction or withholding, CYBS receives and
retains (free from any liability in respect of such deduction or withholding) a
net sum equal to the sum which it would have received and so retained had no
such deduction or withholding for taxes been made or required to be made.
Page 12
<PAGE>
EXHIBIT 10.7
LEASE
THIS AGREEMENT, entered into this 1st day of July, 1996, by and between
MADISON BUILDING, INC., 412 East Madison Street, Suite 1100, Tampa, Florida, a
Florida corporation, hereinafter called Lessor, party of the first part, and
TELECOMMUNICATIONS SERVICE CENTER, INC., of the County of Hillsborough and State
of Florida, hereinafter called Lessee.
WITNESSETH, That the said Lessor does this date lease unto said Lessee,
and said Lessee does hereby hire and take as Tenant under said Lessor, the space
situated in the office building of the Lessor located at 412 East Madison
Street, Tampa, Florida, and more particularly described as follows:
Approximately 1,002 square feet of office space located on the north side
of the Twelfth Floor of the Landmark Building, and more particularly
described in the drawing attached hereto and marked Exhibit "A". Note: The
space shall be known as Suite 1205.
(Approximate square footage is 1,002 square feet or 1.00% of the building net
usable area per B.O.M.A. standard)
The aforesaid space is to be used and occupied by the Lessee as an office
for telecommunication and associated activities and for no other purpose of uses
whatsoever, for the term of five years, and beginning the 1st day of July, 1996,
and ending the 30th day of June, 2001, at and for the agreed total base rental
of Fifty Thousand One Hundred Dollars, plus applicable sales tax, payable as
follows:
Beginning July 1, 1996: Base rental in the amount of $835.00, plus
applicable Florida State and local tax (currently 6.5%) of $54.28, for a
total monthly rental of $889.28.
All payments are to be made to the Lessor on the first day of each and every
month in advance without demand at the office of the Lessor at 412 East Madison
Street, Suite 1100, in the City of Tampa, Florida 33602, or at such other place
and to such other person as the Lessor may from time to time designate in
writing.
The following express stipulations and conditions are made a part of this
lease and are hereby agreed to by the Lessor and Lessee:
ASSIGNMENT, 1. The Lessee shall not assign this lease, nor sub-let
ALTERATIONS the premises, or any part thereof nor use the same, or any
part thereof, nor permit the same, or any part thereof, to be
used for any other purpose than as above stipulated, nor make
any alterations or additions thereto, without the written
consent of the Lessor. All additions, fixtures or improvements
which may be made by Lessee, except movable office furniture
and equipment, shall become the property of the Lessor and
remain upon the premises as a part thereof, and be surrendered
with the premises at the termination of this Lease.
PERSONAL 2. All personal property placed or moved on the premises
above described shall be at the risk PROPERTY of the Lessee or
Owner thereof, and Lessor shall not be liable for any loss or
damage to said personal property.
GOVERNMENTAL 3. The Lessee shall promptly execute and comply with all
REGULATION statutes, ordinances, rules, orders, regulation, and
requirements of the Federal State and City Government and any
and all of their Departments and Bureaus applicable to said
premises, for the correction, prevention and abatement of
nuisances or other grievances, in, upon, or connected with
said premises during said term, and shall also promptly comply
with and execute all rules, orders and regulations of the
Southeastern Underwriters Association for the prevention of
fires.
DESTRUCTION 4. In the event the premises shall be destroyed or so
OF PREMISES damaged or injured by fire or other casualty during the life
of this agreement, whereby the same shall be rendered
untenantable, the Lessor shall have the right to render said
premises tenantable by repairs within ninety days therefrom.
If said premises are not rendered tenantable within said time,
it shall be optional with either party hereto to cancel this
lease, and in the event of such cancellation, the rent shall
be paid only to the date of such fire or casualty. The
cancellation herein mentioned shall be evidenced in writing.
RULES; 5. The prompt payment of the rent for said premises upon
RENTAL the dates named, and the faithful observance of the rules and
PAYMENTS regulations printed upon this lease, and of such other and
further building regulations, as may be hereafter made by the
Lessor, are the conditions upon which the lease is made and
accepted, and any failure on the part of the Lessee to comply
with the terms of said lease, or any of said regulations now
in existence, or which may be hereafter prescribed by the
Lessor, shall at the option of the Lessor, work a forfeiture
of this contract, and all of the rights of the Lessor
hereunder.
ABANDONMENT 6. If the Lessee shall abandon or vacate said premises
before the end of the term of this lease, or shall suffer the
rent to be in arrears, the Lessor may, at his option,
forthwith cancel this lease, take possession of the premises,
and relet them with or without any furniture that may be
therein.
COLLECTION 7. Lessee agrees to pay all costs of collection,
including a reasonable attorney's fee, in the event it becomes
necessary for Lessor to employ an attorney to collect any
rents due hereunder or to enforce any of the terms of this
lease by legal action in law or equity.
<PAGE>
COLLATERAL 8. The said Lessee hereby pledges and assigns to the
Lessor all the furniture, fixtures, goods and chattels of said
Lessee, which shall or may be brought or put on said premises
as security for the payment of the rent herein reserved, and
the Lessee agrees that the said lien may be enforced by
distress, foreclosure or otherwise at the election of the said
Lessor.
RENOVATION 9. Lessee understands and agrees that the Lessor may
decide to renovate, remodel or enlarge the building in which
said premises are located or structures adjoining the same and
owned or occupied by Lessor by addition of interior partitions
and walls or of additional floors or the installation of
fixtures and equipment or otherwise; Lessee agrees that he
will have no objection to such renovation and remodeling and
Lessor agrees that the same shall be accomplished with as
little inconvenience to the Lessee as possible.
RE-RENTAL 10. The Lessor, or any of his agents, shall have the
right to enter said premises during all reasonable hours, to
examine the same to make such repairs, additions or
alterations as may be deemed necessary for the safety,
comfort, or preservation thereof, or of said building, or to
exhibit said premises, and to put or keep upon the doors or
windows thereof, a notice "FOR RENT" at any time within thirty
(30) days before the expiration of this lease. The right of
entry shall likewise exist for the purpose of removing
placards, signs, fixtures, alterations, or additions, which do
not conform to this agreement, or the the rules and
regulations of the building.
PREMISES 11. Lessee hereby accepts the premises in the condition
ACCEPTANCE they are in at the beginning of this lease and agrees to
maintain said premises in the same condition, order and repair
as they are at the commencement of said term, excepting only
reasonable wear and tear arising from the use thereof under
this agreement, and to make good to said Lessor immediately
upon demand any damage to water apparatus, or electric lights
or any fixture, appliances or appurtenances of said premises,
or of the building, caused by any act or neglect of Lessee, or
of any person or persons in the employ or under the control of
the Lessee.
LESSOR 12. It is expressly agreed and understood by and between
LIABILITY the parties to this agreement, that the Landlord shall not be
liable for any damage or injury by water, explosion or smoke,
or resulting from fire, theft, windstorm, or other acts of
God, or from acts of war, which may be sustained by the said
Lessee or other person or for any other damage or injury
resulting from the carelessness, negligence, or improper
conduct on the part of any other Tenant.
BANKRUPTCY 13. If the Lessee shall become insolvent, or if
bankruptcy or receivership proceedings shall be begun by or
against the Lessee, before the end of said term, the Lessor is
hereby irrevocably authorized at its option to forthwith
cancel this lease, as for a default. Lessor may elect to
accept rent from such Receiver, Trustee, or other judicial
officer during the term of their occupancy in their fiduciary
capacity without affecting Lessor's rights as contained in
this contract, but no Receiver, Trustee or other judicial
officer shall ever have any right, title, or interest in or to
the above described property by virtue of this contract.
SUCCESSORS 14. This contract shall bind the Lessor and its assigns
or successors, and the heirs, assigns administrators, legal
representatives, executors or successors as the case may be,
of the Lessee.
ESSENCE 15. It is understood and agreed between the parties
hereto that time is of the essence of this contract and this
applies to all terms and conditions contained herein.
NOTICES 16. It is understood and agreed between the parties
hereto that written notice mailed or delivered to the premises
leased hereunder shall constitute sufficient notice to the
Lessee and written notice mailed or delivered to the office of
the Lessor shall constitute sufficient notice to the Lessor,
to comply with the terms of this contract.
RIGHTS 17. The rights of the Lessor under this lease shall be
CUMULATIVE cumulative, and failure on the part of the Lessor to exercise
promptly any rights given hereunder shall not operate to
forfeit any of the said rights.
ADDITIONAL 18. It is further understood and agreed between the
CONSIDERATION parties hereto that any charges against the Lessee by the
Lessor for services or for work done on the premises by order
of the Lessee or otherwise accruing under this agreement shall
be considered as rent due and shall be included in any lien
for rent due and unpaid.
SIGNS 19. It is hereby understood and agreed that any signs or
advertising to be used, including awnings and draperies, or
anything which would tend to deface or disturb the uniformity
of the interior or exterior, in connection with the premises
leased hereunder shall be first submitted to the Lessor for
approval before installation of same.
SERVICES 20. Lessor agrees for the aforesaid consideration, to
furnish Lessee, while occupying the premises: water, cold and
refrigerated, at those points of supply provided for general
use of its Lessees; heated and refrigerated air conditioning,
at such times as Lessor normally furnishes these services to
all other tenants in the Building and at such temperatures and
in such amounts as are considered by Lessor to be standard;
such service on Saturdays, Sundays and Holidays to be optional
on the part of the Lessor. Elevator service will be available
at all times, where applicable. Janitor service and electric
lighting service will be furnished by the Lessor, and at the
cost of Lessor, to the rented premises and for all public and
special service areas in the manner and to the extent deemed
by Lessor to be standard. Electric current in addition to that
required for lighting shall be provided to the
<PAGE>
rented premises for normal and customary office usage, which
shall include only office machines and equipment that operate
on standard building circuits, but which in no event shall
overload the electrical circuits from which the Lessee obtains
current. No electric current shall be used except that
furnished or approved by the Lessor, nor shall electric wire
or other wire be brought into the premises except upon the
written consent and approval of the Lessor. Any consumption of
electric current in excess of that considered by Lessor to be
usual, normal and customary for all Lessees, or which requires
special circuits or equipment, shall be paid for by the Lessee
as additional rent in an amount to be determined by Lessor's
estimated cost of such abnormal current consumption based on
the applicable prevailing rate classification published by the
local electric power company. Failure by Lessor to any extent
to furnish, or any stoppage of, these defined services
resulting from causes beyond the control of Lessor shall not
render Lessor liable in any respect for damages to either
person or property, nor be construed as an eviction of Lessee,
nor work an abatement of rent, nor relieve Lessee from
fulfillment of any covenant or agreement hereof. Should any
equipment or machinery break down or for any cause cease to
function properly, Lessor shall use reasonable diligence to
repair the same promptly but Lessee shall have no claim for
rebate of rent or damages on account of any interruptions in
service occasioned thereby or resulting therefrom.
DISPUTES 21. In case of any controversy between Lessee and other
BETWEEN LESSEES Tenants, such controversy shall be referred at once to Lessor
or its officers, whose decision in the premises shall be
final.
ENTIRETY 22. It is agreed that this instrument contains the
entire agreement between the parties relating to the rental of
the premises herein described and supersedes any prior
agreement of the parties.
SALES AND 23. In addition to and payable at the same time and as a
USE TAX part of the aforesaid installment rental payments, Lessee
agrees to pay unto Lessor, all sales, use or other tax levied
and imposed by governmental authority on this lease and the
rentals payable hereunder, whether presently or hereafter
imposed by law directly upon the Lessee, upon Lessee and
Lessor jointly, or upon Lessor alone (except the Federal
income taxes payable by Lessor) and to the extent said taxes
shall be partly or wholly payable by Lessor pursuant to this
provision, the same shall be deemed to constitute and
represent additional and increased rentals payable by Lessee
unto Lessor for the demised premises.
DELINQUENT 24. Lessee agrees to pay to Lessor a late charge equal
RENT to five percent (5%) of the amount due for any rental payment
or other payment, not actually received by the Lessor within
ten (10) days after the payment is due, Lessee agreeing that
said amount represents a reasonable administrative cost to
Lessor caused by any such delinquent payment, which late
charge so computed Lessee agrees to pay unto Lessor as
additional rental and compensation for the continuation of
Lessee's tenancy rights under the terms of said lease; and
default in the payment of which shall result in default of
said Lease by Lessee, without notice or demand by Lessor.
LIABILITY 25. Lessee will indemnify and save harmless Lessor of
INDEMNITY and from any and all fines, suits, claims, demands, and
actions of any kind by reason of any breach, violation, or
non-performance of any condition hereof on the part of Lessee,
its agents or employees. Lessee is, or will become familiar
with the leased premises, acknowledges that the same are
received by Lessee in good state of repair, accepted by Lessee
in the condition in which they are now or shall be when ready
for occupancy. Lessor shall not be liable to Lessee or
Lessee's agents, employees, invitees or visitors for any
damage to persons or property due to condition, design, or
defect in the building or its mechanical systems or elsewhere
in the demised premises or building which may now exist or
hereafter occur, including acts of negligence of co-tenants or
others. Lessee assumes all risks of damage to persons or
property.
DEMOLITION 26. In the event the Lessor elects to demolish the
entire building of which the demise premises are a part, the
Lessor may cancel this Lease by giving the Lessee ninety (90)
days written notice of the Lessor's intent to demolish the
building.
CONDEMNATION 27. In the event the whole or any part of the building
other than a part not interfering with the maintenance or
operation thereof shall be taken or condemned for any public
or quasi-public use or purpose, the Lessor may at its option
terminate this lease from the time title to or right to
possession shall vest in or be taken for such public or
quasi-public use or purpose, and the Lessor shall be entitled
to any and all income, rent, awards or any interest therein
whatsoever which may be paid or made in connection therewith.
TRANSFER OF 28. Lessor shall have the right to transfer and assign,
LESSOR'S RIGHTS in whole or part, all and every feature of its rights and
obligations hereunder and in building and property referred to
herein. Such transfers or assignments may be made either to a
corporation, trust company, individual or group of
individuals.
SUBORDINATION 29. This lease is hereby made expressly subject and
CLAUSE subordinate at all times to any and all mortgages, deeds or
trust, ground or underlying leases affecting the demised
premises which have been executed and delivered, or which may
at any time hereafter be executed and delivered, and any and
all extensions and renewals thereof and substitutions
therefore, and to any and all advances made or to be made
under or upon said mortgages, deeds of trust, ground or
underlying leases. Lessee agrees to execute any instrument or
instruments which the Lessor may deem necessary or desirable
to effect the subordination of this lease to any or all such
mortgages, deeds of trust, ground or underlying leases, and
in the event the Lessee shall refuse after reasonable notice
to execute such instrument or instruments, the Lessor may in
addition to any right or remedy accruing hereunder terminate
this lease without incurring any liability whatever, and the
estate hereby granted is expressly limited accordingly.
<PAGE>
PEACEFUL 30. Lessee shall and may peaceably have, hold and enjoy
ENJOYMENT the demised premises subject to the other terms hereof and
provided Lessee pays the rentals herein recited and performs
all of his covenants and agreements herein contained.
ADDITIONAL 31. The Lessor and Lessee mutually agree that the Lessee
RENT shall pay annually as additional rental the Lessee's
proportionate share of any increase in the operating expenses
during the Lessor's current fiscal year over Lessor's prior
fiscal year ending October 31st and of each succeeding fiscal
year over Lessee's base fiscal year. (Lessee's base fiscal
year shall mean the current year ending October 31st in which
lease was executed). The Lessor will provide the Lessee with
an accounting of the expenses and a statement for the Lessee's
proportionate share annually, which costs shall be paid on the
next rental due date. Operating expenses are defined to
include costs of (a) cleaning and cleaning supplies, (b) all
utilities (except telephone), (c) heating, air conditioning
and ventilation maintenance, (d) elevator maintenance, (e)
property and payroll taxes, (f) maintenance and guard salaries
or contracts, and (g) fire and liability insurance.
CONTENTS 32. Personal property referred to in Section 2 must be
INSURANCE covered by the Lessee's content insurance policy as the Lessor
will not be responsible for the disappearance of any of the
Lessee's personal property.
PARKING 33. Lessor guarantees to provide Lessee and Employees of
Lessee parking permits on the fourth parking level or above at
the prevailing rates charged other tenants for such parking
permits during the term of this Lease. Original costs for
these parking permits are not included in rent.
HEADINGS 34. The marginal headings of this instrument are for
convenience and reference only and the words contained therein
shall in no way be held to explain, modify, amplify or aid in
the interpretation, construction or meaning of the provisions
of this agreement.
COMMISSIONS 35. Lessor assumes no obligation to pay any cost of
services for any real estate broker concerning this leased
space.
RE-LOCATION 36. In the event an entire floor is needed for a major
tenant, Lessor reserves the right to re-locate the Lessee to
another floor within the building, at Lessor's expense.
BUILDING 37. Lessee agrees to comply with Building Rules &
RULES Regulations as published from time to time by Lessor.
38. Upon full execution of this Agreement, the Agreement
dated September 17, 1993 shall become null and void.
The following attachments are herewith made a part hereof: X Building
---
Rules X Exhibit "A" Exhibit "B" Exhibit "C"
--- --- ---
IN WITNESS WHEREOF, the parties hereto have hereunto executed this
instrument for the purpose herein expressed, the day and year above written.
Signed, sealed and delivered
in the presence of:
/s/ [ILLEGIBLE] MADISON BUILDING, INC., LESSOR
- -------------------------
As to Lessor
- -------------------------
As to Lessor By: /s/ A.B. Grandoff, Sr. (SEAL)
--------------------------------
A.B. Grandoff, Sr., President
/s/ [ILLEGIBLE]
- -------------------------
As to Lessee TELECOMMUNICATIONS SERVICE CENTER, INC.
By: /s/ Hal Shankland
--------------------------------
Hal Shankland, President
<PAGE>
BUILDING RULES AND REGULATIONS
1. Lessee will refer all contractors, contractors' representatives and
installation technicians rendering any service for Lessee, to Lessor for
Lessor's supervision and approval before performance of any such contractual
services. This shall apply to all work performed in the building including, but
not limited to, installation of telephones, telegraph equipment, electrical
devices and attachments, and installations of any and every nature affecting
floors, walls, woodwork, trim, windows, ceilings, equipment or any other
physical portion of the building. None of this work will be done by Lessee
without Lessor's written approval first had and obtained.
2. The work of the janitor or cleaning personnel shall not be hindered by
Lessee after 5:30 P.M., and such work may be done at any time when the offices
are vacant. The windows, doors, and fixtures may be cleaned at any time. Lessee
shall provide adequate waste and rubbish receptacles, cabinets, book cases, map
cases, etc., necessary to prevent unreasonable hardship to Lessor in discharging
its obligation regarding cleaning service. Lessor or cleaning contractor assumes
no liability for personal property disposed of in error unless negligence can be
demonstrated. Refuse may not be stored in public areas.
3. Movement in or out of the building of furniture or office equipment, or
dispatch or receipt by Lessee of any merchandise or materials which requires the
use of elevators or stairways, or movement through the building entrances or
lobby shall be restricted to the hours designated by Lessor from time to time.
All such movement shall be as directed by Lessor and in a manner to be agreed
upon between Lessee and Lessor by prearrangement before performance. Such time,
method, and routing of movement, limitations imposed by safety or other concerns
which may prohibit any article, equipment or any other item from being brought
into the building. Lessee expressly assumes all risk of damage to any and all
articles so moved, as well as injury to any person or persons or the public
engaged or not engaged in such movement, including equipment, property, and
personnel of Lessor if damaged or injured as a result of any acts in connection
with carrying out this service for Lessee from the time of entering property to
completion of the work; and Lessor shall not be liable for the act or acts of
any person or persons so engaged in or any damage or loss to any property or
persons resulting directly or indirectly from any act in connection with such
service performed by or for Lessee.
4. Lessor agrees to provide Lessee with two (2) keys to the premises main
entrance door and any additional keys or locks. Changes requested by Lessee will
be at Lessee's expense.
5. Lessee shall not place, install or operate on the demised premises or
in any part of the building, any engine, stove, or machinery, or conduct
mechanical operations or cook thereon or therein, or place, use in or about the
demised premises any explosives, gasoline, kerosene, oil, acids, caustics, or
any other inflammable, explosive or hazardous material without the written
consent of Lessor first had and obtained.
6. Lessor will not be responsible for any lost or stolen personal
property, equipment, money, or jewelry from Lessee's area or public rooms
regardless of whether such loss occurs when the area is locked against entry or
not.
7. No birds, animals, bicycles or vehicles shall be brought into or kept
in or about the building.
8. Lessor may permit entrance to Lessee's offices by use of pass keys
controlled by Lessor or employees, contractors, or service personnel, supervised
or employed by Lessor.
9. None of the entries, passages, doors, elevators, elevator doors,
hallways, or stairways shall be blocked or obstructed, or any rubbish, litter,
trash, or material of any nature placed, emptied or thrown into these areas, nor
shall such areas be used at any time except for access or egress by Lessee,
Lessee's agents, employees or invitees.
10. Lessor shall have the right to determine and prescribe the weight and
proper position of any unusually heavy equipment including safes, large files,
etc., that are to be placed in the building, and only those which in the opinion
of Lessor will not do damage to the floors, structure or elevators may be moved
into said building. Any damage occasioned in connection with the moving or
installing of such aforementioned articles in said building, or the existence of
same in said building shall be paid for by Lessee.
11. In accordance with the Clean Indoor Air Act, smoking is prohibited in
the building.
LESSOR DESIRES TO MAINTAIN HIGH STANDARDS OF ENVIRONMENT, COMFORT AND
CONVENIENCE FOR ITS LESSEES. IT WILL BE APPRECIATED IF ANY UNDESIRABLE
CONDITIONS OR LACK OF COURTESY OR ATTENTION BY ITS EMPLOYEES IS REPORTED
DIRECTLY TO LESSOR.
<PAGE>
EXHIBIT "A"
THE LANDMARK BUILDING
Twelfth Floor
Suite 1205
[GRAPHIC]
Approximately 1,002 s/f
1/8" = 1
<PAGE>
EXHIBIT 10.8
LEASE
THIS AGREEMENT, entered into this 1st day of July, 1995, by and between
MADISON BUILDING, INC., 412 East Madison Street, Suite 1100, Tampa, Florida, a
Florida corporation, hereinafter called Lessor, party of the first part, and
TELECOMMUNICATIONS SERVICE CENTER, INC., of the County of Hillsborough and State
of Florida, hereinafter called Lessee.
WITNESSETH, That the said Lessor does this date lease unto said Lessee,
and said Lessee does hereby hire and take as Tenant under said Lessor, the space
situated in the office building of the Lessor located at 412 East Madison
Street, Tampa, Florida, and more particularly described as follows:
Approximately 2,300 square feet of office space located on the south side
of the Twelfth Floor of the Landmark Building, and more particularly
described in the drawing attached hereto and marked Exhibit "A". Note: The
space shall be known as Suite 1215.
(Approximate square footage is 2,300 square feet or 2.30% of the building net
usable area per B.O.M.A. standard)
The aforesaid space is to be used and occupied by the Lessee as an office
for telecommunication and associated activities and for no other purpose of uses
whatsoever, for the term of five years, and beginning the 1st day of [ILLEGIBLE]
and ending the 30th day of June, 2000, at and for the agreed total base rental
of One Hundred [ILLEGIBLE] Dollars, plus applicable sales tax, payable as
follows:
Beginning July 1, 1995: Base rental in the amount of $1,916.67, plus
applicable Florida State and local tax (currently 6.5%) of $124.58, for a
total monthly rental of $2,041.25.
Note: Base rental may be amended after a more accurate measure of the
space is obtained.
All payments are to be made to the Lessor on the first day of each and every
month in advance without demand at the office of the Lessor at 412 East Madison
Street, Suite 1100, in the City of Tampa, Florida 33602, or at such other place
and to such other person as the Lessor may from time to time designate in
writing.
The following express stipulations and conditions are made a part of this
lease and are hereby agreed to by the Lessor and Lessee:
ASSIGNMENT, 1. The Lessee shall not assign this lease, nor sub-let
ALTERATIONS the premises, or any part thereof nor use the same, or any
part thereof, nor permit the same, or any part thereof, to be
used for any other purpose than as above stipulated, nor make
any alterations or additions thereto, without the written
consent of the Lessor. All additions, fixtures or improvements
which may be made by Lessee, except movable office furniture
and equipment, shall become the property of the Lessor and
remain upon the premises as a part thereof, and be surrendered
with the premises at the termination of this Lease.
PERSONAL 2. All personal property placed or moved on the premises
PROPERTY above described shall be at the risk of the Lessee or Owner
thereof, and Lessor shall not be liable for any loss or damage
to said personal property.
GOVERNMENTAL 3. The Lessee shall promptly execute and comply with all
REGULATION statutes, ordinances, rules, orders, regulation, and
requirements of the Federal State and City Government and any
and all of their Departments and Bureaus applicable to said
premises, for the correction, prevention and abatement of
nuisances or other grievances, in, upon, or connected with
said premises during said term, and shall also promptly comply
with and execute all rules, orders and regulations of the
Southeastern Underwriters Association for the prevention of
fires.
DESTRUCTION 4. In the event the premises shall be destroyed or so
OF PREMISES damaged or injured by fire or other casualty during the life
of this agreement, whereby the same shall be rendered
untenantable, the Lessor shall have the right to render said
premises tenantable by repairs within ninety days therefrom.
If said premises are not rendered tenantable within said time,
it shall be optional with either party hereto to cancel this
lease, and in the event of such cancellation, the rent shall
be paid only to the date of such fire or casualty. The
cancellation herein mentioned shall be evidenced in writing.
RULES; 5. The prompt payment of the rent for said premises upon
RENTAL the dates named, and the faithful observance of the rules and
PAYMENTS regulations printed upon this lease, and of such other and
further building regulations, as may be hereafter made by the
Lessor, are the conditions upon which the lease is made and
accepted, and any failure on the part of the Lessee to comply
with the terms of said lease, or any of said regulations now
in existence, or which may be hereafter prescribed by the
Lessor, shall at the option of the Lessor, work a forfeiture
of this contract, and all of the rights of the Lessor
hereunder.
ABANDONMENT 6. If the Lessee shall abandon or vacate said premises
before the end of the term of this lease, or shall suffer the
rent to be in arrears, the Lessor may, at his option,
forthwith cancel this lease, take possession of the premises,
and relet them with or without any furniture that may be
therein.
COLLECTION 7. Lessee agrees to pay all costs of collection,
including a reasonable attorney's fee, in the event it becomes
necessary for Lessor to employ an attorney to collect any
rents due hereunder or to enforce any of the terms of this
lease by legal action in law or equity.
<PAGE>
COLLATERAL 8. The said Lessee hereby pledges and assigns to the
Lessor all the furniture, fixtures, goods and chattels of said
Lessee, which shall or may be brought or put on said premises
as security for the payment of the rent herein reserved, and
the Lessee agrees that the said lien may be enforced by
distress, foreclosure or otherwise at the election of the said
Lessor.
RENOVATION 9. Lessee understands and agrees that the Lessor may
decide to renovate, remodel or enlarge the building in which
said premises are located or structures adjoining the same and
owned or occupied by Lessor by addition of interior partitions
and walls or of additional floors or the installation of
fixtures and equipment or otherwise; Lessee agrees that he
will have no objection to such renovation and remodeling and
Lessor agrees that the same shall be accomplished with as
little inconvenience to the Lessee as possible.
RE-RENTAL 10. The Lessor, or any of his agents, shall have the
right to enter said premises during all reasonable hours, to
examine the same to make such repairs, additions or
alterations as may be deemed necessary for the safety,
comfort, or preservation thereof, or of said building, or to
exhibit said premises, and to put or keep upon the doors or
windows thereof, a notice "FOR RENT" at any time within thirty
(30) days before the expiration of this lease. The right of
entry shall likewise exist for the purpose of removing
placards, signs, fixtures, alterations, or additions, which do
not conform to this agreement, or the the rules and
regulations of the building.
PREMISES 11. Lessee hereby accepts the premises in the condition
ACCEPTANCE they are in at the beginning of this lease and agrees to
maintain said premises in the same condition, order and repair
as they are at the commencement of said term, excepting only
reasonable wear and tear arising from the use thereof under
this agreement, and to make good to said Lessor immediately
upon demand any damage to water apparatus, or electric lights
or any fixture, appliances or appurtenances of said premises,
or of the building, caused by any act or neglect of Lessee, or
of any person or persons in the employ or under the control of
the Lessee.
LESSOR 12. It is expressly agreed and understood by and between
LIABILITY the parties to this agreement, that the Landlord shall not be
liable for any damage or injury by water, explosion or smoke,
or resulting from fire, theft, windstorm, or other acts of
God, or from acts of war, which may be sustained by the said
Lessee or other person or for any other damage or injury
resulting from the carelessness, negligence, or improper
conduct on the part of any other Tenant.
BANKRUPTCY 13. If the Lessee shall become insolvent, or if
bankruptcy or receivership proceedings shall be begun by or
against the Lessee, before the end of said term, the Lessor is
hereby irrevocably authorized at its option to forthwith
cancel this lease, as for a default. Lessor may elect to
accept rent from such Receiver, Trustee, or other judicial
officer during the term of their occupancy in their fiduciary
capacity without affecting Lessor's rights as contained in
this contract, but no Receiver, Trustee or other judicial
officer shall ever have any right, title, or interest in or to
the above described property by virtue of this contract.
SUCCESSORS 14. This contract shall bind the Lessor and its assigns
or successors, and the heirs, assigns administrators, legal
representatives, executors or successors as the case may be,
of the Lessee.
ESSENCE 15. It is understood and agreed between the parties
hereto that time is of the essence of this contract and this
applies to all terms and conditions contained herein.
NOTICES 16. It is understood and agreed between the parties
hereto that written notice mailed or delivered to the premises
leased hereunder shall constitute sufficient notice to the
Lessee and written notice mailed or delivered to the office of
the Lessor shall constitute sufficient notice to the Lessor,
to comply with the terms of this contract.
RIGHTS 17. The rights of the Lessor under this lease shall be
CUMULATIVE cumulative, and failure on the part of the Lessor to exercise
promptly any rights given hereunder shall not operate to
forfeit any of the said rights.
ADDITIONAL 18. It is further understood and agreed between the
CONSIDERATION parties hereto that any charges against the Lessee by the
Lessor for services or for work done on the premises by order
of the Lessee or otherwise accruing under this agreement shall
be considered as rent due and shall be included in any lien
for rent due and unpaid.
SIGNS 19. It is hereby understood and agreed that any signs or
advertising to be used, including awnings and draperies, or
anything which would tend to deface or disturb the uniformity
of the interior or exterior, in connection with the premises
leased hereunder shall be first submitted to the Lessor for
approval before installation of same.
SERVICES 20. Lessor agrees for the aforesaid consideration, to
furnish Lessee, while occupying the premises: water, cold and
refrigerated, at those points of supply provided for general
use of its Lessees; heated and refrigerated air conditioning,
at such times as Lessor normally furnishes these services to
all other tenants in the Building and at such temperatures and
in such amounts as are considered by Lessor to be standard;
such service on Saturdays, Sundays and Holidays to be optional
on the part of the Lessor. Elevator service will be available
at all times, where applicable. Janitor service and electric
lighting service will be furnished by the Lessor, and at the
cost of Lessor, to the rented premises and for all public and
special service areas in the manner and to the extent deemed
by Lessor to be standard. Electric current in addition to that
required for lighting shall be provided to the rented premises
for normal and customary office usage, which shall include
only office machines and equipment that operate on standard
building circuits, but which in no event shall overload the
electrical
<PAGE>
circuits from which the Lessee obtains current. No electric
current shall be used except that furnished or approved by the
Lessor, nor shall electric wire or other wire be brought into
the premises except upon the written consent and approval of
the Lessor. Any consumption of electric current in excess of
that considered by Lessor to be usual, normal and customary
for all Lessees, or which requires special circuits or
equipment, shall be paid for by the Lessee as additional rent
in an amount to be determined by Lessor's estimated cost of
such abnormal current consumption based on the applicable
prevailing rate classification published by the local electric
power company. Failure by Lessor to any extent to furnish, or
any stoppage of, these defined services resulting from causes
beyond the control of Lessor shall not render Lessor liable in
any respect for damages to either person or property, nor be
construed as an eviction of Lessee, nor work an abatement of
rent, nor relieve Lessee from fulfillment of any covenant or
agreement hereof. Should any equipment or machinery break down
or for any cause cease to function properly, Lessor shall use
reasonable diligence to repair the same promptly but Lessee
shall have no claim for rebate of rent or damages on account
of any interruptions in service occasioned thereby or
resulting therefrom.
DISPUTES 21. In case of any controversy between Lessee and other
BETWEEN LESSEES Tenants, such controversy shall be referred at once to Lessor
or its officers, whose decision in the premises shall be
final.
ENTIRETY 22. It is agreed that this instrument contains the
entire agreement between the parties relating to the rental of
the premises herein described and supersedes any prior
agreement of the parties.
SALES AND 23. In addition to and payable at the same time and as a
USE TAX part of the aforesaid installment rental payments, Lessee
agrees to pay unto Lessor, all sales, use or other tax levied
and imposed by governmental authority on this lease and the
rentals payable hereunder, whether presently or hereafter
imposed by law directly upon the Lessee, upon Lessee and
Lessor jointly, or upon Lessor alone (except the Federal
income taxes payable by Lessor) and to the extent said taxes
shall be partly or wholly payable by Lessor pursuant to this
provision, the same shall be deemed to constitute and
represent additional and increased rentals payable by Lessee
unto Lessor for the demised premises.
DELINQUENT 24. Lessee agrees to pay to Lessor a late charge equal
RENT to five percent (5%) of the amount due for any rental payment
or other payment, not actually received by the Lessor within
ten (10) days after the payment is due, Lessee agreeing that
said amount represents a reasonable administrative cost to
Lessor caused by any such delinquent payment, which late
charge so computed Lessee agrees to pay unto Lessor as
additional rental and compensation for the continuation of
Lessee's tenancy rights under the terms of said lease; and
default in the payment of which shall result in default of
said Lease by Lessee, without notice or demand by Lessor.
LIABILITY 25. Lessee will indemnify and save harmless Lessor of
INDEMNITY and from any and all fines, suits, claims, demands, and
actions of any kind by reason of any breach, violation, or
non-performance of any condition hereof on the part of Lessee,
its agents or employees. Lessee is, or will become familiar
with the leased premises, acknowledges that the same are
received by Lessee in good state of repair, accepted by Lessee
in the condition in which they are now or shall be when ready
for occupancy. Lessor shall not be liable to Lessee or
Lessee's agents, employees, invitees or visitors for any
damage to persons or property due to condition, design, or
defect in the building or its mechanical systems or elsewhere
in the demised premises or building which may now exist or
hereafter occur, including acts of negligence of co-tenants or
others. Lessee assumes all risks of damage to persons or
property.
DEMOLITION 26. In the event the Lessor elects to demolish the
entire building of which the demise premises are a part, the
Lessor may cancel this Lease by giving the Lessee ninety (90)
days written notice of the Lessor's intent to demolish the
building.
CONDEMNATION 27. In the event the whole or any part of the building
other than a part not interfering with the maintenance or
operation thereof shall be taken or condemned for any public
or quasi-public use or purpose, the Lessor may at its option
terminate this lease from the time title to or right to
possession shall vest in or be taken for such public or
quasi-public use or purpose, and the Lessor shall be entitled
to any and all income, rent, awards or any interest therein
whatsoever which may be paid or made in connection therewith.
TRANSFER OF 28. Lessor shall have the right to transfer and assign,
LESSOR'S RIGHTS in whole or part, all and every feature of its rights and
obligations hereunder and in building and property referred to
herein. Such transfers or assignments may be made either to a
corporation, trust company, individual or group of
individuals.
SUBORDINATION 29. This lease is hereby made expressly subject and
CLAUSE subordinate at all times to any and all mortgages, deeds or
trust, ground or underlying leases affecting the demised
premises which have been executed and delivered, or which may
at any time hereafter be executed and delivered, and any and
all extensions and renewals thereof and substitutions
therefore, and to any and all advances made or to be made
under or upon said mortgages, deeds of trust, ground or
underlying leases. Lessee agrees to execute any instrument or
instruments which the Lessor may deem necessary or desirable
to effect the subordination of this lease to any or all such
mortgages, deeds of trust, ground or underlying leases, and
in the event the Lessee shall refuse after reasonable notice
to execute such instrument or instruments, the Lessor may in
addition to any right or remedy accruing hereunder terminate
this lease without incurring any liability whatever, and the
estate hereby granted is expressly limited accordingly.
PEACEFUL 30. Lessee shall and may peaceably have, hold and enjoy
ENJOYMENT the demised premises subject to the other terms hereof and
provided Lessee pays the rentals herein recited and performs
all of his covenants and agreements herein contained.
<PAGE>
ADDITIONAL 31. The Lessor and Lessee mutually agree that the Lessee
RENT shall pay annually as additional rental the Lessee's
proportionate share of any increase in the operating expenses
during the Lessor's current fiscal year over Lessor's prior
fiscal year ending October 31st and of each succeeding fiscal
year over Lessee's base fiscal year. (Lessee's base fiscal
year shall mean the current year ending October 31st in which
lease was executed). The Lessor will provide the Lessee with
an accounting of the expenses and a statement for the Lessee's
proportionate share annually, which costs shall be paid on the
next rental due date. Operating expenses are defined to
include costs of (a) cleaning and cleaning supplies, (b) all
utilities (except telephone), (c) heating, air conditioning
and ventilation maintenance, (d) elevator maintenance, (e)
property and payroll taxes, (f) maintenance and guard salaries
or contracts, and (g) fire and liability insurance.
CONTENTS 32. Personal property referred to in Section 2 must be
INSURANCE covered by the Lessee's content insurance policy as the Lessor
will not be responsible for the disappearance of any of the
Lessee's personal property.
PARKING 33. Lessor guarantees to provide Lessee and Employees of
Lessee parking permits on the fourth parking level or above at
the prevailing rates charged other tenants for such parking
permits during the term of this Lease. Original costs for
these parking permits are not included in rent.
HEADINGS 34. The marginal headings of this instrument are for
convenience and reference only and the words contained therein
shall in no way be held to explain, modify, amplify or aid in
the interpretation, construction or meaning of the provisions
of this agreement.
COMMISSIONS 35. Lessor assumes no obligation to pay any cost of
services for any real estate broker concerning this leased
space.
RE-LOCATION 36. In the event an entire floor is needed for a major
tenant, Lessor reserves the right to re-locate the Lessee to
another floor within the building, at Lessor's expense.
BUILDING 37. Lessee agrees to comply with Building Rules &
RULES Regulations as published from time to time by Lessor.
38. Upon full execution of this Agreement, the Agreement
dated September 17, 1993 shall become null and void.
The following attachments are herewith made a part hereof:
X Building Rules X Exhibit "A" Exhibit "B" Exhibit "C"
- --- --- --- ---
IN WITNESS WHEREOF, the parties hereto have hereunto executed this
instrument for the purpose herein expressed, the day and year above written.
Signed, sealed and delivered
in the presence of:
MADISON BUILDING, INC., LESSOR
- -------------------------
As to Lessor
/s/ [ILLEGIBLE]
- -------------------------
As to Lessor By: /s/ A.B. Grandoff, Sr. (SEAL)
--------------------------------
A.B. Grandoff, Sr., President
/s/ [ILLEGIBLE]
- -------------------------
As to Lessee TELECOMMUNICATIONS SERVICE CENTER, INC.
412 E. Madison Street, Suite 1215
/s/ [ILLEGIBLE]
- ------------------------- Tampa, Florida 33602
As to Lessee
By: /s/ Hal Shankland
--------------------------------
Hal Shankland, President
<PAGE>
BUILDING RULES AND REGULATIONS
1. Lessee will refer all contractors, contractors' representatives and
installation technicians rendering any service for Lessee, to Lessor for
Lessor's supervision and approval before performance of any such contractual
services. This shall apply to all work performed in the building including, but
not limited to, installation of telephones, telegraph equipment, electrical
devices and attachments, and installations of any and every nature affecting
floors, walls, woodwork, trim, windows, ceilings, equipment or any other
physical portion of the building. None of this work will be done by Lessee
without Lessor's written approval first had and obtained.
2. The work of the janitor or cleaning personnel shall not be hindered by
Lessee after 5:30 P.M., and such work may be done at any time when the offices
are vacant. The windows, doors, and fixtures may be cleaned at any time. Lessee
shall provide adequate waste and rubbish receptacles, cabinets, book cases, map
cases, etc., necessary to prevent unreasonable hardship to Lessor in discharging
its obligation regarding cleaning service. Lessor or cleaning contractor assumes
no liability for personal property disposed of in error unless negligence can be
demonstrated. Refuse may not be stored in public areas.
3. Movement in or out of the building of furniture or office equipment, or
dispatch or receipt by Lessee of any merchandise or materials which requires the
use of elevators or stairways, or movement through the building entrances or
lobby shall be restricted to the hours designated by Lessor from time to time.
All such movement shall be as directed by Lessor and in a manner to be agreed
upon between Lessee and Lessor by prearrangement before performance. Such time,
method, and routing of movement, limitations imposed by safety or other concerns
which may prohibit any article, equipment or any other item from being brought
into the building. Lessee expressly assumes all risk of damage to any and all
articles so moved, as well as injury to any person or persons or the public
engaged or not engaged in such movement, including equipment, property, and
personnel of Lessor if damaged or injured as a result of any acts in connection
with carrying out this service for Lessee from the time of entering property to
completion of the work; and Lessor shall not be liable for the act or acts of
any person or persons so engaged in or any damage or loss to any property or
persons resulting directly or indirectly from any act in connection with such
service performed by or for Lessee.
4. Lessor agrees to provide Lessee with two (2) keys to the premises main
entrance door and any additional keys or locks. Changes requested by Lessee will
be at Lessee's expense.
5. Lessee shall not place, install or operate on the demised premises or
in any part of the building, any engine, stove, or machinery, or conduct
mechanical operations or cook thereon or therein, or place, use in or about the
demised premises any explosives, gasoline, kerosene, oil, acids, caustics, or
any other inflammable, explosive or hazardous material without the written
consent of Lessor first had and obtained.
6. Lessor will not be responsible for any lost or stolen personal
property, equipment, money, or jewelry from Lessee's area or public rooms
regardless of whether such loss occurs when the area is locked against entry or
not.
7. No birds, animals, bicycles or vehicles shall be brought into or kept
in or about the building.
8. Lessor may permit entrance to Lessee's offices by use of pass keys
controlled by Lessor or employees, contractors, or service personnel, supervised
or employed by Lessor.
9. None of the entries, passages, doors, elevators, elevator doors,
hallways, or stairways shall be blocked or obstructed, or any rubbish, litter,
trash, or material of any nature placed, emptied or thrown into these areas, nor
shall such areas be used at any time except for access or egress by Lessee,
Lessee's agents, employees or invitees.
10. Lessor shall have the right to determine and prescribe the weight and
proper position of any unusually heavy equipment including safes, large files,
etc., that are to be placed in the building, and only those which in the opinion
of Lessor will not do damage to the floors, structure or elevators may be moved
into said building. Any damage occasioned in connection with the moving or
installing of such aforementioned articles in said building, or the existence of
same in said building shall be paid for by Lessee.
11. In accordance with the Clean Indoor Air Act, smoking is prohibited in
the building.
LESSOR DESIRES TO MAINTAIN HIGH STANDARDS OF ENVIRONMENT, COMFORT AND
CONVENIENCE FOR ITS LESSEES. IT WILL BE APPRECIATED IF ANY UNDESIRABLE
CONDITIONS OR LACK OF COURTESY OR ATTENTION BY ITS EMPLOYEES IS REPORTED
DIRECTLY TO LESSOR.
<PAGE>
[FLOOR PLAN OMITTED]
<PAGE>
Addendum I
Attached to and forming a part of Lease Agreement, dated July 1, 1995, by
and between MADISON BUILDING, INC., Lessor, TELECOMMUNICATION SERVICE CENTER,
INC., Lessee. Net useable [ILLEGIBLE] shall be increased from 2,300 square feet
to 4,672 square feet [ILLEGIBLE] increase of 2,371 square feet.) Base rental
shall be increased [ILLEGIBLE] $3,892.50 per month plus applicable State and
local taxes [ILLEGIBLE] $253.01, for a total monthly rental of $4,145.
- --------------------------------------------------------------------------------
Present Increase New
Square Feet 2,300 2,371 4,671
Base Rent Monthly $1,916.67 $1,975.83 $3,892.50
Effective March 1, 1996.
All other terms and conditions are unchanged by the Addendum I[ILLEGIBLE]
remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have executed this
instrument for the purposes herein expressed, this ____________
of _____________, 19___.
Signed, sealed and delivered MADISON BUILDING, INC., LESSOR
in the presence of:
- ------------------------- --------------------------------
As to Lessor A.B. Grandoff, Sr., President
- -------------------------
As to Lessor
TELECOMMUNICATION SERVICE
CENTER, INC. LESSEE
/s/ Justina Shankland By: /s/ Hal Shankland
- ------------------------- --------------------------------
As to Lessee Hal Shankland, President
- -------------------------
As to Lessee
<PAGE>
EXHIBIT 10.9
EMPLOYMENT AGREEMENT
BETWEEN
CYBERSENTRY, INC.
("CYBS")
AND
GERALD A. RESNICK
THIS AGREEMENT made this 25th day of December, 1998, by and between
CyberSentry, Inc., a Delaware corporation with its principal office c/o Sadis &
Goldberg, Esqs., One Penn Plaza, Suite 2107, New York, New York 10119
(hereinafter "CYBS" or the "Company" or the Corporation) and Gerald A. Resnick
(hereinafter "Resnick" or the "Executive") residing at 420 East 64th Street, New
York, New York 10021.
WITNESSETH
WHEREAS, the said Resnick is to be the President, Chairman of the Board of
Directors and the Chief Executive Officer of "CYBS" and an integral part of
management and CYBS desires to assure itself of his continuing services and of a
continuity in management and also desires to assure "Resnick" of continued
employment during the period of employment hereunder and of retirement benefits
upon his retirement, and
WHEREAS, Resnick is willing to commit himself to continue to remain in the
employ of CYBS, and, except as is provided hereinafter, to forego opportunities
elsewhere during such period on the terms and conditions as set forth herein.
NOW THEREFORE, in consideration of the mutual promises and conditions
contained herein, the parties, intending to be legally bound hereby, agree as
follows:
1. EMPLOYMENT AND TERM:
(a) the "Company" hereby agrees to employ Resnick, and the said Resnick
hereby agrees to be employed by CYBS, upon the terms and conditions hereinafter
stated, for a Period of Employment which shall commence on January 1, 1999,
(hereinafter the "Commencement Date" and which shall be deemed the date of this
Agreement) and, subject only to the express terms of this Agreement relating to
death and disability, shall i) continue until the close of business on December
31, 2003 (the Terminal Date) or ii) until such later date as the parties shall
agree upon, or iii) upon such other date as shall result from the operation of
the terms and conditions of this Agreement, or iv) until "Executive" shall die,
or v) until "Executive" is disabled as defined hereinafter. In the event that
"Executive" shall continue in the full-time employment of the "Company" after
December 31, 2003, such employment shall continue to be subject to the terms and
conditions of this Agreement, as now stated or as hereafter amended, and the
Period of Employment shall include the entire period during which "Executive" in
fact continues in such employment.
(b) The termination date of December 31, 2003 set forth in (a) above shall
be extended for five years, as of that date and as of each subsequent fifth
anniversary of that date, unless either party shall have given to the other
party notice, in the manner hereinafter provided, no later than on September 30,
2003, or September 30th of each subsequent fifth
PAGE 1
<PAGE>
anniversary year of employment, that the Terminal Date is not to be extended.
Upon such Terminal Date "Executive" shall be vested with all of the pension
benefits commensurate with twenty years service with the "Company," its
successors or assigns, pension, profit sharing, incentive stock option,
supplemental retirement or other compensation plans for qualified and
non-qualified executive employees of the Company, now or hereafter implemented.
2. POSITION, DUTIES AND RESPONSIBILITIES:
(a) It is contemplated that during the Period of Employment "Executive"
will serve as Chairman of the Executive Committee, President, Chief Executive
Officer and Chairman of the Board of Directors of the "Company", its successors
and assigns, with office(s) and title(s), reporting responsibility, duties,
other responsibilities importance and scope, and with the functions, duties and
responsibilities attached thereto and as the same may be changed, in writing,
from time to time after the date of this Agreement by mutual agreement of the
parties. The parties further agree that upon a change of control of the
"Company" as defined herein, or if the "Company" fails and refuses to elect,
appoint or name "Executive" as the President, Chairman of the Board and Chief
Executive Officer of the "Company", "Executive", at his sole and exclusive
option shall be entitled to terminate this contract and upon such termination
receive all of the salary and benefits to which he would have become entitled if
he had remained in the "Company's" continuous employ until the fifth anniversary
of the then next successive anniversary of the Terminal Date ie. if such change
in control date is June 1, 1999, then the "Company" shall pay "Executive" all
of his salary and benefits until December 31, 2008, same being the fifth
anniversary following the next anniversary of the Terminal Date or December
31, 2003, together with full vesting of all of the retirement benefits, and
successor retirement benefits to which he, and his beneficiaries, would have
become entitled, as if on such day he had completed twenty (20) years active
service of employment or deemed upon his retirement had "Executive" continued in
the "Company's continuous employ until the last date or event contemplated by
this agreement with twenty years fully vested service.
Notwithstanding the foregoing, the parties further agree that they shall
be deemed to have mutually agreed to a change in office(s), title(s), reporting
responsibility, duties and responsibilities, at any time, if such change shall
have been assigned by the Board of Directors of the "Company" and "Executive",
1) shall have agreed in writing in advance to such change, and provided that in
all events the salaries and benefits reserved to "Executive" shall not be
reduced or compromised in any manner.
(b) Executive's office(s), title(s), reporting responsibility, duties and
responsibilities as of the date of this Agreement, may not be changed after the
date of this Agreement without the written consent of "Executive".
(c) During the Period of Employment "Executive" shall, without
compensation other than that herein provided (unless the Board of Directors of
the "Company" shall assign an additional salary for said continued service),
also serve and continue to serve, if and when elected and re-elected, as an
officer or director, or both, of any subsidiary, division or affiliate of the
"Company", provided "Executive" shall not be obliged to relocate from the New
York City Metropolitan area and shall not incur any personal liabilities
therefore that the "Company" does not bond or insure against in amounts
satisfactory to "Executive".
(d) Throughout the Period of Employment "Executive" shall devote his
primary time and attention during normal business hours to the business and
affairs of the Corporation except for reasonable vacations and except for
illness or incapacity, but nothing in this Agreement shall preclude "Executive"
from devoting reasonable periods required for i) serving as a director of any
business, corporation involving no conflict of interest with the
PAGE 2
<PAGE>
interest of the Corporation; (ii) delivering lectures, fulfilling speaking
engagements, teaching at educational institutions; (iii) engaging in charitable
and community activities; and (iv) managing investments, provided that such
activities do not materially interfere with the regular performance of his
duties and responsibilities under this Agreement.
(e) Unless otherwise agreed to by "Executive", the office of "Executive"
shall be located at the principal offices of the "Company" within the area of
Metropolitan New York and "Executive" shall not be required to locate his office
elsewhere without his prior written consent. "Executive" shall not be required
to travel outside the New York Metropolitan area more than 20 days per annum.
3. COMPENSATION, COMPENSATION PLANS, PERQUISITES:
Upon execution of this Agreement and for all services rendered by
"Executive" in any capacity during the Period of Employment, including, without
limitation, services as an executive, officer, director or member of any
committee of the "Company" or of any subsidiary, division or affiliate thereof,
effective January 1, 1999, "Executive" shall be paid as compensation a base
annual salary of One Hundred Eighty ($180,000.00) Thousand Dollars, payable in
advance in equal monthly payments of Fifteen Thousand Dollars, together with
annual increases, in no event less than ten (10%) per cent per annum, and
together with such increases as shall be awarded by the "Company" from time to
time effective in accordance with the "Company's" regular administrative
practices of other salary and bonuses applicable to executives of the "Company"
(such as attendance fees for Board of Directors meetings) in effect from time to
time, together with incentive awards or bonuses provided for herein, if any, and
such annual short-term and long-term incentive awards and bonuses, including
qualified and non-qualified stock options, provided for under any compensation
plan, or any successor compensation plan in effect as of the date of this
Agreement or that may be adopted by the "Company" during any period of
employment, or as may be awarded from time to time by the Board of Directors of
the "Company" or a duly authorized committee thereof in its sole discretion.
Any increase in salary or in annual incentive award or other compensation,
including stock options, paid or payable to "Executive" shall in no way diminish
any other obligation of the "Company" under this Agreement. Nothing in this
Agreement shall preclude other benefits awarded in accordance with the "Company"
policy and improvement of reward opportunities in such plans or other plans in
accordance with the practice of the "Company" on or after the date of this
Agreement. Any provision of the "Company"'s Additional Compensation Plan (or any
successor plan) to the contrary notwithstanding, any Awards due to "Executive"
before, or made to "Executive" on account of, or following a Change in Control
of the "Company", that occurs during the Period of Employment (whether for
services rendered prior to or after such Change in Control) shall be paid wholly
in cash within ninety (90) days after the awards are made.
(b) Within ninety (90) days following the end of the "Company's" fiscal
year, in each year of the Employment Period, the "Company" shall pay to
"Executive", in cash, an amount equal to three quarters (3/4%) of one per cent
of, gross sales recorded by the "Company" in excess of Thirty Million Dollars
and reported in its annual statement to the Securities and Exchange Commission
and/or to the "Company's" shareholders. "Executive" may, at his sole and
exclusive discretion, convert said cash bonus, or the entitlement thereto into
an option to purchase from the "Company", if available, shares of the common
stock of the "Company" for the book value of the Common Stock of the "Company"
as of January 15, 1999.
(c) During the period of employment the "Executive" shall be entitled to
purchase up to five hundred (500,000) thousand shares of the Common Stock of the
"Company," for the
PAGE 3
<PAGE>
book value of the Common Stock as of January 15, 1999. The "Executive," shall
have the right to exercise such options at any time, in whole or in part during
the term of this Agreement and for an additional period of one year from and
after the Terminal Date.
(d) Subject to the provisions herein, during the Period of Employment
"Executive" shall be and continue to be a full participant in any Incentive
Stock Option Plan of the "Company", any Additional Compensation Plan of the
"Company" (providing for Short and Long-Term Awards) and in any and all other
executive incentive plans in which executives of the "Company" participate that
may hereafter be adopted, including without limitation, any stock option, stock
purchase or stock appreciation plans, or any successor plans that may be adopted
by the "Company", with at least the same reward opportunities, if any, that have
heretofore been provided to "Executive" and, in the case of Long-Term Awards
under the Additional Compensation Plan of the Corporation, with at least the
same reward opportunities following a Change in Control as the highest reward
opportunity, if any, that shall have been provided to "Executive" prior to the
date on which a Change in Control of the "Company" shall have occurred. Nothing
in this Agreement shall preclude other benefits awarded in accordance with the
"Company" policy and improvement of reward opportunities in such plans or other
plans in accordance with the practice of the "Company" on or after the date of
this Agreement.
(e) During the Period of Employment "Executive" shall be entitled to
perquisites, including, without limitation, disability insurance coverage until
age 70, long term health care insurance, health and major medical insurance,
fully funded whole life insurance in an amount not less than Two Million
Dollars, an office, secretarial and legal staff, and fringe benefits, including,
without limitation, the business and personal use of an automobile, including
storeage fees, insurance and maintenance incidental thereto; and payment or
reimbursement of a business club initiation fees and dues and related expenses,
as well as reimbursement, upon proper accounting, of business class travel and
entertainment expenses and disbursements incurred in the ordinary course of
business.
The compensation, perquisites and benefits provided for in this Section,
together with other matters therein set forth, are in addition to any benefits
otherwise provided for in this Agreement and are to be of a nature commensurate
with the Chief Executive Officer of a NYSE listed firm with revenues in excess
of Twenty Million Dollars.
4. EFFECT OF DEATH OR DISABILITY:
(a) In the event of the death of "Executive" during the Period of
Employment, in addition to any other benefits or entitlements herein provided
for, the legal representative of "Executive" shall be entitled to the
compensation provided for above for one year plus the month in which death shall
have taken place, at the rate being paid at the time of death, and the Period of
Employment shall be deemed to have ended as of the close of business on the
first anniversary of the last day of the month in which death shall have
occurred, which payments shall be payable promptly and without prejudice to any
payments due in respect of "Executive"'s death. The Company shall cause to be
obtained and maintained a Two Million Dollar fully paid and nonassessable whole
life insurance policy payable on the death of "Executive," payable to his
spouse, Helene Resnick, or such other beneficiaries as he may elect in writing
from time to time, said policy shall be maintained for the entire term of
employment and upon the cessation of employment, for any reason whatsoever, such
policy shall be fully paid and transferred to the spouse or legal representative
of "Executive" without any loans outstanding as to such policy or policies.
PAGE 4
<PAGE>
(b) The term "Total Disability," as used in this Agreement, shall mean an
illness or accident occurring during the Period of Employment which prevents
"Executive" from resuming performance of his duties under this Agreement after a
leave of absence of eighteen consecutive months, during which period "Executive"
shall receive 100% of his compensation. In such event and following a
determination by the Board of Directors of the "Company" that in its judgment
"Executive" is Totally Disabled, the Period of Employment shall be deemed to
have ended as of the close of business on the last day of such eighteen months'
period but without prejudice to any payments due "Executive" in respect of a
disability. During any period of leave of absence occasioned by illness or
injury, "Executive" will submit to such physical examinations as may reasonably
be requested by the Board of Directors and shall authorize release to the Board
of Directors of copies of all hospital or other medical reports concerning
"Executive's" illness, injury, and course and progress of treatment.
(c) In the event of the Total Disability of "Executive" during the Period
of Employment "Executive" shall receive 100% of his compensation, "Executive"
shall thereafter be entitled to 90% of the compensation provided for above, at
the rate and in the manner being paid at the time of the commencement of Total
Disability (i) for the period of such Disability or (ii) until death or (iii)
until "Executive" becomes 70 years of age or (iv) for a period of 15 years,
whichever of the events shall first occur. The Company shall obtain insurance
policies to cover the disability of "Executive", however, the failure so to do
for any reason does not mitigate the Company obligation to pay such compensation
to "Executive", which obligation shall be perfected into a secured obligation of
the Company.
(d) If during the Period of Employment "Executive" shall become
temporarily, or intermittently, disabled through illness or accident from
performing his duties hereunder, he shall be entitled to a leave of absence from
his employment duties for the period of such temporary, or intermittent,
disability, not to exceed 180 days in any twelve month period. Executive's full
compensation and status as an employee shall continue during any such temporary,
or intermittent, disability and leaves of absence.
(e) In the event of the death of "Executive" during the Period of
Employment the "Company" agrees to pay to his surviving spouse, in addition to
the insurance proceeds as set forth above 60% of the compensation provided for
above, at the rate and in the manner being paid at the time immediately before
"Executive's" death until i) her death or ii) she becomes 70 or iii) for a
period of 20 years whichever shall first occur. The amount of any payments due
under this paragraph may be reduced by any payments which "Executive" shall have
received for the same period because of disability under any disability or
pension plan of the "Company" or any subsidiary or affiliate thereof.
5. TERMINATION:
(a) In the event of a Termination, as defined below, during the Period of
Employment, the provisions of this Article shall apply. Any provision of this
Agreement to the contrary notwithstanding, the payments, benefits, service
credit for benefits and other matters provided by this Article in the event of
such a Termination are in addition to any payments, benefits, service credit for
benefits and other matters herein provided that may apply in such event.
(b) In the event of a Termination and subject to the provisions of this
Agreement, relating to mitigation of damages, and to compliance by "Executive"
with the provisions relating to confidential information, the Corporation shall,
as liquidated damages or severance pay, or both, pay to "Executive" and provide
him, his dependents, beneficiaries and estate, with (i) compensation for sixty
months of service after the month in which Termination shall have occurred at
the rate being paid at the time of Termination.
(c) During the period that the payments provided for in subparagraph (b)
of this
PAGE 5
<PAGE>
paragraph are required to be made, "Executive", his dependents and
beneficiaries, shall continue to be entitled to all benefits under employee
benefit plans of the "Company," as if "Executive" were still employed during
such period under this Agreement, including stock options, major medical and
health insurance, death, long term health care, disability and, if and to the
extent that such benefits shall not be payable or provided under any such plan
by reason of "Executive"'s no longer being an employee of the "Company" as the
result of Termination, the "Company" shall itself pay or provide for payment to
"Executive", his dependents and beneficiaries, of such benefits and the service
credit for benefits provided for below.
(d) The period in which the payments provided for are required to be made
shall be considered service with the "Company" for the purpose of continued
credits under any stock option or employee benefit plans referred to above, or
otherwise in force and effect, and all other benefit plans of the "Company"
applicable to "Executive" or his beneficiaries as in effect immediately prior to
Termination but prior to any reduction of benefits thereunder as the result of
amendment or termination during the Period of Employment, and for purposes of
determining payments and other rights in respect of awards made or accrued and
award opportunities granted prior to Termination under any, and all, of the
"Company"'s Executive Incentive Plans (including, without limitation, Long-Term
Award opportunities granted prior to Termination under the "Company's"
Additional Compensation Plan) and all other incentive plans of the "Company" in
which "Executive" was a participant prior to Termination.
(e) In the event that "Executive" shall at the time of Termination hold
any outstanding and unexercised (whether or not exercisable at the time) option
or options theretofore granted by the "Company" its successors or assigns, the
"Company" shall immediately pay to "Executive", in a lump sum, an amount equal
to the excess above the option price under each such option, the Fair Market
Value of the shares subject to each such option at the time of Termination.
Solely for the purpose of this subparagraph, Fair Market Value at the time of
Termination shall be deemed to mean the higher of (i) the average of the
reported closing prices of the Common Shares of the "Company", as reported on
the Stock Exchange on which it is traded for the last trading day prior to the
Termination and for the last trading day of each of the two preceding thirty-day
periods, and (ii) in the event that a Change in Control of the "Company", as
defined below, prior to Termination shall have taken place as the result of a
tender or exchange offer, or otherwise, and such Change in Control was
consummated within twelve months of Termination, an amount equal to the per
share consideration paid for a majority of the Common Shares of the "Company"
acquired in the course of such tender or exchange offer. Upon receiving the
payment from the "Company" called for by subparagraph (b) of this paragraph,
"Executive" shall execute and deliver to the "Company" a general release in
favor of the "Company", its successors and assigns, in respect of any and all
matters, including, without limitation, any and all rights under any outstanding
and unexercised options at the time of Termination, except for the payments and
obligations required to be made or assumed by the "Company" under this Agreement
which at the time had not yet been made or assumed and except for such other
valid obligations of the "Company" as shall be set forth in such release.
(f) If a Change in Control of the "Company", as defined below, shall have
occurred at any time during the term hereof, as same may be extended from time
to time, the "Company" shall pay to "Executive", in cash, within ninety (90)
days following such termination an amount equal to two (2) times the amount of
"Executive"'s then annual base salary times sixty months. In addition thereto,
"Executive", and/or his beneficiaries and survivors, shall be entitled to all of
the benefits of this agreement based upon "Executive"'s retirement, including
full health insurance, disability insurance, long term health care and life
insurance, together
PAGE 6
<PAGE>
with twenty(20) years fully vested service with respect to any employee benefit
plans of the Company, which shall be deemed to have occurred one (1) day prior
to the date of said termination,
(g) The word "Termination," for the purpose of this of this Agreement,
shall mean
(i) termination by the "Company" its successors or assigns of the
employment of "Executive" by the "Company" and its subsidiaries for any reason
other than for Cause as defined below or for Disability as defined above; or
(ii) termination by "Executive" of his employment by the "Company"
and its subsidiaries upon the occurrence of any of the following events:
(a) Failure to elect or re-elect "Executive" as President, Chief
Executive Officer or as Chairman of the Board of Directors of the "Company"
during the Period of Employment, or removal of "Executive" from, any of the
office(s) described above;
(b) A significant change in the nature or scope of "Executive"'s
authorities, powers, functions or duties, or a reduction in compensation, which
is not remedied within 30 days after receipt by the "Company" of written notice
from "Executive";
(c) A determination by "Executive" made in good faith that as a
result of a Change in Control of the "Company", as defined in below, and a
change in circumstances thereafter and since the date of this Agreement
significantly affecting his position, he is unable to carry out the authorities,
powers, functions or duties attached to his position and contemplated by this
Agreement and the situation is not remedied within 30 days after receipt by the
"Company" of written notice from "Executive" of such determination;
(d) A breach by the Corporation of any provision of this Agreement
not embraced within the foregoing clauses of this subparagraph which is not
remedied within 30 days after receipt by the "Company" of written notice from
"Executive";
(e) The liquidation, dissolution, consolidation or merger of the
"Company" or transfer of all or a significant portion of its assets unless a
successor or successors (by merger, consolidation or otherwise) to which all or
a significant portion of its assets have been transferred shall have assumed all
duties and obligations of the "Company" under this Agreement but without
releasing the corporation that is the original party to this Agreement; provided
that in any event set forth in this subparagraph "Executive" shall have elected
to terminate his employment under this Agreement upon not less than thirty and
not more than ninety days' advance written notice to the Board of Directors of
the "Company", attention of the Secretary, given, except in the case of a
continuing breach, within three calendar months after (A) failure to be so
elected or re-elected, or removed, (B) expiration of the thirty-day cure period
with respect to such event, or (C) the closing date of such liquidation,
dissolution consolidation, merger or transfer of assets, as the case may be.
An election by "Executive" to terminate his employment given under the
provisions of this paragraph shall not be deemed to be a voluntary termination
of employment by "Executive" for the purpose of this Agreement or any plan or
practice of the "Company".
(h) For the purpose of any provision of this Agreement, the termination of
"Executive"'s employment shall be deemed to have been for Cause only (i) if
termination of his employment shall have been the result of a proven act or acts
of dishonesty, constituting a felony, adjudicated by a competent court having
jurisdiction of "Executive" and resulting or intended to result directly or
indirectly in gain or personal enrichment at the expense of the Company.
(i) Anything in this paragraph or elsewhere in this Agreement to the
contrary notwithstanding, the employment of "Executive" shall in no event be
considered to have been terminated by the "Company" for Cause if termination of
his employment took place (i) as the
PAGE 7
<PAGE>
result of bad judgment or negligence on the part of "Executive", or (ii) as the
result of an act or omission without intent of gaining a profit therefrom,
directly or indirectly, to which "Executive" was not legally entitled, or (iii)
because of an act or omission believed by "Executive" in good faith to have been
in or not opposed to the interests of the "Company", or (iv) for any act or
omission in respect of which a determination could properly be made that
"Executive" met the applicable standard of conduct prescribed for
indemnification or reimbursement or payment of expenses under (A) the Bylaws of
the "Company", or (B) the laws of either the State of Delaware, or (C) the
directors' and officers' liability insurance of the "Company", in each case
either as in effect at the time of this Agreement or in effect at the time of
such act or omission, or (v) as the result of an act or omission which occurred
more than twelve calendar months prior to "Executive"'s having been given notice
of the termination of his employment for such act or omission unless the
commission of such act or such omission could not at the time of such commission
or omission have been known to a member of the Board of Directors of the
"Company" (other than "Executive", if he is then a member of the Board of
Directors), in which case more than twelve calendar months from the date that
the commission of such act or such omission was or could reasonably have been so
known, or (vi) as the result of a continuing course of action which commenced
and was or could reasonably have been known to a member of the Board of
Directors of the "Company" (other than "Executive", if he is then a member of
the Board of Directors) more than twelve calendar months prior to notice having
been given to "Executive" of the termination of his employment.
(j) In the event that "Executive"'s employment shall be terminated by the
"Company" during the Period of Employment and such termination is alleged to be
for Cause, or "Executive"'s right to terminate his employment under this
Agreement shall be questioned by the "Company", or the "Company" shall withhold
payments or provisions of benefits because "Executive" is alleged to be engaged
in Competition in breach of the provisions of this Agreement or for any other
reason, "Executive" shall have the right, in addition to all other rights and
remedies provided by law, at his election either to seek arbitration in New York
City under the rules of the American Arbitration Association by serving a notice
to arbitrate upon the "Company" or, at "Executive"'s sole and exclusive option,
to institute a judicial proceeding, in either case within ninety days after
having received notice of termination of his employment or notice in any form
that the termination of his employment is subject to question or that the
"Company" is withholding or proposes to withhold payments or provision of
benefits or within such longer period as may reasonably be necessary for
"Executive" to take action in the event that his illness or incapacity should
preclude his taking such action within such ninety-day period.
(k) (i) In the event that the "Company" defaults on any obligation of
this, Agreement and shall have failed to remedy such default within thirty (30)
days after having received written notice of such default from "Executive" or
his legal representatives, in addition to all other rights and remedies that
"Executive" may have as a result of such default, "Executive" may demand and the
"Company" shall thereupon be required to deposit, with the third-party
stakeholder hereinafter described, an amount equal to the undiscounted value of
any and all undischarged, future obligations of the "Company" under this
Agreement and such amount shall thereafter be held, paid, applied or distributed
by such third-party stakeholder for the purpose of satisfying such undischarged,
future obligations of the "Company" when and to the extent that they become due
and payable. Any interest or other income on such amount shall be paid over
currently as earned by the "Company." To the extent not theretofore expended,
such amount shall be repaid to the "Company" at such time as the third-party
stakeholder, in its sole discretion, reasonably exercised, determines, upon the
advice of counsel and after consultation
PAGE 8
<PAGE>
with the "Company" and "Executive" or, in the event of his death, his
beneficiary, that all obligations of the "Company" under this Agreement have
been substantially satisfied.
(ii) Such amount shall, in the event of any question, be determined
jointly by the firm of certified public accountants regularly employed by the
"Company" and a firm of certified public accountants selected by "Executive", in
each case upon the advice of actuaries. To the extent the certified public
accountants are unable to agree on a resolution of the question, such amount
shall be determined by an independent firm of certified public accountants
selected jointly by both firms of accountants.
(iii) The third-party stakeholder, the fees and expenses of which
shall be paid by the "Company", shall be a national or state bank or trust
company having a combined capital, surplus and undivided profits and reserves of
not less than One Hundred Million Dollars ($100,000,000.00) which is duly
authorized and qualified to do business in the state in which "Executive"
resides at the time of such default.
6. NO OBLIGATION TO MITIGATE DAMAGES:
(a) In the event of a Termination other than a Voluntary Termination as
defined herein, "Executive" shall have no obligation to mitigate damages by
seeking other employment. Provided, further, that he shall not be required to
accept a position of less dignity and importance or of substantially different
character and salary than the highest position theretofore held by him with the
"Company" or a position that would call upon him to engage in Competition within
the meaning below.
(b) To the extent that "Executive" shall receive compensation, benefits
and service credit for benefits from other employment secured pursuant to the
provisions of the subparagraph above, the payments to be made and the benefits
and service credit for benefits to be provided by the "Company" (other than the
credit for Twenty (20) Years Constructive Service provided therein) shall be
correspondingly reduced. Such reduction shall, in the event of any question, be
determined jointly by the firm of certified public accountants regularly
employed by the "Company" and a firm of certified public accountants selected by
"Executive," in each case upon the advice of actuaries to the extent the
certified public accountants consider necessary, and, in the event such two
firms of accountants are unable to agree on a resolution of the question, such
reduction shall be determined by an independent firm of certified public
accountants selected jointly by both firms of accountants.
7. CONFIDENTIAL INFORMATION:
(a) "Executive" agrees not to disclose, either while in the "Company's"
employ or at any time thereafter, to any person not employed by the "Company",
or not engaged to render services to the "Company", except in his sole
discretion as he may deem reasonable within the scope of his employment and in
the interest of the "Company", any confidential information obtained by him
while in the employ of the "Company", including without limitation, information
relating to any of the "Company"'s inventions, processes, formulae, plans,
devices, compilations of information, methods of distribution, customers, client
relationships, marketing strategies or trade secrets; provided, however, that
this provision shall not preclude "Executive" from use or disclosure of
information in furtherance of the "Company" business opportunities or of such
information known generally to the public or of information not considered
confidential by persons engaged in the business conducted by the "Company" or
from disclosure required by law or Court order. The agreement herein made in
this paragraph shall be in addition to, and not in limitation or derogation of,
any obligations otherwise imposed by law upon "Executive" in respect of
confidential information and trade secrets of the "Company", its subsidiaries
and affiliates.
(b) "Executive" also agrees that upon leaving the "Company's" employ he
will not
PAGE 9
<PAGE>
take with him, without the prior written consent of an officer authorized to act
in the matter by the Board of Directors of the "Company", and he will surrender
to the "Company" any record, list, drawing, blueprint, specification or other
document or property of the "Company", its subsidiaries and affiliates, together
with any copy and reproduction thereof, mechanical or otherwise, which is of a
confidential nature relating to the "Company", its subsidiaries and affiliates,
or, without limitation, relating to its or their methods of distribution, client
relationships, marketing strategies or any description of any formulae or secret
processes, or which was obtained by him or entrusted to him during the course of
his employment with the "Company."
8. SEVERANCE ALLOWANCE, COMPETITION:
(a) In addition to the foregoing, in the event of termination of the
employment of "Executive" by the "Company" at any time prior to the attainment
by "Executive" of 65 years of age and such termination shall be for any reason
other than for Cause, as defined above, the "Company", subject to the provisions
below relating to Competition, shall pay "Executive" a severance allowance
commencing on the first day of each month following termination of his
employment and continuing on the first day of each month until the next
"Terminal Date" and thereafter for a period of 60 calendar months but in no
event beyond the last day of the month in which either "Executive" shall have
attained 65 years of age or his death shall have occurred, whichever shall first
occur. Such severance allowance shall for each such month be an amount equal to
the average Monthly Compensation of "Executive" for the twelve month period
preceeding the Termination Date.
(b) During the period that the payments provided for in subparagraph (a)
of this Article are required to be made, "Executive", his dependents and
beneficiaries, shall continue to be entitled to all benefits inclusive of
service credit for benefits under employee benefit plans of the "Company" as if
"Executive" were still employed during such period and, if and to the extent
that such benefits shall not be payable under any such plan by reason of
"Executive's" no longer being an employee of the "Company", the "Company" shall
itself pay or provide for payment of such benefits to "Executive", his
dependents and beneficiaries. The amount of any benefit payable under this
paragraph shall be reduced by any corresponding benefit with respect to the same
period for which the cost is payable by the "Company" under the provisions of
this Agreement.
(c) (A) Subject to the provisions above, there shall be no obligation on
the part of the "Company" to make any further payments provided for above and in
this Article or to provide any further benefits specified above or in this
Article if "Executive" shall, during the period that such payments are being
made or benefits provided, engage in direct Competition with the "Company" as
hereinafter defined, provided all of the following shall have taken place:
(i) the Secretary of the "Company", pursuant to resolution of the
Board of Directors of the "Company", shall have given written notice to
"Executive" that, in the opinion of the Board of Directors, "Executive" is
engaged in such direct Competition, specifying the details;
(ii) "Executive" shall have been given a reasonable opportunity upon
reasonable notice to appear before and to be heard by the Board of Directors
prior to the determination of the Board evidenced by such resolution;
(iii) "Executive" shall neither have ceased to engage in such direct
Competition within thirty days from his receipt of such notice nor diligently
taken all reasonable steps to that end during such thirty-day period and
thereafter.
(B) The word "Competition" for the purposes of this paragraph and any
other provision of this Agreement shall mean (i) taking a management position
with or control of a
PAGE 10
<PAGE>
business engaged in the design, development, marketing or distribution of
services and products which constituted 15% or more of the sales of the
"Company" and its subsidiaries and affiliates during the last fiscal year of the
"Company" preceding the termination of "Executive"'s employment, in any
geographical area in which the "Company", its subsidiaries or affiliates is at
the time engaging in the design, development, manufacture, marketing or
distribution of such products; provided, however, that in no event shall
ownership of less than 5% of the outstanding capital stock entitled to vote for
the election of directors of a corporation with a class of equity securities
held of record by more than 500 persons, standing alone, be deemed Competition
with the "Company" within the meaning of this paragraph, (ii) soliciting any
person who is a customer of the businesses conducted by the "Company", or any
business in which "Executive" has been engaged on behalf of the "Company" and
its subsidiaries or affiliates at any time during the term of this Agreement on
behalf of a business described in clause (i) of this subparagraph or (iii)
inducing or attempting to persuade any employee of the "Company" or any of its
subsidiaries or affiliates to terminate his employment relationship in order to
enter into employment with a business described in clause (i) of this
subparagraph.
9. WITHHOLDING:
Anything to the contrary notwithstanding, all payments required to be made
by the "Company" under this Agreement to "Executive" or his estate or
beneficiaries shall be subject to the withholding of such amounts, if any,
relating to tax and other payroll deductions as the "Company" independent
Certified Public Accounting firm may reasonably determine it should withhold
pursuant to any applicable law or regulation. In lieu of withholding such
amounts, the "Company" may accept other provisions to the end that it has
sufficient funds to pay all taxes required by law to be withheld in respect of
any or all of such payments.
10. NOTICES:
All notices, requests, demands and other communications provided for by
this Agreement shall be in writing and shall be sufficiently given if and when
mailed in the continental United States by registered or certified mail or
personally delivered to the party entitled thereto at the address stated from
time to time in the Exhibit to this Agreement which address shall be such
address as the addressee January have given most recently by a similar notice.
Any such notice delivered in person shall be deemed to have been received on the
date of delivery.
11. GENERAL PROVISIONS:
(a) There shall be no right of set-off or counterclaim in respect of any
claim, debt or obligation against any payments to "Executive", his dependents,
beneficiaries or estate, provided for in this Agreement.
(b) the "Company" and "Executive" recognize that each party will have no
adequate remedy at law for breach by the other of any of the agreements
contained in this Agreement and, in the event of any such breach, the "Company"
and "Executive" hereby agree and consent that the other shall be entitled to a
decree of specific performance, mandamus or other appropriate remedy to enforce
performance of such agreements.
(c) No right or interest to or in any payments shall be assignable by
"Executive"; provided, however, that this provision shall not preclude him from
designating one or more beneficiaries to receive any amount that may be payable
after his death and shall not preclude the legal representative of his estate
from assigning any right hereunder to the person or persons entitled thereto
under his will or, in the case of intestacy, to the person or persons entitled
thereto under the laws of intestacy applicable to his estate.
(d) (i) No right, benefit or interest hereunder, shall be subject to
anticipation, alienation, sale, assignment, encumbrance, charge, pledge,
hypothecation, or set-off in respect of any claim, debt or obligation, or to
execution, attachment, levy or similar process, or
PAGE 11
<PAGE>
assignment by operation of law. Any attempt, voluntary or involuntary, to effect
any action specified in the immediately preceding sentence shall, to the full
extent permitted by law, be null, void and of no effect
(ii) "Executive" shall not have any right, title, or interest
whatsoever in or to any investments which the "Company" may make to aid it in
meeting its obligations under this Agreement.
(iii) Subject to the provisions above, nothing contained in this
Agreement shall create or be construed to create a trust of any kind, or a
fiduciary relationship between the "Company" and "Executive" or any other
person.
(iv) Subject to the provisions above, to the extent that any person
acquires a right to receive payments from the "Company" under this Agreement,
except to the extent provided by law such right shall be no greater than the
right of an unsecured general creditor of the "Company".
(v) Subject to the provisions above, all payments to be made under
this Agreement shall be paid from the general funds of the "Company" and except
as provided herein no special or separate fund shall be established and no
segregation of assets shall be made to assure payment of amounts payable under
this Agreement, except as set forth in paragraph 4(c). Provided, however, that
the "Company" shall have, at its sole discretion, the right to substitute fully
paid annuity policies in place and instead of any deferred compensation
benefits provided that such annuity provide to "Executive", and or his
beneficiaries, payments at least equal to the payment of the deferred
compensation as required under any plan of deferred compensation in which
"Executive" may have been enrolled in at any time.
(e) The term "beneficiaries" as used in this Agreement shall, in the event
of the death of "Executive", include his wife, Helene Resnick, as beneficiary
and daughter, Kimberly Resnick, as beneficiary, unless a change in beneficiary
or beneficiaries designated on a form filed with the "Company" by "Executive" to
receive any amount that may be payable after his death or, if his spouse
predeceases him then to his daughter, if both predecease him then to his estate,
if no beneficiary has been so designated, the legal representative of
"Executive's" estate.
(f) In the event of "Executive"'s death or a judicial determination of his
incompetence, reference in this Agreement to "Executive" shall be deemed, where
appropriate, to refer to his legal representative or, where appropriate, to his
beneficiary or beneficiaries.
(g) If any event provided for in this Agreement is scheduled to take place
on a legal holiday, such event shall take place on the next succeeding business
day that is not a legal holiday.
(h) The titles to sections in this Agreement are intended solely for
convenience and no provision of this Agreement is to be construed by reference
to the title of any section.
(i) This Agreement shall be binding upon and shall inure to the benefit of
"Executive", his heirs and legal representatives, and the "Company" and its
successors, including and not limited to CyberSentry, Inc. as provided herein.
(j) This instrument contains the entire agreement of the parties relating
to the subject matter of this Agreement and supersedes and replaces all prior
agreements and understandings with respect to such subject matter, and with
respect to the subject matter herein contained the parties hereto have made no
agreements, representations or warranties relating to the subject matter of this
Agreement which are not set forth herein.
12. AMENDMENT OR MODIFICATION; WAIVER:
No provision of this Agreement may be amended, modified or waived unless
such amendment, modification or waiver shall be authorized by the Board of
Directors of the "Company" or any authorized committee of the Board of Directors
and shall be agreed to in
PAGE 12
<PAGE>
writing, signed by "Executive" and by an officer of the "Company" thereunto duly
authorized. Except as otherwise specifically provided in this Agreement, no
waiver by either party hereto of any breach by the other party hereto of any
condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of a subsequent breach of such condition or provision
or a waiver of a similar or dissimilar provision or condition at the same time
or at any prior or subsequent time.
13. SEVERABILITY:
Anything in this Agreement to the contrary notwithstanding:
(i) In the event that any provision of this Agreement, or portion
thereof, shall be determined to be invalid or unenforceable for any reason, in
whole or in part, the remaining provisions of this Agreement and parts of such
provision not so invalid or unenforceable shall be unaffected thereby and shall
remain in full force and effect to the fullest extent permitted by law;
(ii) Any provision of this Agreement, or portion thereof, which may
be invalid or unenforceable in any jurisdiction shall be limited by construction
thereof, to the end that such provision, or portion thereof, shall be valid and
enforceable in such jurisdiction; and
(iii) Any provision of this Agreement, or portion thereof, which may
for any reason be invalid or unenforceable in any jurisdiction shall remain in
effect and be enforceable in any jurisdiction in which such provision, or
portion thereof, shall be valid and enforceable.
14. SUCCESSORS TO the "Company"
Except as otherwise provided herein, this Agreement shall be binding upon
and inure to the benefit of the "Company" and any successor of the "Company",
including, without limitation, any corporation or corporations acquiring
directly or indirectly all or substantially all of the assets of the "Company"
whether by merger, consolidation, sale or otherwise (and such successor shall
thereafter be deemed embraced within the term "the "Company" for the purposes of
this Agreement), but shall not otherwise be assignable by the "Company".
15. CHANGE IN CONTROL
For the purpose of this Agreement, the term "Change in Control of the
"Company"" shall mean a change in control of a nature that would be required to
be reported in response to Item 6(e) of Schedule 14A of Regulation 14A
promulgated under the Securities Exchange Act of 1934 as in effect on the date
of this Agreement; provided that, without limitation, such a change in control
shall be deemed to have occurred if and when (a) any "person" (as such term is
used in Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934) is
or becomes a beneficial owner, directly or indirectly, of securities of the
Corporation representing twenty-five percent (25%) or more of the combined
voting power of the Corporation's then outstanding securities or (b) during any
period of 24 consecutive months, commencing before or after the date of this
Agreement, individuals who at the beginning of such twenty-four month period
were directors of the "Company" cease for any reason to constitute at least a
majority of the Board of Directors of the "Company".
16. GOVERNING LAW:
The validity, interpretation, construction, performance and enforcement of
this Agreement shall be governed by the laws of the State of New York without
giving effect to the principles of conflict of laws thereof.
PAGE 13
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day and year first above written.
CyberSentry, Inc.
Accepted and Agreed:
By: /s/ Helene Resnick
/s/ Gerald A. Resnick Helene Resnick, Vice-President
- -----------------------
Gerald A. Resnick
Affirmed by:
/s/ Phillip Gambell
------------------------------
Phillip Gambell, Director
Affirmed by:
/s/ Steve Frank
------------------------------
Steve Frank, Director
For purposes of this Agreement "the address stated from time to time in
shall mean, effective January 1, 1999, the address set forth below.
To the Corporation: CyberSentry, Inc.
c/o Sadis & Goldberg
Two Penn Plaza
New York, New York 10119
To "Executive": Gerald A. Resnick
420 East 64th Street
New York, New York 10021
------------------------------
PAGE 14
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day and year first above written.
CyberSentry, Inc.
Accepted and Agreed:
By:
/s/ Gerald A. Resnick Helene Resnick, Vice-President
- -----------------------
Gerald A. Resnick
Affirmed by:
/s/ Phillip Gambell
------------------------------
Phillip Gambell, Director
Affirmed by:
------------------------------
Steve Frank, Director
For purposes of this Agreement "the address stated from time to time in
shall mean, effective January 1, 1999, the address set forth below.
To the Corporation: CyberSentry, Inc.
c/o Sadis & Goldberg
Two Penn Plaza
New York, New York 10119
To "Executive": Gerald A. Resnick
420 East 64th Street
New York, New York 10021
------------------------------
PAGE 14
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day and year first above written.
CyberSentry, Inc.
Accepted and Agreed:
By:
Helene Resnick, Vice-President
- -----------------------
Gerald A. Resnick
Affirmed by:
------------------------------
Phillip Gambell, Director
Affirmed by:
/s/ Steve Frank
------------------------------
Steve Frank, Director
For purposes of this Agreement "the address stated from time to time in
shall mean, effective January 1, 1999, the address set forth below.
To the Corporation: CyberSentry, Inc.
c/o Sadis & Goldberg
Two Penn Plaza
New York, New York 10119
To "Executive": Gerald A. Resnick
420 East 64th Street
New York, New York 10021
------------------------------
PAGE 14
<PAGE>
EXHIBIT 10.10
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT made this 16th day of February, 1999 between
CYBERSENTRY, INC., a Delaware corporation having an address at c/o Gerald
Resnick, Esq. 420 East 64th Street, New York, New York 10021 (the "Company") and
Hal Shankland, an individual residing at 412 East Madison Street, Suite 1200,
Tampa, Florida 33602 (the "Executive").
WITNESSETH:
WHEREAS, the Executive has been employed for seven years as President of
Telecommunications Service Center, Inc., a Florida corporation ("TSC"), which
filed a voluntary petition for bankruptcy on May 8, 1998 with the United States
Bankruptcy Court for the Middle District of Florida (the "Bankruptcy Court")
seeking reorganization under Chapter 11 of the United States Bankruptcy Code;
WHEREAS, pursuant to the Second Amended Plan of Reorganization (the
"Plan") which is expected to be confirmed by the Bankruptcy Court, TSC and the
Company have agreed to merge (the Merger") with the Company being the surviving
corporation; and
WHEREAS, upon the effective date of the Merger (the "Effective Date ")
pursuant to the Agreement and Plan of Merger, dated as of January 22, 1999,
between TSC and the Company (the "Merger Agreement"), in accordance with the
Plan, the parties have agreed that the Executive shall be employed by the
Company in accordance with the terms and conditions of this Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
herein contained, the parties hereto agree as follows:
1. Term of Agreement. The Company hereby employs the Executive, and the
Executive agrees to serve the Company, for the period (the "Initial Term")
commencing on the Effective Date and ending on December 31, 2001. Thereafter,
this Agreement shall be automatically renewed for successive one year periods,
unless either party hereto shall, not less than 60 days prior to any such
renewal, provide written notice of non-renewal to the other party.
3. Executive's Responsibilities. During the period of employment
hereunder, the Executive shall serve as Senior Vice President and Secretary of
the Company, as the Board of Directors may determine from time to time, and
shall devote his full time and efforts to the business and affairs of the
Company and its affiliates, use his best efforts to promote the business of the
Company and its affiliates, and perform such related duties as shall be
reasonably incidental or ancillary to the foregoing; provided, however, that at
all times the Executive shall be subject to the general direction and authority
of the Company's Board of
<PAGE>
Directors. The principal place of performance by the Executive of his duties
hereunder shall be at the Company's Tampa, Florida office. The Executive agrees
to travel to such other locations as the Company may reasonably request with
respect to the performance by the Executive of his duties hereunder.
4. Base Salary. In consideration of the services to be provided by him
hereunder, the Executive shall receive an annual base salary (the "Base Salary")
of $120,000. The Base Salary shall be subject to such annual increases, if any,
as the Company's Board of Directors (or its compensation committee), in its sole
and absolute discretion, shall determine to be appropriate from time to time.
All compensation payable hereunder shall be payable in accordance with the
Company's customary pay schedule and shall be subject to all applicable federal,
state and local withholding tax and similar requirements.
5. Options. During the period of his employment, Executive shall be
entitled to participate in any incentive stock option plan of the Company and in
any and all other executive incentive plans in which executives of the Company
participate that are in effect on the Effective Date hereof and that may
thereafter be adopted, including without limitation, any stock option, stock
purchase or stock appreciation plans, or any successor plans, that may be
adopted by the Company. In addition, on December 31 of each year during the
period of his employment, but in no event beyond December 31, 2001 (each such
date, a "Vesting Date"), Executive shall have the right to purchase up to
100,000 shares of the Common Stock of the Company. Such option right shall be
exercisable for a period of 12 months from the applicable Vesting Date at the
following prices: (i) with respect to the Vesting Date falling on December 31,
1999, at a price of $1.00 per share, and (ii) with respect to the other Vesting
Dates, at a price equal to the Fair Market Value of such shares. For purposes of
this paragraph, Fair Market Value shall mean the average of the reported closing
prices of the Common Stock of the Company, as reported on the stock exchange or
over the counter market on which it is traded, on the last five trading days
prior to the applicable Vesting Date.
6. Severance.
(a) In the event this Agreement shall be terminated (other than a
voluntary termination by the Executive) at any time during the Initial Term,
including without limitation, any termination by reason of death or Total
Disability (as hereinafter defined), but excluding any termination by the
Company for Cause (as hereinafter defined), the period of employment hereunder
shall terminate as of such date of termination, or the date of such death or
Total Disability, as the case may be, and the Executive, or his heirs, estate or
representative, as the case may be, shall continue to be entitled to receive, if
the effective date of termination is prior to December 31, 2001, the then
prevailing Base Salary until December 31, 2001. Except as set forth above, the
Executive shall be entitled to no other compensation or benefits.
-2-
<PAGE>
(b) As used herein, "Total Disability" shall mean an illness or
other physical or mental disability which shall cause the Executive to be unable
to perform or render the services contemplated hereunder for a period of 60
consecutive days, or 90 non-consecutive days, during any 12 month period during
the term of his employment.
(c) As used herein, the term "Cause" means (a) willful or deliberate
failure by the Executive to perform his duties to the Company, (b) grossly
incompetent performance by the Executive of his duties to the Company, (c)
dishonesty in the performance of the Executive's duties, (d) the Executive
engaging in conduct materially injurious to the Company, including, but not
limited to, fraud and breaches of trust, (e) the Executive violating any written
policies or procedures of the Company or failing to follow the written
directions or instructions of the Company's Board of Directors, or (f) any
intentional, willful or reckless (as defined under applicable law)
misappropriation or misuse by the Executive of any property or confidential or
proprietary information of the Company for his personal gain or that of others.
(d) The Company reserves the right to terminate the employment of
the Executive hereunder at any time for Cause (as defined above), in which event
the period of his employment shall terminate as of such date of termination, and
the Executive shall be entitled to receive the then Base Salary hereunder until
such date of termination and shall, to the extent permitted by law, forfeit all
other rights, benefits and privileges hereunder or to which he may otherwise be
entitled.
7. Benefits. (a) During the term of his employment, the Executive shall be
entitled to participate in any health insurance, pension, profit sharing, life
insurance and any other employee benefit plans, including without limitation,
any stock option plan or other equity participation plan (collectively, "Benefit
Plans") that the Company presently has in effect or may in the future establish
and maintain for the benefit of its employees generally.
The Company makes no representation, and shall have no obligation or
responsibility, to provide, maintain or establish or to continue to provide,
maintain or establish, any Benefit Plan of any kind and shall be free to amend,
modify or supplement any of the terms, provisions or conditions for eligibility
thereunder in accordance with the terms thereof. The terms and provisions of any
Benefit Plan shall not be deemed incorporated in, or part of, this Agreement or
otherwise constitute an agreement or binding arrangement between the Executive
and the Company or any affiliate thereof.
(b) During the term of his employment, the Executive shall be
reimbursed by the Company for all travel and entertainment expenses reasonably
incurred by him in the performance of his duties hereunder; provided, however,
the Executive shall faithfully comply with all administrative policies and
procedures as the Company may establish from time to time. Executive shall be
entitled to an automobile allowance not to exceed $500 per month, which
allowance shall terminate upon termination of this Agreement.
-3-
<PAGE>
8. Covenants. The Executive agrees that during the term of his employment
hereunder, he will:
(a) not sell or transfer any shares of the Company's common stock or
preferred stock except in accordance with Rule 144 under the Securities Act of
1933; provided, however, that in the event Executive voluntarily terminates his
employment with the Company prior to December 31,2001, he shall not sell or
transfer any shares of the Company's common stock or preferred stock without the
prior written approval of the Board of Directors;
(b) conform to and abide by the rules and regulations of the
Company, as the same may be in effect from time to time;
(c) neither directly nor indirectly be employed by, or represent or
serve as an agent of, any other person, firm or corporation, except as otherwise
permitted in Section 12(b) hereunder;
(d) offer products or merchandise of the Company at prices or upon
terms other than those authorized by the Company, from time to time;
(e) except as may arise in connection with the performance of his
services hereunder, enter into any agreement on behalf of the Company for
payment of any money or the performance of any obligation, or make any warranty,
representation or commitment on behalf of the Company;
(f) maintain all records in accordance with all procedures
established from time to time by the Company; and
(g) not sign for or on behalf of the Company with respect to any
instrument or undertaking which would cause the Company to incur any obligation
or liability in excess of $10,000, without the prior written approval of the
Board of Directors.
9. Prior Emplovment. The Executive represents and warrants that he is not
subject to any non-compete agreement, restrictive covenant or other agreement of
any kind which in any way restricts his ability to perform the services
contemplated hereunder. The Executive further represents and warrants that
during the term of his employment by the Company, he will not disclose to the
Company any trade secrets, confidential information or other proprietary
information of any prior employer (other than the Company).
10. Confidential Information.
(a) The Executive shall not at any time, whether during or after the
period of employment hereunder, except as properly required in the conduct of
the business of the Company
-4-
<PAGE>
or except as authorized in writing by the Company, use, publish, disclose or
authorize anyone else to use, publish or disclose, whether directly or
indirectly, any Confidential Information (as hereinafter defined) or any other
secret or confidential matter relating to any aspect of the business of the
Company, and the Executive shall hold the foregoing in trust for the sole
benefit of the Company.
(b) As used herein, the term "Confidential Information" shall mean
(i) any plan, proposal, suggestion, program, project or idea related to goods or
services of the type now or hereafter offered by the Company, including any
modification thereof, regardless of whether such plan, proposal, suggestion,
program, project or idea has been acted upon by the Company or remains unused in
any form or (ii) any information about the Company's plans, products, processes
or services, including without limitation, any information relating to
development, purchasing, accounting, marketing, merchandising, billing,
customers, vendors, suppliers, contact persons, activity patterns, preferences
or other practices, procedures or services not generally known in the Company's
industry (or any industry in which the Company may become engaged) and which is
developed by, disclosed to or becomes known to the Executive as a consequence of
or in connection with his employment by the Company (whether prior to or after
the date hereof).
(c) Notwithstanding the foregoing, the term "Confidential
Information" shall not include information (i) generally known and publicly
available other than as a result of a breach of this Agreement by the Executive
or (ii) disclosed pursuant to legal process or as required by law. In the event
of a breach or threatened breach by the Executive of the provisions of this
Section, the Company shall, in addition to any other remedies available at law,
be entitled to equitable and injunctive relief restraining the Executive from
disclosing, in whole or in part, any Confidential Information.
(d) A violation of the provisions of this Section 10 shall entitle
the Company to terminate the employment of the Executive for Cause as provided
above.
11. Restrictive Covenant
As an inducement to cause the Company to enter into the Merger and to
consummate the transactions contemplated by the Merger Agreement and to protect
the business of the Company, the Company shall have the option (the "Option") to
require the Executive to refrain from engaging in any Competing Business (as
defined below) during the Restricted Period (as defined below). The Option shall
be exercisable by the Company upon (i) written notice to the Executive within 60
days of the termination of his employment by the Company, and (ii) payment by
the Company to the Executive within 10 days after the giving of such notice, of
an amount equal to Executive's then prevailing Base Salary in effect at the time
of such termination .
Upon receipt of the written notice and payment referred to above,
Executive hereby covenants and agrees that during the period commencing on the
Effective Date and ending one year
-5-
<PAGE>
after the date on which the Executive's employment with the Company is
terminated (such period being referred to herein as the "Restricted Period"),
the Executive will not engage in any one or more of the following (a "Competing
Business"), except on behalf of the Company or in connection with his duties
hereunder:
(i) sell or solicit, directly or indirectly, either for himself or
in any capacity on behalf of any other person, firm, corporation or other entity
(" Person"), any Person which is or was a customer or prospect of the Company or
any affiliate thereof with respect to any products, goods or services which are
the same as or similar to the products, goods or services offered or
contemplated to be offered by the Company;
(ii) solicit, induce or influence any customer, supplier, client,
lender, lessor or any other Person which has a business relationship with the
Company or any affiliate to discontinue or reduce the extent of such
relationship;
(iii) recruit, solicit or otherwise induce or influence any person
who is employed by the Company or any affiliate in any management, executive,
supervisory, sales, marketing or administrative capacity (herein, a "Key
Emplovee") to discontinue or terminate such employment;
(iv) employ or seek to employ or cause any other Person to employ or
seek to employ any Key Employee; or
(v) engage, directly or indirectly, in any capacity, whether as
agent, principal, employee, officer, director, partner, member, lender,
investor, consultant, advisor or otherwise, in any activity, occupation,
business or enterprise in the United States which is similar to the business
engaged in or contemplated to be engaged in by the Company.
The foregoing shall not restrict the Executive from owning up to 1% of any
Person whose shares of capital stock or equity interests are registered under
the Securities Exchange Act of 1934, as amended, and publicly traded on a
national securities exchange.
12. Outside Employment.
(a) The Executive agrees that, in order to meet the requirements of
undivided loyalty which is basic to this Agreement, he will not, while employed
hereunder, communicate, deal or negotiate, or seek to communicate, deal or
negotiate, directly or indirectly, with any Person with a view to or relating to
the employment of the Executive at any time thereafter by any Person other than
the Company; provided, however, that, subject to the full and complete
compliance by the Executive with the provisions of Section 10 and 11 hereof,
such prohibition shall not apply to communications, dealings or negotiations had
or engaged in by the Executive during any period following the giving of notice
of termination of the period of employment under this Agreement by
-6-
<PAGE>
either party to the other or during the 60 day period prior to the termination
of the period of employment hereunder, whether such termination is at the end of
the initial period of employment hereunder or any period thereafter. A violation
of the provisions of this Section 12 shall entitle the Company to terminate the
employment of the Executive for Cause as set forth above.
(b) The provisions of this Section shall not prohibit the Executive
from engaging in other pursuits and activities during the term of his employment
hereunder, provided that such pursuits and activities (i) do not interfere with
the performance by the Executive of his duties hereunder and (ii) do not
constitute a Competing Business.
13. Amendment to or Violation of Restrictive Covenant.
(a) In the event that the provisions of Section 11 hereof should
ever be deemed to exceed the time or geographic limitations or any other
limitations permitted by applicable law in any jurisdiction, then such
provisions shall be deemed reformed in such jurisdiction to the maximum
permitted by applicable law. The parties expressly agree that the provisions of
each clause set forth in Section 11 hereof are severable and independent of each
other and any finding or determination as to the validity or enforceability of
any particular clause shall not affect or impair the validity or enforceability
of any other clause therein.
(b) The Executive acknowledges and agrees that the restrictions and
provisions contained in Sections 10 and 11 herein are reasonable and necessary
to protect the legitimate interests of the Company, that the Company would not
have consummated the transactions contemplated by the Merger Agreement nor would
the Company have entered into this Agreement in the absence of such
restrictions, that any violation of such restrictions and provisions will result
in irreparable injury to the Company, that the remedy at law for any breach of
the foregoing restrictions will be inadequate, and that, in the event of any
such breach, the Company, in addition to any other relief available to it, shall
be entitled to temporary and permanent injunctive relief without the necessity
of proving actual damages.
14. Entire Agreement; Amendments: Waiver. This Agreement constitutes the
whole agreement between the parties hereto with respect to the matters set forth
herein and supersedes and replaces any and all prior agreements and
understandings, including without limitation, any prior employment agreements or
understandings, and there are no terms other than those contained or
incorporated by reference herein. No amendment, modification or variation hereof
shall be deemed valid unless in writing and signed by the parties hereto, and no
discharge of the terms hereof shall be deemed valid unless by full performance
by the parties hereto or by a writing signed by the parties hereto. No waiver by
a party hereto of any breach by the other party hereto of a provision
-7-
<PAGE>
or condition of this Agreement by him or to be performed shall be deemed a
waiver of the breach of a similar or dissimilar provision or condition at the
same time or any prior or subsequent time or of the provision or condition
itself.
15. Notice. All notices relating to this Agreement shall be in writing and
shall be deemed to have been given when delivered by hand, courier, facsimile
transmission or mail, addressed to the address of the other party stated above,
or to such changed address as the party may fix by notice; provided, however,
that any notice of change of address shall be effective only upon receipt.
16. Successors. Assigns. Except as otherwise expressly provided herein,
this Agreement shall inure to the benefit of and be binding upon the Company and
its successors and assigns, and the Executive, its heirs, executors,
administrators and legal representatives, provided that the obligations of the
Executive hereunder may not be delegated to any other person or entity.
17. Severability. The invalidity or unenforceability of any provision
hereof or of the application of any provision hereof to any circumstances shall
in no way effect the validity or enforceability of any other provision or the
application of such provision to any other circumstances.
18. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York as if this Agreement was made,
and to be performed, entirely within the State of New York.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement
to be duly executed as of the day and year above written.
CYBERSENTRY, INC.
By: /s/ Gerald Resnick
--------------------------------
Name: Gerald Resnick
Title: President
/s/ Hal Shankland
------------------------------------
HAL SHANKLAND
-8-
<PAGE>
EXHIBIT 10.11
ADVISORY AGREEMENT
THIS ADVISORY AGREEMENT (this "Agreement"), is made and entered into as of
the first day of December, 1998 between CyberSentry, Inc (the "Client"), and
Patriot Advisors, Inc (the "Advisor").
In consideration of the mutual promises and agreements herein contained
and other good and valuable consideration, the receipt of which is hereby
acknowledged, it is hereby agreed between the parties hereto as follows:
1. ADVISORY SERVICES.
(a) The Advisor undertakes to act as an advisor to the Client and
shall, subject to the supervision of the Client (the "Client"), provide
financial and investment advisory services to the Client which shall include,
but not be limited to, (x) reviewing and analyzing all material documentation
(legal, financial or otherwise) of the Client to determine the Client's most
effective internal organizational financial structure for the purpose of
financing, (y) determining the Client's best course of action, which may include
(i) private placements of common or preferred stock, or debt, for the expansion
of its working capital, acquisition financing or the restructuring of existing
indebtedness, (ii) mergers and acquisitions, (iii) initial public offerings, and
(iv) any other transactions deemed by the Advisor to be in the best interests of
the Client.
(b) Consistent with its duties described in paragraph (a) hereof,
the Advisor shall use its best efforts to provide advice on equity or debt
financing of a minimum of $2,000,000 and a maximum of $25,000,000 through the
end of calendar year 1998. The Client shall cooperate with the Advisor in
structuring one or more transactions to manage these sums on such commercially
reasonable terms as may be acceptable to the Client. Such proceeds shall be used
by the Client for such purposes as the Client deems appropriate. If the Client
requests the Advisor to participate in any other transactions or perform any
other specific services, such services shall be described in an addendum hereto,
in a form to be agreed upon by the parties.
<PAGE>
The Advisor may, in its discretion, appoint one or more sub-advisors
to perform one or more of the foregoing services with respect to all or a
portion of the investments of the Client. The Advisor shall also have full
authority and discretion as to all matters which are necessary or incidental to
the foregoing. Upon the request of the Client, the Advisor shall furnish the
Client with full information concerning activities undertaken by the Advisor for
the Client.
2. ADVISORY FEE.
For services to be rendered hereunder to the Client, the Client will pay
to the Advisor advisory fees as follows: USD $10,000 per month, as of January 1,
1998, in the form of cash and /or equity as a management fee. There shall be a
minimum of USD $6,500 per month in cash, and any equity shall be paid in the
form of CyberSentry, Inc common shares at the rate of USD $1.00 per share. The
Client shall pay these fees, in advance, to the advisor, on a monthly basis. If
the Client and the Advisor agree on additional services pursuant to paragraph
1(c), any additional fees would be included in the addendum.
3. EXPENSES.
It is understood that if agreed to in advance, the Client will pay, or
reimburse the Advisor for, all expenses incurred by Advisor in connection with
its services provided hereunder, including but not limited to, (x) all
reasonable travel fees and expenses, including those associated with
investigating the Client or its affiliates, or any potential investments of the
Client or maximizing return on existing investments of the Client, (y) any legal
fees and expenses in connection with services provided by Advisor hereunder
which are not in the ordinary course of business, and (z) any extraordinary
expenses such as the fees and expenses of counsel in connection with any
litigation arising out of or in connection with this Agreement, except as
otherwise determined in accordance with the last sentence of Section 10
hereunder. The Advisor acknowledges that if no agreement with the Client
regarding reimbursement of certain expenses is made prior to any such expenses
being incurred, the Client shall have no obligation to reimburse Advisor for
such expenses.
<PAGE>
4. SERVICES TO OTHER COMPANIES.
The services of the Advisor hereunder are not to be deemed exclusive, the
Advisor being free to render services to others and engage in other activities;
provided, however, that such other services and activities do not, during the
term of this Agreement, interfere in a material manner with the Advisor's
ability to meet all of its obligations with respect to rendering services to the
Client hereunder.
5. STANDARD OF CARE.
In the absence of willful misfeasance, bad faith, gross negligence or
reckless disregard of obligations or duties hereunder on the part of the
Advisor, the Advisor shall not be subject to liability to the company or to any
director, shareholder, employee or agent thereof for any act or omission in the
course of, or connected with, rendering services hereunder.
6. TERM OF AGREEMENT; AMENDMENTS.
(a) This Agreement shall commence as of the date hereof and, subject to
prior termination as provided in section 6(b) hereof, shall continue in force
until December 31, 2000 and thereafter shall be renewed automatically for
additional one-year periods, unless terminated by either party by written notice
nor later than ninety (90) day prior to the expiration of the then-current term.
(b) Either party hereto may, at any time on sixty (60) days prior written
notice to the other, terminate this Agreement, without payment of any penalty;
provided, however, that if any transaction in which Advisor shall have
participated prior to such termination closes or is otherwise funded in whole or
in part within six months after the effective date of termination, the Company
shall still be obligated to pay to the Advisor the fee described in section 2
hereof in respect of such transaction.
(c) This Agreement may he modified only by the mutual consent of the
parties evidenced in writing.
<PAGE>
7. ADVISOR BEST EFFORTS; COMPANY INDEMNITY.
Advisor shall use its best efforts in the performance of the investment
advisory and management services to be performed hereunder. All recommendations
and instructions made by the Advisor will be based upon information received
from the Client and from sources which it believes to be reliable, but whose
accuracy is not and cannot be guaranteed. Such information may or may not have
been independently verified by the Advisor. The Client agrees to indemnify
Advisor and hold it harmless from and against any liability of any nature
resulting from the Client furnishing information which is false or inaccurate.
8. NOTICES.
Except as otherwise specifically provided herein, all notices or
communications provided for herein shall be in writing, delivered in person, by
overnight mail or by facsimile followed by a hard copy sent first class mail
postage pre-paid, and addressed as follows, or to such other address or
addresses as may be designated by either party by written notice to the other:
If to Client: CyberSentry, Inc
420 East 64th Street
New York, New York 10021
Facsimile: 212-980-9534
Telephone: 212-832-6825
If to Advisor: Patriot Advisors, Inc
43 Deshon Avenue
Bronxville, NY 10708
Facsimile: 914-779-8995
Telephone: 914-395-1351
<PAGE>
9. GOVERNING LAW; JURISDICTION.
This Agreement shall be governed by and construed in accordance with the laws of
the State of New York, without reference to its choice of law principles.
10. ARBITRATION.
All disputes between the parties arising out of or relating to this
Agreement shall be submitted to and settled by arbitration as hereinafter
provided. Any arbitration proceeding shall be by a single arbitrator experienced
in the matters at issue selected by the parties involved in accordance with the
Commercial Arbitration Rules of the American Arbitration Association. The
arbitration proceeding shall be held in such place in the New York City
metropolitan area as may be selected by the arbitrator (or any other place
agreed to by the parties involved and the arbitrator). The decision of the
arbitrator shall be final and binding as to any matters submitted to him/her
under this Agreement; provided, however, that if necessary, such decision and
satisfaction procedure may be enforced by either the Company or Consultant, as
the case may be, in any United States District Court having jurisdiction over
this matter. The determination of which party (or combination thereof) bears the
costs and expenses incurred in connection with any such arbitration proceeding
shall be determined by the arbitrator.
11. ILLEGALITY; UNENFORCEABILITY.
If any provision of this Agreement is found to be illegal or
unenforceable, all other provisions to this Agreement will remain in full force
and effect.
12. AUTHORIZED SIGNATORIES.
Each of the individuals signing below hereby represents and warrants that
he is a duly authorized signatory of the entity bearing his signature below,
that he is authorized and empowered to enter into this Agreement and to effect
the transactions contemplated hereby on behalf of such entity, and that this
Agreement is the legal and valid binding obligation of the entity bearing his
signature below, and enforceable against such entity in accordance with its
terms, except as they may be limited by bankruptcy, insolvency, reorganization,
moratorium or similar laws relating to creditors' rights generally, and general
principles of equity.
<PAGE>
IN WITNESS WHEREOF, the parties have caused this instrument to be signed
on their behalf by their respective officers there unto duly authorized all as
of the date first written above.
CYBERSENTRY, INC
The Client
By: /s/ Gerald Resnick, Pres
------------------------
Name: Gerald Resnick
-----------------------
Title: President
----------------------
PATRIOT ADVISORS, INC
The Advisor
By: /s/ Frank Kristan
------------------------
Name: Frank Kristan
Title: President
<PAGE>
EXHIBIT 10.12
CARRIER AGREEMENT
THIS AGREEMENT, made this __ day of October, 1998, by and between
Telecommunications Service Center, Inc. a Delaware corporation, with offices at
412 East Madison, Suite 1200, Tampa, Fl. 33602 ("Carrier"), Lake Tel, Inc., a
New Jersey corporation with offices c/o Gerald Resnick, Esq., 420 East 64th
Street, E.PH.E., New York, New York 10021 ("Lake Tel"); and Capital One Bank, a
Virginia banking corporation, having its principal offices at 11013 West Broad
Street Road, Glen Allen, VA 23060 ("Capital One"),
RECITALS:
WHEREAS, the Carrier offers prepaid telecommunications services to the
general public;
WHEREAS, Capital One offers Mastercard and Visa branded credit card
products, including but not limited to offer secured credit card products
(hereinafter referred to as "Secured Credit Cards"), to the general public;
WHEREAS, Lake Tel is a marketing agent working in conjunction with Capital
One and is responsible for bringing Carrier and Capital One together to form
this Agreement;
WHEREAS, Carrier desires to allow Capital One to offer Secured Credit
Cards to users of Carrier's services (the "Customers") and
WHEREAS, Capital One is willing to offer its Secured Credit Cards and
related services to and among the Customers subject to the terms and conditions
hereinafter contained;
NOW, THEREFORE, in consideration of the mutual covenants and agreements of
the parties herein contained and other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties hereby
agree as follows:
1. The Carrier Program
(a) During the term of this Agreement, Capital One shall have the right
and license to market Secured Credit Cards and related products to Customers
under this Agreement (the "Carrier Program").
(b) Carrier shall place messages of approximately fifteen (15) seconds in
length, on its telephone network (the "Messages") on behalf of Capital One which
inform and encourage Customers to apply for a Secured Credit Card and provide a
unique toll free number for doing so. Capital One may, at any time and in its
sole discretion, require Carrier to cease placing messages for Customers.
(c) Carrier and Capital One may also engage in other forms of advertising
the Secured Credit Card to Customers as the parties may mutually agree in
writing.
2. Mailing Lists.
(a) To the extent available to Carrier, Carrier shall initially, and from
time to time during the period of this Agreement, provide Capital One with lists
of the Customers, including names and residential addresses and, where
available, residential telephone numbers, via magnetic tape, cartridge, or any
other media which is mutually agreed upon. Carrier shall use its best efforts to
provide lists as complete as possible of all Customers.
(b) Capital One, shall use the mailing, lists provided by Carrier on a
basis consistent with the intent and terms of the Agreement, i.e. to market and
service Secured Credit Cards, and shall not rent,
<PAGE>
use or permit any third party handling such mailing lists to use them for any
other purpose. Capital One shall not rent or otherwise make available such
mailing lists to any third party (except for the purposes of fulfilling
obligations under this Agreement). The mailing lists provided by Carrier are and
shall remain the sole property of Carrier, provided they have been provided to
Capital One by Carrier at no expense to Capital One, except to the extent that
such names are available to Capital One from another source. Capital One will,
subject to applicable law requiring their retention, return such lists to
Carrier or destroy them upon the expiration or termination of this Agreement.
However, Capital One may maintain separately all information which it obtains as
a result of any account relationship or an application for an account
relationship with any Customer which shall become a part of Capital One's own
files and which shall not be subject to this Agreement and will not imply or
suggest any endorsement by Carrier.
3. Offering of Secured Credit Cards by Capital One
Capital One shall offer Secured Credit Cards to Customers in accordance
with the following provisions:
(a) Capital One shall solely determine the terms of the Secured Credit
Cards and the underlying account agreement which Capital One will offer to
Customers. Capital One shall have the right to change the terms and pricing of
accounts opened by Customers in accordance with Capital One's normal policies
and procedures, uniformly applied to all of its customers.
(b) Capital One shall, at its own expense, design and develop such
marketing, promotion and solicitation materials, including the Messages, as it
deems appropriate to promote the Carrier Program among Customers,
(c) Subject to federal, state and local law and any other applicable rules
and regulations (eg. Visa operating regulations), all Customers approved for
accounts ("Cardholders") shall receive Secured Credit Cards issued by Capital
One.
(d) Capital One shall have the right to communicate information to the
Cardholders which it normally sends its other card members and cross-sell other
products to the Cardholders except that, during the term of this Agreement,
Capital One shall not offer products or services to Cardholders which compete
with products offered by Carrier.
(e) Capital One shall have the absolute right to approve at its discretion
the methods of promotional material distribution including whether to engage in
such methods of solicitation and their duration except that Capital One shall be
obligated to solicit Customers for Secured Credit Cards as set forth in Section
1.
4. Issuance of Secured Credit Cards
(a) Capital One shall issue Secured Secured Credit Cards to interested
Customers in accordance with Capital One's standard consumer credit card issuing
policies and credit practices. All decisions concerning the credit worthiness of
any potential Customer shall be made at the sole discretion of Capital One.
(b) Secured Credit Cards issued by Capital One pursuant to the Carrier
Program shall be governed by terms of card member agreements to be entered into
between such persons and Capital One. Such card member agreements shall specify
that the laws of the Commonwealth of Virginia, and as applicable, federal law,
shall govern the terms and conditions of such account and the extension of
credit by Capital One to the card member. Notwithstanding any other limitations
contained in this Agreement, Capital One shall have the right to amend such card
member agreements at any time in accordance with the card member agreement and
applicable law.
(c) Carrier Carrier shall not possess my ownership interest in Cards
issued and accounts established pursuant to this Agreement (the "Account"). In
addition, any and all outstanding
<PAGE>
balance. With respect thereto (including, without limitation, all amount owning
for the payment of goods and services periodic finance charges, late and other
charges) and all records developed and retained by Capital One in connection
therewith shall be the sole property of Capital One or its assigns and Carrier
shall have no rights or interests therein. Capital One agrees to share with
Carrier on a semiannual basis, aggregate data regulations, regarding purchase
activity of the portfolio, including breakdowns by merchant type and specific
merchant,
5. Fees
(a) Lake Tel agrees to pay Carrier a one time fee (the "Carrier Fee") of
ten dollars ($10.00) for each Activated Account booked by Capital One pursuant
to the Carrier Program, The Carrier Fee shall be paid by Lake Tel to Carrier
within thirty (30) days of Lake Tel's receipt of payment for each Activated
Account from Capital One pursuant to the separate agreement between Lake Tel and
Capital One (the "Agency Agreement"). An Activated Account is an account that
the account holder has provided sufficient funds for the Security Account to
have a credit card issued.
(b) Carrier agrees that it is being compensated for, its participation in
the Carrier Program solely by Lake Tel Inc. ("Lake Tel") and that it shall not
seek any additional compensation from Capital One for such participation.
Capital One's sole responsibility with respect to such compensation shall be to
pay the amounts owed to Lake Tel in accordance with the Agency Agreement.
6. Card member Statements
(a) Subject to reasonable space, weight, size, content, and scheduling
restrictions, and upon Capital One's prior review and approval, which shall not
be unreasonably withheld, Carrier may periodically include informational inserts
or statement messages in cardholder statements mailed by Capital One to
Customers.
(b) Capital One will pay for the normal cost of inserting into statements
as described in subsection 7(a) above, excluding the cost of preparing and
producing the actual insert which shall be the sole responsibility of the
Carrier. In addition, if the inserts added by Carrier increase the postal
expense incurred by Capital One to mail statements with such inserts, then
Capital One shall inform Carrier in advance and, provided Carrier agrees to
reimburse Capital One for such incremental postage expense, Capital One will
include such insertion.
7. Relationship
Nothing in this Agreement is intended to or shall be construed to
constitute or establish an agency, joint venture, partnership or fiduciary
relationship between the parties, and neither party shall have the right or
authority to act for or on behalf of the other parties.
8. Confidentiality
(a) For the term of this Agreement and for a period of two (2) years
following its expiration or termination for, any reason whatsoever, Capital One
and Carrier (including their respective officer, directors, employees, agents,
and assigns) shall keep confidential any and all information obtained from the
other party concerning the assets, properties, business, services, clients,
trade secrets, organizational structure, philosophy, objectives, financial
information (including without limitation this Agreement) or portfolio
performance for any purpose other than that purpose contemplated under this
Agreement. However, no party hereto shall be obligated to keep confidential any
information which: (i) was not marked confidential and was in possession of the
receiving party prior to this Agreement; (ii) was lawfully obtained from a third
party; or (iii) is required to be disclosed pursuant to applicable legal and/or
regulatory requirements.
<PAGE>
(b) Except as may be required by law, regulation or any Governmental
Authority, neither Capital One nor Carrier, nor any of their respective
affiliates, shall issue a press release or make public announcement or any
disclosure to any third party related to the transactions contemplated by this
Agreement without the prior written consent of the other party, which consent
shall not be unreasonably withheld or delayed.
9. Representations and Warranties
(a) Capital One represents and warrants that the execution and delivery by
Capital One of this Agreement, and the performance by Capital One of the
transactions contemplated hereby, are within Capital One's corporate powers,
have been duly authorized by all necessary corporate action, do not require any
consent or other actions by or in respect of or filing with, any third party or
governmental body or agency (other than informational filing required by Visa),
and do not contravene, violate or conflict with, or constitute a default under,
any provision of applicable law or regulation or of the chatter or by-laws of
Capital One or of any agreement, judgment, injunction, order, decree or other
instrument binding upon Capital One.
(b) The Carrier represents and warrants that it is a Delaware corporation
duly organized, validly existing and in good standing under the laws of the
State of New York. Carrier further represents and warrants that (i) the
execution and delivery by Carrier of this Agreement, and the performance by
Carrier of the transactions contemplated hereby, are within Carrier's powers,
have been duly authorized by all necessary action, that any consent or other
action by or in respect of, filing with, any third party or any governmental
body or agency has been obtained or fulfilled, and do not contravene, violate or
conflict with, or constitute a default under, any provision of applicable law,
regulation, or under any governing documents, charter or bylaw, or any Carrier,
and their representative who signs this Agreement, both represents and warrants
that they have the right, power and authority to execute this Agreement and act
in accordance herewith.
10. Release and Indemnification
(a) Capital One shall not be responsible in any way for any
misrepresentation, negligent act or omission or willful misconduct of Carrier or
Lake Tel, their affiliates, officers, directors, agents, or employees in
connection with the entry into or performance of any obligation of Carrier under
this Agreement.
(b) Carrier shall not be responsible in my way for any misrepresentation,
negligent act or omission or willful misconduct of Capital One or Lake Tel,
their affiliates, officers, directors, agents, or employees in connection with
the entry into or performance of any obligation of Capital One under this
Agreement.
(c) Capital One shall indemnify, defend and hold Carrier harmless from and
against all claims, actions, suits or other proceedings, and any and all
judgments, damages, expenses or other costs (including reasonable counsel fees
and disbursements), arising from or in any way relating to (i) any actual or
alleged violation or inaccuracy of any representations or warranty of Capital
One contained in Paragraph 9 above and (ii) any negligent act or omission or
willful misconduct of Carrier or its directors, officers, employees, Agents or
assigns in connection with the entry into or performance of this Agreement.
(d) Carrier shall indemnify, defend and hold Capital One harmless from and
against all claims, actions, suits or other proceedings, and any and all
judgments, damages, expenses or other costs (including reasonable counsel fees
and disbursements), arising from or in any way relating to (i) any actual or
alleged violation or inaccuracy of any representation or warranty of Carrier
contained in Paragraph 9 above and (ii) any negligent act or omission or willful
misconduct of Carrier or its directors,
<PAGE>
officers, employees, agents or assigns in connection with the entity into or
performance of this Agreement.
11. Term/Termination
(a) This Agreement shall be effective as of the date hereof and shall
continue for an initial term of five (5) years. Following. the initial term,
this Agreement shall be automatically renewed for successive renewal terms of
two (2) years each unless, at least 90 days prior to the expiration of the
initial term or the then current renewal term, either party shall have notified
the other in writing of its decision not to renew this Agreement if the terms
hereof are to be amended in connection with any renewal, an appropriate addendum
shall be added hereto reflecting, as applicable, the revised terms hereof.
(b) If there is a material default by either party in the performance of
the terms and conditions of this Agreement, and such default shall not have been
cured, within a period of 30 days after receipt of written notice thereof
(setting forth in detail the nature of such default), then this Agreement shall
terminate as of the 31st day following the receipt of such written notice-
(c) This Agreement shall be deemed immediately terminated, without the
requirement of further action or notice by either party, in the event that
either party, or a direct or indirect holding company of either party, shall
become subject to voluntary or involuntary bankruptcy, insolvency, receivership,
conservatorship, or like proceedings (including, but not limited to, the
takeover of such party by the applicable regulatory agency) pursuant to
applicable state or federal law.
(d) In the event that any material change in any federal, state or local
law, statute, operating rule or regulation, or any material change in any
operating rule or regulation of Visa makes the continued performance of this
Agreement under the then current terms and conditions unduly burdensome, then
either party shall have the right to terminate this Agreement upon 90 days
advance written notice. Such written notice shall include a detailed explanation
and evidence of the burden imposed as result of such change.
(e) In the event that any representation set forth in Paragraph 9 of this
Agreement shall prove to be materially untrue, either party shall have the right
to immediately terminate this Agreement and all of its obligations contained
herein by notice to the other party, except as to payments of fees for Activated
Accounts as set forth in Paragraph 5.
12. Exclusivity
Capital One shall have the exclusive right to perform the secured
VISA/Mastercard credit card services contemplated by this Agreement and Carrier
agrees that during the term hereof it shall not by itself or in conjunction with
others, directly or indirectly, or through any parent, affiliate or subsidiary,
sell, offer or endorse, or enter into any agreement with others for the
provision of secured VISA/Mastercard credit cards to Customers.
13. Non-Competition
With respect to all Accounts established pursuant to this Agreement,
Carrier agrees that neither Carrier nor any entity which Carrier, controls shall
by itself or in conjunction with others, directly or indirectly, during the term
of this Agreement (including any Renewal Term), specifically target any offer of
a credit card debit card or related products to Cardholders possessing a Secured
Credit Card. This expressly permits the issuance by Carrier of its own credit,
debit or related telecommunications and related card. This provision shall not
place any additional restriction on use of the Customer list by Carrier.
<PAGE>
14. Notices
Any and all notices or other communications required or permitted under
this Agreement shall be in writing and shall be delivered either by personal
delivery; by telex, telegram, mailgram or telecopy; by nationally recognized
overnight courier service; or by certified or registered mail, return receipt
requested, addressed as follows:
If to Capital One, to:
Capital One Bank
11013 West Broad Street Road
Glen Allen, VA 23060
Attention: William Horwitz
If to Carrier, to:
Telecommunications Service Center, Inc.
412 East Madison, Suite 1200
Tampa, Fl 33602
If to Lake Tel Inc., to:
Lake Tel, Inc.
c/o Gerald A. Resnick, Esq.
420 East 64th Street, E.PH.E
New York, New York 10021
Tel.212-832-6825
Fax.212-980-9534
or to such other person or address as either party shall have previously
designated to the other by written notice given in the manner, set forth above.
Notices shall be deemed given one day after sent, if sent by telex, telegram,
mailgram, telecopy or by overnight courier; when delivered and receipted for, if
hand delivered: or when receipted for (or upon the date of attempted delivery
where delivery is refused) if sent by certified or registered mail, return
receipt requested,
15. Entire Agreement/Amendment
This Agreement constitutes the entire understanding between the parties
with respect to the subject matter and supersedes all prior written and oral
proposals, understandings, agreements and representations, all of which are
merged herein. No amendment or modification of this agreement shall be effective
unless it is in writing and executed by all of the parties hereto.
16. NonWaiver of Default.
The failure of either party to insist, in any one or more instances, on
the performance of any terms or conditions of this Agreement shall not be
construed as a waiver or relinquishment of any rights granted hereunder of the
future performance of any such term or condition, and the obligations of the
non-performing party with respect thereto shall continue in full force and
effect.
<PAGE>
17. Severability
In the event that any provision of this Agreement shall, for any reason,
be deemed to be invalid and unenforceable, the remaining provisions of this
Agreement shall remain in full force and effect.
18. Governing Law
This Agreement shall be governed by, and construed and enforced in
accordance with the laws of the Commonwealth of Virginia.
19. Agreement to be Bound by Contract
This Agreement shall be binding upon the parties hereto, and also upon
their successors and permitted assigns; and the parties hereto agree for
themselves and their successors and permitted assigns, to execute any instrument
and to perform any acts which may be reasonably necessary or proper to carry out
the purpose of this Agreement.
20. Section Captions
The section captions are inserted only for convenience and are in no way
to be construed as part of this Agreement or as a limitation on the scope of the
particular sections to which they refer.
21. No Third Party Beneficiary
Except with respect to Capital One's obligation to compensate Lake Tel for
the Secured Credit Cards booked pursuant to this Agreement, the parties agree
that no third party beneficiary is created by this Agreement.
IN WITNESS Whereof, the parties have duly executed, this Agreement as of
the day and year first written above.
CAPITAL ONE BANK Telecommunications Service Center, Inc.
By: /s/ [illegible] By: /s/ Hal Shankland
--------------------- -------------------------------
Hal Shankland
Title: Business Director Title: President
LAKE TEL, INC.
By: /s/ Gerald Resnick
-------------------
Gerald Resnick
Title CHAIRMAN
<PAGE>
EXHIBIT 10.13
DISTRIBUTION AND ESCROW AGREEMENT
This Distribution and Escrow Agreement (the "Agreement") is entered into
this 22nd day of February, 1999, between Marine Midland Bank, a New York banking
corporation and trust company, as Distribution and Escrow Agent ("Agent"),
Telecommunications Service Center, Inc., a Florida corporation ("Debtor"), and
CyberSentry, Inc., a Delaware corporation ("CyberSentry"). Unless otherwise
stated, all capitalized terms used herein shall have the same meaning as in the
Debtors' Second Amended Plan of Reorganization dated December 4, 1998, as
supplemented (the "Plan"), a copy of which is annexed hereto as Annex A.
I. INTRODUCTION.
A. On December 4, 1998, the Debtor filed the Plan in the United States
Bankruptcy Court, Middle District of Florida, Tampa Division (the "Bankruptcy
Court") in Case No. 98-7835-8PI.
B. On February 16, 1999, the Bankruptcy Court entered a conditional
confirmation of the Plan pursuant to Section 112.9 of the United States
Bankruptcy Code.
C. Pursuant to Article IV of the Plan, Westinghouse Communications
("Westinghouse") and Sprint Communications Company L.P. ("Sprint") will be
issued Class A Convertible Redeemable Participating Preferred Stock, par value
$.001 per share (the "Preferred Stock"), of CyberSentry for their respective
administrative claims.
D. Pursuant to Article V of the Plan, the unsecured creditors in Class
Five are to receive cash and shares of Preferred Stock for their respective
Allowed Claims.
E. Pursuant to Article V of the Plan, Shareholders in Class Six will be
issued shares of common stock, par value $.001 per share (the "Common Stock,"
and, together with the Preferred Stock, the "New Securities"), of CyberSentry
and shares of Preferred Stock in exchange for all outstanding shares of common
stock of the Debtor.
F. Pursuant to the Plan, cash in the amount of $312,000.00 necessary to
pay the Class One administrative expense holders is to be transferred to a trust
account maintained by McWhirter Reeves prior to the Final Confirmation hearing.
G. The Debtor and CyberSentry have engaged Agent to act as Escrow Agent
and Distribution Agent to assist in distributing (i) cash to McWhirter Reeves to
pay Class One administrative expense holders, (ii) Preferred Stock to
Westinghouse and Sprint for the payment of administrative expenses, (iii) cash
and Preferred Stock to the Class Five claim holders and (iv) Common Stock and
Preferred Stock to the Class Six claim holders.
<PAGE>
H. Agent has agreed to act as Distribution Agent and Escrow Agent for the
purposes described in paragraphs C, D, E and F hereof.
II. ESCROW AGENT DUTIES.
A. In its capacity as Escrow Agent, Agent shall maintain a non-interest
bearing trust account (the "Distribution Account") for classes One and Five into
which shall be deposited funds for the payment of cash to McWhirter Reeves and
distributions to creditors in Class Five as required by, and in accordance with,
Articles IV and V of the Plan.
B. In its capacity as Escrow Agent, Agent shall receive all shares of
common stock of the Debtor tendered by creditors in Class Six pursuant to
Article V of the Plan to be exchanged for shares of Common Stock and Preferred
Stock pursuant to Article V of the Plan.
C. In its capacity as Escrow Agent, Agent shall maintain a non-interest
bearing trust account (the "Redemption Account") for Class Five into which shall
be deposited funds for the redemption from time to time of shares of Preferred
Stock held by creditors in Class Five as required by, and in accordance with,
Article V of the Plan.
III. DISTRIBUTION AGENT DUTIES.
A. Distributions to Class One - Administrative Expense Claims
1. In its capacity as Distribution Agent, Agent is authorized to
accept from CyberSentry (i) $312,000.00 for transfer to McWhirter Reeves in
accordance with Article IV of the Plan, and 555,330 shares of Preferred Stock,
of which 276,748 shares are to be issued to Westinghouse and 278,582 shares are
to be issued to Sprint in accordance with Article IV of the Plan.
2. Promptly following receipt of funds from CyberSentry pursuant to
paragraph 1 hereof, Agent shall transfer $312,000.00 in immediately available
funds to McWhirter Reeves.
3. As soon as practical after receipt of the shares of Preferred
Stock pursuant to paragraph 1 hereof, Agent shall distribute to Westinghouse
276,748 shares of Preferred Stock and to Sprint 278,582 shares of Preferred
Stock.
B. Distributions to Class Five - Allowed General Unsecured Claims.
1. In its capacity as Distribution Agent, Agent is authorized to
accept from CyberSentry, cash in the amount of $188,000.00 for distribution to
Class Five holders of Allowed Claims ("Class Five Allowed Claim Holders") in
accordance with Article V of the Plan.
2
<PAGE>
2. In its capacity as Distribution Agent, Agent is authorized to
accept from CyberSentry, the number of shares of Preferred Stock to be issued to
Class Five Allowed Claim Holders in accordance with Article V of the Plan.
3. As soon as practical after the Effective Date, CyberSentry shall
allocate among the Class Five Allowed Claim Holders, Preferred Stock and cash in
accordance with Article V of the Plan and advise Agent of such allocation.
Promptly after completing the allocation, Agent shall send to each Class Five
Allowed Claim Holder a confirmation showing the amount of cash and the number of
shares of Preferred Stock allocated to such holder.
4. Agent shall distribute to the Class Five Allowed Claim Holders
cash and shares of Preferred Stock in accordance with the allocation thereof
delivered by CyberSentry to Agent pursuant to paragraph 3 hereof.
C. Distributions to Class Six - Shareholders of the Debtor.
1. In its capacity as Distribution Agent, Agent is authorized to
accept from CyberSentry, 1,000,000 shares of Common Stock and 1,000,000 shares
of Preferred Stock for distribution to Shareholders in Class Six in accordance
with Article V of the Plan.
2. Agent shall distribute to each Shareholder in Class Six its pro
rata percentage of the shares of Common Stock and Preferred Stock delivered by
CyberSentry to Agent pursuant to paragraph 1 hereof.
D. Delivery of Distributions; Unclaimed Property.
1. Distributions and deliveries to (a) McWhirter Reeves shall be
made in accordance with the written instructions of McWhirter Reeves, (b) to
Westinghouse and Sprint shall be made to the addresses listed on Annex B hereto,
(c) Class Five Allowed Claim Holders shall be made at the addresses set forth on
the proofs of claim filed by such holders (or at the last known addresses of
such holders if no proof of claim is filed or if the Debtor or CyberSentry has
been notified of a change of address), and (d) Shareholders in Class Six shall
be made to the addresses shown on the stock ledger of the Debtor on the
Confirmation Date. Prior to the Effective Date, the Debtor and CyberSentry shall
deliver to Agent all pertinent information required to effect such
distributions.
2. If the distribution or delivery to any Class Five Allowed Claim
Holder or Shareholder in Class Six is returned as undeliverable, no further
distributions to such holder or Shareholder shall be made unless and until Agent
or CyberSentry is notified in writing of such holder's or Shareholder's, as the
case may be, then-current address, at which time all missed distributions shall
be made by Agent to such holder or Shareholder without interest (except to the
extent that such missed distributions have become unclaimed property). Agent
shall notify CyberSentry of any distribution or delivery that is returned as
undeliverable.
3
<PAGE>
3. Amounts or shares of Common Stock or Preferred Stock in respect of
undeliverable distributions made through Agent shall be returned to Agent until
such distributions are claimed. All claims for undeliverable distributions
shall be made on or before the second (2nd) anniversary of the Effective Date,
and after such date, such undeliverable distributions shall be unclaimed
property. All unclaimed property shall revert to CyberSentry.
E. Distribution of Fractional Shares.
---------------------------------
Agent shall not distribute fractional shares of Common Stock or
Preferred Stock and, in lieu thereof, shall make cash payments in respect
thereof. For purposes of calculating cash payments in lieu of fractional shares,
each share of Common Stock shall be valued at $1.00 and Preferred Stock shall be
valued at $1.50.
F. Dividends and Distributions Made on Property Held By Agent as
-------------------------------------------------------------
Distribution Agent.
------------------
1. In its capacity as Distribution Agent holding issued but
undistributed shares of Common Stock or Preferred Stock of CyberSentry, Agent
shall (a) similarly hold for distribution any dividend or distribution made
thereon, and (b) whenever any matter (including election of directors) is
presented for a vote by holders of such shares of Common Stock or Preferred
Stock, vote all of such shares in the same manner and proportion as the other
outstanding shares of Preferred Stock or Common Stock, as the case may be, are
voted.
2. If, after the Effective Date, CyberSentry (a) pays a dividend or
makes a distribution on any class of capital stock held by Agent, (b) subdivides
the outstanding shares of any class of capital stock held by Agent into a
greater number of shares or units, (c) combines the outstanding shares of any
outstanding class of capital stock held by Agent into a smaller number of shares
or units, (d) issues by reclassification of any class of the outstanding capital
stock held by Agent any shares of its capital stock, or (e) is a party to a
consolidation, merger, or transfer or assets providing for a change in or
exchange of the outstanding shares of any class of capital stock held by Agent,
then Agent's obligation to distribute any such class of capital stock to any
Class Five Allowed Claim Holder or Shareholder in Class Six arising after the
record date in the case of a dividend or distribution and after the Effective
Date of any of the other foregoing transactions shall be adjusted so as to take
into account such dividend, distribution or other event. Any such distribution
shall be made net of any costs or expenses of Agent incurred in connection with
such event.
G. Treatment of Cash.
-----------------
1. Agent shall at all times maintain the Distribution Account as a
segregated account for any cash being held therein pursuant to the terms hereof,
and shall deposit or invest all such cash, at the written direction of
CyberSentry, in (a) direct obligations of the United States of America or
obligations for which the full faith and credit of the United States of America
is pledged, (b) obligations of any agency or corporation which is or may
hereafter be created by or pursuant to an act of the Congress of the United
States as an agency or instrumentality thereof; and (c) certificates of deposit
and or other interest bearing demand deposits at any bank or trust company which
has, at the time such investment is made, a capital stock and surplus
aggregating at least twenty five million dollars ($25,000,000).
4
<PAGE>
2. Agent shall at all times maintain the Redemption Account as a
segregated account for any cash being held therein pursuant to the terms hereof,
and shall deposit or invest all such cash, at the written direction of
CyberSentry, in (a) direct obligations of the United States of America or
obligations for which the full faith and credit of the United States of America
is pledged; (b) obligations of any agency or corporation which is or may
hereafter be created by or pursuant to an act of the Congress of the United
States as an agency or instrumentality thereof; and (c) certificates of deposit
and or other interest bearing demand deposits at any bank or trust company which
has, at the time such investment is made, a capital stock and surplus
aggregating at least twenty five million dollars ($25,000,000).
H. Compliance with Tax Requirements; Reporting Requirements.
1. In Connection with the Plan, to the extent applicable, Agent
shall comply with all tax withholding and reporting requirements imposed on it
by any governmental unit, and all distributions pursuant to the Plan shall be
subject to such withholding and reporting requirements. Agent shall be
authorized to take any and all actions that may be necessary or appropriate to
comply with such withholding and reporting requirements.
2. With respect to each distribution, upon written request by
CyberSentry, Agent will certify in writing to CyberSentry that such distribution
has been made in accordance with the terms hereof, specifying the name of the
recipient of such distribution and the amount and date of each such
distribution.
3. No later than the tenth day of each month during the term of this
Agreement, Agent shall provide CyberSentry with a written report of all deposits
to or distributions from the Distribution Account and the Redemption Account
during the prior calendar month, and a written report of all issuances and
cancellations of Common Stock or Preferred Stock during such prior calendar
month.
I. Maintenance of Stock Ledger.
CyberSentry shall cause a register for the issuance of Common Stock
and of Preferred Stock to be maintained by Marine Midland Bank, and shall cause
Marine Midland Bank in such capacity to make available for inspection to the
Agent a copy of each such register.
IV. RIGHTS AND RESPONSIBILITIES OF THE AGENT
Agent's acceptance of its duties under this Agreement is subject to the
following terms and conditions, which shall govern and control with respect to
its, rights, duties, liabilities and immunities:
5
<PAGE>
1. Agent's duties and responsibilities hereunder shall be determined
solely by the express provisions of this Agreement, and no other or further
duties or responsibilities shall be implied. Agent makes no representation and
has no responsibility as to the validity of this Agreement or of any other
instrument referred to herein, or as to the correctness of any statement
contained herein, and it shall not be required to inquire as to the performance
or observance of any obligation, term or condition by the Debtor or CyberSentry
under the Plan.
2. Agent shall not be liable for any error of judgment, or for any
act done or omitted by it in good faith, or for any mistake of fact or law, or
for anything which it may do or refrain from doing in connection therewith,
except its gross negligence or willful misconduct.
3. Agent may consult with legal counsel selected by it, and it shall
not be liable for any action taken or omitted by it in good faith in accordance
with the advice of such counsel.
4. Agent may rely, and shall be protected in acting or refraining
from acting, upon any resolution, certificate, statement, instrument, opinion,
report, notice, request, direction, consent, order, bond, debenture, note, or
other evidence of indebtedness or other paper or document believed by it to be
genuine and to have been signed or presented by the proper person. Agent shall
be under no duty to inquire or investigate the validity, accuracy or content of
any such document.
5. Agent shall not be bound to make any investigation into the facts
or matters stated in any resolution, certificate, statement, instrument,
opinion, report, notice, request, direction, consent, order, instruction,
waiver, paper or document furnished to it pursuant to the terms hereof.
6. Agent may resign and be discharged from its duties or obligations
hereunder by giving written notice of such resignation specifying a date in no
event less than 30 days from the giving of notice when such resignation shall
take effect. Agent shall have the right to withhold an amount equal to the
amount due and owing to it, plus any costs and expenses Agent shall reasonably
believe may be incurred by it in connection with the termination of this
Agreement.
7. Agent's sole duty with respect to the custody, safekeeping and
physical preservation cash or the New Securities shall be to deal with it in the
same manner as Agent deals with similar property for its own account.
8. Agent shall not be required to use its own funds in the
performance of any of its obligations or duties, or in the exercise of any
rights or powers, and shall not be required to take any action which, in Agent's
sole judgment, could involve it in expense or liability unless furnished with
security and indemnity which Agent deems, in its sole discretion, to be
satisfactory.
9. Agent and its affiliates may (without having to account therefor
to any other party) accept deposits from, lend money to, make investments in and
generally engage in any kind of banking, trust or other business with the Debtor
or CyberSentry as if it were not acting as Escrow or Distribution Agent.
6
<PAGE>
10. Agent shall not be obligated to recognize any agreement between
any or all of the parties referred to herein, notwithstanding that references
thereto may be made herein and whether or not it has knowledge thereof.
11. Any person into which Agent may be converted or merged, or with
which it may be consolidated, or to which it may sell or transfer its trust
business and assets as a whole or substantially as a whole, or any person
resulting form any such conversion, sale, merge, consolidation or transfer to
which Agent is a party, shall be and become a successor Escrow and Distribution
Agent hereunder and be vested with all of the trusts, powers, discretions,
immunities, privileges, and other matters as was its predecessor without the
execution or filing of any instrument or any further fact, deed or conveyance on
the part of any of the parties hereto, anything herein to the contrary
notwithstanding.
12. CyberSentry agrees to indemnify Agent for, and to hold it
harmless against any loss, liability or expense arising out of or in connection
with this Agreement and carrying out is duties hereunder, including the costs
and expenses of defending itself against any claim of liability, except in those
cases where Agent has been guilty of gross negligence or willful misconduct.
Anything in this Agreement to the contrary not withstanding, in no event shall
Agent be liable for special, indirect or consequential loss or damage of any
kind whatsoever (including but not limited to lost profits), even if Agent has
been advised of the likelihood of such loss or damage and regardless of the form
of action.
V. FEES, EXPENSES AND TAXES
A. In consideration of the services described in this Agreement,
CyberSentry shall pay to Agent the fees specified in Annex C attached hereto.
B. CyberSentry shall reimburse Agent upon request for all reasonable
expenses incurred by Agent in connection with the performance of its duties
hereunder, including without limitation all costs and attorneys' fees relating
thereto.
C. To the extent that Agent becomes liable for the payment of taxes,
including withholding taxes, in respect of income derived from the payment of
funds held hereunder or any payment made hereunder, Agent shall notify the
Debtor and CyberSentry of such tax and request payment thereof by the Debtor or
CyberSentry and to the extent such taxes are not promptly paid by the Debtor or
CyberSentry, Agent may pay such taxes from the cash held hereunder.
VI. NOTICE PURSUANT TO THIS AGREEMENT.
A. Any notice, request, waiver, demand or other communication required or
permitted under this Agreement shall be in writing, and shall be deemed duly
given (i) on the day delivered by hand or by courier, (ii) on the fifth (5th)
day after posting by registered or certified mail, postage prepaid, return
receipt requested, or (iii) when transmitted by facsimile (with a copy
simultaneously sent by registered or certified mail, return receipt requested).
Notices of change of address shall be effective only upon receipt
notwithstanding the previous sentence.
7
<PAGE>
B. Notices shall be sent to the addresses set forth below or to such other
address of which a party has given notice in the manner provided in this Section
VI.
Notices to Agent:
Marine Midland Bank
140 Broadway, 12th Floor
New York, New York 10005-1180
Attn: Corporate Trust Department
Facsimile: (212) 658-6425
Notices to the Debtor:
Telecommunications Service Center, Inc.
412 East Madison Street, Suite 1200
Tampa, Florida 33602
Attn: Mr. Hal Shankland
Facsimile: (813) 222-0875
Notices to CyberSentry:
CyberSentry, Inc.
420 E. 64th Street
New York, New York 10021
Attn: Mr. Gerald Resnick
Facsimile: (212) 980-9534
VII. MISCELLANEOUS PROVISIONS.
A. Whenever any distributions to be made to Agent shall be due on a day
other than a Business Day, such distribution shall instead be made, without
interest, on the immediately following Business Day. For purposes of this
Agreement, the term "Business Day" shall mean any day except a Saturday, Sunday
or other day on which commercial banks in The City of New York are authorized by
law to close.
B. This Agreement shall be binding upon and inure to the benefit of the
successors and assigns of Agent, the Debtor and CyberSentry. This Agreement
shall not be assignable or transferable by either party without prior written
consent of the other party with notice thereof provided pursuant to Section VI
of this Agreement.
8
<PAGE>
C. The section headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretations of
this Agreement.
D. If any such provision of this Agreement is found to be invalid, illegal
or unenforceable, then such provision shall not affect the validity or legality
of any other provisions of this Agreement which shall remain effective.
E. This Agreement may not be amended, modified, supplemented, canceled or
discharged, except by written instrument executed by the parties hereto.
F. No waiver of any breach of any provision of this Agreement shall be
held to be a waiver of any other provision or subsequent breach of the same
provision, and the failure of a party to enforce at any time any provision
herein shall not be deemed to be a waiver of any right of such party to
subsequently enforced such provision or any other provision herein. No
extension of time for performance of any obligations or other acts hereunder
shall be deemed to be an extension of time for performance of any other
obligations or any other acts.
G. Each party irrevocably submits to the nonexclusive jurisdiction and the
venue of the courts of the State of New York, and agrees that process and other
papers may be served on him or her by registered mail, return receipt requested,
addressed in accordance with Section VI herein, or by personal delivery, or in
such other manner as may be permissible under the rules of such courts.
H. This Agreement shall be governed by and construed in accordance with
the laws of the State of New York applicable to agreements executed, delivered
and wholly performed within that State.
I. This Agreement may be executed by the parties in counterparts.
J. This Agreement represents the entire understanding of the parties with
respect to its subject matter.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered by their respective officers thereto duly authorized on
the day and year first written above.
CyberSentry, Inc.
By: /s/ Gerald Resnick
-------------------------------------
Its: President
-------------------------------------
9
<PAGE>
Marine Midland Bank,
as Disbursing Agent and Escrow Agent
By: /s/ Frank J. Godino
------------------------------------
Its: Vice President
-----------------------------------
Telecommunications Service Center, Inc.
By: /s/ Hal Shankland
------------------------------------
Its: President
-----------------------------------
Annex A
[Copy of Plan]
Annex B
[Addresses and Tax I.D. No. of Westinghouse and Sprint]
Annex C
[Fee Letter]
10
<PAGE>
EXHIBIT 10.14
CREDIT AGREEMENT
This credit agreement is entered into this 22nd day of February 1999 by and
between Patriot Advisors, Inc and CyberSentry, Inc that sets forth the terms and
conditions governing the Line of Credit provided by Patriot Advisors, Inc
("Lender") to CyberSentry, Inc ("Creditor").
The Creditor hereby acknowledges and agrees that the Line of Credit will operate
substantially as follows, and consents and agrees to the following terms and
conditions:
AMOUNT
The amount of the Line of Credit is not to exceed 50% of the assests of the
Creditor. The initial Line of Credit is in an amount up to three million
dollars ($3,000,000).
SECURITY INTEREST
The Lender shall have a first security interest in any and all assets of the
Creditor, including but not limited to, cash, receivables, inventory, licenses,
patents and any and all other assets held by Creditor or its subsidiaries. This
security interest can only be subordinated to another party by written approval
from the Lender.
CREDIT LINE ADVANCES
The Creditor shall submit written requests to the Lender for access to the
credit line that detail the amount and use of proceeds. The Lender, upon
approval of the request, shall make payment to the designated parties. The
Creditor hereby acknowledges that the amount of $171,000 has been approved and
payed by the Lender, or its designees, at the request of the Creditor, pursuant
to the Plan of Reorganization of Telecommunications Services Center, Inc
("TSC").
PAYMENT TERMS
The Creditors can obtain advances of credit for one year ("the draw period").
The payments shall be due monthly and shall be calculated on an interest only
basis based on the annual percentage rate. The annual percentage rate shall be
two points higher than the highest domestic "Prime Rate" published in the Wall
Street Journal on the first day of publication in the previous month.
When the draw period ends, there shall be no further credit advances and the
Creditor agrees to repay the entire outstanding balance, including any
applicable fees and charges.
<PAGE>
PAYMENT UPON DEMAND
The Lender can terminate the Line of Credit and require the Creditor to pay the
entire outstanding balance in one payment if:
(i) There is fraud or material misrepresentation in connection with the line,
(ii) The payment terms are not met,
(iii) The Creditor's action or inaction adversely affects the collateral,
(iv) The Lender reasonably believes that the Creditor will be unable to meet
the terms of this agreement due to a material change in the Creditor's
financial circumstances.
GOVERNING LAW
This agreement shall be governed by, and in accordance with, the laws of the
State of New York.
MISCELLANEOUS
If any provision is held to be invalid or unenforceable all other provisions
shall nevertheless remain in full force and effect.
This agreement shall be binding upon its successors an assignees.
Agreed to this 22nd Day of February, 1999 by:
PATRIOT ADVISORS, INC: CYBERSENTRY, INC
By: /s/ Frank Kristan By: /s/ Gerald Resnick
------------------------- --------------------------
Frank Kristan Gerald Resnick
President President & CEO
<PAGE>
EXHIBIT 10.15
SHAREHOLDERS' AGREEMENT
-----------------------
THIS AGREEMENT, dated as of March 24, 1999, by and among CyberSentry, Inc.
(the "Company") and Frank Kristan, Templar Corporation, and Patriot Advisors,
Incorporated (the "Shareholders"),
W I T N E S S E T H:
WHEREAS, ON May 8, 1999, Telecommunications Service Center, Inc., a Florida
corporation ("TSC"), filed for bankruptcy protection in Florida (the
"Bankruptcy");
WHEREAS, TSC's Second Amended Plan of Reorganization (the "Plan")
contemplates that on or about March __, 1999, TSC will merge with and into the
Company, with the Company being the surviving corporation (the "Merger");
WHEREAS, the Shareholders currently hold various claims against, interests
in or claims for administrative expenses in the Bankruptcy case concerning TSC
("Claims");
WHEREAS, under the Plan and the Merger, shares of the Company's common
stock, par value $.001 per share ("Common Stock"), and the Company's Class A
Convertible Redeemable Participating Preferred Stock ($1.50 Liquidation Value),
par value $.001 per share (the "Class A Preferred Stock"), will be issued to the
Shareholders in exchange for all or a portion of their Claims; and
WHEREAS, the parties desire to set forth certain restrictions on the
transferability of the shares of Common Stock, Preferred Stock or any other
class or series of capital stock of the Company that is entitled to vote in the
election of directors, whether separately as a class or series or together with
the Common Stock, Preferred Stock or any other such class or series ("Voting
Stock") that may now or hereafter be beneficially owned by the Shareholders
within the meaning of Rule 13b-3 promulgated under the Securities Exchange Act
of 1934, as amended ("Beneficially Owned"), and to make certain provisions
regarding the operation and management of the Company during the term of this
Agreement, with the objective of ensuring that the Shareholders do not exercise
control or a controlling influence over the Company;
NOW, THEREFORE, the parties hereto, in consideration of the mutual
covenants and agreements herein contained, and intending to be legally bound
hereby, covenant and agree as follows:
1. Shareholder Voting. Each Shareholder agrees that on all matters coming
------------------
before the shareholders of the Company for shareholder action, whether at any
annual or special meeting of shareholders or pursuant to any action by written
consent of shareholders, the Shareholders will vote or cause to be voted, in
person or by proxy, at any annual or special meeting of shareholders of the
Company, and to grant or withhold any written consent with respect to, all of
the shares of Voting Stock that are Beneficially Owned by such Shareholder, in
proportion to the votes cast,
<PAGE>
or the consents granted and withheld, as the case may be, by all of the other
holders of shares of Voting Stock.
2. Restrictions on Transfers. Each Shareholder agrees and acknowledges
-------------------------
that such Shareholder will not, directly or indirectly, offer, sell, assign,
pledge, encumber or otherwise transfer ("Transfer") any shares of Voting Stock
Beneficially Owned by that Shareholder to any person who, upon the consummation
of such Transfer, would Beneficially Own 5% or more of the outstanding shares of
any class or series of Voting Stock; provided, however, that the foregoing
restriction shall not apply to any Transfer that is made by means of "broker's
transactions" within the meaning of Section 4(4) of the Securities Act of 1933,
as amended (the "1933 Act"), or in transactions directly with a "market maker,"
as that term is defined in Section 3(a)(38) of the 1934 Act, so long as neither
the Shareholder nor any person acting for or on behalf of the Shareholder
solicits or arranges for the solicitation of orders to buy the securities in
anticipation of or in connection with such transactions or makes any payment in
connection with the offer or sale of the securities to any person other than the
broker who executes the order to sell the securities; and provided, further,
that each Shareholder may Transfer any shares of Voting Stock to any person or
entity that agrees to be bound by the terms of this Agreement as if it were a
Shareholder hereunder; and provided further that each Shareholder may tender
shares of Voting Stock pursuant to a tender or exchange offer that has been
approved by the Board of Directors.
3. Term. The obligation of the Shareholders set forth in paragraphs 1 and
----
2 shall continue for so long as the Shareholders Beneficially Own shares of any
class or series of Voting Stock aggregating 10% or more of the aggregate number
of issued and outstanding shares of that class or series.
4. Complete Agreement. This Agreement represents the entire agreement
------------------
among the Shareholders and the Company with respect to the matters set forth
herein, and the parties hereto acknowledge that there have been no
representations, warranties, covenants or agreements made by any party hereto
other than those contained in this Agreement.
5. Counterparts. This Agreement may be executed in counterparts, each of
------------
which shall be signed by the Company and one or more Shareholders, and all of
which are deemed to be one and the same agreement binding upon the Company and
each of the Shareholders.
6. Headings. The headings of the various paragraphs of this Agreement
--------
have been inserted for convenience of reference only and shall not be deemed to
be a part of this Agreement.
7. Governing Law; Consent to Jurisdiction and Service of Process. This
-------------------------------------------------------------
Agreement shall be governed by and construed in accordance with the laws of the
State of New York, without regard to its conflicts of law doctrine, except for
matters of corporate law, which shall be
2
<PAGE>
governed by and construed in accordance with the General Corporation Law of the
State of Delaware.
8. Injunctive Relief. It is hereby agreed and acknowledged that it will
-----------------
be impossible to measure in money the damages that would be suffered if the
Shareholders fail to comply with any of the obligations imposed on them by this
Agreement and that in the event of any such failure, the Company will be
irreparably damaged and will not have an adequate remedy at law. The Company
shall, therefore, be entitled to injunctive relief, including specific
performance, to enforce such obligations, and if any action should be brought in
equity to enforce any of the provisions of this Agreement, none of the parties
hereto shall raise the defense that there is an adequate remedy at law.
9. Severability. The invalidity or unenforceability of any provisions of
------------
this Agreement in any jurisdiction shall not affect the validity, legality or
enforceability of the remainder of this Agreement in such jurisdiction or the
validity, legality or enforceability of any provision of this Agreement in any
other jurisdiction, it being intended that all rights and obligations of the
parties hereunder shall be enforceable to the fullest extent permitted by law.
3
<PAGE>
IN WITNESS WHEREOF, the undersigned, thereunto duly authorized, have
hereunto set their respective hands as of the day and year first above written.
CYBERSENTRY, INC.
By: /s/ Gerald Resnick
------------------------------
Name: Gerald Resnick
Title: President
/s/ Frank Kristan
______________________________
Frank Kristan
TEMPLAR CORPORATION
By: /s/ Frank Kristan
-------------------------
Name: Frank Kristan
Title: President
PATRIOT ADVISORS, INCORPORATED
By: /s/ Frank Kristan
-------------------------
Name: Frank Kristan
Title: President
4
<PAGE>
SINCLAIR PARTNERS LIMITED PARTNERSHIP
97 Church Road
Easton, Connecticut 06612
March 24, 1999
CyberSentry, Inc.
412 East Madison Street, Suite 1200
Tampa, Florida 33602
Attention: Gerald A. Resnick, President
Dear Mr. Resnick:
Reference is made to the Shareholders Agreement, dated as of March 24,
1999, by and among CyberSentry, Inc. (the "Company") and Frank Kristan, Templar
Corporation, and Patriot Advisors, Incorporated (the "Shareholders"), a copy of
which is attached to this letter as Exhibit A. Capitalized terms used and not
defined in this letter agreement shall have the meanings set forth in the
Shareholders Agreement.
Sinclair Partners Limited Partnership, a Connecticut limited partnership
("SPLP"), wishes to acquire certain shares of Voting Stock currently
Beneficially Owned by the Shareholders. SPLP understands that the Transfer of
these shares of Voting Stock to SPLP would be prohibited by the Shareholders
Agreement unless SPLP were to agree to be bound by the terms of the Shareholders
Agreement as if it were a Shareholder thereunder.
Therefore, in order to induce the Company to agree to the Transfer to SPLP
of such shares of Voting Stock, and intending to be legally bound, SPLP hereby
agrees to be bound by the terms of the Shareholders Agreement as if it were a
Shareholder thereunder.
Very truly yours,
SINCLAIR PARTNERS LIMITED PARTNERSHIP
By: SINCLAIR ADVISORS, LTD., as General Partner
By: /s/ Francis Conklin
----------------------------------------
Francis Conklin, President
Acknowledged and agreed to:
CYBERSENTRY, INC.
By: /s/ Gerald A. Resnick
--------------------------------------
Gerald A. Resnick, President
5
<PAGE>
EXHIBIT 10.16
AGREEMENT AND WAIVER
--------------------
THIS AGREEMENT, dated as of April 20, 1999, by and among CyberSentry, Inc.
(the "Company") and David M. Veltman (the "Shareholder"),
W I T N E S S E T H:
WHEREAS, on May 7, 1998, Telecommunications Service Center, Inc., a Florida
corporation ("TSC"), filed for bankruptcy protection in Florida (the
"Bankruptcy");
WHEREAS, pursuant to TSC's Second Amended Plan of Reorganization (the
"Plan"), on March 24, 1999, TSC merged with and into the Company, with the
Company being the surviving corporation (the "Merger");
WHEREAS, immediately prior to the consummation of the Merger, the
Shareholder held various claims against, interests in or claims for
administrative expenses in the Bankruptcy case concerning TSC ("Claims");
WHEREAS, pursuant to the Plan and the Merger, the Shareholder was entitled
to receive $258,765 in cash and 2,291,921 shares of the Company's Class A
Convertible Redeemable Participating Preferred Stock ($1.50 Liquidation Value),
par value $.001 per share (the "Class A Preferred Stock"), in exchange for all
or a portion of his Claims;
WHEREAS, pursuant to the Plan and the Merger, the holders of Class A
Preferred Stock will be entitled to elect to participate in a mandatory
redemption pool of $.05 per share to be funded by the Company on each March 1
and September 1 of the years 2000, 2001, 2002, 2003 and 2004 (the "Redemption
Pool"); and
WHEREAS, in order to strengthen the financial condition of the Company, and
thereby to enhance the value of the Shareholder's shareholdings in the Company,
the Company and the Shareholder have agreed that it would be mutually beneficial
if (i) the Company were to issue to the Shareholder 258,765 shares of the
Company's Common Stock, par value $.001 per share (the "Common Stock") instead
of the $258,765 in cash that he would otherwise be entitled to receive pursuant
to the Plan and the Merger, and (ii) the Shareholder were to waive his right, as
a holder of Class A Preferred Stock, to participate in the Redemption Pool.
NOW, THEREFORE, the parties hereto, in consideration of foregoing premises,
of the mutual covenants herein contained and of other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, and
intending to be legally bound hereby, covenant and agree as follows:
1. The Company and the Shareholder agree that the Company shall not
distribute the $258,765 in cash which the Shareholder would otherwise be
entitled to receive pursuant to the
<PAGE>
Plan and the Merger; and further agree that in lieu of such cash, the Company
shall issue to the Shareholder 258,765 shares of Common Stock.
2. The Company represents and warrants to the Shareholder that the shares
of Common Stock to be issued pursuant to this Agreement and Waiver shall be duly
authorized, validly existing and fully paid shares.
3. The Shareholder, on behalf of himself, his heirs, successors and
assigns, waives his right to participate in the Redemption Pool to be funded by
the Company pursuant to the Plan and the Merger, and acknowledges that the
certificate or certificates representing his shares of Class A Preferred Stock
will be legended to reflect such restriction.
4. As holder of more than 51% of the voting power of the Class A Preferred
Stock, pursuant to the Plan and the terms of the Class A Preferred Stock, the
Shareholder hereby designates Hal Shankland as a director of the Company.
IN WITNESS WHEREOF, the undersigned, thereunto duly authorized, have
hereunto set their respective hands as of the day and year first above written.
CYBERSENTRY, INC.
By: /s/ Gerald A. Resnick
------------------------------------
Gerald A. Resnick, President
/s/ David M. Veltman
------------------------------------
David M. Veltman
2
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 33,970
<SECURITIES> 0
<RECEIVABLES> 231,040
<ALLOWANCES> 81,307
<INVENTORY> 0
<CURRENT-ASSETS> 252,706
<PP&E> 2,227,720
<DEPRECIATION> 1,070,913
<TOTAL-ASSETS> 1,519,559
<CURRENT-LIABILITIES> 9,950,171
<BONDS> 0
0
0
<COMMON> 2,000
<OTHER-SE> (8,432,612)
<TOTAL-LIABILITY-AND-EQUITY> 1,519,559
<SALES> 22,804,240
<TOTAL-REVENUES> 22,804,240
<CGS> 22,283,257
<TOTAL-COSTS> 26,042,048
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 402,508
<INCOME-PRETAX> (3,413,065)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,413,065)
<EPS-PRIMARY> (3.41)
<EPS-DILUTED> (3.41)
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 4-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> AUG-21-1998
<PERIOD-END> DEC-31-1998
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 50,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 64,896
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 5,814,896
<CURRENT-LIABILITIES> 88,681
<BONDS> 0
0
2,000
<COMMON> 12,000
<OTHER-SE> 5,712,215
<TOTAL-LIABILITY-AND-EQUITY> 5,814,896
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 326,485
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (326,485)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (326,485)
<EPS-PRIMARY> (.03)
<EPS-DILUTED> (.03)
</TABLE>
