AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON *
REGISTRATION NO. 333-
-------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
-----------------------
Sixth Business Service Group, Inc.
(Exact name of registrant as specified in its charter)
- --------------------- --------------------- ----------------------------------
Florida 6770 Applied For
- --------------------- --------------------- ----------------------------------
State or other PRIMARY STANDARD I.R.S. Employer Identification No.
jurisdiction of INDUSTRIAL
incorporation or CLASSIFICATION
organization CODE NUMBER
- --------------------- --------------------- ----------------------------------
2503 W. Gardner Ct.
Tampa, FL 33611
813. 831-9348
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
Michael T. Williams
PRESIDENT
Sixth Business Service Group, Inc.
2503 W. Gardner Ct.
Tampa, FL 33611
TELEPHONE: 813.831.9348
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As
promptly as practicable after this registration statement becomes effective and
after the closing of the merger of the proposed merger described in this
registration statement.
1
<PAGE>
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b, under the securities act, check the following box and
list the securities act registration statement number of the earlier effective
registration statement for the same offering. *[ ] *registration number,
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the securities act, check the following box and list the securities act
registration statement number of the earlier effective registration statement
for the same offering. *[ ] *registration number,
If the securities being registered on this Form are to be offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. *[ ]
=============================================================================
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
========================= ==================== ======================== ========================= ====================
Title of each class of Proposed maximum
securities to be Proposed maximum aggregate offering price
registered Amount to be offering price per unit Amount of
registered registration fee
========================= ==================== ======================== ========================= ====================
<S> <C> <C> <C> <C>
Common Stock, $0.01 per
share par value 9,790,000 N/A $8,138,744 (2) $2,320.56 (3)
========================= ==================== ======================== ========================= ====================
</TABLE>
(1) The maximum number of shares of common stock of Registrant which may be
issued to former holders of shares of common stock of Telesource, Inc.
pursuant to the merger described herein.
(2) The registration fee has been calculated pursuant to Rule 457(f)(2). As
of September 30, 1999, Telesource had retained earnings of $7,216,009.
The book value of the shares to be registered is $8,138,744. In
addition, Telesource's common stock has a par value of $0.01 per share.
Accordingly, the maximum offering price has been determined to be the
book value of the securities to be registered.
(3) This fee has been calculated pursuant to Section 6(b) of the Securities
Act, as .0278 of one percent of $8,138,744.
=============================================================================
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a)
MAY DETERMINE.
===============================================================================
2
<PAGE>
TELESOURCE INTERNATIONAL INC.
INFORMATION STATEMENT FOR SHAREHOLDERS
SIXTH BUSINESS SERVICE GROUP, INC.
PROSPECTUS
The board of directors of Telesource International Inc. has unanimously
approved a merger between Telesource and Sixth Business Service Group, Inc.
Sixth Business Service Group has committed to file to have its stock quoted on
the over-the-counter bulletin board of the Nasdaq Stock Market Inc., under the
symbol "**** symbol." Because Sixth Business Service Group is a company whose
securities will be quoted on the bulletin board, the Telesource board believes
that the merger will
o Increase the visibility of Telesource's business, which could be
helpful in further developing and commercializing Telesource's
products.
o Facilitate Telesource's ability to raise capital in the public markets
o Potentially improve Telesource's shareholders' ability to sell their shares in
the over-the-counter market.
Your board of directors has determined that the merger is fair to you and
in your best interests. In addition, shareholders owning _____% of your common
stock have executed a written consent voting to approve the merger. No further
consent of you or any of the shareholders of Telesource is necessary to approve
the merger under the laws of the state of Delaware.
The merger will close as soon as practicable after the SEC declares this
Information Statement/Prospectus effective. When the merger is completed, you
will receive one share of Sixth Business Service Group common stock for each
share of Telesource common stock that you own.
Sixth Business Service Group was formed as a vehicle to acquire a private
company desiring to become an SEC reporting company in order thereafter to
secure a listing on the over the counter bulletin board.
The total number of shares of common stock that Sixth Business Service
Group will issue to all of the Telesource shareholders in the merger is
9,790,000. This number will represent 97.9% of the outstanding Sixth Business
Service Group common stock after the merger. All Telesource shareholders other
than Sayed Hamid Behbehani & Sons Co. W.L.L. ("SHBC") and affiliates currently
own 36.61% of Telesource stock and will own 36.61% of Sixth Business common
stock after the merger as a result of SHBC's agreement to absorb all dilution in
connection with the merger. SHBC, including beneficially owned stock, will own
6,129,000 shares of Sixth Business common stock, or 61.3% of all Sixth Business
stock outstanding, after the merger is completed.
3
<PAGE>
Following the merger, the surviving company will continue to file reports
with the SEC as a result of its filing of a form 8-A electing to be a reporting
company subject to the requirements of the 1934 act.
The proposed merger is a very complex transaction with a number of risks
and uncertainties associated with it. This document provides you with detailed
information about the proposed merger. We strongly urge you to read and consider
carefully this document in its entirety, especially the matters referred to
under "risk factors"` beginning on page 10.
Neither the Securities and Exchange Commission nor any state securities
regulators have approved or disapproved the Sixth Business Service Group common
stock to be issued in the merger or indicated if this information
statement/prospectus is truthful or complete. Any representation to the contrary
is a criminal offense.
The date of this information statement/prospectus is _____________, and it
is first being mailed to Telesource shareholders on or about *date mailed.
Cautionary Statement
This registration statement on Form S-4 contains "forward-looking
statements", as defined by the Private Securities Litigation Reform Act of 1995,
in order to provide investors with prospective information about the Company.
For this purpose, any statements which are not statements of historical fact may
be deemed to be forward-looking statements. Without limiting the foregoing, the
words "believes", "anticipates", "plans", "expects" and similar expressions are
intended to identify forward-looking statements. There are a number of important
factors which could cause the Company's actual results and events to differ
materially from those indicated by the forward-looking statements. These factors
include, without limitation, those set forth below under the caption "Certain
Factors That May Affect Future Results".
Other Information for Telesource Stockholders:
o The prospectus incorporates important business and financial
information that is not included in or delivered with the
document. This information is available without charge to security
holders upon written or oral request. Send your request to:
Bud Curley
Telesource International
860 Parkview Blvd.
Lombard, IL 60148
630-620-4787 x222
[email protected]
4
<PAGE>
o Do not send in your Telesource stock certificates now. If the
merger is completed, we will send you written instructions for
exchanging your share articles.
o The merger has been structured as a tax-free reorganization. The
tax basis in your Telesource common stock will carryover and
become the tax basis in your new shares of Sixth Business Service
Group common stock.
o Like Telesource, Sixth Business Service Group has never paid any
dividends.
o If you have any questions about the merger, please call Nidal
Zayed with Telesource International at 630-620-4787 x240 or Bud
Curley at 630-620-4787 or x222.
Dealer prospectus delivery obligation
Until , all dealers that effect transactions in these securities, whether
or not participating in this offering, are required to deliver a prospectus.
SUMMARY
This summary highlights selected information from this information
statement/prospectus and may not contain all of the information that is
important to you. To understand the merger fully and for a more complete
description of the legal terms of the merger, you should read carefully this
entire document and the documents to which we have referred you.
In the merger, Telesource's shareholders will merge shares with Sixth
Business Service Group, and Sixth Business Service Group will be the surviving
company.
The merger agreement is attached as annex A to this document. We encourage
you to read the merger agreement, as it is the legal document that governs the
merger.
The companies.
Sixth Business Service Group
2503 W. Gardner Ct.
Tampa, FL 33611
We were organized under the laws of the state of Florida in March 1999.
Since inception, our primary activity has been directed to organizational
efforts. We were formed as a vehicle to acquire a private company desiring to
become an SEC reporting company in order thereafter to secure a listing on the
over the counter bulletin board.
Telesource International
860 Parkview Blvd.
Lombard, IL 60148
5
<PAGE>
Telesource was incorporated in Delaware in 1994. Telesource is an
international engineering and construction company, which is in the business of
constructing projects, which range from single family housing units to
electrical power generation plants. In the Commonwealth of Mariana Islands we
also operate a diesel fired electric power generation plant for the sale of
electricity to the local power grid. Our facility in Lombard annually handles
the procurement, export and shipping of several millions of dollars worth of
U.S. fabricated products for use by our subsidiaries or for resale to customers
outside of the mainland. Telesource was formed in 1994 to facilitate various
intra-corporate activities and, until July 1999, was a wholly owned subsidiary
of SHBC, a Kuwait-based civil, electrical and mechanical construction company.
We conduct our operations primarily through subsidiaries. We currently have
three subsidiaries. Our Mariana subsidiary, Telesource CNMI Inc., handles
construction and management of our power facilities in the Common Wealth of
Mariana Islands. Our second subsidiary, Commsource International Inc., is an
international export company that facilitates the purchase of equipment
fabricated in the U.S. Our branch offices in Guam, Telesource Pacifica and
Pacifica Power Resources, a trading company, were created to take advantage of
opportunities we believe will be available there. Telesource has three main
operating segments: construction services, trading activities and power
generation. The power generation activities commenced in March 1999.
Telesource's reasons for the merger
o Increase the visibility of Telesource's business, which could be
helpful in further developing and commercializing Telesource's
products.
o Facilitate Telesource's ability to raise capital in the public markets.
o Potentially improve Telesource's shareholders' ability to sell their shares in
the over-the-counter market.
Comparison of the percentage of outstanding shares entitled to vote held by
directors, executive officers and their affiliates and the vote required for
approval of the merger.
One hundred percent of Sixth Business Service Group's shares are held by
its directors, executive officers and their affiliates. A majority vote of the
issued and outstanding shares is required to approve the merger. Shareholders
owning all of our common stock have executed a written consent voting to approve
the merger. No further consent of you or any of the shareholders of Sixth
Business Service Group is necessary to approve the merger under the laws of the
state of Florida or Delaware.
3.71% of Telesource's shares are held by its directors, executive officers
and their affiliates. A majority vote of the issued and outstanding shares is
required to approve the merger. Shareholders owning ***% of your common stock
6
<PAGE>
have executed a written consent voting to approve the merger. No further consent
of you or any of the shareholders of Telesource is necessary to approve the
merger under the laws of the state of Delaware.
No regulatory approval required.
Neither Sixth Business Service Group nor Telesource is aware of any
governmental regulatory approvals required to be obtained with respect to the
closing of the merger, except for the filing of the articles of merger with the
offices of the secretary of state of the state of Delaware, the filing with the
Commission of the registration statement on Form S-4 registering the shares and
this information statement/prospectus, and compliance with all applicable state
securities laws regarding the offering and issuance of the shares.
Dissenters' rights
Dissenters' rights of appraisal exist. See 23 for further information.
Federal income tax consequences.
Tax matters are very complicated and the tax consequences of the merger to
you will depend on the facts of your own situation. You should consult your tax
advisors for a full understanding of the tax consequences of the merger to you.
Telesource and Sixth Business Service Group have structured the merger so that
neither Telesource nor its shareholders should recognize gain or loss for
federal income tax purposes as a result of the merger.
SELECTED HISTORICAL FINANCIAL INFORMATION
The following selected historical financial information of Telesource and
Sixth Business Service Group has been derived from their respective historical
financial statements, and should be read in conjunction with such financial
statements and the notes , which are included in this information
statement/prospectus.
7
<PAGE>
Telesource SELECTED HISTORICAL FINANCIAL INFORMATION
The following selected financial data for the nine months ended September
30, 1999 and 1998, and the two years ended December 31, 1998 and 1997 is derived
from the Consolidated Financial Statements of the Company, of which only
December 1998 is audited. The data should be read in conjunction with the
Consolidated Financial Statements and other financial information included
elsewhere herein.
<TABLE>
<CAPTION>
Nine Months Ended Twelve Months Ended
September 30, December 31,
------------------------------ ----------------------------------
1999 1998 1998 1997
------------- ------------- -------------- ---------------
<S> <C> <C> <C> <C>
Income Statement Data: ($ in 000's)
Construction revenues $ 14,980 $ 18,874 $ 26,289 $ 3,561
Other revenues 3,879 6,438 7,179 9,815
Gross revenues 18,859 25,312 33,468 13,376
Construction costs 12,511 15,941 21,730 3,563
Other costs 2,833 4,720 5,301 8,058
Gross profits 3,515 4,651 6,437 1,755
Salaries and employee benefits 426 286 387 453
Occupancy and expense 104 288 293 305
General and administrative expenses 776 448 749 347
Permanent impairment of asset - - 271 -
Operating income 2,208 3,629 4,737 651
Other income (expense):
Interest income 1,247 9 12 -
Interest expense (181) (26) (39) (37)
Other income, net 18 - 4 6
Total other income (expense) 1,084 (17) (23) (31)
Income before taxes 3,293 3,611 4,714 620
Income tax expense 946 510 703 26
Net income (loss) 2,347 3,102 4,011 594
Common Share Data:
Net income per share $ 0.23 $ 0.31 $ 0.40 $ 0.06
Book value $ 0.82 $ 0.49 $ 0.58 $ 0.11
Weighted average common shares
outstanding (in 000s) 10,000,000 10,000,000 10,000,000 10,000,000
Period end shares outstanding (in 000s) 10,000,000 10,000,000 10,000,000 10,000,000
Balance Sheet Data:
Total assets $ 39,346 $ 21,482 $ 25,596 $ 9,422
Working capital (595) (12,577) (799) (5,875)
Long-term obligations 27,827 409 17,732 278
Shareholders' equity 8,163 4,908 5,817 1,106
Performance Data:
Return (loss) on total assets 8.0% 19.3% 15.7% 6.3%
Return (loss) on shareholders' equity 38.3% 84.3% 69.0% 53.7%
Capital Ratios:
Current ratio 82.3% 22.2% 61.0% 26.9%
Efficiency ratio 37.2% 22.0% 27.9% 62.9%
Debt to equity ratio 340.9% 264.9% 300.1% 631.1%
</TABLE>
8
<PAGE>
Sixth Business Service Group SELECTED HISTORICAL FINANCIAL INFORMATION
The following selected financial data for the nine months ended September
30, 1999 is derived from the Financial Statements of Sixth Business Service
Group. Sixth Business Service Group was organized in March 1999 with all
activity directed toward organizational efforts:
September 30, 1999
-------------------
Total assets $ 0
Total liabilities 0
Equity 0
Nine Months Ended
September 30, 1999
--------------------
Sales 0
Net loss $ 79
Net loss per share $ 0.00
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS OF Telesource AND Sixth
Business Service Group
The merger of Telesource with Sixth Business Service Group will not result
in any changes to the financial statements as presented for Telesource. Sixth
Business Service Group is a public shell and the combination is treated as a
transfer of shares for cash since the combination is not a business combination.
Pro forma information is not presented since the combination is not a business
combination.
COMPARATIVE PER SHARE DATA
<TABLE>
<CAPTION>
September 30, December 31, December 31, 1997
1999 1998
------------------ ---------------- ------------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Numerator - basic and diluted
earnings per share
Net income before and after merger $ 2,346,714 $ 4,010,819 $ 593,590
================== ================ ==================
Denominator - Basic earnings per share
Common stock outstanding before
and after merger 10,000,000 10,000,000 10,000,000
================== ================ ==================
Basic and diluted earnings per share before
and after merger $ 0.23 $ 0.40 $ 0.06
================== ================ ==================
</TABLE>
9
<PAGE>
RISK FACTORS
You should carefully consider the risks described below before making an
investment decision in our company. In addition, you should keep in mind that
the risks described below are not the only risks that we face. The risks
described below are all the risks that we currently believe are material risks
of this offering. However, additional risks not presently known to us, or risks
that we currently believe are immaterial, may also impair our business
operations. Moreover, you should refer to the other information contained in
this prospectus for a better understanding of our business.
Our business, financial condition, or results of operations could be
adversely affected by any of the following risks. If we are adversely affected
by such risks, then the trading price of our common stock could decline, and you
could lose all or part of your investment.
This Information statement/prospectus contains forward-looking statements
that involve risks and uncertainties. Telesource's actual results could differ
materially from those discussed herein. Factors that could cause or contribute
to such differences, include, but are not limited to, those discussed in the
following section and in Telesource's Management's Discussion and Analysis Of
Financial Condition and Results of Operations and Telesource Business.
The merger agreement contains a number of conditions that must be satisfied
in order for the merger to take place. If these conditions aren't satisfied, the
merger will not close and Telesource will have suffered a delay in reaching its
objective of becoming a listed, trading company on the bulletin board.
The conditions include:
o The shareholders of Telesource must approve the merger and this
condition has been satisfied;
o The holders of no more than 1% of the outstanding shares of common
stock of Telesource shall have exercising dissenters' rights;
o The Securities and Exchange Commission must declare this registration
statement effective;
o Sixth Business Service Group must have filed an application to have its
stock quoted on the bulletin board; and
o Telesource and its counsel must have satisfactorily completed their due
diligence review of Sixth Business Service Group
Telesource will not to complete the merger if these conditions are not
satisfied. Please understand that there is no guarantee that any of these
conditions will be satisfied, or that the merger will occur in the time frame
contemplated, or occur at all.
10
<PAGE>
Telesource - Risks related to construction activities
Our dependence on construction contracts for major projects will cause
variations in our revenues and profits from quarter to quarter.
Our quarterly operating results will depend on revenues from contracts for
major projects. We can only undertake a certain number of such projects at any
one time. If we finish one project and do not have another to start on, revenues
within the quarter and possibly subsequent periods will be adversely affected.
Management will take steps it deems appropriate to adjust spending in a timely
manner in an effort to compensate for any unexpected revenue shortfalls,
however, there can be no assurance that management will be able to lower
spending to a level which will compensate for the loss of construction revenues.
If customers cancel or defer existing contracts or if we fail to obtain new
contracts in any quarter, our business, results of operations and financial
condition for that quarter and future periods will be adversely affected.
We may not be able to compete successfully because the number of
competitors is increasing and some of our competitors are better known,
multinational construction companies with greater financial and technical
resources and better marketing abilities.
The market for construction services is intensely competitive and rapidly
changing. We compete directly with other firms that focus on providing general
construction services as well as services for more sophisticated structures such
as power plants and broadcasting facilities. Many of our competitors have
well-established reputations for building residential and technical structures
and have longer operating histories and significantly greater financial,
technical, marketing, personnel and other resources than we have. We are subject
to competition that is expected to intensify in the future. We cannot assure you
that we will be able to compete successfully. Competitive factors could
materially and adversely affect our business, financial condition and operating
results.
If we cannot obtain access to sufficient building raw materials, including,
but not limited to, wood, steel and concrete, fabricators of technical
subsystems and to third-party technical experts, sales of our construction
services may decline and this would hurt our operating results.
We rely on third-party suppliers for such raw materials as wood, steel and
concrete; for fabrication of technical equipment subsystems such as diesel
generations, antennas, towers and transmitters, and for providing technical
expertise. If we fail to obtain what we need from these providers, our sales
revenue might decrease. Our ability to obtain raw materials; fabrication
services and technical assistance may be adversely impacted by a number of
factors, including the following:
o Third-parties may increase the price of the raw materials, fabrication
services or technical assistance they provide.
o Many third-party raw material suppliers, fabricators or technical
expertise providers may decide not to provide us with raw materials,
fabrication services or technical expertise.
o We have no long-term contracts with third party suppliers of raw
materials, fabrication services or technical expertise providers,
o We anticipate that our third party contracts will be usually short term
and will be cancelled if we do not fulfill our obligations.
11
<PAGE>
Failure by suppliers of raw material such as wood, steel or cement;
fabricators of technical subsystems or software to be year 2000 complaint could
adversely affect our operations. Because our evaluation of these issues is
continuing, we cannot assure you that additional issues will not be discovered
which could present a material risk of disruption to our operations.
We would be harmed if there were any systems failures or interruptions in
service resulting from the inability of our computing system or any of our
existing third-party suppliers' systems to recognize the year 2000. We are
highly dependent upon third-party suppliers for raw materials such as wood,
steel and cement; for fabrication of technical subsystems and for software.
These third-parties suppliers have generally advised us that their review of
their operating systems indicate that their operating systems are or will be
year 2000 compliant.
With no warranty reserves to cover future warranty claims on commercial
equipment we install or on the buildings we build, any claims which are not
covered by our suppliers could adversely affect our financial performance.
We offer warranties on our constructions services and power generating
plants. These warranties are usually backed up by warranties from our vendors;
however, we do not have any warranty reserves. Should we be required to cover
the cost for repairs not covered by the warranties of our vendors or our major
vendors warranty reserves are determined to be inadequate to cover future
warranty claims, our financial performance could be adversely affected.
Telesource - Risks related to power generation activities
If our power-generating asset fails to perform, our revenues and earnings
would be adversely affected.
We own a 10-year security interest and title in a diesel fired electric
generating facility with a maximum power generation capacity of 30 Mw located on
the island of Tinian, in the Commonwealth of Northern Mariana Islands, a U.S.
possession. This facility from time to time may experience both scheduled and
unscheduled shutdowns. Periodically, the facility will incur scheduled shutdowns
in order to perform maintenance procedures to equipment that cannot be performed
while the equipment is operating. Occasionally, the facility may also incur
unscheduled shutdowns or may be required to operate at reduced capacity levels
following the detection of equipment malfunctions, or following minimum
generation orders received by the utility. During periods when the facility is
shutdown or operating at reduced capacity levels, we may incur losses due to the
loss of its operating revenues and/or due to additional costs which may be
required to complete any maintenance procedures. It is not possible for us to
predict the frequency of future unscheduled shutdowns or to predict the extent
of maintenance which may be required during shutdowns related to equipment
maintenance.
12
<PAGE>
We will depend on a single customer continuing to purchase electric power,
which, if they fail to do so, would reduce our revenues and may result in
losses.
Since March 1999, we began deriving a portion of our revenues from the sale
of electric power. Although our customers cannot reduce consumption quickly and
without penalty as a result of minimum purchase requirements, if the customers
default or purchases only the minimum, our business, results of operations and
financial condition for that quarter and future periods could be adversely
affected.
Our insurance or reserves may be insufficient to cover future claims on our
power generation activities, which could adversely affect our financial
performance.
Our power generation activities involve significant risks to us for
environmental damage, equipment damage and failures, personal injury and fines
and costs imposed by regulatory agencies. In the event a liability claim is made
against us, or if there is an extended outage or equipment failure or damage at
our power plant for which it is inadequately insured or subject to a coverage
exclusion, and we are unable to defend such claim successfully or obtain
indemnification or warranty recoveries, there may be a material adverse effect
on the Company. The Company maintains general and excess liability, construction
equipment, and workers' compensation insurance; all in amounts consistent with
industry practices. Management believes its insurance programs are adequate.
We need to expand in anticipation of what we anticipate will be increasing
demand for our construction service.
We will need to expand in anticipation of a growing user base and larger
demand for our services. Expansion will require us to make significant up front
expenditures for increasing our sales and marketing efforts and to hire and
train additional project managers, engineers and facilities operators. Expansion
must be completed without disruptions of existing operations.
Telesource - Other risks
Certain risks in our international operations could interrupt the supply of
our construction and power generation products and services
Our international operations are subject to the inherent risks of doing
business abroad. The loss of certain international suppliers and customers could
harm our ability to deliver our construction services and power services on time
and cause our sales to decline. Our financial performance could be materially
adversely affected by many events and circumstances relating to our
international operations, including:
o Shipping delays and cancellations;
o Increases in import duties and tariffs;
o Foreign exchange rate fluctuations;
o Changes in foreign laws and regulations; and
o Political and economic instability.
13
<PAGE>
The Company is subject to government regulation by federal, state, and
municipal agencies and authorities, including regulations concerning the
operations of the Company's power generation plant and the protection of the
environment.
While compliance with applicable regulatory requirements has not adversely
affected the Company's operations in the past relative to its competitive
position within its industry sector, there can be no assurance that these
requirements will not change and that compliance will not adversely affect the
Company's operations. In addition, the aggregate materials operations of the
Company require operating permits granted by governmental agencies. The Company
believes that tighter regulations for the protection of the environment and
other factors will make it increasingly difficult to obtain new permits and
renewal of existing permits may be subject to more restrictive conditions than
currently exist.
Our operating results could be effected if our agreement with SHBC, Inc. to
purchase construction materials from us is terminated.
Our subsidiary, Commsource International, is dependent on the sales of U.S.
fabricated materials to SHBC. This customer accounted for most of Commsource
International's sales in 1998. The sales of Commsource International to SHBC are
expected to decline to a smaller percentage in 1999. The gross profit on sales
for 1998 at Commsource was approximately 5.9%, while Commsource had a net loss
for 1998 and 1997 of $195,791 and $73,444, respectively. The agreement with SHBC
is short-term in nature and can be cancelled at will. The loss of purchases of
U.S. fabricated materials by SHBC would have an adverse effect on the operating
results of our subsidiary, Commsource International.
The largest stockholder owns approximately 61% of the common stock
outstanding after the merger, which may impact the ability of minority
stockholders to influence our activities.
The largest stockholder, SHBC, including beneficial owners of Telesource
common stock, will be able to control the outcome of all matters submitted to a
vote of the holders of common stock, including the election of directors,
amendments to our certificate of incorporation and approval of significant
corporate transactions. These persons will beneficially own, in the aggregate,
approximately 61% of our outstanding common stock. This consolidation of voting
power could also have the effect of delaying, deterring or preventing a change
in control of Telesource that might be beneficial to other stockholders.
The price of our stock may fall if our insiders sell a large number of
their shares.
After the merger, we will have 10,000,000 shares of common stock
outstanding, 9,790,000 of which are being issued under this registration
statement. The remaining 210,000 shares owned by Sixth Business shareholders
before the merger plus 6,392,000 of the shares being issued hereunder which are
owned by officers, directors, control persons and affiliates plus 300,000 shares
owned by persons receiving the 300,000 shares as compensation with this
transaction are restricted securities as defined under Rule 144 of the
Securities Act and may only be sold under the Rule or otherwise under an
14
<PAGE>
effective registration statement or an exemption from registration, if
available. Rule 144 generally provides that a person who has satisfied a one
year holding period for the restricted securities may sell, within any three
month period (provided we are current in our reporting obligations under the
Exchange Act) subject to certain manner of resale provisions, an amount of
restricted securities which does not exceed the greater of 1% of a company's
outstanding common stock or the average weekly trading volume in such securities
during the four calendar weeks prior to such sale. However, because the
6,392,000 insider shares are being issued under this registration statement, the
one-year holding period does not apply. A sale of shares by such security
holders, whether under Rule 144 or otherwise, may have a depressing effect upon
the price of our common stock in any market that might develop.
There has been no prior market for our common stock. If we don't get our
stock listed for trading after the merger, we will not have satisfied the
primary objective of the merger transaction.
Prior to this offering, you could not buy or sell our common stock
publicly. We may not be able to secure a market maker to file an application to
have our stock listed for trading. Even if we do, an active public market for
our common stock may not develop or be sustained after the offering.
The price of our common stock may be volatile. You may not be able to sell
your stock for more than you paid for it.
The market price of the common stock may fluctuate significantly in
response to a number of factors, some of which are beyond our control,
including:
o quarterly variations in operating results
o changes in financial estimates by securities analysts
o changes in market valuation of construction and electric power
companies
o announcements by us of significant contracts, acquisitions,
strategic partnerships, joint ventures or capital commitments
o loss of a major customer
o additions or departures of key personnel
o any shortfall in revenue or net income or any increase in losses
from levels expected by analysts;
o future sales of common stock o stock market price and volume
fluctuations, which are particularly common among highly volatile
securities of electric power companies.
In the past, securities class action litigation has often been brought
against a company following periods of volatility in the market price of its
securities. We may in the future be the target of similar litigation. Securities
litigation could result in substantial costs and divert management's attention
and resources, which could have a material adverse effect on our business,
operating results and financial condition.
15
<PAGE>
.
We may be subject to penny stock rules that may make it more difficult for
you to sell your shares.
Broker-dealer practices in connection with transactions in "penny stocks"
are regulated by certain penny stock rules adopted by the Commission. Penny
stocks generally are equity securities with a price of less than $5.00. The
penny stock rules require a broker-dealer, prior to a transaction in a penny
stock not otherwise exempt from the rules, to deliver a standardized risk
disclosure document that provides information about penny stocks and the risks
in the penny stock market. The broker-dealer also must provide the customer with
current bid and offer quotations for the penny stock, the compensation of the
broker-dealer and its salesperson in the transaction, and monthly account
statements showing the market value of each penny stock held in the customer's
account. In addition, the penny stock rules generally require that prior to a
transaction in a penny stock, the broker-dealer make a special written
determination that the penny stock is a suitable investment for the purchaser
and receive the purchaser's written agreement to the transaction.
These disclosure requirements may have the effect of reducing the level of
trading activity in the secondary market for a stock that becomes subject to the
penny stock rules. If our shares immediately following the closing of the merger
and listing of our stock are subject to subject to such penny stock rules, our
shareholders will in all likelihood find it more difficult to sell their
securities.
MERGER APPROVALS
Approval of the merger
On November 3, 1999, Michael T. Williams as the sole member of our board of
directors approved the merger proposal. All of our stockholders approved the
merger proposal on the same date.
On November 3, 1999, Telesource's board of directors unanimously approved
the merger proposal. The majority of your stockholders approved the merger
proposal on the same date.
MERGER TRANSACTIONS
As of October 31, 1999, Telesource had 10,000,000 shares of common stock
issued and outstanding. Before the merger occurs, SHBC will retire 210,000
shares of Telesource common stock by contributing it to Telesource. The
retirement of 210,000 shares by SHBC will lower the number of shares outstanding
to 9,790,000 shares at the time of the merger. The merger agreement provides
that each outstanding share of Telesource common stock, other than dissenting
shares, as defined later in this document, will be exchanged for one share of
Sixth Business Service Group common stock. Immediately after the closing of the
merger, the former holders of Telesource common stock will hold in the aggregate
9,790,000 shares, which includes the 300,000 shares being transferred as
16
<PAGE>
compensation for this transaction, of Sixth Business Service Group common stock,
or 97.9% of the shares of Sixth Business Service Group common stock to be
outstanding immediately after the closing of the merger. Calculated assuming the
issuance of 9,790,000 shares of Sixth Business Service Group common stock to the
Telesource shareholders in the merger.
Sixth Business had 1,000,000 shares of its common stock issued and
outstanding at October 31, 1999 to two shareholders, Michael T. Williams and
Nidal Zayed. Michael T. Williams has agreed to sell 790,000 shares of the
890,000 shares he owns to Sixth Business for $1 prior to the closing of the
merger. After the sale of Sixth Business shares by Mr. Williams to Sixth
Business, there will be 210,000 shares of Sixth Business common stock
outstanding. None of the shares of Sixth Business Service Group common stock
outstanding prior to the closing of the merger will be converted or otherwise
modified in the merger and all of such shares not otherwise returned to us as
provided in the merger agreement will be outstanding capital stock of Sixth
Business Service Group after the closing of the merger.
Upon completion of the merger, Sixth Business will issue 9,790,000 shares
to the Telesource shareholders on a one-for-one basis. After the issuance of
these shares, Sixth Business will have 10,000,000 shares of its common stock
outstanding.
The agreement provides that prior to or at the closing of the merger, Sixth
Business Service Group will
o Reincorporate in Delaware
o Change its name to Telesource
o Adopt Telesource's articles and bylaws
o Elect, effective upon the effectiveness of the merger, a new
board of directors to consist of Nidal Z. Zayed, K. J.
Semikian, Weston Marsh, Max Engler, Jeff Adams and Ibrahim M. Ibrahim.
The agreement provides that Telesource's shareholders who vote against the
merger are entitled to dissenters' rights with respect to the proposed shares of
Sixth Business Service Group common stock as set forth in Delaware law.
The merger will be consummated promptly after this information
statement/prospectus is declared effective by the SEC and upon the satisfaction
or waiver of all of the conditions to the closing of the merger. The merger will
become effective on the date and time a properly executed articles of merger are
filed with the offices of the secretary of state of Delaware. Thereafter,
Telesource will be merged and Sixth Business Service Group, with the result that
Telesource will cease to exist and Sixth Business Service Group will be the
surviving corporation in the merger.
17
<PAGE>
Fractional shares.
As of the date of this information statement/prospectus, there were no
fractional shares of Telesource's common stock outstanding. Because each
outstanding share of Telesource's common stock will be entitled to receive one
share of Sixth Business Service Group's common stock under the terms of the
merger agreement, there will be no fractional shares issued in the merger.
Bulletin board listing
Sixth Business Service Group will be subject to the reporting requirements
of the securities exchange act of 1934 after the merger as a result of its
filing of a form 8-A electing to be a reporting company subject to the
requirements of the 1934 act.
Upon closing of the merger, Sixth Business Service Group will seek to
become listed on the over the counter bulletin board under the symbol "****". If
and when listed, the Telesource's shareholders will hold shares of a publicly
traded Delaware corporation subject to compliance with the reporting
requirements of the exchange act. Because the state of incorporation, articles
and bylaws of Sixth Business Service Group will be the same as those of
Telesource prior to the merger, the rights of shareholders of Telesource will
not change as a result of the merger.
Background of the merger
In April, Mr. Mr. Nidal Zayed, Executive Vice President of Telesource
contacted Venture Associates to inquire about the possibility of locating a
company such as Sixth Business Service Group to acquire Telesource in order that
Telesource could become an SEC reporting company and thereafter secure a listing
on the over the counter bulletin board. Venture Associates referred Mr. Zayed to
Longman & Associates, Inc., which was retained by Telesource in June 1999 for a
fee of $90,000 plus 300,000 shares of Telesource common stock. The common stock
to be paid to Longman & Associates, Inc. is to be paid by SHBC. In May, 1999,
Longman & Associates retained Sixth Business to provide services necessary to
accomplish Telesource's objectives for a fee of $55,000. In connection
therewith, Mr. Michael T. Williams, Sixth Business Service Group's President,
agreed to a salary of $55,000 to be paid by Longman and Associates and further
agreed upon completion of the merger with Telesource to sell 900,000 of his
shares of Sixth Business back to Sixth Business for aggregate consideration of
$1.00. At the request of Mr. Zayed, in May 1999, Sixth Business sold Mr. Zayed
110,000 shares for aggregate consideration of $100. Thereafter, there were
numerous telephone conversations between the companies relating to various
aspects of the potential merger, including in-depth discussions concerning the
steps that needed to be taken to close the merger.
Following these discussions, representatives of Sixth Business Service
Group and Telesource negotiated the remaining basic structure, terms and
conditions of the merger. After having reached resolution on all open issues, a
merger agreement was drafted and Telesource convened a special meeting of its
board of directors at which the agreement of merger and the other transactions
required by the merger agreement were discussed and reviewed. In connection with
these discussions, SHBC agreed that prior to closing the merger, it will
18
<PAGE>
surrender 210,000 shares of Telesource common stock for retirement and will
assume Telesource's obligation to transfer 300,000 shares as described above.
The purpose of these actions is to reduce the number of shares of the surviving
corporation to be outstanding after the merger to 10,000,000 and to have SHBC
absorb the dilutive effect of the transaction in full. All Telesource
shareholders other than SHBC and affiliates currently own 36.61% of Telesource
stock and will own 36.61% of Sixth Business common stock after the merger as a
result. Accordingly, no dilution will occur to any Telesource shareholder other
than SHBC as a result of the merger. Thereafter, on November 3, 1999, the board
of directors of Telesource unanimously adopted and approved the agreement of
merger and the transactions required by the merger agreement.
On November 3, 1999, Michael T. Williams, as the sole director of Sixth
Business Service Group, approved the agreement of merger and the transactions
required by the merger agreement. As of November 3, 1999, the agreement of
merger was executed and delivered by each of the parties.
Neither of the respective boards of Directors of Sixth Business Service
Group or Telesource requested or received, or will receive, an opinion of an
independent investment banker as to whether the merger is fair, from a financial
point of view, to Sixth Business Service Group and its stockholders Telesource
and its shareholders.
Reasons for the merger
Sixth Business Service Group' reasons for the merger.
In considering the merger, the Sixth Business Service Group board took note
of the fact that a merger with Telesource would accomplish all of Sixth
Business' business objectives. Accordingly, the Sixth Business Service Group
board determined that the merger proposal was fair to, and in the best interests
of, Sixth Business Service Group and the Sixth Business Service Group's
stockholders.
Telesource's reasons for the merger.
o Increase the visibility of Telesource's business, which could be
helpful in further developing and commercializing Telesource's
products.
o Facilitate Telesource's ability to raise capital in the public
markets.
o Potentially improve Telesource's shareholders' ability to sell
their shares in the over-the-counter market.
Interests of certain persons in the merger
Upon the closing of the merger, the current directors and executive
officers of Telesource will become the directors and executive officers of
the surviving corporation. Mr. Nidal Zayed owns110,000 shares of Sixth Business.
19
<PAGE>
Material Federal Income Tax Consequences
The following discussion summarizes the material federal income tax
consequences of the merger that are generally applicable to holders of
Telesource's common stock. This discussion is based on currently existing
provisions of the Internal Revenue code of 1986, existing and proposed Treasury
Regulations thereunder and current administrative rulings and court decisions,
all of which are subject to change. Any such change, which may or may not be
retroactive, could alter the tax consequences to the Telesource shareholders, as
described herein.
Telesource's shareholders should be aware that this discussion does not
deal with all federal income tax considerations that may be relevant to
particular shareholders in light of their particular circumstances, such as
shareholders who are dealers in securities, banks or insurance companies, are
subject to the alternative minimum tax provisions of the code, are foreign
persons, are tax-exempt entities, are taxpayers holding stock as part of a
conversion, straddle, hedge or other risk reduction transaction, or who acquired
their shares in connection with stock option or stock purchase plans or in other
compensatory transactions. In addition, the following discussion does not
address the tax consequences of the merger under foreign, state or local tax
laws or the tax consequences of transactions effectuated prior to, concurrently
with or after the merger as a result of its filing of a form 8-A electing to be
a reporting company subject to the requirements of the 1934 act, whether or not
such transactions are in connection with the merger. Accordingly, all
shareholders are urged to consult their own tax advisors as to the specific
consequences of the merger to them, including the applicable federal, state,
local and foreign tax consequences of the merger in their particular
circumstances.
Neither Sixth Business Service Group nor Telesource has requested, or will
request, a ruling from the Internal Revenue Service, IRS, with regard to any of
the federal income tax consequences of the merger. It is the opinion of Williams
Law Group, P.A., counsel to Sixth Business Service Group, that the merger will
constitute a reorganization under Section 368(a) of the code. The tax opinion is
based on certain assumptions, as well as representations received from
Telesource, Sixth Business Service Group and certain shareholders of Telesource
and will be subject to the limitations discussed below. Of particular importance
are the assumptions and representations relating to the continuity of interest
requirement discussed below. Moreover, the tax opinions will not be binding on
the IRS nor preclude the IRS from adopting a contrary position. The tax
description set forth below has been prepared and reviewed by Williams Law
Group, and in their opinion, to the extent such descriptions relates to
statements of law, it is correct in all material respects.
Subject to the limitations and qualifications referred to herein, and as a
result of the merger's qualifying as a reorganization, the following federal
income tax consequences should, under currently applicable law, result:
o No gain or loss will be recognized for federal income tax purposes by
the holders of Telesource common stock upon the receipt of Sixth
Business Service Group common stock solely in merger for such
Telesource common stock in the merger, except to the extent that cash
is received by the exercise of dissenters' rights.
20
<PAGE>
o The aggregate tax basis of the Sixth Business Service Group common
stock so received by Telesource shareholders in the merger will be the
same as the aggregate tax basis of the Telesource common stock
surrendered in merger therefore.
o The holding period of the Sixth Business Service Group common stock so
received by each Telesource shareholder in the merger will include the
period for which the Telesource common stock surrendered in merger
therefore was considered to be held, provided that the Telesource
common stock so surrendered is held as a capital asset at the closing
of the merger.
A holder of Telesource common stock who exercises dissenters' rights with
respect to a share of Telesource common stock and receives a cash payment for
such share generally should recognize capital gain or loss, if such share was
held as a capital asset at the closing of the merger, measured by the difference
between the shareholder's basis in such share and the amount of cash received,
provided that such payment is not essentially equivalent to a dividend within
the meaning of Section 302 of the code nor has the effect of a distribution of a
dividend within the meaning of Section 356(a)(2) of the code after giving effect
to the constructive ownership rules of the code. A sale of shares under an
exercise of dissenters' rights generally will not be so treated if, as a result
of such exercise, the shareholder exercising dissenters' rights owns no shares
of capital stock of the Sixth Business Service Group, either actually or
constructively within the meaning of Section 318 of the code, immediately after
the merger.
Neither Sixth Business Service Group nor Telesource will recognize gain
solely as a result of the merger.
Characterizing the merger as a reorganization is dependent on certain
requirements. One key requirement is that there is a continuity of interest with
respect to the business of Telesource . In order for the continuity of interest
requirement to be met, shareholders of Telesource must not, under a plan or
intent existing at or prior to the closing of the merger of the merger, dispose
of so much of their Telesource common stock in anticipation of the merger, plus
the Sixth Business Service Group common stock received in the merger that the
Telesource shareholders, as a group, would no longer have a significant equity
interest in the Telesource business being conducted by the us after the merger .
Telesource shareholders will generally be regarded as having a significant
equity interest as long as the Sixth Business Service Group common stock
received in the merger, in the aggregate, represents a substantial portion of
the entire consideration received by the Telesource shareholders in the merger.
This requirement is frequently referred to as the continuity of interest
requirement. If the continuity of interest requirement is not satisfied, the
merger would not be treated as a reorganization. The law is unclear as to what
constitutes a significant equity interest or a substantial portion. The IRS
ruling guidelines require eighty percent continuity, although such guidelines do
not purport to represent the applicable substantive law. The continuity of
interest certificates obtained from such shareholders contemplates that the
eighty percent standard will be applied. If such requirement is not satisfied,
the merger will not be treated as a reorganization.
21
<PAGE>
A successful IRS challenge to the reorganization status of the merger would
result in significant tax consequences. For example,
o Telesource would recognize a corporate level gain or loss on the
deemed sale of all of its assets equal to the difference between
o The fair market value of all assets owned by Telesource less all
liabilities owed by Telesource on the merger date
o Telesource shareholders would recognize gain or loss with respect
to each share of Telesource common stock surrendered equal to the
difference between the shareholder's basis in such share and the
fair market value, as of the closing of the merger, of the Sixth
Business Service Group common stock received in merger therefore.
In such event, a shareholder's aggregate basis in the Sixth Business
Service Group common stock so received would equal its fair market value and the
shareholder's holding period for such stock would begin the day after the merger
as a result of its filing of a form 8-A electing to be a reporting company
subject to the requirements of the 1934 act is consummated.
Even if the merger qualifies as a reorganization, a recipient of Sixth
Business Service Group common stock would recognize income to the extent that,
for example, any such shares were determined to have been received in merger for
services, to satisfy obligations or in consideration for anything other than the
Telesource common stock surrendered. Generally, such income is taxable as
ordinary income upon receipt. In addition, to the extent that Telesource
shareholders were treated as receiving, directly or indirectly, consideration
other than Sixth Business Service Group common stock in merger for such
shareholder's common stock gain or loss would have to be recognized.
Termination.
At any time prior to the Effective Date, the merger agreement may be
terminated, and the merger abandoned under certain circumstances, including:
o By mutual consent of Sixth Business Service Group and Telesource
o By either party if any of the other party's representations and
warranties contained in the merger agreement shall be or shall
have become inaccurate, or if any of the other party's covenants
contained in the merger agreement shall have been breached
o By either party if a court of competent jurisdiction or other
governmental body shall have issued a final and nonappealable
order, decree or ruling, or shall have taken any other action,
having the effect of permanently restraining, enjoining or
otherwise prohibiting the merger
o By Telesource if the special meeting shall have been held and the
merger agreement shall not have been adopted and approved at such
meeting by the required vote
o By Telesource if Telesource reasonably determines that the timely
satisfaction of any condition to its obligations to consummate the
merger has become impossible or unlikely.
22
<PAGE>
Dissenters' Rights
The following summary of dissenters' rights under Delaware law is qualified
in its entirety by reference to section 262, Delaware General Corporation Law.
Pursuant to Section 262 of the Delaware General Corporation Law, the holder
of record of any shares of Telesource common stock who does not vote such
holder's shares in favor of adoption and approval of the merger may assert
appraisal rights and elect to have the "fair value" of such holder's shares of
Telesource common stock determined and paid to such holder, provided that such
holder complies with the requirements of section 262, summarized below. All
references to and summaries of the rights of the dissenting shareholders are
qualified in their entirety by reference to the text of section 262 of the DGLC
which is attached to this Information statement as Exhibit C.
Any shareholder entitled to vote on the merger who desires that Telesource
purchase shares of Telesource common stock held by such shareholder, must not
vote in favor of adoption and approval of the merger. Shares of Telesource
common stock voted in favor of adoption and approval of the merger will be
disqualified as dissenting shares.
Shareholders whose shares are not voted in favor of adoption and approval
of the merger and who, in all other respects, follow the procedures specified in
section 262 will be entitled to have their Telesource common stock appraised by
the Delaware Court of Chancery and to receive payment of the "fair value" of
such shares, exclusive of any element of value arising from the accomplishment
or expectation of the merger, as determined by the Court. The procedures set
forth in section 262 must be strictly complied with. Failure to follow any such
procedures will result in a termination or waiver of appraisal rights under
section 262.
Under section 262, a holder of Telesource common stock may exercise
appraisal rights as follows:
o Either before the effective date of the merger or consolidation or within
ten days thereafter, Telesource shall notify each of the holders of any of
its class or series of stock who are entitled to appraisal rights of the
approval of the merger or consolidation and that appraisal rights are
available for any or all shares of such class or series of stock, and shall
include in such notice a copy of this section; provided that, if the notice
is given on or after the effective date of the merger or consolidation,
such notice shall be given by the surviving or resulting corporation to all
such holders of any class or series of stock of a constituent corporation
that are entitled to appraisal rights. Such notice may, and, if given on or
after the effective date of the merger or consolidation, shall, also notify
such stockholders of the effective date of the merger or consolidation.
o Any stockholder entitled to appraisal rights may, within 20 days after the
date of mailing of such notice, demand in writing from the surviving or
resulting corporation the appraisal of such holder's shares. Such demand
will be sufficient if it reasonably informs the corporation of the identity
of the stockholder and that the stockholder intends thereby to demand the
appraisal of such holder's shares. If such notice did not notify
stockholders of the effective date of the merger or consolidation, either
23
<PAGE>
(i) each corporation shall send a second notice before the effective date of
the merger or consolidation notifying each of the holders of any class or
series of stock of such corporation that are entitled to appraisal rights
of the effective date of the merger or consolidation or (ii) the surviving
or resulting corporation shall send such a second notice to all such
holders on or within 10 days after such effective date; provided, however,
that if such second notice is sent more than 20 days following the sending
of the first notice, such second notice need only be sent to each
stockholder who is entitled to appraisal rights and who has demanded
appraisal of such holder's shares in accordance with this subsection. An
affidavit of the secretary or assistant secretary or of the transfer agent
of the corporation that is required to give either notice that such notice
has been given shall, in the absence of fraud, be prima facie evidence of
the facts stated therein.
o For purposes of determining the stockholders entitled to receive either
notice, each corporation may fix, in advance, a record date that shall be
not more than 10 days prior to the date the notice is given, provided, that
if the notice is given on or after the effective date of the merger or
consolidation, the record date shall be such effective date. If no record
date is fixed and the notice is given prior to the effective date, the
record date shall be the close of business on the day next preceding the
day on which the notice is given.
o The written demand for appraisal must be made by or for the holder of
record of shares of Telesource common stock. Accordingly, such demand must
be executed by or for such shareholder of record, fully and correctly, as
such stockholder's name appears on the stock certificates representing the
shares. If the applicable shares are owned of record in a fiduciary
capacity, such as by a trustee, guardian or custodian, execution of the
demand should be made in such capacity, and if the applicable shares are
owned of record by more than one person, as in a joint tenancy or tenancy
in common, such demand should be executed by or for all joint owners. An
authorized agent, including one of two or more joint owners, may execute
the demand for appraisal for a shareholder of record. However, the agent
must identify the record owner(s) and expressly disclose the fact that, in
executing the demand, the agent is acting as agent for the record owner(s).
o A record owner, such as a broker, who holds shares as nominee for other
persons may exercise appraisal rights with respect to the shares held
for all or less than all of such other persons. In such case, the
written demand should set forth the number of shares covered by it.
Where no number of shares is expressly mentioned, the demand will be
presumed to cover all shares standing in the name of such record owner.
o Within 10 days after the closing of the merger, Telesource is required to,
and will, notify each shareholder who has satisfied the foregoing
conditions of the date on which the closing of the merger occurred and that
appraisal rights are available with respect to shares for which a demand
has been submitted. Within 120 days after the closing of the merger,
Telesource, or any such shareholder who has satisfied the foregoing
conditions and is otherwise entitled to appraisal rights under section 262,
24
<PAGE>
may file a petition in the court demanding a determination of the value of
the shares held by all shareholders entitled to appraisal rights. If no
such petition is filed, appraisal rights will be lost for all shareholders
who had previously demanded appraisal of their shares. Shareholders of
Telesource seeking to exercise appraisal rights should not assume that
Telesource will file a petition with respect to the appraisal of the value
of their shares or that Telesource will initiate any negotiations with
respect to the "fair value" of such shares. Accordingly, such shareholders
should regard it as their obligation to take all steps necessary to perfect
their appraisal rights in the manner prescribed in section 262.
o Within 120 days after the date of the closing of the merger, any
shareholder who has therefore complied with the applicable provisions
of section 262 will be entitled, upon written request, to receive from
Telesource a statement setting forth the aggregate number of shares not
voted in favor of the merger and with respect to which demands for
appraisal were received by Telesource, and the number of holders of
such shares. Such statement must be mailed within 10 days after the
written request therefore has been received by Telesource or within 10
days after expiration of the period for delivery of demands for
appraisal, which ever is later.
o If a petition for an appraisal is timely filed, at the hearing on such
petition the court will determine the shareholders of Telesource entitled
to appraisal rights. After determining the shareholders entitled to an
appraisal, the court will appraise the value of the shares of Telesource
common stock owned by such shareholders, determining the "fair value"
thereof exclusive of any element of value arising from the accomplishment
or expectation of the merger. The court will direct payment by Telesource
of the fair value of such shares together with a fair rate of interest, if
any, on such fair value to shareholders entitled thereto upon surrender to
Telesource of stock certificates. The costs of the proceeding may be
determined by the court and taxed upon the parties as the court deems
equitable in the circumstances. Upon application of a shareholder, the
court may, in its discretion, order that all or a portion of the expenses
incurred by any shareholder in connection with an appraisal proceeding,
including without limitation, reasonable attorneys' fees and fees and
expenses of experts, be charged pro rata against the value of all the
shares entitled to appraisal.
o Although Telesource believes that the merger is fair, no representation is
made as to the outcome of the appraisal of fair value as determined by the
court and shareholders should recognize that such appraisal could result in
a determination of a value higher or lower than, or the same as, the
Conversion Value. Moreover, Telesource does not presently anticipate
offering more than the Conversion Value to any shareholder exercising
appraisal rights and reserves the right to assert, in any appraisal
proceeding, that, for purposes of section 262, the "fair value" of a share
of Telesource common stock is less than the Conversion Value. In
determining the "fair value" of shares of Telesource common stock, the
court is required to take into account all relevant factors. Therefore,
such determination could be based upon considerations other than, or in
addition to, the price paid for shares of Telesource common stock,
including, without limitation, the market value of shares and the asset
values and earning capacity of Telesource.
In WEINBERGER V. UOP, INC. ET AL., 457 A.2d 701,713 (Del. 1983), the
25
<PAGE>
Delaware Supreme court stated, among other things, that "proof of value
by any techniques or methods which are generally considered acceptable
in the financial community and otherwise admissible in court" should be
considered in an appraisal proceeding. Section 262 provides that "fair
value" is to be "exclusive of any element of value arising from the
accomplishment or expectation of the merger." In WEINBERGER, the
Delaware Supreme court held that "elements of future value, including
the nature of the enterprise, which are known or susceptible of proof
as of the date of the merger and not the product of speculation, may be
considered."
o Any holder of shares of Telesource common stock who has demanded an
appraisal in compliance with section 262 will not, after the closing of
the merger, be entitled to vote such holder's shares for any purpose
nor be entitled to the payment of dividends or other distributions on
such shares (other than those payable to shareholders of record as of a
date prior to the closing of the merger).
o If (i) no petition for an appraisal is filed within 120 days after the
date of the closing of the merger or (ii) a holder of shares delivers
to Telesource a written withdrawal of such holder's demand for an
appraisal and an acceptance of the merger, either within 60 days after
the closing of the merger or with the written approval of Telesource
thereafter (which Telesource reserves the right to give or withhold, in
its sole discretion), then the right of such shareholder to an
appraisal will cease and such shareholder will remain a shareholder of
Telesource. No appraisal proceeding in the court will be dismissed as
to any shareholder without the approval of the court, which approval
may be conditioned on such terms as the court deems just.
It is a condition to Telesource' obligations to consummate the merger that
the holders of no more than 1% of the outstanding shares of Telesource's common
stock are entitled to dissenters' rights. If demands for payment are made with
respect to more than 1%, of the outstanding shares of Telesource's common Stock,
and, as a consequence more than 1% of the shareholders of Telesource become
entitled to exercise dissenters' rights, then Telesource will not be obligated
to consummate the merger.
Accounting Treatment
For accounting purposes, the merger will be treated as a reverse
acquisition with Telesource being treated as the acquiree for financial
reporting purposes.
Merger Procedures
Unless otherwise designated by a Telesource shareholder on the transmittal
letter, certificates representing shares of Sixth Business Service Group common
stock issued to Telesource shareholders will be issued and delivered to the
tendering Telesource shareholder at the address on record with Telesource. In
the event of a transfer of ownership of shares of Telesource common Stock
represented by certificates that are not registered in the transfer records of
Telesource, the shares may be issued to a transferee if such certificates are
delivered to the Transfer Agent, accompanied by all documents required to
evidence such transfer and by evidence satisfactory to the Transfer Agent that
any applicable stock transfer taxes have been paid. If any certificates shall
have been lost, stolen, mislaid or destroyed, upon receipt of
26
<PAGE>
o An affidavit of that fact from the holder claiming such
certificates to be lost, mislaid or destroyed, Such bond, security
or indemnity as the surviving corporation and the merger agent may
reasonably require
o Any other documents necessary to evidence and effect the bona fide
merger, the merger agent shall issue to holder the shares into
which the shares represented by such lost, stolen, mislaid or
destroyed
o Certificates have been converted.
Neither Sixth Business Service Group, Telesource, nor the Transfer Agent is
liable to a holder of Telesource's common stock for any amounts paid or property
delivered in good faith to a public official under any applicable abandoned
property law. Adoption of the merger agreement by the Telesource's shareholders
constitutes ratification of the appointment of the Transfer Agent.
After the closing of the merger, holders of certificates will have no
rights with respect to the shares of Telesource common stock represented thereby
other than the right to surrender such certificates and receive in merger the
shares of Sixth Business Service Group common stock to which such holders are
entitled.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Introduction
In Management's Discussion and Analysis we explain the general financial
condition and results of operations for Telesource International and its
business subsidiaries including:
o what factors affect our business,
o what our earnings and costs were for the nine months ended September
30, 1999 and 1998, respectively, and for the twelve months ended
December 31, 1998 and 1997, respectively,
o why those earnings and costs were different from the year before, o where our
earnings came from, o how all of this affects our overall financial condition, o
how our segments performed, o where cash will come from to pay for future
capital expenditures.
As you read Management's Discussion and Analysis, it may be helpful to
refer to our Consolidated Statements of Income on page F-3, which present the
results of our operations for 1998 and 1997. In Management's Discussion and
Analysis, we analyze and explain the annual changes in the specific line items
in the Consolidated Statements of Income. Our analysis may be important to you
in making decisions about your investments in Telesource International.
27
<PAGE>
Telesource and Sixth Business have agreed to merge into a new company and
for the surviving company to be named Telesource International, Inc. We plan to
complete the merger as soon as we obtain all regulatory approvals. These matters
are discussed in more detail beginning on page 5.
Overview of the Company
Telesource is an international engineering and construction company, which
has among its operations power generation and specialty construction services in
the Commonwealth of Mariana Islands. We operate a diesel fired electric power
generation plant for the sale of electricity to the local power grid. Our
facility in Lombard, Illinois annually handles the procurement, export and
shipping of several million dollars worth of U.S. fabricated products for use by
our subsidiaries or for resale to customers outside of the mainland.
Telesource was formed in 1994 to facilitate various intra-corporate
activities and, until July 1999, was a wholly owned subsidiary of SHBC a
Kuwait-based civil, electrical and mechanical construction company.
We conduct our operations primarily through subsidiaries. We currently have
three subsidiaries. Our Mariana subsidiary handles construction and management
of our power facilities in the Commonwealth of Mariana Islands. Our second
subsidiary, Commsource International located in Chicago, Illinois, is an
international export company that facilitates the purchase of equipment
fabricated in the U.S. Our branch offices in Guam, Telesource Pacifica and
Pacifica Power Resources, a trading company, were created to take advantage of
opportunities we believe will be available there.
Telesource has three main operating segments: construction services,
trading activities and power generation. The power generation activities did not
commence until March 1999.
o Construction services. Our main lines of construction services
cover the range from single-family housing to power generation
plants. We are now working on expanding the business by taking
advantage of opportunities to increase market share in
existing geographic areas and to expand geographic service
areas in our core lines of business. We are currently one of
the largest construction contractors in the Commonwealth of
Northern Mariana Islands.
o Power generation and sale. We have contracts to generate and
provide wholesale electrical power to local government
agencies, which is then distributed on their power grids.
In March 1999, Telesource began generating power for resale at its power
generation plant, and this activity generated $138,938 in operating revenues
since March 1999 or less than 1% of the combined gross revenues for Telesource.
Prior to 1999, Telesource had not established this segment and therefore
financial data is presented only for the nine months ended September 30, 1999.
28
<PAGE>
For September 30, 1999 and December 31, 1998 and 1997, Telesource was involved
in two other lines of business, construction and trading of U.S. fabricated
products. There were no material amounts of transfers between lines of business.
Any intersegment sales have been eliminated. The following table sets forth
certain segment information for the periods indicated: <TABLE> <CAPTION>
Power
Generation Construction Trading Total
------------ -------------- ------------- ----------------
<S> <C> <C> <C> <C>
September 30, 1999:
Gross revenues $ 138,938 $ 15,612,564 $ 3,107,159 $ 18,858,661
Costs and expenses - 12,511,007 2,833,013 15,344,020
Gross profit 138,938 3,101,557 274,146 3,514,641
Expenses 191,343 627,432 487,378 1,306,153
Operating profit (loss) (52,405) 2,474,125 (213,232) 2,208,488
Other income (expense) 868,085 214,322 2,239 1,084,646
Net income (loss) 607,788 1,949,919 (210,993) 2,346,714
Current assets 1,297,793 1,165,505 297,473 2,760,771
Costs and estimated earnings in excess
of billings - 21,944,282 - 21,944,282
Notes receivable, net of current portion 11,606,762 - - 11,606,762
Total assets 13,512,343 25,448,338 385,324 39,346,005
Total liabilities 13,000,000 17,573,782 608,989 31,182,771
1998:
Gross revenues $ - $ 28,069,654 $ 5,398,553 $ 33,468,207
Costs and expenses - 21,931,964 5,099,326 27,031,290
Gross profit - 6,137,690 299,227 6,436,917
Expenses - 824,390 875,684 1,700,074
Operating profit (loss) - 5,313,300 (576,457) 4,736,843
Other income (expense) - (35,682) 12,453 (23,229)
Net income (loss) - 4,574,823 (564,004) 4,010,819
Current assets - 925,732 322,178 1,247,910
Costs and estimated earnings in excess
of billings - 22,502,747 - 22,502,747
Total assets - 25,171,887 424,292 25,596,179
Total liabilities - 19,292,695 486,964 19,779,659
1997:
Gross revenues $ - $ 4,805,669 $ 8,570,339 $ 13,376,008
Costs and expenses - 3,563,007 8,057,617 11,620,624
Gross profit - 1,242,662 512,722 1,755,384
Expenses - 467,159 637,469 1,104,628
Operating profit (loss) - 775,503 (124,747) 650,756
Other expense - 30,697 - 30,697
Net income (loss) - 718,337 (124,747) 593,590
Current assets - 2,090,403 72,374 2,162,777
Costs and estimated earnings in excess
of billings - 5,187,997 - 5,187,997
Total assets - 8,346,759 1,074,752 9,421,511
Total liabilities - 7,042,390 1,273,420 "8,315,810
</TABLE>
The Company's contracts are obtained primarily through competitive bidding
in response to advertisements by federal, state and local agencies, and private
parties. The Company's bidding activity is affected by such factors as backlog,
current utilization of equipment and other resources, ability to obtain
necessary surety bonds and competitive considerations. Bidding activity, backlog
and revenue resulting from the award of new contracts to the Company may vary
significantly from period to period.
29
<PAGE>
Revenue from construction contracts including construction joint ventures
is recognized using the percentage-of-completion method of accounting, based
upon costs incurred and projected costs. Cost of revenue consists of direct
costs on contracts; including labor and materials, amounts payable to
subcontractors, direct overhead costs, equipment expense (primarily
depreciation, maintenance and repairs) and insurance costs. Depreciation is
provided using straight-line methods for construction equipment. Contracts
frequently extend over a period of more than one year and revisions in cost and
profit estimates during construction are reflected in the accounting period in
which the facts that require the revision become known. Losses on contracts, if
any, are provided in total when determined, regardless of the degree of project
completion. Claims for additional contract revenue are recognized in the period
when it is probable that the claim will result in additional revenue and the
amount can be reliably estimated. The foregoing as well as the stage of
completion, and mix of contracts at different margins may cause fluctuations in
gross profit between periods.
The construction industry and electric utility industry are undergoing
rapid and substantial change. Competition is increasing. The regulatory
environment is shifting. These matters are discussed briefly in the
"Competition" and "Regulatory" sections on pages 46 and 47. Telesource
International continuously evaluates these changes. Based on the evaluations,
Telesource International refines its short and long-term business plans with the
primary goal of protecting our security holders' investments and providing them
with superior returns on their investment in Telesource International. As you
read Management's Discussion and Analysis, many Telesource International
initiatives to support our primary goal are mentioned. These include the
proposed merger with Sixth Business and subsequent listing of Telesource
International's stock on the Over The Counter system, designed to position us to
remain competitive as the industry changes by giving us improved access to the
capital markets.
Cautionary Statement
This registration statement on Form S-4 contains "forward-looking
statements", as defined by the Private Securities Litigation Reform Act of 1995,
in order to provide investors with prospective information about the Company.
For this purpose, any statements which are not statements of historical fact may
be deemed to be forward-looking statements. Without limiting the foregoing, the
words "believes", "anticipates", "plans", "expects" and similar expressions are
intended to identify forward-looking statements. There are a number of important
factors which could cause the Company's actual results and events to differ
materially from those indicated by the forward-looking statements. These factors
include, without limitation, those set forth below under the caption "Certain
Factors That May Affect Future Results".
Results of Operations
Nine months ended September 30, 1999 compared to the nine months ended September
30, 1998
Revenue. During the nine months ended September 30, 1999, revenue was
$18,858,661 and decreased $6,452,816, or 25.5%, as compared to revenues of
$25,311,477 for the same period in 1998. The construction of the power
30
<PAGE>
generation plant was completed on phase I in March 1999. The Company received a
change order in December of 1998 to proceed with the construction of Phase II;
however, the construction activities on phase II of the power generation plant
were delayed as expected to allow for ordering and the delivery of the
construction materials needed for phase II.
Gross Profits. For the nine months ended September 30, 1999, gross profit
was $3,514,641, a $1,136,403 decrease from $4,651,044 for the same period in
1998. As a percentage of revenue, gross profit increased for the nine months
ended September 30, 1999 to 18.6% from 18.4% for the same period in 1998. The
increased gross profit margin is attributed to the additional revenues from the
power generation activities.
Salaries and Employee Benefits. Salaries and employee benefits were
$426,007 for the nine months ended September 30, 1999 as compared to $286,002
for the same period in 1998. The increase in salaries and employee benefits was
a 49.0% increase and is attributed to additional staffing required for the
operation and maintenance of the power generation plant along with the
additional salary expense associated with the addition of one new executive
officer.
Occupancy and Equipment Expenses. Occupancy and equipment expenses
decreased to $103,881, or 64.0%, from $288,198 for the nine months ended
September 30, 1999 and 1998, respectively. The decrease in occupancy and
equipment expense is attributed to management's efforts to reduce costs in
periods of reduced sales, rental income and service fees. The reductions in
revenue generation resulted in reduced needs and subsequently, lower expenses.
General and Administrative Expenses. General and administrative expenses
include costs associated with the Company's estimating and bidding activities,
and other administrative costs. General and administrative expenses increased
from $448,042 to $776,265 for the nine months ended September 30, 1998 and 1999,
respectively and increased to 4.1% of revenue, from 1.8% of gross revenue for
the nine months ended September 30, 1999 and 1998, respectively. The increase is
primarily due to the operational needs of the Company to prepare for phase II of
the power generation plant along with the operation and maintenance of the power
generation plant.
Other Expense and Other Income. Other expense and other income, net,
increased to a net other income of $1,084,646 for the nine months ended
September 30, 1999 as compared to a net expense of $17,439 for the same period
during 1998. The change is attributed to the recognition of interest income on
the notes receivable in the amount of $1,048,865.
Net Income. Net income for the nine months ended September 30, 1999
amounted to $2,346,714 or $0.23 per fully diluted share as compared to net
income of $3,101,870 or $0.31 per fully diluted share for the same period in
1998. The decrease in net results during the first nine months of 1999 is
attributable to the expected delay between receiving the notice to proceed with
construction on phase II and the time required to order the materials and have
them delivered along with decreases in trading activities, rental income and
service fees. Earnings per share in future periods will depend in large part on
the Company's ability to successfully bid and be awarded additional contracts
for construction services.
31
<PAGE>
Operating Activities
While the Company reported an overall net income of $2,346,714 for the
first nine months of 1999, the Company generated cash from its operating
activities in the amount of $4,619,885. The following adjustments, which did not
impact the Company's cash flows, need to be considered in order to reconcile the
Company's 1999 net income to its net cash provided by operating activities.
Depreciation and Amortization. During the first nine months of 1999, the
Company recognized depreciation and amortization of $374,995.
Deferred Income Tax Benefit. The Company's net deferred income tax
liability was $826,956 as of September 30, 1999 as compared to $232,382 at
December 31, 1998. The increase in the deferred tax liability is a result of the
tax provision taken during the first nine months of 1999.
The Company also offers the following information to discuss changes in its
operating assets and liabilities which most notably impacted its cash position
during 1999:
The Company's current assets amounted to $2,760,771 as of September 30,
1999, as compared to $1,247,910 as of December 31, 1998. The increase is due
primarily to the recognition of a note receivable in the amount of $13,115,690
during the first nine months of 1999. $1,297,793 was classified as the current
portion due on the note receivable at September 30, 1999. The note receivable is
associated with the Company's completion of phase I on the construction of the
power generation plant. The completion of phase I resulted in the transfer from
the balance sheet account costs and estimated earnings in excess of estimated
billings. The Company began receiving installment payments in March 1999 in the
amount of $180,000 per month for ten years.
Costs and estimated earnings in excess of billings decreased by $558,465 to
$21,944,282 from $22,502,747 as of September 30, 1999 and December 31, 1998,
respectively. The decrease is attributed to the completion of phase I of the
power generation plant construction contract.
Premises and equipment, net of depreciation was almost unchanged at
September 30, 1999 in the amount of $1,789,500 as compared to the balance at
December 31, 1998 of $1,786,409, for a net increase of $3,091. The increase is
attributed to premises and equipment additions outpacing depreciation during the
first nine months of 1999.
The Company's accounts payable and accrued expenses amounted to $3,022,869
as of September 30, 1999 as compared to $1,478,774 as of December 31, 1998. The
increase of 104.4% in accounts payable and accrued expenses is attributed to the
increase in goods and services purchased during the first nine months of 1999 as
related to the construction activities on phase II. The growth in construction
services resulted in increased demand for construction products which in turn
increased the amount of accounts payable outstanding at September 30, 1999.
Customer deposits remained unchanged at $125,000 as of September 30, 1999.
32
<PAGE>
Notes payable classified as long-term increased $9,500,000 to $27,000,000
from $17,500,000 as of September 30, 1999 as compared to December 31, 1998. The
additional borrowings consisted of the $7,500,000 from the Commercial Bank of
Kuwait, New York Branch, which increased the amount owed to the Commercial Bank
of Kuwait, New York Branch, to $25,000,000 or the maximum amount available under
the credit line from the Commercial Bank of Kuwait, New York Branch. This credit
line is due in February 2002. The Company was granted a $2,000,000 letter of
credit from the Kuwait Real Estate Bank on May 2, 1999 at a floating interest
rate of LIBOR plus 2.5%. This letter of credit will mature on May 12, 2001 and
the Company had a balance due to the Kuwait Real Estate Bank on this letter of
credit of $2,000,000 at September 30, 1999.
Warranty Reserve. The Company does not record a warranty reserve. Work
performed under warranties is performed at the expense of the equipment
manufacturer. The Company has not experienced any losses associated with
warranty work to date.
Financing Activities
Unsecured Line of Credit with the Commercial Bank of Kuwait, New York
Branch - The Company used the full amount of a credit line with $25 million of
available credit under an unsecured loan from the Commercial Bank of Kuwait, New
York Branch. The loan has an interest rate of LIBOR plus 300 basis points. Under
the terms of the loan agreement, interest payments are due annually and
the principal balance is due at maturity. This loan is scheduled to mature in
February 2002. This loan has a guarantee of repayment to the Commercial Bank of
Kuwait, New York Branch, from the Company's largest stockholder, SHBC. See
"Related Parties".
Telesource was granted an unsecured letter of credit with the Kuwait Real
Estate Bank for $2,000,000 and had subsequently borrowed $2,000,000 on this
letter of credit at September 30, 1999. The loan has an interest rate of LIBOR
plus 250 basis points. This loan was originated on May 2, 1999 and will mature
on May 12, 2001. Under the terms of the loan agreement, the loan is due in lump
sum at maturity. This line of credit is guaranteed by SHBC.
Telesource was granted a $1,000,000 line of credit from the Bank of Hawaii.
This line of credit is 100% secured by certificates of deposits held at the Bank
of Hawaii and has an interest rate of 1% over the certificate of deposit rate.
The line has a maturity in March 2001 with interest payments due monthly and
principal due at maturity. The Company did not have any borrowings on this line
of credit at September 30, 1999.
Common Stock - The Company received a capital contribution from its
stockholder, SHBC, in the amount of $700,000 in 1998. In July 1999, the Company
announced that its Board of Directors approved a one-for-ten thousand stock
split to stockholders of record on July 26, 1999. There was only one shareholder
of record on the record date, SHBC. All references in this document to number of
shares and per share amounts of the Company's common stock have been
retroactively restated to reflect the increased number of shares outstanding.
33
<PAGE>
Treasury Stock - The Company from time to time may make purchases of its
own common stock. The Company did not purchase any treasury stock during the
nine months ended September 30, 1999 or the twelve months ended December 31,
1998.
Cash Flow Outlook
During 1999, the Company expects that its principal sources of cash to fund
its business activities will be from available cash balances, operating
activities, investment earnings, lines of credit and other financing activities.
Year ended December 31, 1998 ("1998") compared with the year ended December 31,
1997 ("1997")
Revenue. During the year ended December 31, 1998, revenue increased
$20,092,199, or 150.2%, to $33,468,207 as compared to revenues of $13,376,008
for the same period in 1997. The increase in gross revenues is due primarily to
the Company's efforts in securing a contract to install and operate a power
generation plant on the island of Tinian and the completion of 97% of the first
phase of this contract during 1998 as well as the Company's involvement in the
construction of a radio relay tower for the Voice of America on the island of
Tinian. The power generation plant is being constructed in phases with the order
to construct phase I and II fully executed. The power generation plant has the
capacity for a phase III; however, the construction of phase III is subject to
future power demands and the date or the probability of Telesource receiving an
order to construct phase III can not be reasonably estimated. Revisions in
contract revenue and cost estimates are reflected in the accounting period when
known. Provision for the entire amount of estimated losses on uncompleted
contracts is made in the period such losses are determined. Claims for
additional contract revenue are recognized if it is probable that the claim will
result in additional revenue and the amount can be reliably estimated.
Gross Revenues. While the Company expects to be able to increase gross
revenues in future periods, the growth rate in earnings recognized in 1998 is
not expected to continue at the level experienced in 1998. Future revenues are
dependent upon the Company's efforts to secure contracts through the bidding
process and therefore no assurances can be given that the Company will be able
to increase gross revenues in future periods.
Gross Profits. For the year ended December 31, 1998, gross profit reached
$6,436,917, a $4,681,533 increase from 1997. As a percentage of revenue, gross
profit increased in 1998 to 19.2% from 13.1% in 1997. The increased gross profit
margin is attributed to the Company's efforts to grow revenues and manage costs
efficiently during periods of high growth.
Salaries and Employee Benefits. Salaries and employee benefits declined to
$386,571 for the twelve months ended December 31, 1998 as compared to the same
period during 1997 of $452,795. The decrease in salaries and employee benefits
was a 14.6% decrease and is attributed to vacancies within two executive
positions during 1998. These vacancies have been filled and an increase in
salaries and employee benefits is expected to occur in future periods.
34
<PAGE>
Occupancy and Equipment Expenses. Occupancy and equipment expenses remained
relatively flat at $293,112 as compared to $305,290 for the twelve months ended
December 31, 1998 and 1997, respectively.
General and Administrative Expenses. General and administrative expenses
include administrative salaries, incentive compensation, retirement plans, costs
associated with the Company's estimating and bidding activities, and other
administrative costs. General and administrative expenses increased from
$346,543 in 1997 to $748,935 in 1998 and decreased from 19.7% of gross profit in
1997, to 11.6% of gross profit in 1998. The dollar increase is primarily due to
costs resulting from the Company's increased revenue and bidding activities and
additional administrative staffing associated with the Company's growth. The
decrease as a percent of revenue is due to the fixed nature of certain expenses
and the increased revenue achieved in 1998.
Impairment of Long-Lived Asset. Telesource recognized an impairment of
long-lived assets during 1998 in the amount of $271,456 with no impairment
recognition during 1997. The Company accounts for long-lived assets in
accordance with the provisions of Statement of Financial Accounting Standards
No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of. This statement requires that long-lived assets and
certain identifiable intangibles be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows expected
to be generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceed the fair value of the assets. Assets to be disposed
of are reported at the lower of the carrying amount or fair value less costs to
sell. Management began evaluating the balance in goodwill associated with its
acquisition of Commsource International in connection with its review of the
operational performance of this subsidiary. Commsource International posted a
loss of $73,444 for the twelve months ended December 31, 1997 and a loss of
$195,791 for the twelve months ended December 31, 1998. In light of these losses
recognized by Commsource International along with the lack of necessary evidence
to support the carrying value of the goodwill, management has recognized an
impairment to the full value of the goodwill associated with Telesource's
investment in Commsource International.
Other Expense and Other Income. Other expense and other income remained
relatively unchanged at an expense of $23,229 for the twelve months ended
December 31, 1998 as compared to an expense of $30,697 for the same period
during 1997. The $7,468 reduction in other expenses is attributed to improved
cash management.
Net Income. Net income in 1998 amounted to $4,010,819 or $0.40 per fully
diluted share as compared to net income of $593,590 or $0.06 per fully diluted
share in 1997. The increase in net results during 1998 is attributable to
increases in our construction activities and growth in rental revenues. Earnings
per share in future periods will depend in large part on the Company's ability
to successfully bid and be awarded additional contracts for construction
services. There were no power generation revenues in CNMI during 1998 or 1997
and we began generating power at our power generation plant on the island of
Tinian in March 1999 as scheduled.
35
<PAGE>
1999 Outlook
With a view towards 1999, the Company expects to achieve continuing
operating earnings as a result of profits from construction and power generation
activities along with the management of its corporate general and administrative
expenses. The Company offers the following prospective information concerning
significant components of its 1999 results of operations which are being
compared to historical results of operations in 1998:
Power Generation Revenues. Our power generation activities are estimated to
be less than 3% of the Company's revenues in 1999. During 1998, the power
generation facility located on the island of Tinian were under construction and
not scheduled to begin producing power until March 1999. Originally, Telesource
was contracted to construct a 10 Mw plant and then in December of 1998,
Telesource was contracted to increase its power producing capabilities to 20 Mw.
Telesource's power generation plant on Tinian was designed to be upgradeable to
a total power generation capability of 30 Mw. While the Company expects that it
will be able to sell all of its production, there can be no assurance that our
full power production capability will be utilized at all times.
Operating Expenses. Operating expenses are expected to increase in 1999
as a result of commencing the power plant production activities. The
completion of the second phase of construction is expected in March 2000.
General and Administrative Expenses. General and administrative expenses
are expected to increase during 1999. The principal administrative costs which
are subject to considerable variation pertain to the Company's expenses incurred
in registering its common stock and maintaining its public company status.
Staffing additions as well as increased fees for audit and legal expenses are
expected to occur. Unlike traditional offering statements, whereby the expenses
of the offering and subsequent registration of the Company's common stock are
netted from the proceeds of the offering, the Company is not offering any
securities for sale through this registration statement. All known expenses
incurred through the registration statement will be recognized in 1999.
Additionally, Telesource will begin paying board fees to its board members in
late 1999. The board fees for 1999 are expected to be approximately $70,000.
Other Expense and Other Income. Other expenses and other income are
expected to remain flat during 1999.
Finally, the Company remains focused on growth both internally and
externally. We believe we are working to carry out a strategic plan that will
provide us with the opportunity to capitalize on the exciting opportunities
ahead of us. We will continue to work our plan, focusing on profitable growth in
an effort to provide an optimal level of value to our stockholders.
Reclassification of Certain Balances
There have been reclassifications of certain balances to conform the
financial statement to Generally Accepted Accounting Principles. Prior to the
preparation of this registration statement, Telesource maintained its accounting
36
<PAGE>
records on a tax basis, specifically, Telesource used the completed contract
method in the preparation of its financial statements for tax purposes. In order
for Telesource to prepare its financial statements in accordance with Generally
Accepted Accounting Principles, Telesource changed its method of accounting for
the revenues realized on its construction contracts to the
percentage-of-completion method of accounting, and applied the
percentage-of-completion method to the financial statement information presented
herein.
Recently Issued Accounting Standards
See Note 2 to the Consolidated Financial Statements for recently issued
accounting standards which are required to be adopted in 1999.
Liquidity and Capital Resources
Operating Activities
The Company had cash used by operating activities of $10,124,673 in 1998
and cash used by operating activities of $5,424,342 in 1997.
While the Company reported an overall net income of $4,010,819 during 1998,
the Company did not generate significant cash from its operating activities. The
following adjustments, which did not impact the Company's cash flows, need to be
considered in order to reconcile the Company's 1998 net income to its net cash
provided by operating activities.
Depreciation and Amortization. During 1998, the Company recognized
depreciation and amortization of $451,888, and an impairment to long-lived
assets of $271,456.
Deferred Income Tax Benefit. The Company's net deferred income tax
liability amounted to $617,382 as of December 31, 1998 as compared to none as of
December 31, 1997. The increase in the deferred tax liability is associated with
a temporary difference created by the Company's recognition of profits on its
construction activities under the percentage-of-completion method for financial
statement reporting purposes as compared to the installment method of
recognizing income for income tax purposes.
The Company also offers the following information to discuss changes in its
operating assets and liabilities which most notably impacted its cash position
during 1998:
The Company's current assets amounted to $1,247,910 as of December 31, 1998
as compared to $2,162,777 as of December 31, 1997. The decrease in current
assets by 42.3% is due to a reduction in accounts receivable by 82.4% from
$1,086,581 to $191,078 as of December 31, 1997 and 1998, respectively. The
reduction in accounts receivable is a result of the contract to construct the
power plant which defers payments for construction services until the
construction is complete. Telesource began receiving installment payments in
March 1999 in the amount of $180,000 per month for ten years.
37
<PAGE>
Costs and estimated earnings in excess of billings increased by $17,314,750
to $22,502,747 from $5,187,997 as of December 31, 1998 and 1997, respectively.
The increase is attributed to the power plant construction contract which defers
the payment for construction services until completion at which time Telesource
will begin receiving monthly installments of $180,000 for ten years.
Premises and equipment, net of depreciation increased 56.9% to $1,786,409
from $1,138,567. The increase is attributed to additional equipment needs
associated with the growth in construction service activities.
Excess of cost over fair value of net assets acquired amounted to $287,424
at December 31, 1997 and none at December 31, 1998. The full amount of the
goodwill associated with the acquisition of Commsource International was
recognized as impaired in 1998 as a result of the losses realized by Commsource
International in 1997 and 1998 along with the lack of evidence to support the
carrying value of the goodwill.
The Company's accounts payable and accrued expenses amounted to $1,478,774
as of December 31, 1998 as compared to $989,532 as of December 31, 1997. The
increase of 49.4% in accounts payable and accrued expenses is attributed to the
growth in construction services realized during 1998. The growth in construction
services resulted in increased demand for construction products which in turn
increased the amount of accounts payable outstanding at December 31, 1998.
Customer deposits remained unchanged at $125,000 as of December 31, 1998
while notes payable classified as current liabilities decreased from $6,700,000
to none at December 31, 1997 and 1998, respectively. The decrease in notes
payable classified as currently due was paid at December 31, 1997 consisted of a
$6,000,000 note payable to the Commercial Bank of Kuwait, New York Branch, which
was renewed for $25,000,000 due in February 2002 during 1998, a $700,000 note
due to SHBC which was repaid with proceeds from a capital contribution made by
SHBC, and lastly a note payable to SHBC for $278,374 which was repaid during
1998 by internally generated cash flows.
Warranty Reserve. The Company does not record a warranty reserve. Work
performed under warranty's is performed at the expense of the equipment
manufacturer. The Company has not experienced any losses associated with
warranty work to date.
Financing Activities
The Company utilized $11,221,626 and $6,978,374 in financing activities
during the years ended December 31, 1998 and 1997, respectively. The Company's
financing activities are concentrated primarily in the following areas:
Unsecured Line of Credit with the Commercial Bank of Kuwait, New York
Branch, - The Company used $17.5 million of a credit line with $25 million of
available credit under an unsecured loan from the Commercial Bank of Kuwait, New
York Branch. The loan has an interest rate of LIBOR plus 300 basis points. Under
38
<PAGE>
the terms of the loan agreement, interest payments are due annually and the
principal balance is due at maturity. This loan is scheduled to mature in
February 2002. This loan has a guarantee of repayment to the Commercial Bank of
Kuwait, New York Branch, from the Company's largest stockholder, SHBC. See
"Related Parties".
Telesource has an unsecured line of credit with the Kuwait Real Estate Bank
for $2,000,000. The loan has an interest rate of LIBOR plus 250 basis points.
This loan was originated on May 2, 1999 and will mature on May 12, 2001. Under
the terms of the loan agreement, the loan is due in lump sum at maturity. This
line of credit is guaranteed by SHBC.
Telesource was granted a $1,000,000 line of credit from the Bank of Hawaii.
This line of credit is 100% secured by certificates of deposits held at the Bank
of Hawaii and has an interest rate of 1% over the certificate of deposit rate.
The line has a maturity in March 2001 with interest payments due monthly and
principal due at maturity.
Common Stock - The Company received a capital contribution from its
stockholder, SHBC, in the amount of $700,000 in 1998, none in 1997, and a
$40,000 capital contribution from SHBC in 1996. The Company did not receive any
proceeds from the issuance of its Common Stock during 1998, 1997 and 1996,
respectively and no additional stock was issued for these same periods.
Treasury Stock - The Company from time to time may make purchases of its
own common stock. The Company did not purchase any treasury stock during 1998,
1997 or 1996.
Cash Flow Outlook
During 1999, the Company expects that its principal sources of cash to fund
its business activities will be from available cash balances, operating
activities, investment earnings, lines of credit and other financing activities.
The Company expects to achieve earnings on an annual basis for the
foreseeable future. The power generation activities will obviously bear the
burden of repaying the debt obligations relating to the costs of constructing
our power generation plant. The loan from the Commercial Bank of Kuwait, New
York Branch, for $25 million has a maturity in February 2002. Nevertheless, the
Company believes that the cash flows from its operating, investing and financing
activities will be sufficient to fund the Company's business activities on a
long-term basis. The payment of any future dividends will depend on the Board of
Directors' evaluation, made on a quarterly basis, based on its dividend policy
and the Company's then current and projected operating performance and capital
requirements.
See the further discussions under "Dividend Policy" and "Certain Factors
That May Affect Future Results" below.
39
<PAGE>
Legal Proceedings
Telesource is involved in various litigation proceedings incidental to the
ordinary course of business. In the opinion of management, the ultimate
liability, if any, resulting from such litigation would not be material in
relation to the Company's financial position or results of operations.
Year 2000 Readiness
General
The Company continues to address the issue of Year 2000 Readiness ("the Y2K
Project") and is proceeding on a schedule designed to complete the Y2K Project
by November 1999. In 1998, the Company began establishing procedures to assess
the risks associated with the Y2K Project. The Company's procedures to assess
the risks of the Y2K Project have included an inventory of stand-alone hardware
and software ("IT Systems"), an inventory of all system components embedded in
our power generation plant operating control systems ("Non-IT Systems"), the
identification of critical vendors, customers and business partners, the testing
of both IT Systems and Non-IT systems and a solicitation of responses from all
critical vendors, customers and business partners indicating their readiness for
the Year 2000.
Presently, the Company has completed its testing of IT Systems and Non-IT
Systems. Based on the results of these tests, the Company has identified IT
Systems and components of Non-IT Systems which are not Year 2000 compliant. With
respect to IT systems, the Company has either already upgraded such systems or
has placed orders to upgrade such systems in the near future. As far as Non- IT
Systems, the Company has received recommendations from third parties regarding
solutions to either upgrade or replace non-compliant system components. At this
time, the Company has received assurances from such third parties that solutions
to remedy the non compliant system components are readily available and could be
implemented within the Company's time parameters for the Y2K Project. The
upgrades and/or replacements of non-compliant system components are expected to
be performed prior to December 1999.
The Company has made substantial progress in securing responses from most
critical vendors, and business partners indicating their readiness for Year
2000. Based on the responses received to date, the Company has not identified
any conditions of potential non-compliance which the Company estimates would
materially impact its business.
Costs
Telesource began operating in 1994 and began verifying Year 2000 compliance
on equipment purchases before executing orders. The Company had not incurred
costs to remediate Year 2000 issues as of December 31, 1998 and does not expect
to incur any costs to remediate Year 2000 issues in 1999. The Company does not
expect that the total costs to remediate Year 2000 issues would be material to
its financial position.
40
<PAGE>
Risks and Contingency Plans
The Company believes that it has established a viable plan designed to
ensure that the Y2K Project is completed prior to the year 2000. However, in
connection with its Y2K Project, the Company is also developing a contingency
plan which describes the steps the Company would take if the Y2K Project is not
completed as planned. The Y2K Project efforts are ongoing and the Company will
endeavor to update the Y2K Project activities and its contingency plans as new
information becomes available.
The Year 2000 problem is a worldwide concern and there is a tremendous
amount of uncertainty about the effect this problem will have on any business.
The Company is endeavoring to understand the impact that failures of third
parties could have on its business. However, even with a diligent effort, the
Company may not be able to conceive every scenario in which a third party
failure could impact its business. However, through direct solicitation, the
Company has taken steps to assess the risk that known third parties with whom it
has significant business relationships are sufficiently prepared for the Year
2000.
The Company has key relationships with numerous vendors and business
partners. Presently, the Company has received responses from most key vendors
and business partners indicating their readiness for the Year 2000. Based on the
responses received to date, the Company has not identified any conditions of
potential non-compliance that the Company estimates would materially impact its
business. The Company has considered its relationships with the vendors and
business partners who have not yet indicated their readiness for Year 2000.
Based on this review, the Company does not believe that its business would be
materially affected if any of these vendors or key business partners failed to
ensure that they were Year 2000 compliant.
The Company has taken steps it deems prudent to understand its Year 2000
risks, to estimate the costs to complete its Y2K Project and to understand the
extent to which it could be impacted by third parties who fail to ensure they
are ready for the Year 2000. However, there can be no assurance that all
non-compliant systems or system components will be identified, that the
Company's systems will be Year 2000 compliant, that the Company will achieve its
estimated remediation costs or timetable, or that a failure by a third party to
be Year 2000 compliant would not have a material adverse affect on the Company's
business. However, by completing its Y2K Project, the Company believes it will
have taken appropriate steps to mitigate the risk that any of the aforementioned
items would have a material adverse affect on its business.
41
<PAGE>
Interest Rates
The Company's subsidiary has a variable rate term loan from the Commercial
Bank of Kuwait, New York Branch,, a variable rate term loan from Kuwait Real
Estate Bank and a variable rate term loan from the Bank of Hawaii. The Company
offers the following information about these debt obligations:
<TABLE>
<CAPTION>
Description of the Balance at
Obligation 12/31/98 Interest Rate Matures
- -------------------------------------- ------------------ ----------------------------- ------------------------
<S> <C> <C> <C>
Variable rate term loan $17,500,000 LIBOR rate plus 3.0% February 20, 2002
Description of the Balance at
Obligation 9/30/99 Interest Rate Matures
- ------------------------------------- ------------------ ----------------------------- ------------------------
Variable rate term loan $25,000,000 LIBOR rate plus 3.0% February 20, 2002
Variable rate term loan $2,000,000 LIBOR rate plus 2.5% May 12, 2001
</TABLE>
TELESOURCE BUSINESS
Telesource is an international engineering and construction company, with
specialized knowledge and experience in the construction of power generation and
broadcasting facilities as well as the operation of independent power generation
facilities.
Telesource was formed in 1994 to facilitate various intra-corporate
activities and, until July 1999, was a wholly owned subsidiary of SHBC a
Kuwait-based civil, electrical and mechanical construction company.
Our activities in Micronesia are concentrated in the Commonwealth of
Northern Mariana Islands, a United States possession. Our Chicago office is
responsible for the procurement of U.S. fabricated products to be used by our
subsidiaries as well as for resale.
We conduct our operations primarily through subsidiaries. We currently have
three subsidiaries. Our Mariana subsidiary, Telesource CNMI Inc., handles
construction and management of our power facilities in the Commonwealth of
Mariana Islands. Our second subsidiary, Commsource International, is an
international export company that facilitates the purchase of equipment in the
U.S. Our branch offices in Guam, Telesource Pacifica and Pacifica Power
Resources, a trading company, were created to take advantage of opportunities we
believe will be available there.
Telesource has three main operating segments: construction services,
trading activities and power generation. Power generation activities did not
commence until March 1999.
42
<PAGE>
o Construction services. Our main lines of construction services
cover the range from single-family housing to power generation
plants. We are now working on expanding the business by taking
advantage of opportunities to increase market share in
existing geographic areas and to expand geographic service
areas in our core lines of business. We are currently one of
the largest construction contractors in the Commonwealth of
Northern Mariana Islands.
o Power generation and sale. We have contracts to generate and
provide wholesale electrical power to local government
agencies, which is then distributed on their power grids.
Construction Services:
Telesource's Micronesian construction services are primarily carried out
through our Mariana subsidiary. In late 1996, our Mariana subsidiary was
subcontracted by our then-parent corporation to build a multimillion-dollar
radio relay station in the Commonwealth of Northern Mariana Islands for the
United States Information Agency.
In 1999, through a competitive bidding process, we were awarded a contract
to build 45 housing units for the Northern Mariana Housing Agency, a government
agency. These are government-subsidized, low-income housing units. This project
is valued at $6.3 million and is a first phase of a potentially larger project.
This project is currently at the permitting stage. We believe there may be
additional contracts or phases in the future. Although these may never be
contracted and we may not obtain the contract if they are.
Also in 1999, we were awarded a contract to build a school building on the
island of Tinian as part of a infrastructure upgrade. The first phase of this
project is valued at $330,000 which may at a latter date be upgraded; however,
there can be no assurance that Telesource will be awarded the upgrade.
Telesource has also been awarded a contract valued at approximately $800,000 to
provide overhead and underground electricity transmission lines to a U.S.
government site in the Commonwealth of Northern Mariana Islands and for the
development of a well valued at $715,000.
Non-Power Project Construction Expansion Plans:
With our expansion into Guam to take advantage of the growing U.S. military
presence there, we are currently looking for opportunities for our construction
services not only in Micronesia, but also throughout the Pacific basin.
Specialized Construction Processes:
Building a power plant or a broadcasting facility is not like the
construction of a more conventional building. Because of the high levels of
radio frequency emissions or the generation of electrical currents, every part
of the structure is integrated into the overall design and plays a role in
making the overall facility safer and more efficient.
43
<PAGE>
The building of these specialized structures requires additional
engineering skills, the knowledge of specialized construction techniques and
relationships with specialized subcontractors. The situation is made harder when
building offshore, where distance from raw materials and subcontractors becomes
a risk factor.
Past and Present Power Generation Construction Projects:
Our power generation business involves:
o Building the power plants
o Operating the power plants for the period of time of the contract
o Selling wholesale power to the client to be distributed on their
power grid
o The transfer of the ownership of the properties to the clients at
the end of the contract.
In 1997, the Commonwealth Utility Corporation, located in the Commonwealth
of the Northern Mariana Islands, awarded our Mariana subsidiary a multi-million
contract to design, build and operate a 10-30 megawatt power plant.
The initial 10 megawatts are now on-line, completed within budget and on
time; the plant has been operational since March 1999. The second phase of the
project is currently under construction, and by March 2000, we anticipate that
an additional 10 megawatts will be on-line. The third phase will be constructed
at the discretion of our Mariana subsidiary as the demand for power increases.
Accordingly, if power demand fails to meet our projections, this phase may never
be constructed.
Power Plant Operation and Maintenance:
The Commonwealth Utilities Corporation project in the Commonwealth of
Northern Mariana Islands is an example of a power plant operation and
maintenance project. We designed, financed and built the power plant. We
obtained financing through a $25,000,000 line of credit from the Commercial Bank
of Kuwait, New York Branch,. For this construction, we are paid $180,000 per
month for ten years by the Commonwealth Utilities Corporation. Each monthly
payment is secured by a promissory note in the amount of $180,000 issued by the
Commonwealth Utilities Corporation.
We have a 20-year lease on the land on which the power plant is built, plus
title to the entire plant and a two-month escrow account of no less than
$360,000 on which we have a first lien. In the event of the Commonwealth
Utilities Corporation being unable to meet their obligations either for their
monthly maintenance fees or for the promissory notes, we may sell, lease, assign
or transfer the power plant or any of the plant equipment.
In the first phase, Commonwealth Utilities Corporation also pays us a
production fee of $.02 per kilowatt-hour for each kilowatt produced on its
behalf for the first 5,140,000 kilowatt hours per month. In the second
additional 10 megawatt phase, Commonwealth Utilities Corporation has agreed to
pay us an additional production fee of $.065 per kilowatt-hour produced over the
44
<PAGE>
initial 5,140,000 kilowatt hours per month. In addition, the CUC pays a service
fee of $50,000 a month for operating and maintaining the power plant.
CUC has the right to terminate the contract for operation and maintenance
at any time with six month's notice. In such event, we would still have title to
the power plant until such a time that we are fully repaid.
Potential Future Power Plant Construction and Power Supply:
Based on our previous experience, we believe there will be a growing demand
for power around the world and in the U.S.; however competition and deregulation
could eliminate the financial feasibility of these projects and thereby prevent
us from taking advantage of the expected growth in demand. In the U.S.
two-thirds of the country's installed plants are 25 years-plus old and need to
be replaced and repowered, principally with new gas combustion turbines.
Industry forecast for the U.S. power plant market are forecasting growth of 10%
each year for the next five to eight years. Orders are forecasted to reach $6
billion in 1999 as compared to only $2 billion in 1997. We also believe that in
those situations where the local governments lack the up-front funding to build
the additional power plants will represent an opportunity for us to find
alternative solutions up to and including having Telesource locate the needed
project financing. Without the additional energy, we believe that many of the
infrastructure upgrades envisioned by local governments can't take place. In our
experience, in return for our securing project financing in a manner similar to
that obtained for our project in Mariana, the CNMI, the local governments will
be willing to enter into contracts which guarantee us a minimum amount of power
consumption, coupled with long-term operations and maintenance contracts similar
to those with the Commonwealth Utility Corporation.
We anticipate that these contracts will generally be secured by
governmental guarantees, promissory notes, liens and collateral in the land and
in the physical power plants.
Sales and Marketing Strategies:
Most of our jobs will be obtained through a public bid process, and our
clients are either governments or governmental agencies. In obtaining contracts:
o We perform significant market research. We analyze potential markets,
looking for future building plans or plans to expand the capital
infrastructure. Our research also includes analyzing numerous
government documents and reviewing previous and current requests for
bids.
o We are actively involved in public relations with the governments and
agencies that might contract for our services. Much of this effort is
informational, finding out what the specific needs of each governmental
agency while at the same time explaining what services Telesource has
to offer.
45
<PAGE>
o We have created and provide to potential clients a survey to help
governmental agencies whether Telesource's resources and services might
be more efficient and cost-effective than the systems currently in use.
We maintain three full-time marketing executives to help our sales and
marketing efforts; one in our Illinois headquarters and two offshore. All three
are salaried employees.
Competition
The independent power industry has grown rapidly over the past twenty
years. There are a large number of suppliers in the wholesale market and a
surplus of capacity, which has led to intense competition in this market. The
principal sources of competition in this market include traditional regulated
utilities who have excess capacity, unregulated subsidiaries of regulated
utilities, energy brokers and traders, energy service companies in the
development and operation of energy-producing projects and the marketing of
electric energy, equipment suppliers and other non-utility generators like the
Company. Competition in this industry is substantially based on price with
competitors discovering lower cost alternatives for providing electricity. The
electric industry is also characterized by rapid changes in regulations, which
the Company expects could continue to increase competition. We do not believe
the CUC facility would be significantly impacted by competition in the wholesale
energy market since its revenues are subject to contracted rates which are
substantially fixed for several years.
We also compete in the market to develop power generation facilities. The
primary bases of competition in this market are the quality of development
plans, the ability of the developer to finance and complete the project and the
price. In certain cases, competitive bidding for a development opportunity is
required. Competition for attractive development opportunities is expected to be
intense as there are a number of competitors in the industry interested in the
limited number of such opportunities. Many of the companies competing in this
market have substantially greater resources than us. We believe our project
development experience and its experience in creating strategic alignments with
other development firms with greater financial and technical resources could
enable us to continue to compete effectively in the development market if and
when opportunities arise. Presently, we believe there are a number of
opportunities for additional project development worldwide for projects similar
to those previously developed by us. However, we are currently evaluating
whether it should seek development opportunities in other areas outside of the
south pacific to diversify its activities.
Presently, there is significant merger and consolidation activity occurring
in the electric industry. From time to time, we may consider merger and
acquisition proposals when they appear to present an opportunity to enhance
shareholder value. We are not involved in any such discussions or negotiations
at this time.
Energy Regulation
Our projects are subject to regulation under federal and local energy laws
and regulations. Telesource is subject to the requirements established by its
permitting authorities, i.e. Department of Environmental Quality ("DEQ") and the
Environmental Protection Agency ("EPA").
46
<PAGE>
Presently, neither the Customer Choice Act nor proposed legislation
directly impacts us because the legislation and restructuring plan pertain to
the retail market or new contracts in the wholesale market. However, as
discussed above, we could possibly be impacted in the future by, among other
things, increases in competition as a result of deregulation. We are actively
monitoring these developments in energy proceedings in order to evaluate the
impact on its projects and also to evaluate new business opportunities created
by the restructuring of the electric industry.
Environmental Regulation
Our projects are subject to regulation under federal, foreign and local
environmental laws and regulations and must also comply with the applicable laws
pertaining to the protection of the environment, primarily in the areas of water
and air pollution. These laws and regulations in many cases require a lengthy
and complex process of obtaining and maintaining licenses, permits and approvals
from federal and local agencies. As regulations are enacted or adopted in any of
these jurisdictions, we cannot predict the effect of compliance therewith on our
business. Our failure to comply with all applicable requirements could result in
delays in proceeding with any projects under development or require
modifications to operating facilities. During periods of non-compliance, our
operating facilities may be forced to shutdown until the non- compliances are
corrected. We are responsible for ensuring compliance of its facilities with all
applicable requirements and, accordingly, attempts to minimize these risks by
dealing with reputable contractors and using appropriate technology to measure
compliance with the applicable standards.
Insurance and Bonding
The Company maintains general and excess liability, construction equipment,
and workers' compensation insurance; all in amounts consistent with industry
practices. Management believes its insurance programs are adequate.
In connection with its business, the Company is in the process of securing
a surety bond which provide an additional measure of security of the Company's
performance under certain public and private sector contracts. The Company's
ability to obtain a surety bond depends upon its capitalization, working
capital, past performance, management expertise and other factors. Surety
companies consider such factors and their current underwriting standards, which
may change from time to time.
Employees
Telesource presently employs 154 people, consisting of 18 employees in
management, 25 engineers and technical staff members, six support staff members
and 105 hourly employees. All of our employees are nonunion workers, although we
may employ union subcontractors from time to time.
47
<PAGE>
Ninety percent of our crews are staff, because of the technical nature of
our construction contracts. Working on a power plant, broadcasting facility or
other technical construction site requires a higher level of expertise and a
greater attention to safety issues.
Our non-engineering level employees are hourly workers, while our
engineering and supervisory staff are on monthly salaries.
Properties
Telesource maintains leased office spaces and land leased for storage of
construction equipment. Our Mariana subsidiary's head office in the Commonwealth
of Northern Mariana Islands is leased for five years; we also have an office on
the island of Tinian leased on a yearly commitment. On Guam, we have an office
leased by the year with 90 days notice for termination of lease. Our corporate
offices in Illinois are leased on a month-to-month basis. Additionally, we have
approximately 10 leased vehicles in our fleet.
MANAGEMENT
The names and ages of our executive officers and directors as of November
30, 1999, and their background are as follows:
Name and Age; Years Served as
Director Principal Occupation for Past
Five Years; Other Directorships
- ------------------------------------ ---------------------------------------
Khajadour Semikian Khajadour Semikian, President, joined
Age 46 the Company in September 1996. From
Director Since 1995 January 1986 to December 1996 Mr.
Semikian was Assistant General
Manager with Sayed Hamid Behbehani &
Sons. Mr. Semikian attended a
workshop with Wide & Co. in Hamburg,
Germany in 1975, attended the Institute
of Bankers in Sussex, U.K. in 1973
for a banking course and received
a degree in Electrical Engineering
in 1973. Mr. Semikian has also served
as a director for Computhink
Incorporated since 1994, Telebond
Incorporated and Retsa
Development Incorporated since 1998.
Nidal Zayed
Age 39 Nidal Zayed, Executive Vice President,
Director Since 1998 joined the Company in January 1996.
From January 1990 to December 1995
Mr. Zayed was the owner/President of
Commsource Int'l Inc. and self-
employed in the practice of law during
this period and to date. Mr. Zayed
passed the Illinois Bar in November
1985. In June 1985 Mr. Zayed received
a law degree from Loyola University
School of Law and in June 1982 he
received a B.A. in Accounting from
Loyola University of Chicago. Mr.
Zayed does serve as Chairman for
Computhink Incorporated and as a
director for Computhink since 1994.
48
<PAGE>
Max Engler From 1988 to present Mr. Engler has been
Age 50 an independent Financial Consultant
Director Since 1997 and Mr. Engler is also on the Board of
Directors of various companies in
Switzerland and abroad. From 1984 to
1988 Mr. Engler headed the Private
Banking desk (Middle East and Far East)
of Bank Leu as Vice President. Mr.
Engler received a diploma of Commerce
from the High School of Commerce of
Schwyz, Switzerland and from 1971 to
1975 went through an extensive training
program with Union Bank of Switzerland
and became an investment advisor. Mr.
Engler has also served as a director for
Computhink Incorporated since 1998. Mr.
Engler also is a director for Belmoral
S.A., Computhink Ltd., Telesource CNMI
Inc., Retsa Development Inc., Golden
Osprey Ltd., Computhink Technology Ltd.,
FSD Holdings PLC, Litra Holdings AG,
Linos Finanz AG, Trafex Ltd., R.C.W.
Enterprises S.A., Formvac S.A., Sanop
AG, and Protea Beratungs-und Finanz AG.
Weston W. Marsh Mr. Marsh joined the Board of Directors
Age 49 for Telesource International in
Director Since 1999 1999. He is a member of the law firm
Freeborn and Peters. Prior to joining
Freeborn and Peters, Mr. Marsh served
as the Assistant General Counsel in
charge of all litigation and claims
for the nation's seventh largest
railroad. Mr. Marsh has handled
and supervised the strategy of
billion-dollar antitrust cases, large
environmental litigation, and a
variety of commercial and insurance-
related disputes. Mr. Marsh obtained
his law degree from the University of
Illinois, where he graduated with
honors, Order of the Coif, and was
associate editor of the Law Review. He
received his B.A. from Yale University
and an M.B.A. from the University of
Chicago, where he graduated first in his
class.
Ibrahim M. Ibrahim Mr. Ibrahim has served as a director
Age 57 of Telesource International since
Director Ssince 1999 1999. He has been Head of International
Banking for The Gulf Bank K.S.C. in
Kuwait since 1986. Mr. Ibrahim served
as the Vice President and Head of
Credit and Marketing for the First
National Bank of Chicago for the middle
east region from 1984 to 1986 and he
has also served as the Vice President
and General Manager of Continental
Illinois Bahrain Branch from 1969 to
1984. Mr. Ibrahim received his M.B.A.
in International Business from De
Paul University, his M.S. in Taxation
and Islamic Law from the University of
Alexandria and his B.A. in Accounting
from the University of Alexandria.
49
<PAGE>
Jeffery Adams Mr. Adams has served as a director of
Age 57 Telesource International since 1999.
Direcotr Since 1999 He currently is the General Manger for
Trafex Ltd. Mr. Adams has worked with
Traffex Ltd. for the last twelve years.
Prior to joining Traffex Ltd., Mr.
Adams was the Group Marketing Director
for Babcock Ind. Prod. Ltd. for four
years.
Ralph Beck Mr. Beck has served as a director of
Age 61 Telesource International since 1999. He
Direcor since 1999 currently owns a 23.75% ownership
interest in Global Construction
Solutions, L.L.C. From 1994 to 1998, Mr.
Beck served as the President of Kajima
International, Inc., an international
engineering and construction firm. From
1965 to 1994, Mr. Beck was with the
Turner Corporation, an international
engineering and construction firm. Mr.
Beck served as the chairman of the board
for Turner Steiner International from
1991 to 1994 and as an executive vice
president for Turner Diversified Group.
Jeff Karandjeff Secretary, joined us in April 1997.
Age 33 From October 1996 to February 1997 Mr.
Karandjeff was an Associate with
Schoenberg, Fisher, Newman & Rosenberg,
LTD. From June 1992 to October 1996 Mr.
Karandjeff was an associate with
Treumann, Goba & Podbelsek, PC. In May
1993 Mr. Karandjeff received a law
degree from Loyola University School
of Law and passed the Illinois Bar in
September 1993. In May 1988, Mr.
Karandjeff received a Bachelors Degree
from Massachusetts Institute of
Technology.
Robert Swihart Joined Telesource International in March
Age 53 1998 as Treasurer. From 1988 to
1998 Mr. Swihart held various accounting
positions including Assistant Controller
with Continental Cablevision/MediaOne.
In June 1970 Mr. Swihart received an
M.B.A. from Northern Illinois University
and in June 1968 he received a B.A.
Business Administration from North Park
College.
Bud Curley Bud Curley joined Telesource
Age 35 International as its Chief Financial
Officer in September 1999. Prior to
September 1999, Mr. Curley served as
the Chief Financial Officer, Secretary
and Executive Vice President for Surety
Capital Corporation and Surety Bank,
N.A. from 1996 to 1999. From 1993 to
1996, Mr. Curley served as Surety
Capital Corporation and Surety Bank,
N.A.'s Controller and Senior Vice
President. From 1991 to 1993, Mr.
Curley served as the Controller for
Environmental Engineering and
Geotechnics and from
1989 to 1991, Mr. Curley served as a
Financial Analyst for Residential
Mortgage Investments, Inc. In 1989, Mr
Curley received a B.A. in Business
Administration from the University of
Texas. He has also served as a
director for Surety Capital Corporation
and Surety Bank, N.A. from 1998 to
1999.
50
<PAGE>
Board Composition
Directors are elected annually at our annual meeting of stockholders, and
serve for the one year term for which they are elected and until their
successors are duly elected and qualified. Our bylaws currently provide for a
board of directors comprised of seven directors.
Executive Compensation
The following table sets forth summary information concerning the
compensation received for services rendered to us during the years ended
December 31, 1998, 1997 and 1996, respectively by the Executive Vice President.
No other executive officers received aggregate compensation during our last
fiscal year which exceeded, or would exceed on an annualized basis, $100,000.
Other annual compensation consists of health insurance premiums paid for by us
on behalf of the named officers, and in some cases, the spouse and dependents of
the named officers.
Executive Compensation and Other Information
Summary of Cash and Certain Other Compensation. The following table
provides certain summary information concerning compensation paid or accrued by
the Company to or on behalf of the Company's most highly compensated executive
officer of the Company (determined as of the end of the last fiscal year)
(hereafter referred to as the "named executive officers") for the fiscal years
ended December 31, 1998, 1997 and 1996:
SUMMARY COMPENSATION TABLE
Annual Compensation
<TABLE>
<CAPTION>
Name and All Other Annual
Principal Position Year Salary (1) Bonus Compensation
- ------------------------------------- --------- --------------- -------------- ------------------
<S> <C> <C> <C> <C>
Nidal Zayed 1998 $108,830 $ - $ -
Executive Vice President 1997 $108,000 $ 13,185 $ -
1996 $108,000 $ - $ -
</TABLE>
(1) Includes salary paid by the Company, before any salary reduction for
contributions to the Company's Savings Plan under Section 401(k) of the
Internal Revenue Code of 1986, as amended (the "Code"). The Company
paid no director fees for 1998, 1997 or 1996.
We have entered into an employment agreement with Khajadour Semikian and
Nidal Zayed. The term of the agreement with Mr. Semikian is from July 1, 1999 to
51
<PAGE>
July 1, 2002. Under the terms of the agreement, Mr. Semikian is required to
devote his full time to our business. We have agreed to pay him an annualized
base salary of $220,000 for the current fiscal year, subject to an increase on
January 1, 2000 to $270,000 and to remain at $270,000 per year till July 1,
2002. The payment of cash bonuses to Mr. Semikian will be at the Board's
discretion. We have agreed to provide Mr. Semikian with health insurance for him
and his family at a reduced rate. The term of the agreement with Mr. Zayed is
from September 1, 1999 to September 1, 2002. Under the terms of the agreement,
Mr. Zayed responsibilities' comprise serving as the number two operating officer
accountable for the full range of operations. We have agreed to pay him an
annualized base salary of $125,000 per year for the term of the agreement. The
payment of cash bonuses to Mr. Zayed will be at the Board's discretion. We have
also agreed to provide Mr. Zayed with health insurance for him and his family at
a reduced rate along with a company car.
Board Compensation
Our directors did not receive cash compensation for their services as
directors up through November 1999, although some directors are reimbursed for
reasonable expenses incurred in attending board or committee meetings. The Board
has approved a resolution to increase fees paid to each director from none to
$20,000 per year beginning in December 1999. The board fees are to be paid
semiannually. In August 1999, Mr. Semikian purchased 200,000 shares of common
stock at a price per share of $3.00.
Board Committees
We have no compensation committee or other board committee performing
equivalent functions. Mr. Semikian, our current chief executive officer and a
director, and Mr. Zayed, an executive vice president and a director of
Telesource, participated in deliberations of our full board of directors
concerning executive officer compensation.
CONFLICTS OF INTEREST
EXISTING BUSINESS CONFLICTS
Certain of our executive officers, directors and major shareholders are
also owners, officers and/or directors of SHBC located in Kuwait. SHBC is a
civil, electrical and mechanical construction contractor with 750 employees and
over 30 years of experience. SHBC and its affiliates was the sole shareholder of
Telesource International prior to July 1999 and will own approximately 61% of
the common stock outstanding upon completion of this transaction. SHBC and
Telesource International bid and compete within the same industries; however,
SHBC has agreed to not bid projects within the United States and its
possessions. We have described the specific relationships more fully under the
heading "Certain Relationships and Related Transactions" below. Additionally,
SHBC and SHBC's majority stockholders, Fouad Behbehani and Nasrallah Behbehani,
have signed as guarantors on Telesource CNMI's promissory note for $25,000,000
with the Commercial Bank of Kuwait, New York Branch. The $25,000,000 promissory
note is used by us to finance our construction activities on the power plant.
SHBC and SHBC's majority stockholders, Fouad has also signed as guarantor on a
$2,000,000 letter of credit from the Kuwait Real Estate Bank for Telesource.
There can be no assurance that upon maturity of these borrowing contracts that
SHBC will continue to renew its guarantee of the debt.
52
<PAGE>
CERTAIN RELEATIONSHIPS AND RELATED TRANSACTIONS
The Behbehani's have significant ownership or control positions in the
Company and SHBC as noted under "Risk Factors - -- The largest stockholder owns
approximately 61% of the common stock outstanding after the merger, which may
impact the ability of minority stockholders to influence our activities." on
page 14, SHBC and Telesource International compete within the same industry;
however, Telesource International has an exclusive right to bid projects in the
U.S. and its possessions. SHBC will be free to bid against Telesource
International on any projects located outside of the U.S. and its possessions.
SHBC has signed as guarantor on a $25,000,000 unsecured promissory note for
Telesource from the Commercial Bank of Kuwait, New York Branch, and a $2,000,000
line of credit with the Kuwait Real Estate Bank. The $25,000,000 promissory note
is used by the Company to finance its construction activities for the
Commonwealth Utilities Corporation Tinian Power Plant. The $2,000,000 line of
credit is used by Telesource to meet its working capital needs. There can be no
assurance that upon maturity of these borrowing contracts that SHBC will
continue to renew its guarantee of the debt.
Additionally, from time-to-time we may hire, on a part time or temporary
basis, individuals employed by SHBC to provide assistance to Telesource on
certain projects in the Northern Mariana Islands. The rates paid will not exceed
the fair market value of similar services provided by unrelated third parties.
In 1996, the Company was subcontracted by SHBC to build a multimillion
dollar radio relay station in the Commonwealth of Northern Mariana Islands for
the United States Information Agency. The agreement between SHBC and the Company
included payment to the Company on a monthly basis for all costs incurred plus a
fee of 7.5% on local purchases and procurements. The radio relay station project
was completed in 1998. The following table describes the condensed financial
information related to this project: <TABLE> <CAPTION>
Years Ended December 31, 1998 1997
------------------- -------------------
<S> <C> <C>
(unaudited)
Construction revenues $ 3,786,177 $ 3,561,055
Sales 2,236,888 3,801,805
Gross profit 309,328 213,245
</TABLE>
The Company does not believe that the subcontract with SHBC is indicative
of future contracts and expected results.
Telesource performed services in addition to the construction of the radio
relay station mentioned above. The following table describes the condensed
financial information related to all services provided by Telesource to SHBC.
53
<PAGE>
<TABLE>
<CAPTION>
Nine Months Ended Twelve Months Ended
September 30, December 31,
------------------------------ ----------------------------------
1999 1998 1998 1997
------------- ------------- -------------- ---------------
<S> <C> <C> <C> <C>
Construction revenues $1,785,859 $3,147,286 $ 3,786,177 $ 3,561,055
Sales 2,724,561 4,880,720 5,427,103 4,247,086
Rental income 415,000 1,071,780 1,380,956 882,078
Service fees 161,814 283,673 351,956 362,536
Accounts receivable 143,676 196,453 186,326 490,854
Other current assets 10,000 50,000 10,000 25,000
Accounts payable 1,570,325 39,060 527,203 139,100
Accrued expenses - - 598,110 202,012
Other customer deposits 125,000 125,000 125,000 125,000
Current liabilities 207,946 - 58,503 222,904
Debt - - - 6,978,374
</TABLE>
In March 1999, the Company signed a three year lease for 20,000 square
meters of land. The land will be used to store equipment for the Company. The
lease has a total cost for the three year period of $75,000 and was paid in
full. The lease is with Retsa Corporation. Our President and CEO, K.J. Semikian
serves on Retsa Corporation's board of directors.
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of our Common Stock as of September 30, 1999 by SHBC, which owned 100%
of all outstanding common stock as of June 30, 1999, which was reduced to 66.4%
ownership at September 30, 1999. SHBC sold 3,361,000 shares in August 1999.
Number of Shares: 6,639,000
Percentage ownership by SHBC at September 30, 1999: 66.4%
The following table sets forth certain information regarding the
beneficial ownership of our Common Stock as of the 3rd quarter ended September
30, 1999 by:
o Each shareholder known by us to own beneficially more than 5% of the
common stock
o Each executive officer
o Each director and all directors and executive officers as a group:
54
<PAGE>
<TABLE>
<CAPTION>
Number of Shares Percentage before Percentage
Name merger(1) after merger
------------------------------------------------ -------------------- --------------------- -----------------
<S> <C> <C> <C>
Khajadour J. Semikian 200,000 2.00% 2.00%
Nidal Zayed(2) 110,000 * 1.10%
Max Engler(3) 50,000 * *
Ibrahim M. Ibrahim 10,000 * *
Jeffrey H. Adams 1,000 * *
-------------------- --------------------- -----------------
All directors and named executive
officers as a group (number in 371,000 2.61% 3.71%
group: five persons)
==================== ===================== =================
Sayed Hamid Behbehani & 6,639,000(5) 66.39% 61.29%
Sons Co. W.L.L. (4) ==================== ===================== =================
</TABLE>
* Less than 1% of all the issued and outstanding shares of Common Stock.
(1) This table is based upon information derived from our stock records and
information furnished by persons named. Unless otherwise indicated in
the footnotes to this table and subject to community property laws
where applicable, we believe that each of the shareholders named in
this table has sole or shared voting and investment power with respect
to the shares indicated as beneficially owned. Applicable percentages
are based upon 10,000,000 shares of Common Stock outstanding as of
September 30, 1999.
(2) Mr. Zayed owns 110,000 shares of Sixth Business Service Group.
(3) Max Engler serves as a board director for Litra Holding AG. Litra
Holding AG owns directly 495,000 shares of Telesource's common stock.
Based upon information provided to Telesource, Telesource does not
consider these shares to be beneficially owned by Mr. Engler.
(4) Includes 2,020,000 shares of Common Stock held by the Behbehani family
in the following manner:
55
<PAGE>
<TABLE>
<CAPTION>
Number of Shares
Who Relationship
------------------------------------------------------------- ---------------------- -----------------
<S> <C>
Nasrallah S. H. S. A. Behbehani 725,000
Aster I. Behbehani 495,000
Salman F. Behbehani 250,000
Eqbal E. A. A. Al-Behbehani 200,000
Amal N. S. H. S. A. Behbehani 100,000
Anwar N. S. H. S. A. Behbehani 100,000
Nasarallah Behbehani & Sons Co. W.L.L. 100,000
Najeeb S. H. Behbehani 50,000
-----------------
-----------------
Total shares held directly by the
Behbehani family members 2,020,000
-----------------
-----------------
Sayed Hamid Behbehani & Sons Co. W.L.L. 4,619,000
-----------------
=================
Total SHBC and beneficially held 6,639,000
=================
</TABLE>
(5) SHBC and beneficially held common stock will be 6,639,000 shares before
the merger which will decrease by 510,000 shares in connection with the
merger to 6,129,000. The decrease in ownership of 510,000 shares by
SHBC will occur as follows: 300,000 shares will be distributed to
Longman and Associates for their services provided in connection with
the completion of the merger and 210,000 shares will be given to
Telesource to be retired which in turn will eliminate the dilution to
all other existing Telesource International shareholders which would
have occurred as a result of the merger without the retirement of the
210,000 shares of SHBC common stock.
56
<PAGE>
DESCRIPTION OF TELESOURCE CAPITAL STOCK
The Company is authorized to issue fifty million (50,000,000) shares of
Common Stock, par value $0.01 per share, 10,000,000 of which shares were issued
and outstanding as of October 31, 1999. At October 31, 1999 the Company had 192
shareholders of record.
In July 1999, the Company announced that its Board of Directors approved a
one-for-ten thousand stock split to stockholders of record on July 26, 1999.
There was only one shareholder of record on the record date, SHBC. All
references in the financial statements to number of shares and per share amounts
of the Company's common stock have been retroactively restated to reflect the
increased number of shares outstanding.
Holders of shares are entitled to one vote per share, without cumulative
voting, on all matters to be voted on by shareholders. Therefore, the holders of
a majority of the shares voting for the election of directors can elect all the
directors without the concurrence of any other shareholder. Subject to
preferences that may be applicable to any outstanding preferred stock,
shareholders are entitled to receive ratably such dividends as may be declared
by the Board of Directors out of funds legally available. In the event of a
liquidation, dissolution or winding up of the Company, shareholders are entitled
to share ratably in all assets remaining after payment of liabilities and the
liquidation preference of any outstanding preferred stock. Shares of the Common
Stock have preemptive rights for thirty days, to subscribe for, purchase or
otherwise acquire any shares of stock of the same class of the corporation or
any equity and/or voting shares of stock of any class of the corporation which
the corporation proposes to issue or any rights or options which the corporation
proposes to grant for the purchase of shares of stock of the same class of the
corporation or of equity and/or voting shares of any class of stock of the
corporation or for the purchase of any stock, bonds, securities, or obligations
of the corporation which are convertible into or exchangeable for, or which
carry any rights to subscribe for, purchase or otherwise acquire shares of stock
of the same class of the corporation or equity and/or voting shares of any class
of the corporation, whether now or hereafter authorized or created, whether
having unissued or treasury status, and whether the proposed issue, reissue, or
grant is for cash, property, or any other lawful consideration; and after the
expiration of said thirty days, any and all such shares of stock, rights,
options bonds, securities or obligations of the corporation may be issued,
reissued, transferred or granted by the Board of Directors, as the case may be,
to such persons, firms, corporations and associations, and for such lawful
consideration, and on such terms, as the Board of Directors in its discretion
may determine. There are no conversion rights or redemption or sinking fund
provisions with respect to such shares.
The transfer agent and registrar of the common stock is American Securities
Transfer & Trust, Inc., 12039 West Alameda Parkway, Lakewood, CO 80228.
Indemnification of Directors and Officers
Section 145 of the General Corporation Law of the State of Delaware (the
"Act") empowers a corporation to indemnify it directors and officers and to
purchase insurance with respect to liability arising out of their capacity as
directors and officers. The Act further provides that indemnification permitted
thereunder shall not be deemed exclusive of any other rights to which the
directors and officers may be entitled under the Corporation's bylaws, any
agreement, vote of the shareholders, or otherwise.
Article VII of the our bylaws provides that we shall indemnify all persons
to the full extent allowed by law, by reason of the fact that they are or were a
director, become a party or are threatened to be made a party to any
indemnifiable action, suit or proceeding. We shall pay, in advance of the final
disposition of any indemnifiable action, suit or proceeding under this bylaw,
all reasonable expenses incurred by the director, upon receipt of an undertaking
by or on behalf of the director to repay such amount if it is ultimately
determined that he is not entitled to be indemnified by us under law. We may
indemnify persons other than directors, such as officers and employees, as
permitted by law. We my purchase and maintain insurance on behalf of directors,
officers and other persons against any liability asserted against him, whether
or not we would have the power to indemnify such person against such liability,
as permitted by law.
Insofar as indemnification for liabilities arising under the securities act
may be permitted to directors, officers or persons controlling the registrant
under the foregoing provisions, the registrant has been informed that in the
opinion of the Securities and Exchange Commission such indemnification is
against the public policy and is therefore, unenforceable.
57
<PAGE>
Dividend Policy
Telesource has not paid cash dividends in the past and does not intend to
pay dividends for the foreseeable future. Telesource intends to retain any
future earnings for use in the business of the company. The payment of any
dividends in the future will be made at the discretion of the Board of Directors
of the Company and will depend upon the operating results and financial
condition of the company and its subsidiaries, their capital requirements,
contractual agreements, general business conditions and other factors.
Telesource's principal source of funds to pay dividends in the future, if any,
on the Common Stock will be cash dividends Telesource receives from its
subsidiaries.
The transfer agent and registrar of the common stock is American Securities
Transfer & Trust, Inc., 12039 West Alameda Parkway, Lakewood, CO 80228.
...............................................................................
Sixth Business Service Group's Business
History and Organization
We were organized under the laws of the state of Florida in March, 1999.
Since inception, our primary activity has been directed to organizational
efforts. We were formed as a vehicle to acquire a private company desiring to
become an SEC reporting company in order thereafter to secure a listing on the
over the counter bulletin board.
Operations
We were organized for the purposes of creating a corporate vehicle to seek,
investigate and, if such investigation warrants, engage in business combinations
presented to us by persons or firms who or which desire to become an SEC
reporting company. We will not restrict our search to any specific business,
industry or geographical location.
We do not currently engage in any business activities that provide any cash
flow. The costs of identifying, investigating, and analyzing business
combinations will be paid with money in our treasury or loaned by management.
This is based on an oral agreement between management and us.
Employees
We presently have no employees. Our officer and director is engaged in
business activities outside of us, and the amount of time he will devote to our
business will only be between five, 5, and twenty, 20, hours per person per
week. It is anticipated that management will devote the time necessary each
month to our affairs of until a successful business opportunity has been
acquired.
58
<PAGE>
Year 2000 Issues
Because we currently have no operations, we do not anticipate incurring
significant expense with regard to Year 2000 issues.
Selected Financial Data
The following information concerning our financial position and operations
is as of and for the September 30, 1999 and for the nine months ended September
30, 1999
Total assets $ 0
Total liabilities 0
Equity 0
Sales 0
Net loss $ 79
Net loss per share $ 0.00
Management Discussion And Analysis Or Plan Of Operation
We are a development stage entity, and have neither engaged in any
operations nor generated any revenues to date. We have no assets. Our expenses
to date, all funded by a loan from management, are $79. We have agreed to pay
our management a fee of $55,000, to be paid from the Merger Fee.
Substantially all of our expenses that must be funded by management will be
from our efforts to identify a suitable acquisition candidate and close the
acquisition. Management has orally agreed to fund our cash requirements until
an acquisition is closed. So long as management does so, we will have
sufficient funds to satisfy our cash requirements. This is primarily because we
anticipate incurring no significant expenditures. Before the conclusion of an
acquisition, we anticipate our expenses to be limited to accounting fees, legal
fees, telephone, mailing, filing fees, occupational license fees, and transfer
agent fees.
We do not intend to seek additional financing. At this time we believe that
the funds to be provided by management will be sufficient for funding our
operations until we find an acquisition and therefore do not expect to issue any
additional securities before the closing of a business combination.
We expect no Year 2000 problems, as our business is not dependent upon any
computer. However, the business we acquire could experience interruptions in its
business and significant losses if it or its customers or vendors rely on
computer information systems that are unable to accurately process dates
beginning on January 1, 2000.
59
<PAGE>
Properties.
We are presently using the office of Michael T. Williams, 2503 W. Gardner
Ct., Tampa FL, at no cost as our office. Such arrangement is expected to
continue only until a business combination is closed, although there is
currently no such agreement between us and Mr. Williams. We at present own no
equipment, and do not intend to own any.
Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth information about our current shareholders.
The person named below has sole voting and investment power with respect to the
shares. The numbers in the table reflect shares of common stock held as of the
date of this Information Statement/Prospectus: <TABLE>
Shares Owned Percentage
<S> <C> <C>
Michael T. Williams(1) 890,000 89%
2503 W. Gardner Ct.
Tampa, FL 33611
Nidal Z. Zayed 110,000 11
860 Parkview Blvd.
Lombard, IL 60148
All directors and officers as a 1,000,000 90
group - 1 persons
</TABLE>
(1) Owned as Tenants by the Entireties by Michael Williams and Donna Williams,
his wife.
Mr. Williams may be deemed our promoter, as that term is defined under the
securities act of 1933.
Directors and Executive Officers.
The following table and subsequent discussion sets forth information about
our director and executive officer, who will resign upon the closing of the
acquisition transaction. Our director and executive officer was elected to his
position in March, 1999.
Name Age Title
Michael T. Williams 51 President, Treasurer
and Director
Michael T. Williams responsibilities will include management of our
operations as well as our administrative and financial activities. Since 1975
Mr. Williams has been in the practice of law, initially with the U.S.
Securities and Exchange Commission until 1980, and since then in private
practice. He was also chief executive officer of Florida Community Cancer
Centers, Dunedin, FL from 1991-1995. He received a BA from the University of
Kansas and a JD from the University of Pennsylvania.
60
<PAGE>
Executive Compensation.
Mr. Williams receives no compensation
Certain Relationships and Related Transactions.
Mr. Williams will sell all his stock except 100,000 shares back to us for
the aggregate sum of $1 upon closing of the acquisition transaction.
Legal Proceedings.
We not a party to or aware of any pending or threatened lawsuits or other
legal actions.
Indemnification of Directors and Officers.
Our director is bound by the general standards for directors provisions in
Florida law. These provisions allow him in making decisions to consider any
factors as he deems relevant, including our long-term prospects and interests
and the social, economic, legal or other effects of any proposed action on the
employees, suppliers or our customers, the community in which the we operate
and the economy. Florida law limits our director's liability.
We have agreed to indemnify our director, meaning that we will pay for
damages they incur for properly acting as director. The SEC believes that this
indemnification may not be given for violations of the securities act of 1933.
Insofar as indemnification for liabilities arising under the securities act
may be permitted to directors, officers or persons controlling the registrant
under the foregoing provisions, the registrant has been informed that in the
opinion of the Securities and Exchange Commission such indemnification is
against the public policy and is therefore, unenforceable.
Provisions With Possible Anti-Takeover Effects
As we will reincorporate in Delaware before the closing of the merger, the
following information about Delaware law is provided:
Section 203 of Delaware law prohibits a corporation from engaging in a
business combination with an interested stockholder for three years following
the date that such person becomes an interested stockholder. With certain
exceptions, an interested stockholder is a person or entity who or which owns
15% or more of the corporation's outstanding voting stock (including any rights
to acquire stock pursuant to an option, warrant, agreement, arrangement or
understanding, or upon the exercise of conversion or exchange rights, and stock
with respect to which the person has voting rights only), or is an affiliate or
associate of the corporation and was the owner of 15% or more of such voting
stock at any time within the previous three years.
61
<PAGE>
For purposes of Section 203, the term business combination is defined
broadly to include mergers of the corporation or a subsidiary with or caused by
the interested stockholder; sales or other dispositions of the interested
stockholder (except proportionately with the corporation's other stockholders)
of assets of the corporation or a subsidiary equal to ten percent or more of the
aggregate market value of the corporation's consolidated assets or its
outstanding stock; the issuance or transfer by the corporation or a subsidiary
of stock of the corporation or such subsidiary to the interested stockholder
(except for certain transfers in a conversion or exchange or a pro rata
distribution or certain other transactions, none of which increase the
interested stockholder's proportionate ownership of any class or series of the
corporation's or such subsidiary's stock); or receipt by the interested
stockholder (except proportionately as a stockholder), directly or indirectly,
of any loans, advances, guarantees, pledges or other financial benefits provided
by or through the corporation or a subsidiary.
The three-year moratorium imposed on business combinations by Section 203
does not apply if:
(i) prior to the date at which such stockholder becomes an interested
stockholder the board of directors approves either the business
combination or the transaction which resulted in the person
becoming an interested shareholder;
(ii) the interested stockholder owns 85% of the corporation's voting
stock upon consummation of the transaction which made him or her
an interested stockholder (excluding from the number of shares
outstanding those shares owned by directors who are also officers
of the target corporation and shares held by employee stock plans
which do not permit employees to decide confidentially whether to
accept a tender or exchange offer); or
(iii) on or after the date such person becomes an interested
stockholder, the board approves the business combination and it is
also approved at a stockholder meeting by 66 2/3% of the voting
stock not owned by the interested stockholder.
Section 203 does not apply if the business combination is proposed prior to
the consummation or abandonment of and subsequent to the earlier of the
public announcement or a 20-day notice required under Section 203 of the
proposed transaction which
o constitutes certain
o mergers or consolidations
o sales or other transfers of assets having an aggregate market
value equal to 50% or more of the aggregate market value of all of
the assets of the corporation determined on a consolidated basis
orthe aggregate market value of all the outstanding stock of the
corporation
o proposed tender or exchange offer for 50% or more of the
corporation's outstanding voting stock;
o is with or by a person who was either not an interested
stockholder during the last three years or who became an
interested stockholder with the approval of the corporation's
board of directors
o is approved or not opposed by a majority of the board members
elected prior to any person becoming an interested stockholder
during the previous three years (or their chosen successors).
62
<PAGE>
Stockholder Voting on Mergers and Similar Transactions. The laws of
Delaware generally require that a majority of the stockholders of both acquiring
and target corporations approve statutory mergers. They do not require a
stockholder vote of the surviving corporation in a merger unless the corporation
provides otherwise in its certificate of incorporation if
o the merger agreement does not amend the existing certificate of
incorporation,
o each share of stock of the surviving corporation outstanding
before the merger is an identical outstanding or treasury share
after the merger, and
o the number of shares to be issued by the surviving corporation in
the merger does not exceed 20% of the shares outstanding
immediately prior to the merger.
The laws of Delaware also generally require that a sale of all or
substantially all of the assets of a corporation be approved by a majority of
the voting shares of the corporation transferring such assets.
Delaware law generally does not require class voting, except for amendments
to the certificate of incorporation that change the number of authorized shares
or the par value of shares of a specific class or that adversely affect such
class of shares.
DESCRIPTION OF SIXTH BUSINESS SERVICE GROUP'S CAPITAL STOCK
Common Stock
As of September 30, 1999, there were 1,000,000 shares of common stock
outstanding held of record by 2 stockholders. There will be 10,000,000 post
merger shares of common stock outstanding after giving effect to the issuance of
the shares of common stock to the public under this prospectus.
The holders of common stock are entitled to one vote for each share held of
record on all matters submitted to a vote of the stockholders. The common stock
has no preemptive or conversion rights or other subscription rights. There are
no sinking fund provisions applicable to the common stock. The outstanding
shares of common stock are, and the shares of common stock to be issued upon
completion of this offering will be, fully paid and non-assessable.
Preferred Stock
There are no shares of preferred stock outstanding. issuance of preferred
stock with voting and conversion rights may adversely affect the voting power of
the holders of common stock, including voting rights of the holders of common
stock. In certain circumstances, an issuance of preferred stock could have the
effect of decreasing the market price of the common stock. As of the closing of
the merger, we currently have no plans to issue any additional shares of
preferred stock.
63
<PAGE>
Dividends
We have never paid any dividends and do not expect to do so after the
closing of the merger and thereafter for the foreseeable future.
Transfer Agent and Registrar
We are the transfer agent and registrar for our common stock.
COMPARISON OF RIGHTS OF SIXTH BUSINESS SERVICE GROUP STOCKHOLDERS
AND TELESOURCE SHAREHOLDERS
Because Sixth Business Service Group will change its state of
incorporation, articles or articles and bylaws to be the same as those of
Telesource, the rights of shareholders of Telesource will not change as a result
of the merger.
AVAILABLE INFORMATION
Telesource is not and, until the effectiveness of the registration
statement (as defined below), Sixth Business was not, subject to the reporting
requirements of the Exchange Act and the rules and regulations promulgated
thereunder, and, therefore, do not file reports, proxy statements or other
information with the Commission. Under the rules and regulations of the
Commission, the solicitation of proxies from the shareholders of Telesource to
approve the merger constitutes an offering of Sixth Business common stock to be
issued in connection with the merger. Accordingly, Sixth Business has filed with
the Commission a registration statement on Form S-4 under the Securities Act,
with respect to such offering from time to time, the registration statement.
This proxy statement/prospectus constitutes the prospectus of Sixth Business
that is filed as part of the Registration Statement in accordance with the rules
and regulations of the Commission. Copies of the registration statement,
including the exhibits to the Registration Statement and other material that is
not included herein, may be inspected, without charge, at the Public Reference
Section of the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, DC 20549, and may be available at the following Regional Offices of
the Commission: Northwestern Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661 and 7 World Trade Center, New York, New York 10048.
Copies of such materials may be obtained at prescribed rates from the Public
Reference Section of the Commission at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, DC 20549. Information on the operation of the Public Reference Room
may be obtained by calling the Commission at 1-800-SEC-0330. In addition, the
Commission maintains a site on the World Wide Web at http://www.sec.gov that
contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission.
64
<PAGE>
EXPERTS
The financial statements of Sixth Business Service Group, Inc. as of and for the
period March 15, 1999 through September 30, 1999, also included in this
prospectus and elsewhere in the Registration Statement have been included herein
in reliance on the report of Kingery Crouse & Hohl P.A., independent
accountants, given on the authority of that firm as experts in accounting and
auditing. The consolidated financial statements of Telesource International,
Inc. as of December 31, 1998 and for the one year ended December 31, 1998, also
included in this prospectus and elsewhere in the Registration Statement have
been included herein in reliance on the report of Pender Newkirk & Company,
CPAs, independent accountants, given on the authority of that firm as experts in
accounting and auditing.
LEGAL MATTERS
The validity of the shares of Sixth Business Service Group common stock
being offered by this information statement/prospectus and certain federal
income tax matters related to the exchange are being passed upon for Sixth
Business Service Group by Williams Law Group, P.A., Tampa, FL. Mr. Williams is
the sole officer and director of and owns 890,000 shares pre merger and
100,000 shares post merger of the stock of Sixth Business Service Group.
INDEX TO FINANCIAL STATEMENTS
Page
Telesource International Inc.:
Report of Independent Accountants.................................... F-1
Consolidated Balance Sheet as of December 31, 1998 and 1997, of which only
1998 is audited................................................ F-2
Consolidated Statements of Income for the years ended December 31, 1998 and
1997, of which only 1998 is audited............................. F-3
Consolidated Statements of Shareholder's Equity for the years ended
December 31, 1998 and 1997, of which only 1998 is
audited........................................................... F-4
Consolidated Statements of Cash Flows for the years ended December 31, 1998
and 1997, of which only 1998 is audited......................... F-5
Notes to Consolidated Financial Statements as of December 31, 1998... F-6
Consolidated Balance Sheet as of September 30, 1999, unaudited....... F-17
Consolidated Statements of Income for the nine months ended September 30,
1999 and 1998, unaudited........................................ F-18
Consolidated Statements of Cash Flows for the nine months ended
September 30, 1999 and 1998, unaudited......................... F-19
Notes to Consolidated Financial Statements.as of September 30, 1999. F-20
Sixth Business Service group, Inc.:
Independent Auditors' Report........................................
Financial Statemetns as of and for the period March 15, 1999
(date of incorporation) to September 30, 1999......................
Balance Sheet.....................................................
Statement of Operations...........................................
Statement of Stockholders' Equity.................................
Statement of Cash Flows...........................................
Notes to Financial Statements.....................................
65
<PAGE>
Independent Auditors' Report
Board of Directors
Telesource International, Inc.
Lombard, Illinois
We have audited the accompanying consolidated balance sheet of Telesource
International, Inc. and Subsidiaries as of December 31, 1998 and related
consolidated statements of operations, changes in stockholders' equity, and cash
flows for the year then ended. These consolidated financial statements are the
responsibility of the management of Telesource International, Inc. and
Subsidiaries. Our responsibility is to express an opinion on these consolidated
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
These standards require that we plan and perform the audit to obtain reasonable
assurance about whether the consolidated financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the consolidated financial statements.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall consolidated
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Telesource
International, Inc. and Subsidiaries as of December 31, 1998 and the results of
its operations and its cash flows for the year then ended in conformity with
generally accepted accounting principles.
/s/ Pender Newkirk & Company
Certified Public Accountants
Tampa, Florida
December 3, 1999
66
<PAGE>
Telesource International, Inc.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
December 31, December 31,
1998 1997
------------------- ------------------
(unaudited)
<S> <C> <C>
Assets:
Cash and cash equivalents $ 958,146 $ 944,955
Accounts receivable (including related party receivables of $186,326
and $490,854 at 1998 and 1997, respectively) 191,078 1,086,581
Prepaid expenses 88,686 106,241
Other current assets - related party 10,000 25,000
------------------- ------------------
Total current assets 1,247,910 2,162,777
Costs and estimated earnings in excess of billings 22,502,747 5,187,997
Deposits 59,113 644,746
Premises and equipment, net of depreciation of $680,182
and $251,579 at 1998 and 1997, respectively 1,786,409 1,138,567
Excess of cost over fair value of net assets acquired, net of
accumulated amortization of $319,360 and $31,936 at
1998 and 1997, respectively - 287,424
-------------------
==================
Total assets $ 25,596,179 $ 9,421,511
=================== ==================
Liabilities and shareholder's equity:
Accounts payable (including related party accounts payable of
$527,203 and $139,100 at 1998 and 1997, respectively) $ 771,436 $ 787,520
Accrued expenses (including related party accrued expenses of
$598,110 and $202,012 at 1998 and 1997, respectively) 707,338 202,012
Customer deposits - related party 125,000 125,000
Current maturities on long-term debt - (including related party debt
of $700,000 at 1997 - 6,700,000
Current liabilities - related party 58,503 222,904
Current taxes payable 385,000 -
------------------- ------------------
Total current liabilities 2,047,277 8,037,436
Deferred tax liability 232,382 -
Long-term debt (including related party debt of $278,374 at 1997) 17,500,000 278,374
-------------------
------------------
Total liabilities 19,779,659 8,315,810
------------------- ------------------
Commitments and contingent liabilities
Shareholder's equity:
Common stock, $0.01 par value, 50,000,000 shares
authorized,10,000,000 shares issued and outstanding 100,000 100,000
Additional paid-in capital 847,225 147,225
Retained earnings 4,869,295 858,476
------------------- ------------------
Total shareholder's equity 5,816,520 1,105,701
-------------------
==================
Total liabilities and shareholder's equity $ 25,596,179 $ 9,421,511
=================== ==================
</TABLE>
67
<PAGE>
Telesource International, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS for the twelve
months ended December 31, 1998 and December 31, 1997
<TABLE>
<CAPTION>
Years Ended
----------------------------------------------
1998 1997
--------------------- ---------------------
(unaudited)
<S> <C> <C>
Revenues:
Construction revenues (including related party construction revenues
of $3,786,177 and $3,561,055 in 1998 and 1997, respectively) $ 26,288,924 $ 3,561,055
Sales (including related party sales of $5,427,103 and $4,247,086 in
1998 and 1997, respectively 5,446,731 8,570,339
Rental income - related party 1,380,596 882,078
Service fees - related party 351,956 362,536
--------------------- ---------------------
Gross revenues 33,468,207 13,376,008
--------------------- ---------------------
Costs and expenses:
Construction costs 21,729,942 3,563,007
Cost of sales 5,301,348 8,057,617
--------------------- ---------------------
Gross profit 6,436,917 1,755,384
--------------------- ---------------------
Expenses:
Salaries and employee benefits 386,571 452,795
Occupancy and equipment 293,112 305,290
General and administrative 748,935 346,543
Impairment of long-lived assets 271,456 -
--------------------- ---------------------
Total expenses 1,700,074 1,104,628
--------------------- ---------------------
Operating profit 4,736,843 650,756
--------------------- ---------------------
--------------------- ---------------------
Other income (expense):
Interest income 12,453 -
Interest expense (39,963) (36,799)
Other income, net 4,281 6,102
--------------------- ---------------------
Total other (expense) (23,229) (30,697)
--------------------- ---------------------
--------------------- ---------------------
Income before income taxes 4,713,614 620,059
--------------------- ---------------------
Income tax expense 702,795 26,469
--------------------- ---------------------
--------------------- ---------------------
Net income $ 4,010,819 $ 593,590
===================== =====================
Basic and diluted earnings per share $ 0.40 $ 0.06
===================== =====================
Weighted average shares outstanding 10,000,000 10,000,000
===================== =====================
</TABLE>
68
<PAGE>
Telesource International, Inc.
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY for the twelve
months ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
Common Stock
------------------------------
Additional
Par Paid-in Retained Total
Shares Value Capital Earnings Equity
-------------- ------------ ------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1996
(unaudited) 10,000,000 $100,000 $147,225 $264,886 $512,111
Net income (unaudited) 593,590 593,590
-------------- ------------ ------------- -------------- --------------
Balance at December 31, 1997
(unaudited) 10,000,000 100,000 147,225 858,476 1,105,701
Capital contribution by
shareholder 700,000 700,000
Net income 4,010,819 4,010,819
-------------- ------------ ------------- -------------- --------------
Balance at December 31, 1998 10,000,000 $100,000 $847,225 $4,869,295 $5,816,520
============== ============ ============= ============== ==============
</TABLE>
69
<PAGE>
Telesource International, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS for the twelve
months ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
Years Ended
--------------------------------------
1998 1997
----------------- -----------------
<S> <C> <C>
(unaudited)
Cash flows from operating activities:
Net income $ 4,010,819 $ 593,590
Adjustments to reconcile net income to net
cash (used in) operating activities:
Depreciation 435,920 203,188
Amortization of intangible assets 15,968 15,968
Impairment of long-lived assets 271,456 -
Changes in assets and liabilities:
Receivables 1,482,603 (1,531,681)
Costs and estimated earnings in excess of billings (17,314,750) (4,983,579)
Other assets 31,088 43,031
Other liabilities 324,841 235,141
Deferred tax liability 617,382 -
----------------- -----------------
Net cash (used in) operating activities (10,124,673) (5,424,342)
----------------- -----------------
Cash flows from investing activities:
Premise and equipment expenditures (1,083,762) (683,933)
----------------- -----------------
Net cash (used in) investing activities (1,083,762) (683,933)
----------------- -----------------
Cash flows from financing activities:
Proceeds from borrowings 17,500,000 6,978,374
Payments made on borrowings (6,978,374) -
Proceeds from shareholder contribution 700,000 -
----------------- -----------------
Net cash provided by financing activities 11,221,626 6,978,374
----------------- -----------------
Net increase in cash and cash equivalents 13,191 870,099
Beginning cash and cash equivalents 944,955 74,856
----------------- -----------------
Ending cash and cash equivalents $ 958,146 $ 944,955
================= =================
Supplemental disclosure:
Cash paid during the period for interest $ 379,436 $ 169,038
Cash paid during the period for federal income taxes $ 180,018 $ 100,905
</TABLE>
70
<PAGE>
TELESOURCE INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 1998 and 1997 (1997 is unaudited)
1. Background:
Telesource International ("Telesource" or the "Company") was
incorporated in Delaware in 1994. Telesource is an international
engineering and construction company, which is in the business of
constructing projects, which range from single family housing units to
electrical power generation plants. In the Commonwealth of Mariana
Islands (U.S. Territory) the Company also operates a diesel fired
electric power generation plant for the sale of electricity to the
local power grid. The Company's facility in Lombard, Illinois, annually
handles the procurement, export and shipping of several millions of
dollars worth of U.S. fabricated products for use by the Company's
subsidiaries or for resale to customers outside of the mainland.
Telesource was formed in 1994 to facilitate various intra-corporate
activities and, until July 1999, was a wholly owned subsidiary of Sayed
Hamid Behbehani & Sons Co. W.L.L. ("SHBC"), a Kuwait-based civil,
electrical and mechanical construction company.
The Company conducts its operations primarily through subsidiaries.
Telesource currently has three subsidiaries. The Company's Mariana
subsidiary, Telesource CNMI, handles construction and management of the
Company's power facilities in the Commonwealth of Mariana Islands. The
Company's second subsidiary, Commsource International, is an
international export company that facilitates the purchase of equipment
in the U.S. The Company's third subsidiary Telesource Pacifica and
Pacifica Power Resources, a trading company, was created to take
advantage of opportunities we believe will be available there.
Telesource Pacifica and Pacifica Power Resources was opened in late
1998 and no operational revenues were recognized during 1998.
Telesource has three main operating segments: construction services,
trading of U.S. fabricated goods and power generation.
The power generation activities commenced in March 1999.
2. Summary of Significant Accounting Policies:
Customer and Credit Concentration
The Company has a concentration with two major customers. One customer
is the Commonwealth Utilities Corporation ("CUC"). The Company was
contracted by the CUC to construct and operate a power generation
facility. In March 1999, the power generation plant became operational.
Power revenues from this plant did not begin until March 1999 and were
earned under a long-term power purchase agreement with the same
customer. The other major customer, SHBC, is the Company's parent
corporation and a related party. In 1997, the Company was contracted to
construct a radio relay station for SHBC and completed its construction
in 1998. The radio relay station contract was on a cost basis with a
fee to be paid to the Company in the amount of a 7.5% premium added to
the costs on any local products used in the construction of the radio
relay station. The Company's subsidiary, Commsource International,
which is involved in the trading of U.S. fabricated products had one
major customer, SHBC, which is a related party. The Company expects
that the concentration of its revenues with SHBC will continue for the
foreseeable future.
71
<PAGE>
2. Summary of Significant Accounting Policies: continued
The Company had a concentration of credit with the CUC. At December 31,
1998 the costs and estimated earnings in excess of billings for the
construction activities on the power generation plant were $22,502,747.
Subsequent to year end, the Company has received promissory notes that
have a payment amount of $180,000 per month for ten years as repayment.
The Company performs ongoing credit evaluations of its customers to
determine if a provision for credit losses is appropriate. At December
31, 1998 and 1997, the Company had no provision for credit losses.
Principals of Consolidation
The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries. Telesource currently has
three subsidiaries. The Mariana subsidiary, Telesource CNMI Inc.,
handles construction and management of the Company's power facilities
in the Common Wealth of Mariana Islands. Commsource International, is
an international export company that facilitates the purchase of
equipment fabricated in the U.S. The third subsidiary in Guam,
Telesource Pacifica and Pacifica Power Resources, a trading company,
was created to take advantage of opportunities expected to be available
there. All significant intercompany transactions and accounts have been
eliminated.
Deposits in excess of Federal Deposit Insurance Corporation Insurance
The Company maintains cash in accounts in excess of the Federal Deposit
Insurance Corporation's insured limit of $100,000.
Cash and Cash Equivalents
Telesource records as cash and cash equivalents all highly liquid
short-term investments with original maturities of three months or
less.
Receivables
The Company extends credit to its various customers based on the
customer's ability to pay. Based on management's review of the accounts
receivable, no allowance for doubtful accounts is considered necessary.
Premises and Equipment
Premises and equipment are stated at cost less accumulated
depreciation. Depreciation is computed using the straight-line method
at rates sufficient to amortize the cost over the estimated economic
lives of the assets. Expenditures for repairs and maintenance are
expensed as incurred, and renewals and betterments that extend the
lives of assets are capitalized. Cost and accumulated depreciation are
eliminated from the accounts when assets are sold or retired and any
resulting gain or loss is reflected in operations in the year of
disposition.
72
<PAGE>
2. Summary of Significant Accounting Policies: continued
Revenue Recognition
Revenue from construction contracts including construction joint
ventures is recognized using the percentage-of-completion method of
accounting, based upon costs incurred and projected costs. Cost of
revenue consists of direct costs on contracts; including labor and
materials, amounts payable to subcontractors, direct overhead costs,
equipment expense (primarily depreciation, maintenance and repairs),
interest associated with construction projects and insurance costs.
Depreciation is provided using straight-line methods for construction
equipment. Contracts frequently extend over a period of more than one
year and revisions in cost and profit estimates during construction are
reflected in the accounting period in which the facts that require the
revision become known. Losses on contracts, if any, are provided in
total when determined, regardless of the degree of project completion.
Claims for additional contract revenue are recognized in the period
when it is probable that the claim will result in additional revenue
and the amount can be reliably estimated.
The foregoing as well as the stage of completion, and mix of contracts
at different margins may cause fluctuations in gross profit between
periods.
Revenue from the Company's trading of U.S. fabricated goods is
recognized at the time of shipment. The Company recognizes service
revenues and energy sales in the period in which the commodity is
delivered or when the work is performed. Telesource recognizes rental
revenue on the accrual basis pursuant to contractual arrangements
between the Company and its customers.
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 reported period. Actual results could differ
from those estimates.
Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of
The Company accounts for long-lived assets in accordance with the
provisions of Statement of Financial Accounting Standards No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of. This statement requires that long-lived
assets and certain identifiable intangibles be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. Recoverability of assets to
be held and used is measured by a comparison of the carrying amount of
an asset to future net cash flows expected to be generated by the
asset. If such assets are considered to be impaired, the impairment to
be recognized is measured by the amount by which the carrying amount of
the assets exceed the fair value of the assets. Assets to be disposed
of are reported at the lower of the carrying amount or fair value less
costs to sell.
Income Taxes
Telesource accounts for income taxes using an asset and liability
approach under which deferred tax assets and liabilities are recognized
based on anticipated future tax consequences attributable to
differences between financial statement carrying amounts of assets and
liabilities and their respective tax bases.
73
<PAGE>
2. Summary of Significant Accounting Policies: continued
Deferred Tax Assets and Liabilities
Deferred tax assets and liabilities are recognized for the estimated
future tax consequences attributable to differences between the
financial statements carrying amounts of existing assets and
liabilities and their respective income tax bases. Deferred tax assets
and liabilities are measured using enacted tax rates expected to apply
to taxable income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets
and liabilities of a change in tax rates is recognized as income in the
period that included the enactment date.
Computation of Earnings Per Share
Basic earnings per share is computed by dividing income available to
common stockholders by the weighted average number of common shares
outstanding, excluding restricted common stock. Diluted earnings per
share is computed giving effect to all dilutive potential common shares
that were outstanding during the period. The Company did not have any
dilutive potential common shares outstanding at December 31, 1998 and
1997.
Stock Split
In July 1999, the Board of Directors approved a one-for-ten thousand
stock split to stockholders of record on July 26, 1999. There was only
one shareholder of record on the record date, SHBC. All references in
the financial statements to number of shares and per share amounts of
the Company's common stock have been retroactively restated to reflect
the increased number of shares outstanding.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement
of Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities (SFAS No. 133). SFAS No. 133 establishes new
standards for recording derivatives in interim and annual financial
statements. On May 19, 1999, the Financial Accounting Standards Board
voted to defer the implementation date of this statement, thereby
making it effective for the Company's fiscal year 2001. Because of the
Company's minimal use of derivatives, management does not anticipate
that the adoption of the new statement will have a significant impact
on the results of operations or the financial position of the Company.
3. Accounts Receivable:
<TABLE>
<CAPTION>
December 31, December 31,
1998 1997
------------------- --------------------
(unaudited)
<S> <C> <C>
Construction contracts completed and in progress $ 181,688 $ 1,044,824
Construction material sales 9,390 41,757
------------------- --------------------
$ 191,078 $ 1,086,581
=================== ====================
</TABLE>
74
<PAGE>
4. Costs and Estimated Earnings on Uncompleted Contracts:
Long-term construction contracts in progress accounted for using the
percentage-of-completion method at December 31 consisted of:
<TABLE>
<CAPTION>
December 31, December 31,
1998 1997
--------------------- --------------------
<S> <C> <C>
(unaudited)
Costs incurred on uncompleted contracts $ 21,729,942 $ 3,563,007
Capitalized preconstruction costs 5,187,997
Estimated earnings (loss) 4,174,248 (1,952)
--------------------- --------------------
25,904,190 8,749,052
Less billings to date 3,401,443 3,561,055
===================== ====================
$ 22,502,747 $ 5,187,997
===================== ====================
Included in the accompanying balance sheet under the following
captions:
Costs and estimated earnings in excess of
billings on uncompleted contracts $ 22,502,747 $ 5,187,997
===================== ====================
</TABLE>
5. Premises and Equipment:
<TABLE>
<CAPTION>
December 31, December 31,
1998 1997
--------------------- --------------------
<S> <C> <C>
(unaudited)
Machinery and equipment $ 1,580,178 $ 797,160
Office furniture and equipment 463,038 364,408
Computer and communication equipment 88,394 62,610
Autos 206,701 157,400
Leasehold improvements 134,200 8,568
--------------------- --------------------
2,472,511 1,390,146
Less accumulated depreciation and amortization 686,102 251,579
--------------------- --------------------
Net premises and equipment $ 1,786,409 $ 1,138,567
===================== ====================
</TABLE>
6. Long-Term Debt and Credit Arrangements:
<TABLE>
<CAPTION>
December 31, December 31,
1998 1997
--------------------- --------------------
<S> <C> <C>
(unaudited)
Notes payable to banks $ 17,500,000 $ 6,000,000
Other notes payable - 978,374
Current maturities $ 6,700,000
</TABLE>
75
<PAGE>
6. Long-Term Debt and Credit Arrangements: continued
At December 31, 1998, the long term debt outstanding had a balance of
$17,500,000 and the loan agreement provides for borrowings of up to
$25,000,000 on the existing note with the Commercial Bank of Kuwait,
New York Branch,. This note carries a floating interest rate of the
three month LIBOR plus 3.0% and interest payments are due annually.
This note is a balloon note with the principal due at maturity on
February 20, 2002. This note is guaranteed by SHBC, the only
stockholder at December 31, 1998 and the majority stockholder at
September 30, 1999, and SHBC's majority stockholders, Fouad Bebehani
and Nasarallah Behbeani. The unused and available portion of the line
of credit at December 31, 1998 was approximately $7,500,000.
Other notes payable at December 31, 1997 are comprised of two unsecured
notes payable to SHBC. The first note was non-interest bearing and had
a balance at December 31, 1997 of $278,374. The second note had a
balance at December 31, 1997 of $700,000 with a scheduled maturity of
December 31, 1998. The first note was paid-off during 1998 and the
second note of $700,000 was paid off with funds received in a capital
contribution by SHBC during 1998.
7. Shareholder's Equity:
During the years ended December 31, 1998 and 1997, 10,000,000 shares of
the Company's common stock were issued and outstanding. The Company
received a capital contribution from its stockholder, SHBC, in the
amount of $700,000 in 1998. The proceeds from this capital
contributions was used to repay debt to the same stockholder. The
Company had no remaining debt owed to SHBC at December 31, 1998.
8. Earnings Per Share:
In accordance with the disclosure requirements of "SFAS 128", a
reconciliation of the numerator and denominator of basic and diluted
earnings per share is provided as follows:
<TABLE>
<CAPTION>
Years Ended December 31, 1998 1997
-------------- ----------------
<S> <C> <C>
(unaudited)
Numerator - basic and diluted earnings per share
Net income $4,010,819 $ 593,590
============== ================
Denominator - Basic earnings per share
Common stock outstanding 10,000,000 10,000,000
============== ================
Basic and diluted earnings per share $ 0.40 $ 0.06
============== ================
</TABLE>
9. Financial Instruments With Off-Balance-Sheet Risk and Concentrations of
Credit Risk:
The Company is party to financial instruments with off-balance-sheet
risk, entered into in the normal course of business to meet the
Company's financing needs. These financial instruments involve letters
of credit. The instruments involve, to varying degrees, elements of
interest rate risk in excess of the amount recognized in the financial
statements.
76
<PAGE>
9. Financial Instruments With Off-Balance-Sheet Risk and Concentrations of
Credit Risk: continued
The Company is in the process of constructing a diesel fired electric
generation plant, which will be operated by the Company for a period of
ten years upon completion of the construction phase. The Company will
receive monthly payments for ten years which will include repayment to
the Company for the construction costs, fees for the generation of
electricity as well as fees for the operation and maintenance of the
power plant. Subsequent to year end, the Company has received
promissory notes covering the first phase of constructing the power
plant. The promissory notes have a repayment schedule of ten years and
a payment of $180,000 per month. The Company's exposure to credit loss
in the event of nonperformance by counter parties to the promissory
notes is represented by the contractual amount of those instruments.
The total amounts of financial instruments with off-balance sheet risk
at December 31, 1998 and 1997 were $21,600,000 and none, respectively.
10. Related Party Transactions:
Certain of the Company's executive officers, directors and major
shareholders are also owners, officers and/or directors of SHBC located
in Kuwait. SHBC is a civil, electrical and mechanical construction
contractor with 750 employees and over 30 years of experience. SHBC and
its affiliates was the sole shareholder of Telesource International
prior to July 1999 and will own approximately 61% of the common stock
outstanding upon completion of the proposed merger with Sixth Business
Service Group. SHBC and Telesource International bid and compete within
the same industries; however, SHBC has agreed in writing to not bid
projects within the United States and its possessions. Additionally,
SHBC and SHBC's majority shareholders, Fouad Behbehani and Nasrallah
Behbehani, have signed as guarantors on Telesource CNMI's promissory
note for $25,000,000 with the Commercial Bank of Kuwait, New York
Branch, and SHBC and SHBC's majority stockholders, Fouad Behbehani and
Nasrallah Behbehani have signed as guarantors on a $395,000 letter of
credit with the Commercial Bank of Kuwait, New York Branch. The
$25,000,000 promissory note is used by Telesource to finance the
construction activities on the power plant and the letter of credit
will be used to secure a performance surety bond on an overhead line
project. SHBC and SHBC's majority stockholders, Fouad Behbehani and
Nasrallah Behbehani, have also signed as guarantors on a $2,000,000
line of credit with the Kuwait Real Estate Bank for Telesource. There
can be no assurance that upon maturity of these borrowing contracts
that SHBC will continue to renew its guarantee of the debt.
Additionally, from time-to-time the Company may hire, on a part time or
temporary basis, individuals employed by SHBC to provide assistance to
Telesource on certain projects in the Northern Mariana Islands. The
rates paid will not exceed the fair market value of similar services
provided by unrelated third parties.
In 1996, the Company was subcontracted by SHBC to build a multimillion
dollar radio relay station in the Commonwealth of Northern Mariana
Islands for the United States Information Agency. The agreement between
SHBC and the Company included payment to the Company on a monthly basis
for all time and material plus a fee of 7.5% on local purchases and
procurements. The radio relay station project was completed in early
1999, however, an addition to the radio relay station was approved and
the Company was hired by SHBC to perform additional construction
services on the radio relay station under the same terms as the
original agreement. The Company does not believe that the subcontract
with SHBC is indicative of future contracts and expected results.
77
<PAGE>
10. Related Party Transactions: continued
The following table describes the condensed financial information
related to SHBC, all revenues and expenses relate to the radio
relay station project:
<TABLE>
<CAPTION>
Years Ended December 31, 1998 1997
---------------- ------------------
<S> <C> <C>
(unaudited)
Construction revenues $ 3,786,177 $ 3,561,055
Sales 2,236,888 3,801,805
---------------- ------------------
Gross revenues 6,023,065 7,362,860
Construction costs 3,603,465 3,563,007
Cost of sales 2,110,272 3,586,608
---------------- ------------------
Gross profit $ 309,328 $ 213,245
================ ==================
</TABLE>
The Company had sales of $5,427,103 and $4,247,086 during the twelve
months ended December 31, 1998 and 1997, respectively to SHBC,
including sales listed above for the radio relay station project. At
December 31, 1998 and 1997, the Company had receivables due from SHBC
in the amount of $186,326 and $490,854, respectively. The transaction
with SHBC listed above are not necessarily indicative of what third
parties would have agreed to.
The above amounts and related party amounts disclosed on the financial
statements are not necessarily indicative of the amounts which would
have been incurred had comparable transactions been entered into with
independent parties.
11. Federal Income Tax:
The components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
December 31, December 31,
1998 1997
------------------ -----------------
<S> <C> <C>
(unaudited)
Currently payable $ 385,000 $ 26,469
Deferred taxes 317,795 -
------------------ -----------------
$ 702,795 $ 26,469
================== =================
</TABLE>
The difference between the provision for income taxes and the amounts
obtained by applying the statutory U.S. Federal Income tax rate to the
consolidated net income before taxes is as follows:
<TABLE>
<CAPTION>
December 31, December 31,
1998 1997
------------------ -----------------
(unaduited)
<S> <C> <C>
Tax expense at statutory rate $ 1,602,629 $ 210,820
Benefit of subsidiary's net
operating losses not deductible (101,774) (35,006)
Reduction of taxes due to Northern
Mariana Territorial Income tax credit (504,349) (73,993)
Reduction of taxes due to Northern
Mariana Island Business gross
receipts tax (293,711) (75,352)
------------------ -----------------
Effective tax rate $ 702,795 $ 26,469
================== =================
</TABLE>
78
<PAGE>
11. Federal Income Tax: continued
The sources of significant temporary differences which gave rise to
deferred tax assets and liabilities at December 31, 1998 and 1997 are
as follows:
<TABLE>
<CAPTION>
1998 1997
------------------ -----------------
<S> <C> <C>
(unaudited)
Deferred tax assets
Tax basis of tangible and intangible
assets in excess of book basis $ 21,555 $ -
Accrued expenses not deductible until paid 7,500 16,650
Net operating loss carryovers 22,350 7,500
Unused alternative minimum tax credit 476,713 -
------------------ -----------------
528,118 24,150
Valuation allowance (47,655) (24,150)
------------------ -----------------
Deferred tax assets 480,463 -
------------------ -----------------
Deferred tax liabilities
Difference in reporting gross profit
on uncompleted contracts 330,379 -
Taxes due on Northern Mariana Island
Business gross receipts tax 382,466 -
------------------ -----------------
712,845 -
------------------ -----------------
Net deferred tax liability $ 232,382 $ -
================== =================
</TABLE>
Telesource International, Inc., Commsource International, Inc. and
Telesource CNMI, Inc. file separate corporation income
tax returns. Telesource International, Inc. and Commsource
International, Inc. are U.S. corporations which file separate
U.S. Corporate tax returns. Telesource CNMI, Inc. is a Commonwealth
of Northern Mariana Island corporation and files a
corporation tax return for this commonwealth.
At December 31, 1998, Telesource International, Inc. and
Commsource International, Inc. have net operating loss
carryforwards of approximately $91,000 and $209,000, respectfully.
The net operating loss carryforwards expire in the years
2000 through 2018. The utilization of this net operating loss
carryforward is limited by Section 382 of the Internal Revenue
Code of 1986 to approximately $15,000 annually until its expiration.
12. Commitments and Contingencies:
Minimum rental commitments under all noncancellable-operating leases,
primarily property, vehicles and construction equipment, in effect at
December 31, 1998 were:
Years Ending December 31,
1999 $ 206,425
2000 101,100
2001 99,000
2002 92,700
2003 108,750
------------------------
Total minimum rental commitment 607,975
Less prepayments 83,442
-------------------------
$ 524,533
=========================
79
<PAGE>
12. Commitments and Contingencies: continued
Lease expense was $231,849 for the year ended December 31, 1998 and
$262,175 for the year ended December 31, 1997.
Telesource is involved in various litigation proceedings incidental to
the ordinary course of business. In the opinion of management, the
ultimate liability, if any, resulting from such litigation would not be
material in relation to the Company's financial position or results of
operations.
13. Business Segment Information:
The Company adopted "SFAS No. 131", Disclosure About Segments of an
Enterprise and Related Information, in 1998. The adoption of this
statement did not have any effect on either the current or prior year's
presentation of reportable segments. For 1998 and 1997, the Company was
primarily involved in two lines of business, construction and trading
of U.S. fabricated products. There were no material amounts of
transfers between lines of business. Any intersegment sales have been
eliminated. Telesource has three operating segments: construction
services, trading of U.S. fabricated goods and power generation. Power
generation activities did not commence until March 1999 and therefore
no segment information is available. The following table sets forth
certain segment information for the periods indicated:
<TABLE>
<CAPTION>
Construction Trading Total
----------------- ----------------- -----------------
<S> <C> <C> <C>
1998:
Gross revenues $ 28,069,654 $ 5,398,553 $ 33,468,207
Costs and expenses 21,931,964 5,099,326 27,031,290
Gross profit 6,137,690 299,227 6,436,917
Expenses 824,390 875,684 1,700,074
Operating profit (loss) 5,313,300 (576,457) 4,736,843
Other income (expense) (35,682) 12,453 (23,229)
Net income (loss) 4,574,823 (564,004) 4,010,819
Current assets 925,732 322,178 1,247,910
Costs and estimated earnings in excess
of billings 22,502,747 - 22,502,747
Total assets 25,171,887 424,292 25,596,179
Total liabilities 19,292,695 486,964 19,779,659
1997: (unaudited)
Gross revenues $ 4,805,669 $ 8,570,339 $ 13,376,008
Costs and expenses 3,563,007 8,057,617 11,620,624
Gross profit 1,242,662 512,722 1,755,384
Expenses 467,159 637,469 1,104,628
Operating profit (loss) 775,503 (124,747) 650,756
Other expense 30,697 - 30,697
Net income (loss) 718,337 (124,747) 593,590
Current assets 2,090,403 72,374 2,162,777
Costs and estimated earnings in excess
of billings 5,187,997 - 5,187,997
Total assets 8,346,759 1,074,752 9,421,511
Total liabilities 7,042,390 1,273,420 8,315,810
</TABLE>
Gross profit is total operating revenue less operating expenses. Gross
profit excludes general corporate expenses, interest expense, interest
income and income taxes.
80
<PAGE>
15. Subsequent Events:
Telesource entered into an employment agreement with Khajadour Semikian
in June 1999 and Nidal Zayed in August 1999. The term of the agreement
with Mr. Semikian is from July 1, 1999 to July 1, 2002. Under the terms
of the agreement, Mr. Semikian is required to devote his full time to
the Company's business. The Company has agreed to pay him an annualized
base salary of $220,000 for the current fiscal year, subject to an
increase on January 1, 2000 to $270,000 and to remain at $270,000 per
year till July 1, 2002. The payment of cash bonuses to Mr. Semikian
will be at the Board's discretion. The Company has agreed to provide
Mr. Semikian with health insurance for him and his family at a reduced
rate. The term of the agreement with Mr. Zayed is from September 1,
1999 to September 1, 2002. Under the terms of the agreement, Mr. Zayed
responsibilities' comprise serving as the number two operating officer
accountable for the full range of operations. The Company has agreed to
pay him an annualized base salary of $125,000 per year for the term of
the agreement. The payment of cash bonuses to Mr. Zayed will be at the
Board's discretion. The Company has also agreed to provide Mr. Zayed
with health insurance for him and his family at a reduced rate along
with a company car.
During 1999, Commsource International, a subsidiary of Telesource,
adopted a 401(k) employee benefit plan that covers all employees who
meet certain age and service requirements. Employees may make
contributions to the plan through salary deferrals. Commsource
International does not provide any matching funds for contributions;
however, Commsource International does cover the expenses of
administering the plan. The annual costs to administer the plan are
expected to be approximately $750.
On May 2, 1999, Telesource was approved for a letter of credit in the
amount of $2,000,000 from the Kuwait Real Estate Bank. This letter of
credit is secured by a guarantee from SHBC. The letter of credit has an
interest rate of LIBOR plus 2.5% and matures on May 12, 2001.
On May 26, 1999, Telesource was approved for two term loans from the
Bank of Hawaii in the amount of $1,000,000 each. Both term loans are
cash secured for the full amount and have an interest rate of 1% over
the rate paid for the deposit. Interest is due monthly and the
principal is due at maturity on March 31, 2001.
81
<PAGE>
F-23
Telesource International, Inc.
Consolidated Balance Sheets
as of September 30, 1999
(unaudited)
<TABLE>
<CAPTION>
Assets:
<S> <C>
Cash and cash equivalents $ 745,390
Accounts receivable (including related party receivables of $143,676) 483,718
Notes receivable 1,297,793
Prepaid expenses 223,870
Other current assets - related party 10,000
-------------------
Total current assets 2,760,771
Costs and estimated earnings in excess of billings 21,944,282
Deposits 188,136
Investment 1,050,000
Notes receivable 11,606,762
Premises and equipment, net of depreciation of $1,055,177 1,789,500
Other assets 6,554
===================
Total assets $ 39,346,005
===================
Liabilities and shareholders' equity:
Accounts payable (including related party accounts payable of $1,570,325) $ 2,273,916
Accrued expenses 748,953
Customer deposits - related party 125,000
Current liabilities - related party 207,946
-------------------
Total current liabilities 3,355,815
Deferred tax liability 826,956
Long-term debt 27,000,000
-------------------
Total liabilities 31,182,771
-------------------
Commitments and contingent liabilities -
Shareholders' equity:
Common stock, $0.01 par value, 50,000,000 shares
authorized,10,000,000 shares issued and outstanding 100,000
Additional paid-in capital 847,225
Retained earnings 7,216,009
-------------------
Total shareholders' equity 8,163,234
-------------------
Total liabilities and shareholders' equity $ 39,346,005
===================
</TABLE>
82
<PAGE>
The accompanying notes are an integral part
of the consolidated financial statements
Telesource International, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
for the nine months ended September 30, 1999 and 1998
(unaudited)
<TABLE>
<CAPTION>
1999 1998
--------------------- ---------------------
<S> <C> <C>
Revenues:
Construction revenues (including related party construction revenues
of $1,785,859 and $3,147,286, at 1999 and 1998, respectively) $ 14,980,178 $ 18,873,547
Power generation revenues 138,938 -
Sales (including related party sales of $2,724,561 and $4,880,720,
at 1999 and 1998, respectively) 3,158,671 5,082,477
Rental income (including related party rental income of $415,000 and
$1,071,780, at 1999 and 1998, respectively) 419,060 1,071,780
Service fees - related party 161,814 283,673
--------------------- ---------------------
Gross revenues 18,858,661 25,311,477
--------------------- ---------------------
Costs and expenses:
Construction costs 12,511,007 15,940,744
Cost of sales 2,833,013 4,719,689
--------------------- ---------------------
Gross profit 3,514,641 4,651,044
--------------------- ---------------------
Expenses:
Salaries and employee benefits 426,007 286,002
Occupancy and equipment 103,881 288,198
General and administrative 776,265 448,042
--------------------- ---------------------
--------------------- ---------------------
Total expenses 1,306,153 1,022,242
--------------------- ---------------------
Operating profit 2,208,488 3,628,802
--------------------- ---------------------
--------------------- ---------------------
Other income (expense):
Interest income 1,247,140 9,210
Interest expense (180,780) (26,243)
Other income (expense), net 18,286 (406)
--------------------- ---------------------
--------------------- ---------------------
Income before income taxes 3,293,134 3,611,363
--------------------- ---------------------
Income tax expense 946,420 509,493
--------------------- ---------------------
--------------------- ---------------------
Net income $ 2,346,714 $ 3,101,870
===================== =====================
Basic and diluted earnings per share $ 0.23 $ 0.31
===================== =====================
Weighted average shares outstanding 10,000,000 10,000,000
===================== =====================
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements
83
<PAGE>
Telesource International, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS for
the nine months ended September 30, 1999 and 1998
(unaudited)
<TABLE>
1999 1998
------------------ ------------------
<CAPTION>
<S> <C> <C>
Cash flows from operating activities:
Net income $ 2,346,714 $ 3,101,870
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation 374,995 312,548
Changes in assets and liabilities:
Costs and estimated earnings in excess of billings 558,465 (10,556,838)
Accounts receivables (292,640) 1,111,056
Other assets (270,761) 29,716
Other liabilities 1,693,538 1,828,086
Deferred tax liability 209,574 408,918
------------------ ------------------
------------------ ------------------
Net cash provided by (used in) operating activities 4,619,885 (3,764,644)
------------------ ------------------
Cash flows from investing activities:
Notes receivable on power generation plant (13,115,690) -
Payments received on notes receivable on power generation plant 211,135 -
Purchase of time deposits (1,000,000) -
Purchase of Telebond common stock (related party) (50,000) -
Premise and equipment expenditures (378,086) (969,327)
------------------ ------------------
------------------ ------------------
Net cash (used in) investing activities (14,332,641) (969,327)
------------------ ------------------
Cash flows from financing activities:
Proceeds from borrowings 9,500,000 6,300,000
Payments made on borrowings - (278,374)
Proceeds from shareholder contribution - 700,000
------------------ ------------------
------------------ ------------------
Net cash provided by financing activities 9,500,000 6,721,626
------------------ ------------------
Net increase in cash and cash equivalents (212,756) 1,987,655
Beginning cash and cash equivalents 958,146 944,955
------------------ ------------------
Ending cash and cash equivalents $ 745,390 $ 2,932,610
================== ==================
Supplemental disclosure:
Cash paid during the period for interest $ 1,548,488 $ 263,781
Cash paid during the period for income taxes $ 329,038 $ 100,575
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements
84
<PAGE>
TELESOURCE INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Financial Statements:
The Company is not currently required to prepare its financial
statement pursuant to the rules and regulations of the SEC; however, it
is the intent of the Company to become a qualified SEC filer and
therefore the financial statements included herein have been prepared
by the Company pursuant to the rules and regulations of the Securities
and Exchange Commission ("SEC"). Certain information and footnote
disclosures normally included in annual financial statements prepared
in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations, although
management believes that the disclosures are adequate to make the
information presented not misleading. These condensed financial
statements should be read in conjunction with the financial statements
and the notes thereto included in the Company's registration statement
on Form S-4 for the period ended December 31, 1998. In the opinion of
management, all adjustments consisting only of normal recurring
adjustments necessary to present fairly the financial position of the
Company as of September 30, 1999, and the results of its operations and
its cash flows for the indicated periods have been included. The
results of operations for such interim period are not necessarily
indicative of the results to be expected for the fiscal year ending
December 31, 1999.
2. Computation of Earnings Per Share:
Basic earnings per share is computed by dividing income available to
common stockholders by the weighted average number of common shares
outstanding, excluding restricted common stock. Diluted earnings per
share is computed giving effect to all dilutive potential common shares
that were outstanding during the period. The Company did not have any
dilutive potential common shares outstanding at September 30, 1999 and
1998.
3. Notes Receivable:
In March 1999, the Company completed its construction activities on
phase I of the power generation plant located on the island of Tinian.
The Company began operations of the plant and thus billed $13,115,690
for construction of the power generation plant. The Company is
contracted to receive payments of $180,000 per month on these notes
receivable for 120 periods or ten years. The Company received seven
payments or $1,260,000 during the nine months ended September 30, 1999
and recognized $1,048,865 in interest income on the notes receivable.
85
<PAGE>
4. Costs and Estimated Earnings on Uncompleted Contracts:
Long-term construction contracts in progress accounted for using the
percentage-of-completion method at September 30, 1999 consisted of:
September 30,
1999
-------------------
Costs incurred on
uncompleted contracts $ 28,726,782
Estimated earnings (loss) 7,800,703
-------------------
36,527,485
Less billings to date 14,583,203
-------------------
$ 21,944,282
===================
Included in the accompanying balance sheet under the following
captions:
Costs and estimated earnings
in excess of billings on
uncompleted contracts $ 21,944,282
===================
The billings to date for the nine months ended September 30, 1999 were
$14,583,203 and consisted of $13,115,690 in billings for construction
services along with $1,048,865 in billings for interest on the notes
receivable and $418,648 of other items.
5. Long-Term Debt and Credit Arrangements:
September 30,
1999
-------------------
Notes payable to banks $ 27,000,000
Less current maturities -
-------------------
Total long-term debt $ 27,000,000
===================
At September 30, 1999, the long term debt outstanding had a balance of
$27,000,000, borrowed on two letters of credit. $25,000,000 on the
existing note with the Commercial Bank of Kuwait, New York Branch. This
note carries a floating interest rate of the three-month LIBOR plus
3.0% and interest payments are due annually. This note is a balloon
note with the principal due at maturity on February 20, 2002. This note
is guaranteed by SHBC, the only stockholder at December 31, 1998 and
the majority stockholder at September 30, 1999, and SHBC's majority
stockholders, Fouad Bebehani and Nasarallah Behbeani. The other
$1,000,000 was borrowed from a letter of credit with the Kuwait Real
Estate Bank dated May 2, 1999. This letter of credit has a maximum
borrowing amount of $2,000,000 and carries an interest rate of LIBOR
plus 2.5%, interest due annually and principal at maturity, with a
maturity of May 12, 2001.
On May 26, 1999, Telesource was approved for two term loans from the
Bank of Hawaii in the amount of $1,000,000 each. Both term loans are
cash secured for the full amount and have an interest rate of 1% over
the rate paid for the deposit. Interest is due monthly and the
principal is due at maturity on March 31, 2001.
86
<PAGE>
6. Shareholders' Equity:
During the nine months ended September 30, 1999 and 1998, 10,000,000
shares of the Company's common stock were issued and outstanding. The
Company received a capital contribution from its stockholder, SHBC, in
the amount of $700,000 during the nine months ended September 30, 1998.
The proceeds from this capital contributions was used to repay debt to
the same stockholder. The Company had no remaining debt owed to SHBC at
September 30, 1999.
In July 1999, the Board of Directors approved a one-for-ten thousand
stock split to stockholders of record on July 26, 1999. There was only
one shareholder of record on the record date, SHBC. All references in
the financial statements to number of shares and per share amounts of
the Company's common stock have been retroactively restated to reflect
the increased number of shares outstanding.
At September 30, 1999, SHBC had sold 5,381,000 shares of Telesource
stock to various entities and individuals, including members of the
Behbehani family. At September 30, 1999, SHBC owned directly 4,619,000
shares and beneficially owned 6,639,000 shares (the beneficially owned
shares includes the stock held by the Behbehani family).
7. Earnings Per Share:
In accordance with the disclosure requirements of "SFAS 128", a
reconciliation of the numerator and denominator of basic and diluted
earnings per share is provided as follows:
<TABLE>
<CAPTION>
Nine Months Ended September 30, 1999 1998
-------------- ----------------
<S> <C> <C>
Numerator - basic and diluted earnings per share
Net income $2,346,714 $ 3,101,870
============== ================
Denominator - Basic earnings per share
Common stock outstanding 10,000,000 10,000,000
============== ================
Basic and diluted earnings per share $ 0.23 $ 0.31
============== ================
</TABLE>
8. Commitments and Contingent Liabilities:
Telesource entered into an employment agreement with Khajadour Semikian
in June 1999 and Nidal Zayed in August 1999. The term of the agreement
with Mr. Semikian is from July 1, 1999 to July 1, 2002. Under the terms
of the agreement, Mr. Semikian is required to devote his full time to
our business. We have agreed to pay him an annualized base salary of
$220,000 for the current fiscal year, subject to an increase on January
1, 2000 to $270,000 and to remain at $270,000 per year till July 1,
2002. The payment of cash bonuses to Mr. Semikian will be at the
Board's discretion. We have agreed to provide Mr. Semikian with health
insurance for him and his family at a reduced rate. The term of the
agreement with Mr. Zayed is from September 1, 1999 to September 1,
2002. Under the terms of the agreement, Mr. Zayed responsibilities'
comprise serving as the number two operating officer accountable for
the full range of operations. We have agreed to pay him an annualized
base salary of $125,000 per year for the term of the agreement. The
payment of cash bonuses to Mr. Zayed will be at the Board's discretion.
We have also agreed to provide Mr. Zayed with health insurance for him
and his family at a reduced rate along with a company car.
87
<PAGE>
8. Commitments and Contingent Liabilities: continued
During 1999, Commsource International, a subsidiary of Telesource,
adopted a 401(k) employee benefit plan that covers all employees who
meet certain age and service requirements. Employees may make
contributions to the plan through salary deferrals. Commsource does not
provide any matching funds for contributions; however, Commsource does
cover the expenses of administering the plan. The annual costs to
administer the plan are expected to be approximately $750.
Telesource is involved in various litigation proceedings incidental to
the ordinary course of business. In the opinion of management, the
ultimate liability, if any, resulting from such litigation would not be
material in relation to the Company's financial position or results of
operations.
In March 1999, the Company signed a three year lease for 20,000 square
meters of land. The land will be used to store equipment for the
Company. The lease has a total cost for the three year period of
$75,000 and was paid in full. The lease is with Retsa Corporation. Our
President and CEO, K.J. Semikian serves on Retsa Corporation's board of
directors.
88
<PAGE>
[Letterhead of Kingery Crouse & Hohl P.A.]
To the Board of Directors of Sixth Business Service Group, Inc.:
We have audited the accompanying balance sheet of Sixth Business Service Group,
Inc.(the "Company"), a development stage enterprise, as of September 30, 1999,
and the related statements of operations, stockholders' equity and cash flows
for the period March 15, 1999 (date of incorporation) to September 30, 1999.
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 the disclosures in the financial statements. An audit also
includes assessing the accounting principles used and the significant estimates
made by management, as well as the overall financial statement presentation. We
believe 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 the Company as of September 30,
1999, and the results of its operations and its cash flows for the period March
15, 1999 (date of incorporation) to September 30, 1999 in conformity with
generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Notes A and B to the
financial statements, the Company is in the development stage and will require a
significant amount of capital to commence its planned principal operations and
proceed with its business plan. As of the date of these financial statements, an
insignificant amount of capital has been raised, and as such there is no
assurance that the Company will be successful in its efforts to raise the
necessary capital to commence its planned principal operations and/or implement
its business plan. These factors raise substantial doubt about the Company's
ability to continue as a going concern. Management's plans in regard to this
matter are described in Note B. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
Kingery Crouse & Hohl P.A.
October 15, 1999 Tampa, FL.
89
<PAGE>
Sixth Business Service Group, Inc.
(A Development Stage Enterprise)
BALANCE SHEET AS OF SEPTEMBER 30, 1999
------------------------------------------------------------------------------
<TABLE>
<S> <C>
TOTAL ASSETS $ 0
=== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
STOCKHOLDERS' EQUITY:
Preferred stock - no par value - 20,000,000
shares authorized; 0 shares issued and outstanding $ 0
Common stock - no par value - 50,000,000 shares
authorized; 1,000,000 shares issued and outstanding 79
Deficit accumulated during the development stage (79)
--- -----------
Total stockholders' equity 0
--- -----------
TOTAL $
0
=== ===========
</TABLE>
- -------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
90
<PAGE>
Sixth Business Service Group, Inc.
(A Development Stage Enterprise)
STATEMENT OF OPERATIONS
For the period March 15, 1999 (date of incorporation)
to September 30, 1999
- -------------------------------------------------------------------------------
<TABLE>
<S> <C>
EXPENSES -
Organizational costs $ 79
-- ----------------
NET LOSS $ 79
== ================
NET LOSS PER SHARE:
Basic $ 0
== ================
Weighted average number of shares - basic 1,000,000
== ================
</TABLE>
- --------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
91
<PAGE>
Sixth Business Service Group, Inc.
(A Development Stage Enterprise)
STATEMENT OF STOCKHOLDERS'EQUITY
For the period March 15, 1999 (date of incorporation)
to September 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Deficit
Accumulated
During the
Common Preferred Development
Shares Value Shares Value Stage Total
------------- ----------- ------------ ---------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
Balances, March 15, 1999 (date of 0 $ 0 0 $ 0 $ 0 $ 0
incorporation)
Proceeds from the issuance
of common stock 1,000,000 79 79
Net loss for the period,
March 15, 1999
(date of incorporation)
to September 30, 1999 (79) (79)
------------- -------------- ------------ ---------- ------------ ------------
Balances September 30, 1999 1,000,000 $ 79 0 $ 0 $ (79) 0
============= ============== ============ ========== ============ ============
</TABLE>
- ------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
92
<PAGE>
Sixth Business Service Group, Inc.
(A Development Stage Enterprise)
STATEMENT OF CASH FLOWS
For the period March 15, 1999 (date of incorporation)
to September 30, 1999
- ------------------------------------------------------------------------------
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (79)
-- -----------
NET CASH USED IN OPERATING ACTIVITIES (79)
-- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock 79
-- -----------
NET CASH PROVIDED BY FINANCIANG ACTIVITIES 79
-- -----------
NET CHANGE IN CASH AND CASH EQUIVALENTS 0
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 0
-- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 0
== ===========
Interest paid $ 0
== ===========
Taxes paid $ 0
== ===========
</TABLE>
- ------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
93
<PAGE>
Sixth Business Service Group, Inc.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE A - FORMATION AND OPERATIONS OF THE COMPANY
Sixth Business Service Group, Inc.(the "Company") was incorporated under the
laws of the state of Florida on March 15, 1999. The Company, which is considered
to be in the development stage as defined in Financial Accounting Standards
Board Statement No. 7, intends to investigate and, if such investigation
warrants, engage in business combinations. The planned principal operations of
the Company have not commenced, therefore accounting policies and procedures
have not yet been established.
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the financial statements and
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
NOTE B - GOING CONCERN
The accompanying financial statements have been prepared on a going concern
basis, which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. The Company will require a
significant amount of capital to commence its planned principal operations and
proceed with its business plan. Accordingly, the Company's ability to continue
as a going concern is dependent upon its ability to secure an adequate amount of
capital to finance its planned principal operations and/or implement its
business plan. The Company's plans include a merger and a subsequent public
offering of its common stock, however there is no assurance that they will be
successful in their efforts to raise capital. This factor, among others, may
indicate that the Company will be unable to continue as a going concern for a
reasonable period of time.
94
<PAGE>
NOTE C - INCOME TAXES
During the period March 15, 1999 (date of incorporation) to September 30, 1999,
the Company recognized losses for both financial and tax reporting purposes.
Accordingly, no deferred taxes have been provided for in the accompanying
statement of operations.
NOTE D - RELATED PARTY TRANSACTIONS
During the period March 15, 1999 (date of incorporation) to September 30, 1999,
the Company's president provided start-up services and a portion of his home for
office space for no consideration. The value of such services and office space
provided are not considered significant and as such no expenses have been
recorded.
NOTE E - COMMITMENTS
The company agreed orally to pay Michael T. Williams $55,000 for all services
rendered through the closing of an acquisition or merger. This debt will be
assumed and paid by the acquisition or merger candidate or its agent.
95
<PAGE>
PART II--INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
- ------------------------------------------------------------------------------
Delaware
- ------------------------------------------------------------------------------
Under Section 145 of the Delaware General Corporation Law, the Registrant
has broad powers to indemnify its Directors and officers against liabilities
they may incur in such capacities, including liabilities under the Securities
Act.
Under Section 145 of the Delaware Law, a corporation generally has the
power to indemnify its present and former directors, officers, employees and
agents against expenses incurred by them in connection with any suit to which
they are or are threatened to be made a party by reason of their serving in such
positions so long as they acted in good faith and in a manner they reasonably
believed to be in or not opposed to, the best interests of the corporation and
with respect to any criminal action, they had no reasonable cause to believe
their conduct was unlawful. The Registrant believes that these provisions are
necessary to attract and retain qualified persons as Directors and officers.
These provisions do not eliminate the Directors' duty of care, and, in
appropriate circumstances, equitable remedies such as injunctive or other forms
of non-monetary relief will remain available under Delaware Law. In addition,
each Director will continue to be subject to liability (i) for breach of the
Directors' duty of loyalty to the Registrant 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 Delaware General
Corporation Law, or (iv) for any transaction from which the Director derived an
improper personal benefit. The provisions also does not affect a Directors'
responsibilities under any other law, such as the federal securities law or
state or federal environmental laws.
- -------------------------------------------------------------------------------
Florida
- -----------------------------------------------------------------------------
Florida Business Corporation Act. Section 607.0850(1) of the Florida
Business Corporation Act (the "FBCA") provides that a Florida corporation, such
as the Company, shall have the power to indemnify any person who was or is a
party to any proceeding (other than an action by, or in the right of, the
corporation), by reason of the fact that he is or was a director, officer,
employee, or agent of the corporation or is or was serving at the request of the
corporation as a director, officer, employee, or agent of the corporation or is
or was serving at the request of the corporation as a director, officer,
employee, or agent of another corporation, partnership, joint venture, trust, or
other enterprise against liability incurred in connection with such proceeding,
including any appeal thereof, if he acted in good faith and in a manner he
reasonably believed to be in, or not opposed to, the best interests of the
corporation and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful.
Section 607.0850(2) of the FBCA provides that a Florida corporation shall
have the power to indemnify any person, who was or is a party to any proceeding
by or in the right of the corporation to procure a judgment in its favor by
reason of the fact that he is or was a director, officer, employee, or agent of
the corporation or is or was serving at the request of the corporation as a
96
<PAGE>
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses and amounts paid in
settlement not exceeding, in the judgment of the board of directors, the
estimated expense of litigating the proceeding to conclusion, actually and
reasonably incurred in connection with the defense or settlement of such
proceeding, including any appeal thereof. Such indemnification shall be
authorized if such person acted in good faith and in a manner he reasonably
believed to be in, or not opposed to, the best interests of the corporation,
except that no indemnification shall be made under this subsection in respect of
any claim, issue, or matter as to which such person shall have been adjudged to
be liable unless, and only to the extent that, the court in which such
proceeding was brought, or any other court of competent jurisdiction, shall
determine upon application that, despite the adjudication of liability but in
view of all circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which such court shall deem proper.
Section 607.850 of the FBCA further provides that: (i) to the extent that a
director, officer, employee or agent of a corporation has been successful on the
merits or otherwise in defense of any proceeding referred to in subsection (1)
or subsection (2), or in defense of any proceeding referred to in subsection (1)
or subsection (2), or in defense of any claim, issue, or matter therein, he
shall be indemnified against expense actually and reasonably incurred by him in
connection therewith; (ii) indemnification provided pursuant to Section 607.0850
is not exclusive; and (iii) the corporation may purchase and maintain insurance
on behalf of a director or officer of the corporation against any liability
asserted against him or incurred by him in any such capacity or arising out of
his status as such whether or not the corporation would have the power to
indemnify him against such liabilities under Section 607.0850.
Notwithstanding the foregoing, Section 607.0850 of the FBCA provides that
indemnification or advancement of expenses shall not be made to or on behalf of
any director, officer, employee or agent if a judgment or other final
adjudication establishes that his actions, or omissions to act, were material to
the cause of action so adjudicated and constitute: (i) a violation of the
criminal law, unless the director, officer, employee or agent had reasonable
cause to believe his conduct was lawful or had no reasonable cause to believe
his conduct was unlawful; (ii) a transaction from which the director, officer,
employee or agent derived an improper personal benefit; (iii) in the case of a
director, a circumstance under which the liability provisions regarding unlawful
distributions are applicable; or (iv) willful misconduct or a conscious
disregard for the best interests of the corporation in a proceeding by or in the
right of the corporation to procure a judgment in its favor or in a proceeding
by or in the right of a shareholder.
Section 607.0831 of the FBCA provides that a director of a Florida
corporation is not personally liable for monetary damages to the corporation or
any other person for any statement, vote, decision, or failure to act, regarding
corporate management or policy, by a director, unless: (i) the director breached
or failed to perform his duties as a director; and (ii) the director's breach
of, or failure to perform, those duties constitutes: (A) a violation of criminal
law, unless the director had reasonable cause to believe his conduct was lawful
or had no reasonable cause to believe his conduct was unlawful; (B) a
97
<PAGE>
transaction from which the director derived an improper personal benefit, either
directly or indirectly; (C) a circumstance under which the liability provisions
regarding unlawful distributions are applicable; (D) in a proceeding by or in
the right of the corporation to procure a judgment in its favor or by or in the
right of a shareholder, conscious disregard for the best interest of the
corporation, or willful misconduct; or (E) in a proceeding by or in the right of
someone other than the corporation or a shareholder, recklessness or an act or
omission which was committed in bad faith or with malicious purpose or in a
manner exhibiting wanton and willful disregard of human rights, safety, or
property.
Articles and Bylaws. The Company's Articles of Incorporation and the
Company's Bylaws provide that the Company shall, to the fullest extent permitted
by law, indemnify all directors of the Company, as well as any officers or
employees of the Company to whom the Company has agreed to grant
indemnification.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
The exhibits and financial statement schedules listed on the accompanying
Exhibit Index are filed as part of this Registration Statement and such Exhibit
Index is hereby incorporated by reference.
ITEM 22. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The undersigned Registrant hereby undertakes:
(1) To respond to requests for information that is incorporated by
reference into the prospectus pursuant to Items 4, 10(b), 11 or 13 of
this Form, within one business day of receipt of such request, and to
send the incorporated documents by first class mail or other equally
prompt means. This includes information contained in documents filed
subsequent to the effective date of the Registration Statement through
the date of responding to the request;
(2) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved
therein, that was not the subject of and included in the registration
statement when it became effective;
98
<PAGE>
(3) The undersigned registrant hereby undertakes as follows: that prior to
any public reoffering of the securities registered hereunder through
use of a prospectus which is a part of this registration statement, by
any person or party who is deemed to be an underwriter within the
meaning of Rule 145(c), the issuer undertakes that such reoffering
prospectus will contain the information called for by the applicable
registration form with respect to reofferings by persons who may be
deemed underwriters, in addition to the information called for by the
other items of the applicable form.
(4) The registrant undertakes that every prospectus (i) that is filed
pursuant to paragraph (3) immediately preceding, or (ii) that purports
to meet the requirements of Section 10(a)(3) of the Act and is used in
connection with an offering of securities subject to Rule 415, will be
filed as a part of an amendment to the registration statement and will
not be used until such amendment is effective, and that, for purposes
of determining any liability under the Securities Act of 1933, each
such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering
of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of , State of , on .
Sixth Business Service Group, INC.
By: /s/ MICHAEL T. WILLIAMS.
------------------------------------
President and Treasurer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<S> <C> <C>
- -------------------------------------------- ----------------------------------------- ------------------------------------------
SIGNATURE TITLE DATE
- -------------------------------------------- ----------------------------------------- ------------------------------------------
/s/ Michael T. Williams President and Treasurer 12/8/99
- -------------------------------------------- ----------------------------------------- ------------------------------------------
</TABLE>
99
<PAGE>
EXHIBIT INDEX
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------------- --------------------------------
2.01 Agreement and Plan of Merger and Plan of Reorganization dated
as of November 30, 1999 among Sixth Business Service Group,
Inc. and Telesource International, Inc.
3.01 Certificate of Incorporation of Sixth Business Service Group
3.02 By-laws of Sixth Business Service Group
5.01 Opinion of Williams Law Group P.A. regarding the validity of
the securities being registered.
10.01 Agreement for Design, Supply of Plant and Equipment, Private
Construction, Maintenance and
Operation, and Transfer of Ownership dated June 10, 1997
10.02 Agreement for Design, Supply of Plant and Equipment, Private
Construction, Maintenance and Operation, and Transfer of
Ownership, Change Order Number 1, dated November 30, 1998
10.03 Agreement for Design, Supply of Plant and Equipment, Private
Construction, Maintenance and Operation, and Transfer of
Ownership, Change Order Number 2, dated November 30, 1998
10.04 Agreement and Contract for Construction of Koblerville
Expansion Project between the Northern Mariana Islands and
Telesource dated July 28, 1998
10.05 Agreement and Contract for Construction of Two Pre-Engineered
Buildings for Tinian Northern Marianas College Campus between
the Commonwealth of the Northern Mariana Islands and Telesource
CNMI, Inc. dated July 28, 1998*
10.06 Agreement and Contract for Construction of the New Marpo Well
Project between the Commonwealth of the Northern Mariana
Islands and Telesource CNMI, Inc. dated October 5, 1999*
10.07 Agreement between Sayed Hamid Behbehani & Sons, Co. W.L.L. and
Telesource CNMI, Inc., Radio Relay Station Subcontract dated
January 6, 1997 and Addendum dated August 27, 1998
10.08 Memorandum of Understanding between Sayed Hamid Behbehani &
Sons, Co. W.L.L. and Telesource International, Inc. regarding
right of first refusal for certain areas
10.09 Memorandum of Understanding between Sayed Hamid Behbehani &
Sons, Co. W.L.L. and Telesource International, Inc. regarding
commission fees
10.10 Agreement to Supply Series of Doors and Associated Equipment
for the United States Department of State for the Construction
of Diplomatic Housing in Kuwait between P.W.S. International,
Inc., the supplier, and Telesource International, Inc., the
contractor, dated August 31, 1999
10.11 Agreement to Supply Electrical Items for Power Plant
Subcontract between Wheeler Power Systems, the subcontractor,
and Commsource International, Inc., the contractor, dated June
10, 1998
10.12 Note Agreement between the Commercial Bank of Kuwait, New York
Branch, and Telesource CNMI, Inc. dated August 20, 1998
10.13 Term Loan Agreement between the Kuwait Real Estate Bank and
Telesource CNMI, Inc. dated May 2, 1999*
10.14 Line of Credit Agreement between the Bank of Hawaii and
Telesource CNMI, Inc.*
10.15 Lease of Tinian Land between the Commonwealth Utilities
Corporation and Telesource CNMI, Inc.
10.16 Employment Contract between K.J. Semikian and Telesource
International, Inc.
10.17 Employment Contract between Nidal Z. Zayed and Telesource
International, Inc.
10.18 Adoption Agreement for Aetna Life Insurance and Annuity Company
Standardized 401(k) Profit Sharing Plan and Trust between Aetna
Life Insurance and Annuity Company and Commsource
International, Inc. dated November 13, 1998
23.01 Consent of Kingery, Crouse & Hohl, P.A.
23.02 Consent of independent accountants to Telesource
International, Inc. with respect to the use of its December 3 ,
1999 Report
23.03 Consent of Williams Law Group P.A.
99.01 Form of Sixth Business Service Group Proxy Card*
* To be filed by Amendment
100
<PAGE>
101
<PAGE>
Exhibit 2.01
Agreement and Plan of Merger
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION dated as of November 30,
1999, 1999 (the "Agreement") by and among Sixth Business Service Group, Inc., a
Florida corporation ("SBSG") and Telesource International, Inc., a Delaware
corporation ("Telesource").
R E C I T A L S
The respective Boards of Directors of SBSG and Telesource deem it desirable
and in the best interests of their respective corporations, and of their
respective shareholders, subject to, among other things, the approval of the
shareholders of SBSG and Telesource, Telesource shall merge with and into SBSG;
as a result of which the holders of shares of capital stock of Telesource will,
in the aggregate, receive the consideration hereinafter set forth (collectively,
the "Merger"). Upon the terms and subject to the conditions of this Agreement,
at the Effective Date (as defined in Section 2.3 of this Agreement) in
accordance with the Florida Business Corporation Act ("BCA"), Telesource shall
be merged with and into SBSG and the separate existence of Telesource shall
thereupon cease. SBSG shall be the surviving corporation in the Merger and is
hereinafter sometimes referred to as the "Surviving Corporation."
NOW, THEREFORE, in consideration of the terms, conditions, agreements and
covenants contained herein, and in reliance upon the representations and
warranties contained in this Agreement, the parties hereto agree as follows:
I. RECITALS; TRUE AND CORRECT
The above stated recitals are true and correct and are incorporated into
this Agreement.
II. MERGER
2.1 Merger. In the manner and subject to the terms and conditions set forth
herein, Telesource shall merge with and into SBSG, and SBSG shall be the
surviving corporation after the Merger and shall continue to exist as a
corporation governed by the laws of Delaware.
2.2 Name Change. Upon the Closing of the Merger, SBSG shall change its name
to Telesource International, Inc. (the "Name Change").
2.3 Effective Date. If all of the conditions precedent to the obligations
of each of the parties hereto as hereinafter set forth shall have been satisfied
or shall have been waived, the Merger shall become effective on the date (the
"Effective Date") the Articles of Merger, together with Plans of Merger
reflecting the Merger, shall be accepted for filing by the Secretary of State of
Delaware.
2.4 Securities of the Corporations. The authorized capital stock of
Telesource is comprised of 50,000,000 shares of Common Stock, par value $0.01
(One Cent) per share (the "Telesource Stock"), of which 10,000,000 shares are
issued and outstanding. The authorized capital stock of SBSG is comprised of
50,000,000 shares of Common Stock, no par value per share (the "SBSG Stock"), of
which 1,000,000 shares are issued and outstanding. In addition, SBSG has
authorized but unissued 20,000,000 shares of no par value Preferred Stock
102
<PAGE>
2.5 Shares of the Constituent and Surviving Corporations. The manner and
basis of converting the shares of Telesource Stock into shares of SBSG Stock
shall be as follows:
At the Effective Date, by virtue of the Merger and without any action on the
part of any holder of any capital stock of either SBSG or Telesource, each share
of Telesource Stock issued and outstanding shall be converted into the right to
receive one share of SBSG Stock (the "Exchange Ratio").
2.6 Effect of the Merger. As of the Effective Date, all of the following
shall occur:
(a) The separate existence and corporate organization of Telesource
shall cease (except insofar as it may be continued by statute), SBSG shall exist
as a surviving corporation.
(b) Except as otherwise specifically set forth herein, the corporate
identity, existence, purposes, powers, franchises, rights and immunities of SBSG
shall continue unaffected and unimpaired by the Merger, and the corporate
identity, existence, purposes, powers, franchises and immunities of Telesource
shall be merged with and into SBSG as the surviving corporation, shall be fully
vested therewith.
(c) Neither the rights of creditors nor any liens upon or security
interests in the property of Telesource shall be impaired by the Merger.
(d) All corporate acts, plans, policies, agreements approvals and
authorizations of the shareholders and Board of Directors of Telesource and of
its respective officers, directors and agents, which were valid and effective
immediately prior to the Effective Date, shall be the acts, plans, policies,
agreements, approvals and authorizations of SBSG and shall be as effective and
binding on SBSG as the same were on Telesource.
(e) SBSG shall be liable for all of the obligations and liabilities of
Telesource.
(f) The rights, privileges, goodwill, inchoate rights, franchises and
property, real, personal and mixed, and debts due on whatever account and all
other things in action belonging to Telesource, shall be, and they hereby are,
bargained, conveyed, granted, confirmed, transferred, assigned and set over to
and vested in SBSG, without further act or deed.
(g) No claim pending at the Effective Date by or against any of
Telesource, or any stockholder, officer or director thereof, shall abate or be
discontinued by the Merger, but may be enforced, prosecuted, settled or
compromised as if the Merger had not occurred.
(h) All rights of employees and creditors and all liens upon the
property of Telesource shall be preserved unimpaired, limited in lien to the
property affected by such liens at the Effective Date, and all the debts,
liabilities and duties of Telesource shall attach to SBSG and shall be
enforceable against SBSG to the same extent as if all such debts, liabilities
and duties had been incurred or contracted by Telesource.
(i) Prior to the Effective Date, SBSG will become a Delaware
corporation and file a Certificate of Continuity with the Delaware Secretary of
State with Articles of Incorporation mirroring those of Telesource. These
Articles of Incorporation of SBSG, as in effect on the Effective Date, shall
continue to be the Articles of Incorporation of SBSG without change or
amendment.
103
<PAGE>
(j) The Bylaws of SBSG, as in effect on the Effective Date, shall
continue to be the Bylaws of SBSG without change or amendment until such time,
if ever, as it is amended thereafter in accordance with the provisions thereof
and applicable laws.
(k) Upon the Effective Date, the Board of Directors of SBSG shall
consist of six designees of Telesource (KJ Semikian, Nidal Zayed, Jeff Adams,
Max Engler, Ibrahim M. Ibrahim, and Weston Marsh), and the officers of SBSG
shall be the officers specified by Telesource to hold such offices, as set forth
in the Proxy Statement hereinafter defined.
III. CONDUCT OF BUSINESS PENDING CLOSING; STOCKHOLDER APPROVAL
Telesource and SBSG covenant that between the date hereof and the date of
the Closing:
3.1 Access to Telesource. Telesource shall (a) give to SBSG and to SBSG's
counsel, accountants and other representatives reasonable access, during normal
business hours, throughout the period prior to the Closing Date (as defined in
Section 6.1), to all of the books, contracts, commitments and other records of
Telesource and shall furnish SBSG during such period with all information
concerning Telesource that SBSG may reasonably request; and (b) afford to SBSG
and to SBSG's representatives, agents, employees and independent contractors
reasonable access, during normal business hours, to the properties of
Telesource, in order to conduct inspections at SBSG's expense to determine that
Telesource is operating in compliance with all applicable federal, state, local
and foreign statutes, rules and regulations, and all material building, fire and
zoning laws or regulations and that the assets of Telesource are substantially
in the condition and of the capacities represented and warranted in this
Agreement; provided, however, that in every instance described in (a) and (b),
SBSG shall make arrangements with Telesource reasonably in advance and shall use
its best efforts to avoid interruption and to minimize interference with the
normal business and operations of Telesource. Any such investigation or
inspection by SBSG shall not be deemed a waiver of, or otherwise limit, the
representations, warranties or covenants of Telesource contained herein.
3.2 Conduct of Business. During the period from the date hereof to the
Closing Date, Telesource shall and shall use reasonable efforts, to the extent
such efforts are within Telesource's control, to cause its business to be
operated in the usual and ordinary course of business and in material compliance
with the terms of this Agreement.
3.3 Intentionally Deleted.
3.4 Access to SBSG. SBSG shall (a) give to Telesource and to Telesource's
counsel, accountants and other representatives reasonable access, during normal
business hours, throughout the period prior to the Closing Date, to all of the
books, contracts, commitments and other records of SBSG and shall furnish
Telesource during such period with all information concerning SBSG that
Telesource may reasonably request; and (b) afford to Telesource and to
Telesource's representatives, agents, employees and independent contractors
reasonable access, during normal business hours, to the properties of SBSG in
order to conduct inspections at Telesource's expense to determine that SBSG is
operating in compliance with all applicable federal, state, local and foreign
statutes, rules and regulations, and all material building, fire and zoning laws
or regulations and that the assets of SBSG are substantially in the condition
and of the capacities represented and warranted in this Agreement; provided,
however, that in every instance described in (a) and (b), Telesource shall make
arrangements with SBSG reasonably in advance and shall use its best efforts to
avoid interruption and to minimize interference with the normal business and
operations of SBSG. Any such investigation or inspection by Telesource shall not
be deemed a waiver of, or otherwise limit, the representations, warranties or
covenants of SBSG contained herein.
104
<PAGE>
3.5 Conduct of Business. During the period from the date hereof to the
Closing Date, the business of SBSG shall be operated by SBSG in the usual and
ordinary course of such business and in material compliance with the terms of
this Agreement. Without limiting the generality of the foregoing:
(a) SBSG shall: (i) comply in all material respects with all laws
applicable to it; (ii) not declare any dividend or other distribution, redeem or
otherwise acquire any shares of its capital stock or other securities, sell or
issue any shares of its capital stock or other or agree to do any of the
foregoing; (iii) not make any payments to any of its employees other than
reimbursement of accountable expenses in the ordinary course of business in
accordance with past practices; (iv) not make any payments, loans or other
distribution to any officer, director, employee or agent or prepay any
obligations due to any of the foregoing; and (v) not expend nor incur any
liabilities or indebtedness, direct or indirect, or enter into any agreements or
commitments with respect to same during the period between the date hereof and
the Closing Date exclusive of (i) costs and expenses relating to the
consummation of the transactions contemplated by this Agreement; (ii) any
understandings relating to funding the purchase of shares of SBSG Stock offered
for redemption to SBSG by its non-affiliated shareholders in the manner
contemplated by the Proxy Statement; and (iii) liabilities based on applications
for directors' and officers' liability insurance; and
(b) SBSG shall timely file all reports required to be filed by it with
the Securities and Exchange Commission (the "SEC").
3.6 Exclusivity to Telesource. SBSG and its officers, directors,
representatives or agents, as appropriate, shall not, from the date hereof until
the Closing or the earlier termination of this Agreement, solicit any inquiries,
proposals or offers to purchase the business of SBSG or the shares of capital
stock of SBSG from any person other than Telesource. Any person inquiring as to
the availability of the business or shares of capital stock of SBSG or making an
offer therefor shall be told that SBSG is bound by the provisions of this
Agreement. Each of SBSG and its officers, directors, representatives or agents
further agree to advise Telesource promptly of any such inquiry or offer.
3.7 Stockholder Approval. (a) As promptly as reasonably practicable
following the date of this Agreement, SBSG shall take all action reasonably
necessary in accordance with the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), the laws of the State of Florida and its Articles of
Incorporation and Bylaws to call, give notice of and convene a meeting (the
"Meeting") of its shareholders to consider and vote upon the approval and
adoption of (i) the Merger; (ii) such other matters as shall properly come
before the Meeting in connection with this Agreement. The approval and adoption
of this Agreement and the Merger by the Board of Directors and the shareholders
of Telesource in accordance with the laws of the State of Florida, Articles of
Incorporation and Bylaws and the receipt of the approvals and consents referred
to in Section 7.9 is a condition precedent to the undertaking and obligation of
SBSG to mail its definitive Proxy Statement (as hereinafter defined) subject to,
among other things, approval by the shareholders of SBSG to its shareholders and
to hold the Meeting. The Board of Directors of SBSG shall unanimously recommend
that SBSG's shareholders vote to approve and adopt the Merger, this Agreement
and any other matters to be submitted to SBSG's shareholders in connection
therewith. SBSG shall, subject as aforesaid, use its best efforts to solicit and
secure from shareholders of SBSG such approval and adoption.
(b) As promptly as reasonably practicable following the date of this
Agreement, SBSG shall prepare and file with the SEC under the Securities Act of
105
<PAGE>
1933, as amended (the "Securities Act"), and the rules and regulations
promulgated by the SEC thereunder: a registration statement on Form S-4 (or
other form of registration statement as agreed by the parties) covering (i) all
shares of SBSG Stock issuable as a consequence of the Merger. Prior to such
filings, Telesource shall supply to SBSG, for inclusion in the Initial
Registration Statement, the Financial Statements (as hereinafter defined).
Concurrent with the filing of the Initial Registration Statement, SBSG shall
also prepare and file with the SEC under the Securities Act and the rules and
regulations promulgated by the SEC thereunder, a preliminary proxy statement
(the "Proxy Statement"; the Proxy Statement and the Initial Registration
Statement are collectively referred to as the "Registration Statement")
pertaining to the Merger. Telesource shall cooperate fully with SBSG in the
preparation and filing of the Registration Statement and any amendments and
supplements thereto, including, without limitation, the furnishing to SBSG of
such information regarding Telesource as shall be required by each of the
Securities Act and the Exchange Act and the respective rules and regulations
promulgated by the SEC thereunder. The Registration Statement shall not be
filed, and no amendment or supplement thereto shall be made by SBSG, without
prior consultation with and the consent of Telesource, which consent shall not
be unreasonably withheld or delayed. As promptly as reasonably practicable
following the date of this Agreement, SBSG shall cause to be mailed a definitive
Proxy Statement to its shareholders entitled to vote at the Meeting promptly
following completion of any review by, or in the absence of such review, the
termination of any applicable waiting period of, the SEC and the SEC's
declaration of effectiveness of the Registration Statement under the Securities
Act.
(d) As promptly as practicable but in no event later than the Effective
Date, SBSG shall prepare and file with the NASD OTC Bulletin Board ("BB"), an
application to have the SBSG Stock listed for trading on BB.
IV. REPRESENTATIONS AND WARRANTIES OF TELESOURCE
Telesource represents and warrants to SBSG as follows, with the knowledge and
understanding that SBSG is relying materially upon such representations and
warranties:
4.1 Organization and Standing. Telesource is a corporation duly organized,
validly existing and in good standing under the laws of the state of Delaware.
Telesource has all requisite corporate power to carry on its business as it is
now being conducted and is duly qualified to do business as a foreign
corporation and is in good standing in each jurisdiction where such
qualification is necessary under applicable law, except where the failure to
qualify (individually or in the aggregate) does not have any material adverse
effect on the assets, business or financial condition of Telesource, and all
states in which each is qualified to do business as of the date hereof, have
been disclosed to SBSG The copies of the Articles of Incorporation and Bylaws of
Telesource, as amended to date, delivered to SBSG, are true and complete copies
of these documents as now in effect. Except as otherwise set forth in the
Telesource Disclosure Schedule, Telesource does not own any interest in any
other corporation, business trust or similar entity. The minute book of
Telesource contains accurate records of all meetings of its respective Board of
Directors and shareholders since its incorporation.
4.2 Capitalization. The authorized capital stock of Telesource, the number
of shares of capital stock which are issued and outstanding and par value
thereof are as set forth in the Telesource Disclosure Schedule. All of such
shares of capital stock are duly authorized, validly issued and outstanding,
fully paid and nonassessable, and were not issued in violation of the preemptive
rights of any person. There are no subscriptions, options, warrants, rights or
calls or other commitments or agreements to which Telesource is a party or by
which it is bound, calling for any issuance, transfer, sale or other disposition
of any class of securities of Telesource. There are no outstanding securities
convertible or exchangeable, actually or contingently, into shares of common
stock or any other securities of Telesource.
106
<PAGE>
4.3 Authority. This Agreement constitutes, and all other agreements
contemplated hereby will constitute, when executed and delivered by Telesource
in accordance therewith (and assuming due execution and delivery by the other
parties hereto), the valid and binding obligation of Telesource, enforceable in
accordance with their respective terms, subject to general principles of equity
and bankruptcy or other laws relating to or affecting the rights of creditors
generally.
4.4 Properties. Except as set forth on the Telesource Disclosure Schedule,
Telesource has good title to all of the assets and properties which it purports
to own as reflected on the balance sheet included in the Financial Statements
(as hereinafter defined), or thereafter acquired. Telesource has a valid
leasehold interest in all material property of which it is the lessee and each
such lease is valid, binding and enforceable against Telesource, as the case may
be, and, to the best knowledge of Telesource, the other parties thereto in
accordance with its terms. Neither Telesource nor the other parties thereto are
in material default in the performance of any material provisions thereunder.
Neither the whole nor any material portion of the assets of Telesource is
subject to any governmental decree or order to be sold or is being condemned,
expropriated or otherwise taken by any public authority with or without payment
of compensation therefor, nor, to the best knowledge of Telesource, any such
condemnation, expropriation or taking been proposed.
4.5 Contracts Listed; No Default. All contracts, agreements, licenses,
leases, easements, permits, rights of way, commitments, and understandings,
written or oral, connected with or relating in any respect to present or
proposed future operations of Telesource (except employment or other agreements
terminable at will and other agreements which, in the aggregate, are not
material to the business, properties or prospects of Telesource and except
governmental licenses, permits, authorizations, approvals and other matters
referred to in Section 4.17), which would be required to be listed as exhibits
to a Registration Statement on Form S-4 or an Annual Report on Form 10-K if
Telesource were subject to the reporting requirements of the Exchange Act
(individually, the "Telesource Contract" and collectively, the "Telesource
Contracts"), have been described and disclosed to SBSG. Telesource is the holder
of, or party to, all of the Telesource Contracts. To the best knowledge of
Telesource, the Telesource Contracts are valid, binding and enforceable by the
signatory thereto against the other parties thereto in accordance with their
terms. Telesource's operation of its business has been, is, and will, between
the date hereof and the Closing Date, continue to be, consistent with the
material terms and conditions of the Telesource Contracts.
4.6 Litigation. Except as will be provided to SBSG for inclusion in Form
S-4 , to the best of Telesource's knowledge, there is no claim, action,
proceeding or investigation pending or, to the best knowledge of Telesource,
threatened against or affecting Telesource before or by any court, arbitrator or
governmental agency or authority which, in the reasonable judgment of
Telesource, could have any materially adverse effect on Telesource. There are no
decrees, injunctions or orders of any court, governmental department, agency or
arbitration outstanding against Telesource.
4.7 Taxes. For purposes of this Agreement, (A) "Tax" (and, with correlative
meaning, "Taxes") shall mean any federal, state, local or foreign income,
alternative or add-on minimum, business, employment, franchise, occupancy,
payroll, property, sales, transfer, use, value added, withholding or other tax,
levy, impost, fee, imposition, assessment or similar charge, together with any
related addition to tax, interest, penalty or fine thereon; and (B) "Returns"
shall mean all returns (including, without limitation, information returns and
other material information), reports and forms relating to Taxes or to any
benefit plans.
107
<PAGE>
Telesource has duly filed all Returns required by any law or regulation to be
filed by it, except for extensions duly obtained. All such Returns were, when
filed, and to the best knowledge of Telesource, are accurate and complete in all
material respects and were prepared in conformity with applicable laws and
regulations in all material respects. Telesource has paid or will pay in full or
has adequately reserved against all Taxes otherwise assessed against it through
the Closing Date, and the assessment of any material amount of additional Taxes
in excess of those paid and reported is not reasonably expected.
4.8 Compliance with Laws and Regulations. To its best knowledge, Telesource is
in compliance, in all material respects, with all laws, rules, regulations,
orders and requirements (federal, state and local) applicable to it in all
jurisdictions where the business of Telesource is currently conducted or to
which Telesource is currently subject which has a material impact on Telesource,
including, without limitation, all applicable civil rights and equal opportunity
employment laws and regulations, and all state and federal antitrust and fair
trade practice laws and the Federal Occupational Health and Safety Act.
Telesource knows of no assertion by any party that Telesource is in violation of
any such laws, rules, regulations, orders, restrictions or requirements with
respect to its current operations, and no notice in that regard has been
received by Telesource. To the best knowledge of Telesource, there is not
presently pending any proceeding, hearing or investigation with respect to the
adoption of amendments or modifications to existing laws, rules, regulations,
orders, restrictions or requirements which, if adopted, would materially
adversely affect the current operations of Telesource.
4.9 Compliance with Laws. (a) To its best knowledge, the business,
operations, property and assets of Telesource (and, to the best knowledge of
Telesource, the business of any sub-tenant or licensee which is occupying or has
occupied any space on any premises of Telesource and the activities of which
could result in any material adverse liability to Telesource) (i) conform with
and are in compliance in all material respects with all, and are not in material
violation of any applicable federal, state and local laws, rules and
regulations, including, but not limited to, the Comprehensive Environmental
Response Compensation and Liability Act of 1980, as amended (including the 1986
Amendments thereto and the Superfund Amendments and Reauthorization Act)
("CERCLA"), and the Resource Conservation and Recovery Act ("RCRA"), as well as
any other laws, rules or regulations relating to tax, product liability,
controlled substances, product registration, environmental protection, hazardous
or toxic waste, employment, or occupational safety matters; and (ii) have been
conducted and operated in a manner such that, to Telesource's best knowledge,
Telesource has foreseeable potential liabilities for environmental clean-up
under CERCLA, RCRA or under any other law, rule, regulation or common or civil
law doctrine.
(b) To its best knowledge, no predecessor-in-title to any real property now
or previously owned or operated by Telesource, nor any predecessor operator
thereof conducted its business or operated such property in violation of CERCLA
and RCRA or any other applicable federal, state and local laws, rules and
regulations relating to environmental protection or hazardous or toxic waste
matters.
(c) Except as will be disclosed to SBSG for inclusion in Form s-4, no suit,
action, claim, proceeding, nor investigation, review or inquiry by any court or
federal, state, county, municipal or local governmental department, commission,
board, bureau, agency or instrumentality, including, without limitation, any
state or local health department (all of the foregoing collectively referred to
as "Governmental Entity") concerning any such possible violations by Telesource
is pending or, to the best knowledge of Telesource, threatened, including, but
not limited to, matters relating to diagnostic tests and products and product
liability, environmental protection, hazardous or toxic waste, controlled
substances, employment, occupational safety or tax matters. Telesource does not
know of any reasonable basis or ground for any such suit, claim, investigation,
inquiry or proceeding. For purposes of this Section 4.9, the term "inquiry"
includes, without limitation, all pending regulatory issues (whether before
federal, state, local or inter-governmental regulatory authorities) concerning
any regulated product, including, without limitation, any diagnostic drugs and
products.
108
<PAGE>
4.10 Reserved.
4.11 Condition of Assets. The equipment, fixtures and other personal
property of Telesource, taken as a whole, is in good operating condition and
repair (ordinary wear and tear excepted) for the conduct of the business of
Telesource as is contemplated to be conducted.
4.12 No Breaches. To its best knowledge, the making and performance of this
Agreement and the other agreements contemplated hereby by Telesource will not
(i) conflict with or violate the Articles of Incorporation or the Bylaws of
Telesource; (ii) violate any material laws, ordinances, rules or regulations, or
any order, writ, injunction or decree to which Telesource is a party or by which
Telesource or any of its respective assets, businesses, or operations may be
bound or affected; or (iii) result in any breach or termination of, or
constitute a default under, or constitute an event which, with notice or lapse
of time, or both, would become a default under, or result in the creation of any
encumbrance upon any asset of Telesource under, or create any rights of
termination, cancellation or acceleration in any person under, any Telesource
Contract.
4.13 Employees. Except as set forth in the Telesource Disclosure Schedule,
none of the employees of Telesource is represented by any labor union or
collective bargaining unit and, to the best knowledge of Telesource, no
discussions are taking place with respect to such representation.
4.14 Financial Statements. Telesource has disclosed to SBSG an audited
balance sheet as of December 31, 1998 and related statements of operations,
statements of cash flows and statements of shareholders' equity of Telesource
for the one-year period ended December 31, 1998 (collectively, the "Financial
Statements"). The Financial Statements present fairly, in all respects, the
consolidated financial position and results of operations of Telesource as of
the dates and periods indicated. The Financial Statements, when submitted to
SBSG for inclusion in the Registration Statement, will have been prepared in
accordance with Regulation S-X of the SEC and, in particular, Rules 1-02 and
3-05 promulgated thereunder.
4.15 Absence of Certain Changes or Events. Except as previously disclosed
by Telesource, since December 31, 1998, there has not been:
(a) Any material adverse change in the financial condition,
properties, assets, liabilities or business of Telesource;
(b) Any material damage, destruction or loss of any material
properties of Telesource, whether or not covered by insurance;
(c) Intentionally Deleted;
(d) Any material change in the treatment and protection of trade
secrets or other confidential information of Telesource;
(e) Any material change in the business or contractual relationship of
Telesource with any customer or supplier which might reasonably be expected to
adversely affect the business or prospects of Telesource; and
109
<PAGE>
(f) Any agreement by Telesource, whether written or oral, to do any of
the foregoing.
4.16 Governmental Licenses, Permits, Etc. To its best knowledge, Telesource
has all governmental licenses, permits, authorizations and approvals necessary
for the conduct of its business as currently conducted ("Licenses and Permits").
4.17 Employee Agreements. (a) For purposes of this Agreement, the
following definitions apply:
(1) "ERISA" means the Employee Retirement Income Security Act of 1974,
as amended, and any regulations promulgated thereunder.
(2) "Multi-employer Plan" means a plan, as defined in ERISA Section
3(37), to which Telesource contributes or is required to contribute.
(3) "Employee Plan" means any pension, retirement, profit sharing,
deferred compensation, vacation, bonus, incentive, medical, vision, dental,
disability, life insurance or any other employee benefit plan as defined in
Section 3(3) of ERISA other than a Multi-employer Plan to which Telesource
contributes, sponsors, maintains or otherwise is bound to with regard to any
benefits on behalf of the employees of Telesource.
(4) "Employee Pension Plan" means any Employee Plan for the provision
of retirement income to employees or which results in the deferral of income by
employees extending to the termination of covered employment or beyond as
defined in Section 3(2) of ERISA.
(5) "Employee Welfare Plan" means any Employee Plan other than an
Employee Pension Plan.
(6) "Compensation Arrangement" means any plan or compensation
arrangement other than an Employee Plan, whether written or unwritten, which
provides to employees of Telesource, former employees, officers, directors or
shareholders of Telesource any compensation or other benefits, whether deferred
or not, in excess of base salary or wages, including, but not limited to, any
bonus or incentive plan, stock rights plan, deferred compensation arrangement,
life insurance, stock purchase plan, severance pay plan and any other employee
fringe benefit plan.
(b) Telesource has disclosed all (1) employment agreements and collective
bargaining agreements to which Telesource is a party; (2) Compensation
Arrangements of Telesource; (3) Employee Welfare Plans; (4) Employee Pension
Plans; and (5) consulting agreements under which Telesource has or may have any
monetary obligations to employees or consultants of Telesource or their
beneficiaries or legal representatives or under which any such persons may have
any rights. Telesource has previously made available to SBSG true and complete
copies of all of the foregoing employment contracts, collective bargaining
agreements, Employee Plans and Compensation Arrangements, including descriptions
of any unwritten contracts, agreements, Compensation Arrangements or Employee
Plans, as amended to date. In addition, with respect to any Employee Plan which
continues after the Closing Date, Telesource has previously delivered or made
available to SBSG (1) any related trust agreements, master trust agreements,
annuity contracts or insurance contracts; (2) certified copies of all Board of
110
<PAGE>
Directors' resolutions adopting such plans and trust documents and amendments
thereto; (3) current investment management agreements; (4) custodial agreements;
(5) fiduciary liability insurance policies; (6) indemnification agreements; (7)
the most recent determination letter (and underlying application thereof and
correspondence and supplemental material related thereto) issued by the Internal
Revenue Service with respect to the qualification of each Employee Plan under
the provisions of Section 401(a) of the Code; (8) copies of all "advisory
opinion letters," "private letter rulings," "no action letters," and any similar
correspondence (and the underlying applications therefor and correspondence and
supplemental material related thereto) that was issued by any governmental or
quasigovernmental agency with respect to the last plan year; (9) Annual Reports
(Form 5500 Series) and Schedules A and B thereto for the last plan year; (10)
all actuarial reports prepared for the last plan year; (11) all certified
Financial Statements for the last plan year; and (12) all current Summary Plan
Descriptions, Summaries of Material Modifications and Summary Annual Reports.
4.19 Business Locations. Telesource does not nor does it own or lease any
real or personal property in any state except as already disclosed.
4.20 Intellectual Property. Telesource has disclosed all of the
Intellectual Property (as hereinafter defined) used by Telesource which
constitutes a material patent, trade name, trademark, service mark or
application for any of the foregoing. "Intellectual Property" means all of
Telesource's right, title and interest in and to all patents, trade names,
assumed names, trademarks, service marks, and proprietary names, copyrights
(including any registration and pending applications for any such registration
for any of them), together with all the goodwill relating thereto and all other
intellectual property of Telesource. . To the best knowledge of Telesource, it
is not infringing upon, or otherwise violating, the rights of any third party
with respect to any Intellectual Property. No proceedings have been instituted
against or claims received by Telesource, nor to its best knowledge are any
proceedings threatened alleging any such violation, nor does Telesource know of
any valid basis for any such proceeding or claim. To the best knowledge of
Telesource, there is no infringement or other adverse claims against any of the
Intellectual Property owned or used by Telesource. To the best knowledge of
Telesource, its use of software does not violate or otherwise infringe the
rights of any third party.
4.21 Warranties. Telesource has disclosed for inclusion in Form s-4 a true
and complete list of the forms of the express warranties and guaranties made by
Telesource to third parties with respect to services rendered by Telesource.
4.22 Suppliers. Telesource knows and has no reason to believe that, either
as a result of the transactions contemplated hereby or for any other reason
(exclusive of expiration of a contract upon the passage of time), any present
material supplier of Telesource will not continue to conduct business with
Telesource after the Closing Date in substantially the same manner as it has
conducted business prior thereto.
4.23 Accounts Receivable. The accounts receivable reflected on the balance
sheets included in the Financial Statements, or thereafter acquired by
Telesource, consists, in the aggregate in all material respects, of items which
are collectible in the ordinary and usual course of business.
4.24 Governmental Approvals. To its best knowledge, other than as set forth
herein, no authorization, license, permit, franchise, approval, order or consent
of, and no registration, declaration or filing by Telesource with, any
governmental authority, federal, state or local, is required in connection with
Telesource's execution, delivery and performance of this Agreement.
4.25 No Omissions or Untrue Statements. None of the information relating to
Telesource supplied or to be supplied in writing by it specifically for
inclusion in the Registration Statement, at the respective times that the
Registration Statement becomes effective (or any registration statement included
therein), the Proxy Statement is first mailed to SBSG's shareholders and the
meeting of SBSG's shareholders takes place, as the case may be, contains or will
contain any untrue statement of a material fact or omits or will omit to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading. SBSG shall give notice to Telesource in advance of the dates of
such effectiveness, mailing and meeting sufficient to permit Telesource to
fulfill its obligations under the second sentence of this Section.
111
<PAGE>
4.26 Telesource Disclosure Complete. Telesource shall promptly disclose any
events occur prior to the Closing Date that would have been required to be
disclosed had they existed at the time of executing this Agreement.
V. REPRESENTATIONS AND WARRANTIES OF SBSG
SBSG represents and warrants to Telesource as follows, with the best
knowledge and understanding that Telesource is relying materially on such
representations and warranties:
5.1 Organization and Standing of SBSG. SBSG is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Florida, and has the corporate power to carry on its business as now conducted
and to own its assets and it not required to qualify to transact business as a
foreign corporation in any state or other jurisdiction. Prior to the Effective
Date, SBSG will become a Delaware corporation and file a Certificate of
Continuity with the Delaware Secretary of State with Articles of Incorporation
mirroring those of Telesource. The copies of the Articles of Incorporation and
Bylaws of SBSG, delivered to Telesource, are true and complete copies of those
documents as now in effect. SBSG does not own any capital stock in any other
corporation, business trust or similar entity, and is not engaged in a
partnership, joint venture or similar arrangement with any person or entity. The
minute books of SBSG contain accurate records of all meetings of its
incorporator, shareholders and Board of Directors since its date of
incorporation.
5.2 SBSG's Authority. SBSG's Board of Directors has approved and adopted
this Agreement and the Merger and has resolved to recommend approval and
adoption of this Agreement and the Merger by SBSG's shareholders. This Agreement
constitutes, and all other agreements contemplated hereby will constitute, when
executed and delivered by SBSG in accordance herewith (and assuming due
execution and delivery by the other parties hereto), the valid and binding
obligations of SBSG, enforceable in accordance with their respective terms,
subject to general principles of equity and bankruptcy or other laws relating to
or affecting the rights of creditors generally.
5.3 Reserved.
5.4 No Breaches. To its best knowledge, the making and performance of this
Agreement (including, without limitation, the issuance of the SBSG Stock) by
SBSG will not (i) conflict with the Articles of Incorporation or the Bylaws of
SBSG; (ii) violate any order, writ, injunction, or decree applicable to SBSG; or
(iii) result in any breach or termination of, or constitute a default under, or
constitute an event which, with notice or lapse of time, or both, would become a
default under, or result in the creation of any encumbrance upon any asset of
SBSG under, or create any rights of termination, cancellation or acceleration in
any person under, any agreement, arrangement or commitment, or violate any
provisions of any laws, ordinances, rules or regulations or any order, writ,
injunction or decree to which SBSG is a party or by which SBSG or any of its
assets may be bound.
5.5 Capitalization. The SBSG Stock consists of 50,000,000 shares of common
stock, no par value per share, of which 1,000,000 shares are issued and
outstanding. All of the outstanding SBSG Stock is duly authorized, validly
issued, fully paid and nonassessable, and was not issued in violation of the
preemptive rights of any person. The SBSG Stock to be issued upon effectiveness
of the Merger, when issued in accordance with the terms of this Agreement shall
be duly authorized, validly issued, fully paid and nonassessable. Other than as
stated in this Section 5.5, there are no outstanding subscriptions, options,
warrants, calls or rights of any kind issued or granted by, or binding upon,
SBSG, to purchase or otherwise acquire any shares of capital stock of SBSG, or
112
<PAGE>
other equity securities or equity interests of SBSG or any debt securities of
SBSG. There are no outstanding securities convertible or exchangeable, actually
or contingently, into shares of SBSG Stock or other stock of SBSG.
5.6 Business. SBSG, since its formation, has engaged in no business other
than to seek to serve as a vehicle for the acquisition of an operating business,
and, except for this Agreement, is not a party to any contract or agreement for
the acquisition of an operating business.
5.7 Governmental Approval; Consents. To its best knowledge, except for the
reports required to be filed in the future by SBSG, as a reporting company,
under the Exchange Act and under the Securities Act, the filing of the
Registration Statement under the Securities Act, the Proxy Statement under the
Exchange Act for the purpose of seeking stockholder approval of the Merger
referred to in Section 2.1 and the issuance of the SBSG Stock pursuant to the
Merger and the filing of the S-4 Registration Statement (or other form of
registration statement as agreed by the parties), no authorization, license,
permit, franchise, approval, order or consent of, and no registration,
declaration or filing by SBSG with, any governmental authority, federal, state
or local, is required in connection with SBSG's execution, delivery and
performance of this Agreement. No consents of any other parties are required to
be received by or on the part of SBSG to enable SBSG to enter into and carry out
this Agreement.
5.8 Financial Statements. To its best knowledge, the financial statements
of SBSG included in SBSG's SEC Reports, as hereinafter defined (collectively,
the "SBSG Financial Statements") present fairly, in all material respects, the
financial position of SBSG as of the respective dates and the results of its
operations for the periods covered in accordance with GAAP. Without limiting the
generality of the foregoing, (i) except as set forth in the SBSG Disclosure
Schedule, there is no basis for any assertion against SBSG as of the date of
said balance sheets of any material debt, liability or obligation of any nature
not fully reflected or reserved against in such balance sheets or in the notes
thereto; and (ii) there are no assets of SBSG, the value of which (in the
reasonable judgment of SBSG) is materially overstated in said balance sheets.
Except as disclosed therein, SBSG has no known material contingent liabilities
(including liabilities for taxes), unusual forward or long-term commitments or
unrealized or anticipated losses from unfavorable commitments. SBSG is not a
party to any contract or agreement for the forward purchase or sale of any
foreign currency.
5.9 Adverse Developments. Except as expressly provided or set forth in, or
required by, this Agreement, or as set forth in the SBSG Financial Statements,
since March 1997, there have been no materially adverse changes in the assets,
liabilities, properties, operations or financial condition of SBSG, and no event
has occurred other than in the ordinary and usual course of business or as set
forth in SBSG's SEC Reports or in the SBSG Financial Statements which could be
reasonably expected to have a materially adverse effect upon SBSG, and SBSG does
not know of any development or threatened development of a nature that will, or
which could be reasonably expected to, have a materially adverse effect upon
SBSG's operations or future prospects.
5.10 SBSG's U.S. Securities and Exchange Commission Reports. The SBSG Stock
was registered under Section 12 of the Exchange Act on Form 10. Since its
inception, SBSG and each of its officers and directors has filed all reports,
registrations and other documents, together with any amendments thereto,
required to be filed under the Securities Act and the Exchange Act, including,
but not limited to, proxy statements and reports on Form 10-KSB, Form 10-QSB and
Form 8-K, and SBSG and each of its officers and directors will file all such
113
<PAGE>
reports, registrations and other documents required to be filed by it from the
date of this Agreement to the Closing Date (all such reports, registrations and
documents, including registrations and documents voluntarily filed or to be
filed with the SEC, with the exception of the Registration Statement and the
Proxy Statement, are collectively referred to as "SBSG's SEC Reports"). As of
their respective dates, SBSG's SEC Reports complied or will comply in all
material respects with all rules and regulations promulgated by the SEC and did
not or will not contain any untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading. As part of the SBSG Disclosure Schedule, SBSG has provided to
Telesource a true and complete copy of all of SBSG's SEC Reports filed on or
prior to the date hereof, and will promptly provide to Telesource a true and
complete copy of any such reports filed after the date hereof and on or prior to
the Closing Date.
5.11 Contracts Listed; No Default. All material contracts, agreements,
licenses, leases, easements, permits, rights of way, commitments, and
understandings, written or oral, connected with or relating in any respect to
the present operations of SBSG shall be disclosed to Telesource. All of such
contracts, agreements, leases, commitments and understandings, written or oral,
and any other contract, agreement, lease, commitment or understanding, written
or oral, binding upon SBSG, are listed in the SBSG Disclosure Schedule (the
"SBSG Contracts"). To the best knowledge of SBSG, the SBSG Contracts are valid,
binding and enforceable by SBSG against the other parties thereto in accordance
with their terms. Neither SBSG nor, to the best knowledge of SBSG, any of the
other parties thereto is in default or breach of any material provision of the
SBSG Contracts. SBSG shall furnish Telesource by the effective date of this
agreement with a true and complete copy of each SBSG Contract, as amended.
5.12 Taxes. SBSG has duly filed all Returns required by any law or
regulation to be filed by it except for extensions duly obtained. All such
Returns were, when filed, and to the best of SBSG's best knowledge are, accurate
and complete in all material respects and were prepared in conformity with
applicable laws and regulations. SBSG has paid or will pay in full or has
adequately reserved against all Taxes otherwise assessed against it through the
Closing Date, and the assessment of any material amount of additional Taxes in
excess of those paid and reported is not reasonably expected.
SBSG is not a party to any pending action or proceeding by any governmental
authority for the assessment of any Tax, and no claim for assessment or
collection of any Tax has been asserted against SBSG that has not been paid.
There are no Tax liens upon the assets of SBSG (other than the lien of personal
property taxes not yet due and payable). There is no valid basis, to the best of
SBSG's best knowledge, except as set forth in the SBSG Disclosure Schedule, for
any assessment, deficiency, notice, 30-day letter or similar intention to assess
any Tax to be issued to SBSG by any governmental authority.
5.13 Litigation. Except as disclosed in the SBSG Disclosure Schedule, there
is no claim, action, proceeding or investigation pending or, to SBSG's best
knowledge, threatened against or affecting SBSG before or by any court,
arbitrator or governmental agency or authority which, in the reasonable judgment
of SBSG, could have a materially adverse effect on SBSG. There are no decrees,
injunctions or orders of any court, governmental department, agency or
arbitration outstanding against SBSG.
5.14 Compliance with Laws and Regulations. To its best knowledge, SBSG is
in compliance, in all material respects, with all laws, rules, regulations,
orders and requirements (federal, state and local) applicable to it in all
jurisdictions in which the business of SBSG is currently conducted or to which
SBSG is currently subject, which may have a material impact on SBSG, including,
without limitation, all applicable civil rights and equal opportunity employment
laws and regulations, all state and federal antitrust and fair trade practice
laws and the Federal Occupational Health and Safety Act. SBSG does not know of
114
<PAGE>
any assertion by any party that SBSG is in violation of any such laws, rules,
regulations, orders, restrictions or requirements with respect to its current
operations, and no notice in that regard has been received by SBSG. To SBSG's
best knowledge, there is not presently pending any proceeding, hearing or
investigation with respect to the adoption of amendments or modifications of
existing laws, rules, regulations, orders, restrictions or requirements which,
if adopted, would materially adversely affect the current operations of SBSG.
5.15 Compliance with Laws. (a) To its best knowledge, the business
operations, property and assets of SBSG (and to the best knowledge of SBSG, the
business of any sub-tenant or license which is occupying or has occupied any
space on any premises of SBSG and the activities of which could result in any
material adverse liability to SBSG) (i) conform with and are in compliance in
all material respects with all, and are not in material violation of any
applicable federal, state and local laws, rules and regulations, including, but
not limited to, CERCLA and RCRA, as well as any other laws, rules or regulations
relating to tax, product liability, controlled substances, product registration,
environmental protection, hazardous or toxic waste, employment, or occupational
safety matters; and (ii) have been conducted and operated in a manner such that,
to SBSG's best knowledge, SBSG has no foreseeable potential liabilities for
environmental clean-up under CERCLA, RCRA or under any law, rule, regulation or
common or civil law doctrine.
(b) To its best knowledge, no predecessor-in-title to any real property now
or previously owned or operated by SBSG, nor any predecessor operator thereof
conducted its business or operated such property in violation of CERCLA and RCRA
or any other applicable, federal, state and local laws, rules and regulations
relating to environmental protection or hazardous or toxic waste matters.
(c) Except as disclosed in the SBSG Disclosure Schedule, no suit, action,
claim, proceeding nor investigation review or inquiry by any Government Entity
(as defined in Section 4.9) concerning any such possible violations by SBSG is
pending or, to SBSG's best knowledge, threatened, including, but not limited to,
matters relating to diagnostic tests and products and product liability,
environmental protection, hazardous or toxic waste, controlled substances,
employment, occupational safety or tax matters. SBSG does not know of any
reasonable basis or ground for any such suit, claim, investigation, inquiry or
proceeding.
5.16 Governmental Licenses, Permits, Etc. To its best knowledge, SBSG has
all governmental licenses, permits, authorizations and approvals necessary for
the conduct of its business as currently conducted. All such licenses, permits,
authorizations and approvals are in full force and effect, and no proceedings
for the suspension or cancellation of any thereof is pending or threatened.
5.17 Brokers. SBSG has not made any agreement or taken any action with any
person or taken any action which would cause any person to be entitled to any
agent's, broker's or finder's fee or commission in connection with the
transactions contemplated by this Agreement.
5.18 Employee Plans. Except as listed in SBSG's SEC Reports, SBSG has no
employees, consultants or agents, and SBSG has no Employee Plans or Compensation
Arrangements.
5.19 Registration Statement and Proxy Statement. To its best knowledge, the
Registration Statement and the Proxy Statement will comply with, and will be
distributed in accordance with, as applicable, the BCA, the Securities Act and
the Exchange Act and all rules and regulations of the SEC promulgated under such
acts, and state securities or blue sky laws. At the time that the Registration
115
<PAGE>
Statement (or any registration statement included therein) becomes effective,
the Proxy Statement is first mailed to SBSG's shareholders and the meeting of
SBSG's shareholders takes place, as the case may be, neither the Registration
Statement nor the Proxy Statement will contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading; provided, however, that this
representation shall not be deemed to apply to information included in the
Registration Statement or the Proxy Statement relating to Telesource which was
furnished by Telesource to SBSG for use in the Registration Statement and the
Proxy Statement and which was made in conformity with the information so
furnished.
5.20 Accounts. SBSG has previously disclosed to Telesource a list of all
banks and other institutions in which SBSG maintains an account (including
checking, savings, cash management, brokerage, money market or any other type of
account) or safe deposit box, the address and telephone of such bank or other
institution, the name of SBSG's contact person with respect to such account or
safe deposit box, the account number of each such account, and the names of all
person authorized to make draws on such accounts or who have access to such safe
deposit boxes.
5.21 No Omissions or Untrue Statements. No representations or warranties
made by SBSG to Telesource in this Agreement or in any certificate of a SBSG
officer required to be delivered to Telesource pursuant to the terms of this
Agreement contains or will contain any untrue statement of a material fact,
omits or will omit to state a material fact necessary to make the statement
contained herein or therein not misleading as of the date hereof and as of the
Closing Date.
5.22 Reserved.
5.23 Reserved.
5.24 SBSG Disclosure Schedule Complete. SBSG shall promptly supplement the
SBSG Disclosure Schedule if events occur prior to the Closing Date that would
have been required to be disclosed had they existed at the time of executing
this Agreement. The SBSG Disclosure Schedule, as supplemented prior to the
Closing Date, will contain a true, correct and complete list and description of
all items required to be set forth therein. The SBSG Disclosure Schedule, as
supplemented prior to the Closing Date, is expressly incorporated herein by
reference. Notwithstanding the foregoing, any such supplement to the SBSG
Disclosure Schedule following the date hereof shall not in any way affect
Telesource's right not to consummate the transactions contemplated hereby as set
forth in Section 6.2 hereof.
VI. STOCKHOLDER APPROVAL; CLOSING DELIVERIES
6.1 Stockholder Approval. SBSG shall submit the Merger and this Agreement
to its shareholders for approval and adoption at the Meeting to be held as soon
as practicable following the date or this Agreement in accordance with Section
3.7 hereof. Subject to the Merger and this Agreement receiving all approvals of
SBSG and Telesource shareholders and regulatory approvals and the absence of 30%
or more of the non-affiliated shareholders of SBSG (i) voting against the
Merger; and (ii) requesting redemption of their shares of SBSG Stock in the
manner to be set forth in the Proxy Statement, and subject to the other
provisions of this Agreement, the parties shall hold a closing (the "Closing")
no later than the fifth business day (or such later date as the parties hereto
may agree) following the later of (a) the date of the Meeting of Shareholders of
SBSG to consider and vote upon the Merger and this Agreement and the Name Change
or (b) the business day on which the last of the conditions set forth in
Articles VII and VIII hereof is fulfilled or waived (such later date, the
"Closing Date"), at 10:00 A.M. at the offices of WILLIAMS LAW GROUP, P.A., or at
such other time and place as the parties may agree upon.
116
<PAGE>
6.2 Closing Deliveries of Telesource. At the Closing, Telesource shall
deliver, or cause to be delivered, to SBSG:
(a) A certificate dated as of the Closing Date, to the effect that the
representations and warranties of Telesource contained in this Agreement are
true and correct in all material respects at and as of the Closing Date and that
Telesource has complied with or performed in all material respects all terms,
covenants and conditions to be complied with or performed by Telesource on or
prior to the Closing Date;
(b) Intentionally Deleted;
(c) a certificate, dated as of the Closing Date, certifying as to the
Articles of Incorporation and Bylaws of Telesource, the incumbency and
signatures of the officers of each of Telesource and copies of the directors'
and shareholders' resolutions of Telesource approving and authorizing the
execution and delivery of this Agreement, and the consummation of the
transactions contemplated hereby;
(d) Such other documents, at the Closing or subsequently, as may be
reasonably requested by SBSG as necessary for the implementation and
consummation of this Agreement and the transactions contemplated hereby.
6.3 Closing Deliveries of SBSG. At the Closing, SBSG shall deliver to
Telesource:
(a) A certificate of SBSG, dated as of the Closing Date, to the effect
that the representations and warranties of SBSG contained in this Agreement are
true and correct in all material respects and that SBSG has complied with or
performed in all material respects all terms, covenants and conditions to be
complied with or performed by SBSG on or prior to the Closing Date;
(b) A certificate, dated as of the Closing Date, executed by the
Secretary of SBSG, certifying the Articles of Incorporation, Bylaws, incumbency
and signatures of officers of SBSG and copies of SBSG's directors' and
shareholders' resolutions approving and authorizing the execution and delivery
of this Agreement and the consummation of the transactions contemplated hereby;
(c) An opinion of SBSG's counsel, WILLIAMS LAW GROUP, P.A., in form
and substance reasonably satisfactory to Telesource, in a form to be mutually
agreed to prior to the Closing;
(d) The written resignations of all officers, and all directors of
SBSG.
(e) Certificates representing the SBSG Stock issuable upon
consummation of the Merger;
(f) The books and records of SBSG; and
(h) Documentation satisfactory to Telesource evidencing the fact that
the signatories on all relevant bank accounts of SBSG have been changed to
signatories designated by Telesource.
VII. CONDITIONS TO OBLIGATIONS OF Telesource
The obligation of Telesource to consummate the Closing is subject to the
following conditions, any of which may be waived by Telesource in its sole
discretion:
117
<PAGE>
7.1 Compliance by SBSG. SBSG shall have performed and complied in all
material respects with all agreements and conditions required by this Agreement
to be performed or complied with by SBSG prior to or on the Closing Date.
7.2 Accuracy of SBSG's Representations. SBSG's representations and
warranties contained in this Agreement (including the SBSG Disclosure Schedule)
or any schedule, certificate or other instrument delivered pursuant to the
provisions hereof or in connection with the transactions contemplated hereby
shall be true and correct in all material respects at and as of the Closing Date
(except for such changes permitted by this Agreement) and shall be deemed to be
made again as of the Closing Date.
7.3 Material Adverse Change. No material adverse change shall have occurred
subsequent to March 1999 in the financial position, results of operations,
assets, liabilities or prospects of SBSG, nor shall any event or circumstance
have occurred which would result in a material adverse change in the financial
position, results of operations, assets, liabilities or prospects of SBSG within
the reasonable discretion of Telesource.
7.4 Documents. All documents and instruments delivered by SBSG to
Telesource at the Closing shall be in form and substance reasonably satisfactory
to Telesource and its counsel.
7.5 Capitalization. At the Closing Date, SBSG shall have not more than
210,000 shares of SBSG Stock issued and outstanding.
7.6 Effectiveness of Registration Statement; No Stop Order. The
Registration Statement shall be effective under the Securities Act and shall not
be subject to a stop order or any threatened stop order.
7.7 Reorganization. The Merger shall qualify as a tax-free reorganization
under Section 368 of the Code.
7.8 Litigation. No litigation seeking to enjoin the transactions
contemplated by this Agreement or to obtain damages on account hereof shall be
pending or, to Telesource's best knowledge, be threatened.
7.9 Certain Consents. Telesource shall have received from Pender & Newkirk
a consent in writing, in form and substance acceptable for filing with the SEC,
to Telesource's entry into this Agreement and consummation of the Merger.
VIII. CONDITIONS TO SBSG'S OBLIGATIONS
SBSG's obligation to consummate the closing is subject to the following
conditions, any of which may be waived by SBSG in its sole discretion:
8.1 Compliance by Telesource. Telesource shall have performed and complied
in all material respects with all agreements and conditions required by this
Agreement to be performed or complied with prior to or on the Closing Date.
8.2 Accuracy of Telesource's Representations. Telesource's representations
and warranties contained in this Agreement or any schedule, certificate or other
instrument delivered pursuant to the provisions hereof or in connection with the
transactions contemplated hereby shall be true and correct in all material
respects at and as of the Closing Date (except for such changes permitted by
this Agreement) and shall be deemed to be made again as of the Closing Date.
118
<PAGE>
8.3 Material Adverse Change. No material adverse change shall have occurred
subsequent to September 30, 1999 in the financial position, results of
operations, assets, liabilities or prospects of Telesource taken as a whole, nor
shall any event or circumstance have occurred which would result in a material
adverse change in the business, assets or condition, financial or otherwise, of
Telesource taken as a whole, within reasonable discretion of SBSG.
8.4 Litigation. No litigation seeking to enjoin the transactions
contemplated by this Agreement or to obtain damages on account hereof shall be
pending or, to SBSG's best knowledge, be threatened.
8.5 Reorganization. The Merger shall qualify as a tax-free reorganization
under Section 368 of the Code and there are no material adverse tax consequences
to the Merger.
8.6 Documents. All documents and instruments delivered by Telesource to
SBSG at the Closing shall be in form and substance reasonably satisfactory to
SBSG and its counsel.
IX. INDEMNIFICATION
9.1 By Telesource. Subject to Section 9.4, Telesource shall indemnify,
defend and hold SBSG, its directors, officers, shareholders, attorneys, agents
and affiliates, harmless from and against any and all losses, costs,
liabilities, damages, and expenses (including legal and other expenses incident
thereto) of every kind, nature and description, including any undisclosed
liabilities (collectively, "Losses") that result from or arise out of (i) the
breach of any representation or warranty of Telesource set forth in this
Agreement or in any certificate delivered to SBSG pursuant hereto; or (ii) the
breach of any of the covenants of Telesource contained in or arising out of this
Agreement or the transactions contemplated hereby.
9.2 By SBSG. Subject to Section 9.4, SBSG shall indemnify, defend and hold
Telesource, its directors, officers, shareholders, attorneys, agents and
affiliates, harmless from and against any and all losses, costs, liabilities,
damages, and expenses (including legal and other expenses incident thereto) of
every kind, nature and description, including any undisclosed liabilities
(collectively, "Losses") that result from or arise out of (i) the breach of any
representation or warranty of SBSG set forth in this Agreement or in any
certificate delivered to Telesource pursuant hereto; or (ii) the breach of any
of the covenants of SBSG contained in or arising out of this Agreement or the
transactions contemplated hereby.
9.3 Claims Procedure. Should any claim covered by Sections 9.1 or 9.2 be
asserted against a party entitled to indemnification under this Article (the
"Indemnitee"), the Indemnitee shall promptly notify the party obligated to make
indemnification (the "Indemnitor"); provided, however, that any delay or failure
in notifying the Indemnitor shall not affect the Indemnitor's liability under
this Article if such delay or failure was not prejudicial to the Indemnitor. The
Indemnitor upon receipt of such notice shall assume the defense thereof with
counsel reasonably satisfactory to the Indemnitee and the Indemnitee shall
extend reasonable cooperation to the Indemnitor in connection with such defense.
No settlement of any such claim shall be made without the consent of the
Indemnitor and Indemnitee, such consent not to be unreasonably withheld or
delayed, nor shall any such settlement be made by the Indemnitor which does not
provide for the absolute, complete and unconditional release of the Indemnitee
from such claim. In the event that the Indemnitor shall fail, within a
reasonable time, to defend a claim, the Indemnitee shall have the right to
assume the defense thereof without prejudice to its rights to indemnification
hereunder.
119
<PAGE>
9.4 Limitations on Liability. Neither Telesource nor SBSG shall be liable
hereunder as a result of any misrepresentation or breach of such party's
representations, warranties or covenants contained in this Agreement unless and
until the Losses incurred by each, as the case may be, as a result of such
misrepresentations or breaches under this Agreement shall exceed, in the
aggregate, $2,000.00 (in which case the party liable therefor shall be liable
for the entire amount of such claims, including the first $2,000.00).
X. TERMINATION
10.1 Termination Prior to Closing. (a) If the Closing has not occurred by
31 December 1999, subject to a 30 day extension by Telesource, or any other
extension as agreed by the parties (the "Termination Date"), any of the parties
hereto may terminate this Agreement at any time thereafter by giving written
notice of termination to the other parties; provided, however, that no party may
terminate this Agreement if such party has willfully or materially breached any
of the terms and conditions hereof.
(b) Prior to the Termination Date either party to this Agreement may
terminate this Agreement following the insolvency or bankruptcy of the other, or
if any one or more of the conditions to Closing set forth in Article VI, Article
VII or Article VIII shall become incapable of fulfillment and shall not have
been waived by the party for whose benefit the condition was established, then
either party may terminate this Agreement.
(c) Prior to the Closing Date, Telesource shall be able to terminate this
Agreement for its convenience, subject to a 30 day notice.
10.2 Consequences of Termination. Upon termination of this Agreement
pursuant to this Article X or any other express right of termination provided
elsewhere in this Agreement, the parties shall be relieved of any further
obligation to the others except as specified in Section 12.3. No termination of
this Agreement, however, whether pursuant to this Article X hereof or under any
other express right of termination provided elsewhere in this Agreement, shall
operate to release any party from any liability to any other party incurred
before the date of such termination or from any liability resulting from any
willful misrepresentation made in connection with this Agreement or willful
breach hereof.
XI. ADDITIONAL COVENANTS
11.1 Mutual Cooperation. The parties hereto will cooperate with each other,
and will use all reasonable efforts to cause the fulfillment of the conditions
to the parties' obligations hereunder and to obtain as promptly as possible all
consents, authorizations, orders or approvals from each and every third party,
whether private or governmental, required in connection with the transactions
contemplated by this Agreement.
11.2 Changes in Representations and Warranties of Telesource. Between the
date of this Agreement and the Closing Date, Telesource shall not, directly or
indirectly, except as contemplated in the Telesource Disclosure Schedule, enter
into any transaction, take any action, or by inaction permit an event to occur,
which would result in any of the representations and warranties of Telesource
herein contained not being true and correct at and as of (a) the time
immediately following the occurrence of such transaction or event or (b) the
Closing Date. Telesource shall promptly give written notice to SBSG upon
becoming aware of (i) any fact which, if known on the date hereof, would have
been required to be set forth or disclosed pursuant to this Agreement and (ii)
any impending or threatened breach in any material respect of any of the
representations and warranties of Telesource contained in this Agreement and
with respect to the latter shall use all reasonable efforts to remedy same.
120
<PAGE>
11.3 Changes in Representations and Warranties of SBSG. Between the date of
this Agreement and the Closing Date, SBSG shall not, directly or indirectly,
enter into any transaction, take any action, or by inaction permit an event to
occur, which would result in any of the representations and warranties of SBSG
herein contained not being true and correct at and as of (a) the time
immediately following the occurrence of such transaction or event or (b) the
Closing Date. SBSG shall promptly give written notice to Telesource upon
becoming aware of (i) any fact which, if known on the date hereof, would have
been required to be set forth or disclosed pursuant to this Agreement and (ii)
any impending or threatened breach in any material respect of any of the
representations and warranties of SBSG contained in this Agreement and with
respect to the latter shall use all reasonable efforts to remedy same.
XII. MISCELLANEOUS
12.1 Expenses. (a) Prior to the Closing Date, SBSG will pay in full for its
counsel and financial consultant and all their costs. As of the Closing Date,
SBSG shall have zero accounts payable and no liabilities, accrued or otherwise.
SBSG will be responsible for costs incurred to respond to any SEC comments on
the Registration Statement and Proxy Statement prepared in connection with this
merger.
(b) Telesource will pay for its accountants and attorneys and its costs.
Telesource will be responsible for paying the SEC filing fee, and state filing
fees and all costs of converting its documents so they can be filed with the
SEC.
12.2 Survival of Representations, Warranties and Covenants. All statements
contained in this Agreement or in any certificate delivered by or on behalf of
Telesource or SBSG pursuant hereto or in connection with the transactions
contemplated hereby shall be deemed representations, warranties and covenants by
Telesource or SBSG, as the case may be, hereunder. All representations,
warranties and covenants made by Telesource and by SBSG in this Agreement, or
pursuant hereto, shall survive for two years beyond the Closing Date.
12.3 Nondisclosure. SBSG will not at any time after the date of this
Agreement, without Telesource' consent, divulge, furnish to or make accessible
to anyone (other than to its representatives as part of its due diligence or
corporate investigation) any knowledge or information with respect to
confidential or secret processes, inventions, discoveries, improvements,
formulae, plans, material, devices or ideas or know-how, whether patentable or
not, with respect to any confidential or secret aspects (including, without
limitation, customers or suppliers) ("Confidential Information") of Telesource.
Telesource will not at any time after the date of this Agreement, without
SBSG's consent (except as may be required by law), use, divulge, furnish to or
make accessible to anyone any Confidential Information (other than to its
representatives as part of its due diligence or corporate investigation) with
respect to SBSG. The undertakings set forth in the preceding two paragraphs of
this Section 12.3 shall lapse if the Closing takes place as to SBSG and
Telesource, but shall not lapse as to the officers and directors of SBSG,
individually.
Any information, which (i) at or prior to the time of disclosure by either
of Telesource or SBSG was generally available to the public through no breach of
this covenant, (ii) was available to the public on a non-confidential basis
prior to its disclosure by either of Telesource or SBSG or (iii) was made
available to the public from a third party, provided that such third party did
not obtain or disseminate such information in breach of any legal obligation to
Telesource or SBSG, shall not be deemed Confidential Information for purposes
hereof, and the undertakings in this covenant with respect to Confidential
Information shall not apply thereto.
121
<PAGE>
12.4 Succession and Assignments; Third Party Beneficiaries. This Agreement
may not be assigned (either voluntarily or involuntarily) by any party hereto
without the express written consent of the other party. Any attempted assignment
in violation of this Section shall be void and ineffective for all purposes. In
the event of an assignment permitted by this Section, this Agreement shall be
binding upon the heirs, successors and assigns of the parties hereto. Except as
expressly set forth in this Section, there shall be no third party beneficiaries
of this Agreement.
12.5 Notices. All notices, requests, demands or other communications with
respect to this Agreement shall be in writing and shall be (i) sent by facsimile
transmission, (ii) sent by the United States Postal Service, registered or
certified mail, return receipt requested, or (iii) personally delivered by a
nationally recognized express overnight courier service, charges prepaid, to the
addresses specified in writing by each party.
Any such notice shall, when sent in accordance with the preceding sentence,
be deemed to have been given and received on the earliest of (i) the day
delivered to such address or sent by facsimile transmission, (ii) the fifth
(5th) business day following the date deposited with the United States Postal
Service, or (iii) twenty-four (24) hours after shipment by such courier service.
12.6 Construction. This Agreement shall be construed and enforced in
accordance with the internal laws of the State of Florida without giving effect
to the principles of conflicts of law thereof, except to the extent that the
Securities Act or the Exchange Act applies to the Registration Statements and
the Proxy Statement.
12.7 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which shall
together constitute one and the same Agreement.
12.8 No Implied Waiver; Remedies. No failure or delay on the part of the
parties hereto to exercise any right, power or privilege hereunder or under any
instrument executed pursuant hereto shall operate as a waiver, nor shall any
single or partial exercise of any right, power or privilege preclude any other
or further exercise thereof or the exercise of any other right, power or
privilege. All rights, powers and privileges granted herein shall be in addition
to other rights and remedies to which the parties may be entitled at law or in
equity.
12.9 Entire Agreement. This Agreement, including the Exhibits and Schedules
attached hereto, sets forth the entire understandings of the parties with
respect to the subject matter hereof, and it incorporates and merges any and all
previous communications, understandings, oral or written, as to the subject
matter hereof, and cannot be amended or changed except in writing, signed by the
parties.
12.10 Headings. The headings of the Sections of this Agreement, where
employed, are for the convenience of reference only and do not form a part
hereof and in no way modify, interpret or construe the meanings of the parties.
12.11 Severability. To the extent that any provision of this Agreement
shall be invalid or unenforceable, it shall be considered deleted herefrom and
the remainder of such provision and of this Agreement shall be unaffected and
shall continue in full force and effect.
122
<PAGE>
12.12 Public Disclosure. From and after the date hereof through the Closing
Date, SBSG shall not issue a press release or any other public announcement with
respect to the transactions contemplated hereby without the prior consent of
Telesource, which consent shall not be unreasonably withheld or delayed. It is
understood by Telesource that SBSG is required under the Exchange Act to make
prompt disclosure of any material transaction.
THE PARTIES TO THIS AGREEMENT HAVE READ THIS AGREEMENT, HAVE HAD THE
OPPORTUNITY TO CONSULT WITH INDEPENDENT COUNSEL OF THEIR OWN CHOICE, AND
UNDERSTAND EACH OF THE PROVISIONS OF THIS AGREEMENT.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement the day
and year first above written.
TELESOURCE: Telesource International, Incorporated
By: /s/ Nidal Z. Zayed
--------------------------------------------
Nidal Z. Zayed
Executive Vice President
Attest: _/s/ Bud Curley___________________
SIXTH BUSINESS: Sixth Business Service Group, Incorporated
By: /s/ Mike Williams
--------------------------------------------
Mike Williams
President , Treasurer and Director
Attest: _/s/ Mike Williams________________
123
<PAGE>
124
<PAGE>
Exhibit 3.(I)
Articles
ARTICLES OF INCORPORATION
OF
Sixth Business Service Group, Inc.
ARTICLE I - NAME AND MAILING ADDRESS
The name of this corporation is Sixth Business Service Group, Inc. and
the mailing address of this corporation is 2503 W. Gardner Ct. Tampa Fl 33611.
ARTICLE II - DURATION
This corporation shall have perpetual existence.
ARTICLE III - PURPOSE
This corporation is organized to include the transaction of any or all
lawful business for which corporations may be incorporated under Chapter 607,
Florida Statutes (1975) as presently enacted and as it may be amended from time
to time.
ARTICLE IV - CAPITAL STOCK
This corporation is authorized to issue 50,000,000 shares of no par value
common stock, which shall be designated as "Common Shares" and Twenty Million
shares of no par value preferred stock, which shall be designated as "Preferred
Shares."
The Preferred Shares may be issued in such series and with such rights,
privileges, and preferences as determined solely by the Board of Directors.
ARTICLE V - INITIAL REGISTERED OFFICE AND AGENT The street
address of the initial registered office of this corporation is
2503 W. Gardner Ct. Tampa Fl 33611, and the name of the initial registered agent
of this corporation at that address is Michael T. Williams.
125
<PAGE>
-32-
ARTICLE VI - INITIAL BOARD OF DIRECTORS
This corporation shall have One director(s) initially. The number of
directors may be either increased or decreased from time to time by the Bylaws,
but shall never be less than one (1). The name(s) and address(es) of the initial
director(s) of this corporation are:
NAME ADDRESS
Michael T. Williams 2503 W. Gardner Ct. Tampa Fl 33611
ARTICLE VII - INCORPORATOR(S)
The name and address of the person(s) signing these Articles of
Incorporation is (are):
NAME ADDRESS
Michael T. Williams 2503 W. Gardner Ct. Tampa Fl 33611
ARTICLE VIII - INDEMNIFICATION
The corporation shall indemnify any officer or director, or any former
officer or director, to the full extent permitted by law.
ARTICLE IX - AMENDMENT
This corporation reserves the right to amend or repeal any provisions
contained in these Articles of Incorporation, or any amendment thereto, and any
right conferred upon the shareholders is subject to this reservation.
ARTICLE X - AFFILIATED TRANSACTIONS AND CONTROL SHARE ACQUISITIONS The
Corporation expressly elects not to be governed by Sections 607.0901 and
607.0902
of the Florida Business Corporations Act, relating to affiliated transactions
and control share acquisitions, respectively.
126
<PAGE>
IN WITNESS WHEREOF, the undersigned incorporator(s) has (have) executed
these Articles of Incorporation this March 11, 1999.
-------------------------------
Michael T. Williams
127
<PAGE>
CERTIFICATE DESIGNATING REGISTERED AGENT
AND STREET ADDRESS FOR SERVICE OF PROCESS
WITHIN FLORIDA
Pursuant to Florida Statutes Section 48.091, Sixth Business Service Group,
desiring to organize under the laws of the State of Florida, hereby designates
Michael T. Williams, located at 2503 W. Gardner Ct. Tampa Fl 33611 as its
registered agent to accept service of process within the State of Florida.
ACCEPTANCE OF DESIGNATION
The undersigned hereby accepts the above designation as registered agent
to accept service of process for the above-named corporation, at the place
designated above, and agrees to comply with the provisions of Florida Statutes
Section 48.091(2) relative to maintaining an office for the service of process.
-------------------------------
Michael T. Williams
128
<PAGE>
129
<PAGE>
EXHIBIT 2
BY-LAWS
BYLAWS
OF
Sixth Business Service Group, Inc.
ARTICLE I - MEETINGS OF SHAREHOLDERS
Section 1. Annual Meeting. The annual meeting of the shareholders of this
corporation shall be held at the time and place designated by the Board of
Directors of the corporation. The annual meeting of shareholders for any year
shall be held no later than thirteen (13) months after the last preceding annual
meeting of shareholders. Business transacted at the annual meeting shall include
the election of directors of the corporation.
Section 2. Special Meetings. Special meetings of the shareholders shall be
held when directed by the Board of Directors, or when requested in writing by
the holders of not less than ten percent (10%) of all the shares entitled to
vote at the meeting. A meeting requested by shareholders shall be called for a
date not less than ten (10) or more than sixty (60) days after the request is
made, unless the shareholders requesting the meeting designate a later date. The
call for the meeting shall be issued by the Secretary, unless the President,
Board of Directors, or shareholders requesting the meeting designate another
person to do so.
Section 3. Place. Meetings of shareholders may be held within or without
the State of Florida.
Section 4. Notice. Written notice stating the place, day and hour of the
meeting and, in the case of a special meeting, the purpose or purposes for which
the meeting is called, shall be delivered not less than ten (10) nor more than
sixty (60) days before the meeting, either personally or by first class mail, by
or at the direction of the President, the Secretary, or the officer or persons
calling the meeting to each shareholder of record entitled to vote at such
meeting. If mailed, such notice shall be deemed to be delivered when deposited
in the United States mail addressed to the shareholder at his address as it
appears on the stock transfer books of the corporation, with postage thereon
prepaid.
Section 5. Notice of Adjourned Meetings. When a meeting is adjourned to
another time or place, it shall not be necessary to give any notice of the
adjourned meeting if the time and place to which the meeting is adjourned are
announced at the meeting at which the adjournment is taken, and at the adjourned
meeting any business may be transacted that might have been transacted on the
original date of the meeting. If, however, after the adjournment the Board of
Directors fixes a new record date for the adjourned meeting, a notice of the
adjourned meeting shall be given as provided in this section to each shareholder
of record on the new record date entitled to vote at such meeting.
130
<PAGE>
Section 6. Closing of Transfer Books and Fixing Record Date. For the
purpose of determining shareholders entitled to notice of or to vote at any
meeting of shareholder of any adjournment thereof, or entitled to receive
payment of any dividend, or in order to make a determination of shareholders for
any other purpose, the Board of Directors may provide that the stock transfer
books shall be closed for a stated period but not to exceed, in any case, sixty
(60) days. If the stock transfer books shall be closed for the purpose of
determining shareholders entitled to notice of or to vote at a meeting of
shareholders, such books shall be closed for at least ten (10) days immediately
preceding such meeting.
In lieu of closing the stock transfer books, the Board of Directors may
fix in advance a date as the record date for any determination of shareholders,
such date in any case to be not more than sixty (60) days and, in case of a
meeting of shareholders, not less than ten (10) days prior to the date on which
the particular action requiring such determination of shareholders is to be
taken.
If the stock transfer books are not closed and no record date is fixed for
the determination of shareholders entitled to notice or to vote at a meeting of
shareholders, or shareholders entitled to receive payment of a dividend, the
date on which notice of the meeting is mailed or the date on which the
resolution of the Board of Directors declaring such dividend is adopted, as the
case may be, shall be the record date for such determination of shareholders.
When a determination of shareholders entitled to vote at any meeting of
shareholders has been made as provided in this section, such determination shall
apply to any adjournment thereof, unless the Board of Directors fixes a new
record date for the adjourned meeting.
Section 7. Voting Record. The officers or agent having charge of the stock
transfer books for shares of the corporation shall make, at least ten (10) days
before each meeting of shareholders, a complete list of the shareholders
entitled to vote at such meeting or any adjournment thereof, with the address of
and the number and class and series, if any, of shares held by each. The list,
for a period of ten (10) days prior to such meeting, shall be kept on file at
the registered office of the corporation, at the principal place of business of
the corporation or at the office of the transfer agent or register of the
corporation and any shareholder shall be entitled to inspect the list at any
time during usual business hours. The list shall also be produced and kept open
at the time and place of the meeting and shall be subject to the inspection of
any shareholder at any time during the meeting.
If the requirements of this section have not been substantially complied
with, the meeting on demand of any shareholder in person or by proxy, shall be
adjourned until the requirements are complied with. If no such demand is made,
failure to comply with the requirements of this section shall not affect the
validity of any action taken at such meeting.
131
<PAGE>
Section 8. Shareholder Quorum and Voting. A majority of the shares
entitled to vote, represented in person or by proxy, shall constitute a quorum
at a meeting of shareholders. When a specified item of business is required to
be voted on by a class or series a majority of the shares of such class or
series shall constitute a quorum for the transaction of such item of business by
that class or series.
If a quorum is present, the affirmative vote of the majority of the shares
represented at the meeting and entitled to vote on the subject matter shall be
the act of the shareholders unless otherwise provided by law.
After a quorum has been established at a shareholders' meeting, the
subsequent withdrawal of shareholders, so as to reduce the number of
shareholders entitled to vote at the meeting below the number required for a
quorum, shall not affect the validity of any action taken at the meeting or any
adjournment thereof.
Section 9. Voting of Shares. Each outstanding share, regardless of class,
shall be entitled to one vote on each matter submitted to a vote at a meeting of
shareholders.
Treasury shares, shares of stock of this corporation owned by another
corporation the majority of the voting stock of which is owned or controlled by
this corporation, and shares of stock of this corporation held by it in a
fiduciary capacity shall not be voted, directly or indirectly, at any meeting,
and shall not be counted in determining the total number of outstanding shares
at any given time.
A shareholder may vote either in person or by proxy executed in writing by
the shareholder or his duly authorized attorney-in-fact.
At each election for directors, every shareholder entitled to vote at such
election shall have the right to vote, in person or by proxy, the number of
shares owned by him for as many persons as there are directors to be elected at
that time and for whose election he has a right to vote.
Shares standing in the name of another corporation, domestic or foreign,
may be voted by the officer, agent, or proxy designated by the bylaws of the
corporate shareholder; or, in the absence of any applicable bylaw, by such
person as the Board of Directors of the corporate shareholder may designate.
Proof of such designation may be made by presentation of a certified coy of the
bylaws or other instrument of the corporate shareholder. In the absence of any
such designation, or in case of conflicting designation by the corporate
shareholder, the chairman of the board, president, any vice president, secretary
and treasurer of the corporate shareholder shall be presumed to possess, in that
order, authority to vote such shares.
132
<PAGE>
Shares held by an administrator, executor, guardian or conservator may be
voted by him, either in person or by proxy, without a transfer of such shares
into his name. Shares standing gin the name of a trustee may be voted by him,
either in person or by proxy, but no trustee shall be entitled to vote shares
held by him without a transfer of such shares into his name.
Shares standing in the name of a receiver may be voted by such receiver,
and shares held by or under the control of a receiver may be voted by such
receiver without the transfer thereof into his name if authority so to do be
contained in an appropriate order of the court by which such receiver was
appointed.
A shareholder whose shares are pledged shall be entitled to vote such
shares until the shares have been transferred into the name of the pledgee, and
thereafter the pledgee or his nominee shall be entitled to vote the shares so
transferred.
On and after the date on which written notice of redemption of redeemable
shares has been mailed to the holders thereof and a sum sufficient to redeem
such shares has been deposited with a bank or trust company with irrevocable
instruction and authority to pay the redemption price to the holders thereof
upon surrender of certificates therefor, such shares shall not be entitled to
vote on any matter and shall not be deemed to be outstanding shares.
Section 10. Proxies. Every shareholder entitled to vote at a meeting of
shareholders or to express consent or dissent without a meeting or a
shareholders' duly authorized attorney-in-fact may authorize another person or
persons to act for him by proxy.
Every proxy must be signed by the shareholder or his attorney-in-fact. No
proxy shall be valid after the expiration of eleven (11) months from the date
thereof unless otherwise provided in the proxy. Every proxy shall be revocable
at the pleasure of the shareholder executing it, except as otherwise provided by
law.
The authority of the holder of a proxy to act shall not be revoked by the
incompetence or death of the shareholder who executed the proxy unless, before
the authority is exercised, written notice of an adjudication of such
incompetence or of such death is received by the corporate officer responsible
for maintaining the list of shareholders.
If a proxy for the same shares confers authority upon two (2) or more
persons and does not otherwise provide, a majority of them present at the
meeting, or if only one (1) is present then that one, may exercise all the
powers conferred by the proxy; but if the proxy holders present at the meeting
are equally divided as to the right and manner of voting in any particular case,
the voting of such shares shall be prorated.
If a proxy expressly provides, any proxy holder may appoint in writing a
substitute to act in his place.
133
<PAGE>
Section 11. Voting Trusts. Any number of shareholders of this corporation
may create a voting trust for the purpose of conferring upon a trustee or
trustees the right to vote or otherwise represent their shares, as provided by
law. Where the counterpart of a voting trust agreement and the copy of the
record of the holders of voting trust certificates has been deposited with the
corporation as provided by law, such documents shall be subject to the same
right of examination by a shareholder of the corporation, in person or by agent
or attorney, as are the books and records of the corporation, and such
counterpart and such copy of such record shall be subject to examination by any
holder or record of voting trust certificates either in person or by agent or
attorney, at any reasonable time for any proper purpose.
Section 12. Shareholders' Agreements. Two (2) or more shareholders, of
this corporation may enter an agreement providing for the exercise of voting
rights in the manner provided in the agreement or relating to any phase of the
affairs of the corporation as provided by law. Nothing therein shall impair the
right of this corporation to treat the shareholders of record as entitled to
vote the shares standing in their names.
Section 13. Action by Shareholders Without a Meeting. Any action required
by law, these bylaws, or the articles of incorporation of this corporation to be
taken at any annual or special meeting of shareholders of the corporation, or
any action which may be taken at any annual or special meeting of such
shareholders, may be taken without a meeting, without prior notice and without a
vote, if a consent in writing, setting forth the action so taken, shall be
signed by the holders of outstanding stock having not less than the minimum
number of votes that would be necessary to authorize or take such action at a
meeting at which all shares entitled to vote thereon were present and voted. If
any class of shares is entitled to vote thereon as a class, such written consent
shall be required of the holders of a majority of the shares of each class of
shares entitled to vote as a class thereon and of the total shares entitled to
vote thereon.
Within ten (10) days after obtaining such authorization by written
consent, notice shall be given to those shareholders who have not consented in
writing. The notice shall fairly summarize the material features of the
authorized action and, if the action be a merger, consolidated or sale or
exchange of assets for which dissenters rights are provided under this act, the
notice shall contain a clear statement of the right of shareholders dissenting
therefrom to be paid the fair value of their shares upon compliance with further
provisions of this act regarding the rights of dissenting shareholders.
ARTICLE II - DIRECTORS
36
<PAGE>
Section 1. Function. All corporate powers shall be exercised by or
under the authority of, and business and affairs of the corporation shall
be managed under the direction of, the Board of Directors.
Section 2. Qualification. Directors need not be residents of this
state or shareholders of this corporation.
134
<PAGE>
Section 3. Compensation. The Board of Directors shall have authority
to fix the compensation of directors.
Section 4. Duties of Directors. A director shall perform his duties as a
director, including his duties as a member of any committee of the board upon
which he may serve, in good faith, in a manner he reasonably believes to be in
the best interests of the corporation, and with such care as an ordinarily
prudent person in a like position would use under similar circumstances.
In performing his duties, a director shall be entitled to rely on
information, opinions, reports or statements, including financial statements and
other financial data, in each case prepared or presented by:
(a) one (1) or more officers or employees of the corporation whom the
director reasonably believes to be reliable and competent in the matters
presented,
(b) counsel, public accountants or other persons as to matters which the
director reasonably believes to be within such person's professional or expert
competence, or
(c) a committee of the board upon which he does not serve, duly designated
in accordance with a provision of the articles of incorporation or the bylaws,
as to matters within its designated authority, which committee the director
reasonable believes to merit confidence.
A director shall not be considered to be acting in good faith if he has
knowledge concerning the matter in question that would cause such reliance
described above to be unwarranted.
A person who performs his duties in compliance with this section shall
have no liability by reason of being or having been a director of the
corporation.
Section 5. Presumption of Assent. A director of the corporation who is
present at a meeting of its Board of Directors at which action on any corporate
matter is taken shall be presumed to have assented to the action taken unless he
votes against such action or abstains from voting in respect thereto because of
an asserted conflict of interest.
Section 6. Number. The corporation shall have at least one (1) director.
The minimum number of directors may be increased or decreased from time to time
by amendment to these bylaws, but no decrease shall have the effect of
shortening the terms of any incumbent director and no amendment shall decrease
the number of directors below one (1), unless the stockholders have voted to
operate the corporation.
Section 7. Election and Term. Each person named in the articles of
incorporation as a member of the initial board of directors shall hold office
until the first annual meeting of shareholders, and until his successor shall
have been elected and qualified or until his earlier resignation, removal from
office or death.
135
<PAGE>
At the first annual meeting of shareholders and at each annual meeting
thereafter, the shareholders shall elect directors to hold office until the next
succeeding annual meeting. Each director shall hold office for the term for
which he is elected and until his successor shall have been elected and
qualified or until his earlier resignation, removal from office or death.
Section 8. Vacancies. Any vacancy occurring in the Board of Directors,
including any vacancy created by reason of an increase in the number of
directors, may be filled by the affirmative vote of a majority of the remaining
directors though less than a quorum of the Board of Directors. A director
elected to fill a vacancy shall hold office only until the next election of
directors by the shareholders.
Section 9. Removal of Directors. At a meeting of shareholders called
expressly for that purpose, any director or the entire Board of Directors may be
removed, with or without cause, by a vote of the holders of a majority of the
shares then entitled to vote at an election of directors.
Section 10. Quorum and Voting. A majority of the number of directors fixed
by these bylaws shall constitute a quorum for the transaction of business. The
act of the majority of the directors present at a meeting at which a quorum is
present shall be the act of the Board of Directors.
Section 11. Director Conflicts of Interest. No contract or other
transaction between this corporation and one (1) or more of its directors or any
other corporation, firm, association or entity in which one (1) or more of the
directors are directors or officers or are financially interested, shall be
either void or voidable because of such relationship or interest or because such
director or directors are present at the meeting of the Board of Directors or a
committee thereof which authorizes, approves or ratifies such contract or
transaction or because his or their votes are counted for such purpose, if:
(a) The fact of such relationship or interest is disclosed or known to the
Board of Directors or committee which authorizes, approves or ratifies the
contract or transaction by a vote or consent sufficient for the purpose without
counting the votes or consents of such interested directors; or
(b) The fact of such relationship or interest is disclosed or known to the
shareholders entitled to vote and they authorize, approve or ratify such
contract or transaction by vote or written consent; or
(c) The contract or transaction is fair and reasonable as to the
corporation at the time it is authorized by the board, a committee or
shareholders.
136
<PAGE>
Common or interested directors may be counted in determining the presence
of a quorum at a meeting of the Board of Directors or a committee thereof which
authorizes, approves or ratifies such contract or transaction.
Section 12. Executive and Other Committees. The Board of Directors, by
resolution adopted by a majority of the full Board of Directors, may designate
from among its members an executive committee and one (1) or more other
committees each of which, to the extent provided in such resolution shall have
and may exercise all the authority of the Board of Directors, except that no
committee shall have the authority to:
(a) approve or recommend to shareholders actions or proposals required
by law to be approved by shareholders,
(b) designate candidates for the office of director, for purposes of proxy
solicitation or otherwise,
(c) fill vacancies on the Board of Directors or any committee thereof,
(d) amend the bylaws,
(e) authorize or approve the reacquisition of shares unless pursuant to a
general formula or method specified by the Board of Directors, or
(f) authorize or approve the issuance or sale of, or any contract to issue
or sell, shares or designate the terms of a series of a class of shares, except
that the Board of Directors, having acted regarding general authorization for
the issuance or sale of shares, or any contract therefor, and, in the case of a
series, the designation thereof, may, pursuant to a general formula or method
specified by the Board of Directors, by resolution or by adoption of a stock
option or other plan, authorize a committee to fix the terms of any contract for
the sale of the shares and to fix the terms upon which such shares may be issued
or sold, including, without limitation, the price, the rate or manner of payment
of dividends, provisions for redemption, sinking fund, conversion, voting or
preferential rights, and provisions for other features of a class of shares, or
a series of a class of shares, with full power in such committee to adopt any
final resolution setting forth all the terms thereof and to authorize the
statement of the terms of a series for filing with the Department of State.
The Board of Directors, by resolution adopted in accordance with this
section, may designate one (1) or more directors as alternate members of any
such committee, who may act in the place and stead of any member or members at
any meeting of such committee.
Section 13. Place of Meetings. Regular and special meetings by
the Board of Directors may be held within or without the State of Florida.
Section 14. Time, Notice and Call of Meetings. Regular meetings by the
Board of Directors shall be held without notice. Written notice of the time and
place of special meetings of the Board of Directors shall be given to each
director by either personal delivery, telegram or cablegram at least two (2)
days before the meeting or by notice mailed to the director at least five (5)
days before the meeting.
137
<PAGE>
Notice of a meeting of the Board of Directors need not be given to any
director who signs a waiver of notice either before or after the meeting.
Attendance of a director at a meeting shall constitute a waiver of notice of
such meeting and waiver of any and all objections to the place of the meeting,
the time of the meeting, or the manner in which it has been called or convened,
except when a director states, at the beginning of the meeting, any objection to
the transaction of 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 Board of Directors need be specified in the notice or
waiver of notice of such meeting.
A majority of the directors present, whether or not a quorum exists, may
adjourn any meeting of the Board of Directors to another time and place. Notice
of any such adjourned meeting shall be given to the directors who were not
present at the time of the adjournment and, unless the time and place of the
adjourned meeting are announced at the time of the adjournment, to the other
directors.
Meetings of the Board of Directors may be called by the chairman of the
board, by the president of the corporation, or by any two (2) directors.
Members of the Board of Directors may participate in a meeting of such
board by means of a conference telephone or similar communications equipment by
means of which all persons participating in the meeting can hear each other at
the same time. Participation by such means shall constitute presence in person
at a meeting.
Section 15. Action Without a Meeting. Any action required to be taken at a
meeting of the directors of a corporation, or any action which may be taken at a
meeting of the directors or a committee thereof, may be taken without a meeting
if a consent in writing, setting forth the action so to be taken, signed by all
of the directors, or all the members of the committee, as the case may be, is
filed in the minutes of the proceedings of the board or of the committee. Such
consent shall have the same effect as a unanimous vote.
ARTICLE III - OFFICERS
Section 1. Officers. The officers of this corporation shall consist of a
president, a secretary and a treasurer, each of whom shall be elected by the
Board of Directors. Such other officers and assistant officers and agents as may
be deemed necessary may be elected or appointed by the Board of Directors from
time to time. Any two (2) or more offices may be held by the same person. The
failure to elect a president, secretary or treasurer shall not affect the
existence of this corporation.
Section 2. Duties. The officers of this corporation shall have the
following duties:
138
<PAGE>
The President shall be the chief executive officer of the corporation,
shall have general and active management of the business and affairs of the
corporation subject to the directions of the Board of Directors, and shall
preside at all meetings of the stockholders and Board of Directors.
The Secretary shall have custody of, and maintain, all of the corporate
records except the financial records; shall record the minutes of all meetings
of the stockholders and Board of Directors, send all notice of meetings out, and
perform such other duties as may be prescribed by the Board of Directors or the
President.
The Treasurer shall have custody of all corporate funds and financial
records, shall keep full and accurate accounts of receipts and disbursements and
render accounts thereof at the annual meetings of stockholders and whenever else
required by the Board of Directors or the President, and shall perform such
other duties as may be prescribed by the Board of Directors or the President.
Section 3. Removal of Officers. Any officer or agent elected or appointed
by the Board of Directors may be removed by the board whenever in its judgment
the best interest of the corporation will be served thereby.
41
<PAGE>
Any officer or agent elected by the shareholders may be removed only by
vote of the shareholders, unless the shareholders shall have authorized the
directors to remove such officer or agent.
Any vacancy, however occurring, in any office may be filled by the Board
of Directors, unless the bylaws shall have expressly reserved such power to the
shareholders.
Removal of any officer shall be without prejudice to the contract rights,
if any, of the person so removed; however, election or appointment of an officer
or agent shall not of itself create contract rights.
ARTICLE IV - STOCK CERTIFICATES
Section 1. Issuance. Every holder of shares in this corporation shall be
entitled to have a certificate, representing all shares to which he is entitled.
No certificate shall be issued for any share until such share is fully paid.
Section 2. Form. Certificates representing shares in this corporation
shall be signed by the President or Vice-President and the Secretary or an
Assistant Secretary and may be sealed with the seal of this corporation or a
facsimile thereof. The signatures of the President or Vice-President and the
Secretary or Assistant Secretary may be facsimiles if the certificate is
manually signed on behalf of a transfer agent or a registrar, other than the
corporation itself or an employee of the corporation. In case any officer who
signed or whose facsimile signature has been placed upon such certificate shall
have ceased to be such officer before such certificate is issued, it may be
issued by the corporation with the same effect as if he were such officer at the
date of its issuance.
139
<PAGE>
Every certificate representing shares which are restricted as to the sale,
disposition or other transfer of such shares shall state that such shares are
restricted as to transfer and shall set forth or fairly summarize upon the
certificate, or shall state that the corporation will furnish to any shareholder
upon request and without charge a full statement of, such restrictions.
Each certificate representing shares shall state upon the fact thereof:
the name of the corporation; that the corporation is organized under the laws of
this state; the name of the person or persons to whom issued; the number and
class of shares, and the designation of the series, if any, which such
certificate represents; and the par value of each share represented by such
certificate, or a statement that the shares are without par value.
Section 3. Transfer of Stock. The corporation shall register a stock
certificate presented to it for transfer if the certificate is properly endorsed
by the holder or record of by his duly authorized attorney, and the signature of
such person has been guaranteed by a commercial bank or trust company or by a
member of the New York or American Stock Exchange.
Section 4. Lost, Stolen, or Destroyed Certificates. The corporation shall
issue a new stock certificate in the place of any certificate previously issued
if the holder of record of the certificate (a) makes proof in affidavit form
that it has been lost, destroyed or wrongfully taken; (b) requests the issue of
a new certificate before the corporation has notice that the certificate has
been acquired by a purchaser for value in good faith and without notice of any
adverse claim; (c) gives bond in such form as the corporation may direct, to
indemnify the corporation, the transfer agent, and registrar against any claim
that may be made on account of the alleged loss, destruction, or theft of a
certificate; and (d) satisfies any other reasonable requirements imposed by the
corporation.
ARTICLE V - BOOKS AND RECORDS
Section 1. Books and Records. This corporation shall keep correct and
complete books and records of account and shall keep minutes of the proceedings
of its shareholders, board of directors and committees of directors.
This corporation shall keep at its registered office or principal place of
business, or at the office of its transfer agent or registrar, a records of its
shareholders, giving the names and addresses of all shareholders, and the
number, class and series, if any, of the shares held by each.
140
<PAGE>
Any books, records and minutes may be in written form or in any other form
capable of being converted into written form within a reasonable time.
Section 2. Shareholders' Inspection Rights. Any person who shall have been
a holder of record of shares or of voting trust certificates therefor at least
six (6) months immediately preceding his demand or shall be the holder of record
of, or the holder of record of voting trust certificates for, at least five
percent (5%) of the outstanding shares of any class or series of the
corporation, upon written demand stating the purpose thereof, shall have the
right to examine, in person or by agent or attorney, at any reasonable time or
times, for any proper purpose its relevant books and records of accounts,
minutes and records of shareholders and to make extracts therefrom.
Section 3. Financial Information. Not later than four (4) months after the
close of each fiscal year, this corporation shall prepare a balance sheet
showing in reasonable detail the financial condition of the corporation as of
the close of its fiscal year, and a profit and loss statement showing the
results of the operations of the corporation during its fiscal year.
Upon the written request of any shareholder or holder of voting trust
certificates for shares of the corporation, the corporation shall mail to such
shareholder or holder of voting trust certificates a copy of the most recent
such balance sheet and profit and loss statement.
The balance sheets and profit and loss statements shall be filed in the
registered office of the corporation in this state, shall be kept for at least
five (5) years, and shall be subject to inspection during business hours by any
shareholder or holder of voting trust certificates, in person or by agent.
ARTICLE VI - DIVIDENDS
The Board of Directors of this corporation may, from time to time, declare
and the corporation may pay dividends on its shares in cash, property or its own
shares, except when the corporation is insolvent or when the payment thereof
would render the corporation insolvent or when the declaration or payment
thereof would be contrary to any restrictions contained in the articles of
incorporation, subject to the following provisions:
(a) Dividends in cash or property may be declared and paid, except as
otherwise provided in this section, only out of the unreserved and unrestricted
earned surplus of the corporation or out of capital surplus, howsoever arising
but each dividend paid out of capital surplus, and the amount per share paid
from such surplus shall be disclosed to the shareholders receiving the same
concurrently with the distribution.
(b) Dividends may be declared and paid in the corporation's own treasury
shares.
141
<PAGE>
(c) Dividends may be declared and paid in the corporation's own authorized
but unissued shares out of any unreserved and unrestricted surplus of the
corporation upon the following conditions:
(1) If a dividend is payable in shares having a par value, such
shares shall be issued at not less than the par value thereof and there shall be
transferred to stated capital at the time such dividend is paid an amount of
surplus equal to the aggregate par value of the shares to be issued as a
dividend.
(2) If a dividend is payable in shares without a par value, such
shares shall be issued at such stated value as shall be fixed by the Board of
Directors by resolution adopted at the time such dividend is declared, and there
shall be transferred to stated capital at the time such dividend is paid an
amount of surplus equal to the aggregate stated value so fixed in respect of
such shares; and the amount per share so transferred to stated capital shall be
disclosed to the shareholders receiving such dividend concurrently with the
payment thereof.
(d) No dividend payable in shares of any class shall be paid to the
holders of shares of any other class unless the articles of incorporation so
provide or such payment is authorized by the affirmative vote or the written
consent of the holders of at least a majority of the outstanding shares of the
class in which the payment is to be made.
(e) A split-up or division of the issued shares of any class into a
greater number of shares of the same class without increasing the stated capital
of the corporation shall not be construed to be a share dividend within the
meaning of this section.
ARTICLE VII - CORPORATE SEAL
The Board of Directors shall provide a corporate seal which shall be
circular in form and shall have inscribed thereon the name of the corporation as
it appears on page 1 of these bylaws.
ARTICLE VIII - AMENDMENTS
These bylaws may be repealed or amended, and new bylaws may be adopted, by
the Board of Directors.
End of bylaws adopted by the Board of Directors.
142
<PAGE>
Exhibit 5
Opinion of Counsel
143
<PAGE>
WILLIAMS LAW GROUP, P.A.
2503 West Gardner Court
Tampa, FL 33611
December 7, 1999
Sixth Business Service Group, Inc.
Via Telefax
Re: Registration Statement on Form S-4
Gentlemen:
I have acted as your counsel in the preparation on a Registration Statement
on Form S-4 (the "Registration Statement") filed by you with the Securities and
Exchange Commission covering shares of Common Stock of Sixth Business Service
Group, Inc. (the "Stock").
In so acting, I have examined and relied upon such records, documents and
other instruments as in our judgment are necessary or appropriate in order to
express the opinion hereinafter set forth and have assumed the genuineness of
all signatures, the authenticity of all documents submitted to us as originals,
and the conformity to original documents of all documents submitted to us
certified or photostatic copies.
Based on the foregoing, I am of the opinion that:
The Stock, when issued and delivered in the manner and/or the terms
described in the Registration Statement (after it is declared effective), will
duly and validly issued, fully paid and nonassessable;
I hereby consent to the reference to my name in the Registration Statement
under the caption "Legal Matters" and to the use of this opinion as an exhibit
to the Registration Statement. In giving this consent, I do not hereby admit
that I come within the category of a person whose consent is required under
Section7 of the Act, or the general rules and regulations thereunder.
Very truly yours,
Michael T. Williams
144
<PAGE>
Exhibit 10.01
Agreement for Design, Supply of Plant and Equipment
145
<PAGE>
2.a 02 CUC Phase I
CUC-PG-97-C057
PRIVATE
AGREEMENT FOR DESIGN, SUPPLY OF PLANT AND EQUIPMENT,
CONSTRUCTION, MAINTENANCE AND OPERATION, AND
TRANSFER OF OWNERSHIP
This Agreement dated as of June 10, 1997 (`Agreement') is made
and entered into between: The Commonwealth Utilities Corporation, P.O.
Box 1220 Lower Base, Saipan, MP 96950, its successors and assigns
(`CUC"), and Telesource CNMI, Inc. its successors and assigns
("Contractor").
WITNESSETH:
Whereas, CUC desires to have built a fully operational 10 Megawatt
expandable (`MW") Power Plant (the "Plant") on the Island of Tinian in the
Commonwealth of the Northern Mariana Islands (`CNMI") and to ultimately
own and operate the Plant;
Whereas, CUC represents that it has the authority and power to enter
into this Agreement and to fully and faithfully comply with its terms and
conditions,. but not limited to, those governing CUC's payment
obligations, and that CUC and its representatives are aware of no reason
why CUC is, may or will be prevented from fulfilling all terms of this
Agreement
Whereas, Contractor represents that it has the authority and power to
enter into this Agreement and to fully and faithfully comply with its terms
and conditions and that Contractor and its authorized representatives are
aware of no reason why Contractor is, may or will be prevented from
fulfilling all terms of this Agreement.
Whereas, Contractor desires and is willing, in accordance with the
terms of this Agreement, to: design and construct the Plant; procure
necessary equipment and materials; arrange all shipping to the CNMI and
then to the Site; initially own and maintain and operate the Plant; prepare
all operating manuals for the Plant; provide for training and start-up of
the Plant; and transfer ownership of the Plant to CUC (all such work and
activities shall hereinafter be referred to as the "Project"); and
Whereas, CUC and Contractor both desire to proceed with the Project on
the basis of trust, good faith and fair dealing.
Now therefore, in consideration of the mutual promises and agreements
hereinafter set forth, the parties agree as follows:
1) INTERPRETATION.
1.1) In this Agreement, expressions defined in Schedule I shall bear the
respective meanings set out therein;
1.2) In the event of any conflict, inconsistency or variation between this
document and any of the Exhibits, Schedules or drawings attached hereto, the
teams and provisions of this document shall prevail;
1.3) headings and paragraph numbers are for convenience only and shall be
ignored in construing this Agreement;
146
<PAGE>
1.4) the singular includes the plural and vice versa;
147
<PAGE>
1.5) references to Clauses, Recitals and schedules are, unless the context
otherwise requires, references to Causes of, and Schedules and Recitals to,
this Agreement; and
1.6) references to any agreement, enactment, ordinance or regulation include
any amendment thereof or any agreement, enactment, ordinance or regulation
replacing or superseding the same in whole or in part.
2) SCOPE OF WORK
2.1) Scope of Work. "Scope of Work" means the following obligations of
Contractor in complete accordance with this Agreement, including the
Description of Plant Equipment, Capabilities and Related Services set forth
in Exhibit A. The scope of the Project and the Work to be performed under
this Agreement shall be in accordance with this Agreement, including
Exhibits A through D hereof.
2.2) Contractor's Services Prior to Substantial Completion.
2.2.1) Site Preparation.
(i) Basic Site Preparation. Contractor shall be responsible for all site
preparation of the Site. Site preparation shall include, preparation of the
Site for construction of the Plant (including setting out the Work and
protecting and preserving all material reference points, aids and other data
used in laying out the Work in accordance with this Agreement) and all
offsite construction and the provision of all excavation and backfill,
temporary and permanent drainage and drainage structures (implementing any
requirements necessitated by historic flood conditions and patterns in the
region and at the Site), removal of debris, all necessary investigation,
analysis, testing and determination concerning the condition, contents or
integrity of the foundation and substructure of any part thereof, and all
reasonable investigation, analysis, testing and determination concerning the
condition, contents or integrity of the subsurface, underground and/or soils
conditions of the Site. Except for unknown or Pre-Existing Hazardous
Materials, Contractor, in performance of site preparation. shall be
responsible for and assumes the cost of any construction, engineering or
structural conditions, including, without limitation, those caused by the
presence of organic materials other than Pre-Existing Hazardous Materials.
(ii) Hazardous and Toxic Conditions. To the extent Contractor encounters
subsurface Pre-Existing Hazardous Materials during construction, Contractor
shall promptly provide written notice to CUC of such condition(s) and shall
endeavor to minimize the consequences to the Project schedule of dealing
with such condition(s). Consistent with considerations of safety and
prudence, Contractor shall take appropriate action to mitigate further
contamination caused by such hazardous or toxic substances. Contractor shall
not be responsible for or have any obligations pursuant to this Contract or
otherwise with respect to the removal, handling, transportation, or disposal
of any Pre-Existing Hazardous Materials or other pre-existing hazardous,
unsafe, or unhealthful or environmentally unsound condition or activity or
materials on e Site. Contractor shall be responsible for the removal,
handling, transportation, or disposal of any Hazardous Material or other
hazardous, unsafe, or unhealthful or environmentally unsound condition or
activity or materials which causes to be present or occur on the Site.
(iii) Oil Spills. Contractor shall assume full control of and responsibility
for the safe storage and handling of all fuel oil transported to or located
at the Site. Contractor shall be strictly liable ad shall defend, indemnify
and hold harmless CUC against any losses, liabilities, damages or claims
arising out of any spill, seepage, leakage or discharge of such fuel oil, no
matter how arising, from the Day Contractor assumes control of the Site
until Final Plant Turnover.
Page2
148
<PAGE>
2.2.2) Construction and Installation. Contractor shall provide and furnish
to CUC the following services in accordance with all terms, conditions,
drawings, specifications and standards set forth in this Agreement.
(i) Within forty-five (45) Days after the execution of this Agreement,
Contractor shall prepare and deliver to CUC, for CUCs reference, a draft
comprehensive Project implementation plan, which shall include a Schedule of
Work, an organizational chart and a document distribution chart;
(ii) Contractor shall prepare and update all progress schedules and include
such in written progress reports to CUC each month;
(iii) Contractor shall provide all design and engineering for the Project
and the Site, including the preparation of all drawings;
(iv) Contractor shall furnish all labor, supervision and all tools necessary
to perform the Work and construct the Project, and shall construct the
Project and direct and support start-up and operation of the Plant as
delineated in this Agreement;
(v) Contractor shall procure and provide all Plant Equipment (together
with all services in relation thereto), transport all Plant Equipment and
materials to the Site, including the cost of ocean freight and the
fulfillment of all applicable import and customs requirements, procedures
and formalities;
(vi) With the cooperation of CUC, Contractor shall use reasonably prudent
construction practices to (a) perform the Work, (b)coordinate all Work with
CUC, (c) coordinate all Work performed by its Subcontractors, (d) keep to
Work on schedule, (e) timely report the status of the progress of the Work
to CUC, (f) pay its Subcontractors in a timely manner, and (g) cause all of
its Subcontractors to comply with all applicable terms of this Agreement;
(vii) Contractor shall provide Plant inspection, Plant start-up, Plant
testing, and operations training;
(viii) In accordance with Section 12 hereof, Contractor shall correct all
nonconforming Work and any deficiencies in the Plant. During construction,
inadequate, nonconforming or damaged equipment and materials shall be
replaced or repaired by Contractor after full consultation with CUC;
(ix) Subject to the provisions of Section 5, Contractor shall perform all
Change Orders and all other necessary acts to fulfill Contractor's
obligations under this Agreement; and
(x) Contractor shall provide all necessary housing facilities and construction
utilities, including power and water, necessary to fulfill Contractor's
obligations to provide the Plant as set forth in this Agreement. CUC shall
assist Contractor fulfilling in fulfilling this obligation.
2.2.3) Drawings.
(i) Design Documents. Upon CUC's request, Contractor shall furnish to CUC
copies of: all drawings prepared (including revisions, addenda and
modifications); all Subcontractor and vendor/supplier furnished drawings;
Plant operating manuals; maintenance manuals; performance data for all Plant
engineered equipment; civil, electrical, mechanical. and Plant structural
and construction drawings; Plant piping and instrumentation diagrams
("PID's"); all general arrangement drawings; Plant electrical one-line
diagrams; Plant relay and metering drawings and all other drawings and
documents prepared by Contractor or Subcontractors relating to the Project;
complete documentation of Plant control systems logic and programs including
distributed controls; and Plant design calculations, excluding proprietary
information not reasonably required for CUC's use of the drawings as
intended.
Page 3
149
<PAGE>
(ii) Operations and Maintenance Manuals; Other Documentation/Information.
Contractor shall provide to CUC: Plant operating and maintenance manuals
prior to Plant operations training and all other documentation and
information reasonably necessary for obtaining all required Permits and for
compliance with the applicable standards. All Plant operating and
maintenance manuals shall be in Contractor's standard form and style;
content and format are to be in accordance with Good Utility Practice.
(iii) As-Builts. Contractor shall maintain a set of drawings and the other
manuals, drawings, diagrams and other documents at the Site, and such
drawings shall be maintained and updated as appropriate to reflect the "as
built" conditions of the Work.
2.2.4) Permits.
(i) Required Permits. Contractor shall make every reasonable effort to
obtain and maintain, at its sole cost and expense, (a) all Permits necessary
for the conduct of Contractor's business and for its operations (insofar as
such business and/or operations relate to this Project) on Saipan and
Tinian, (b) all Permits required for construction, building, transportation.
water and power (during construction and building) of and for the Project,
(c) all Permits necessary for temporary utility hookup and provision for the
entire Project, and (d) all Permits required for the shipment, transport and
entry (including customs clearance) of machinery, equipment and materials in
the CNMI and to the Site, (e) all Permits, including additional future
Permits as may required pertaining to the operation and maintenance of the
Plant, excluding only those Permits that CUC may be required to obtain or
assist in obtaining pursuant to this Section 2.2.4 or Section 10.
(ii)Application by Contractor. All applications for the issuance and renewal
of Permits required to be obtained by Contractor pursuant to this Agreement
from any governmental authority, agency or court (federal, national,
provincial, municipal, local or other) of the CNMI, Saipan or Tinian shall
be made by the Contractor in the form, if any, prescribed by applicable laws
and regulations.
(iii) Support of CUC. CUC shall in good faith: assist Contractor in
obtaining any of the Permits that Contractor is required to obtain and
maintain as specified in Paragraph (i) above; provide Contractor with any
information which is required in connection with the application for such
Permits; and directly assist Contractor throughout the processing of
Contractor's application for Permits. In the case of applications submitted
to CUC, CUC shall ensure their approval.
2.2.5) Plant Equipment and Materials. Contractor shall be responsible for
procurement of all Plant Equipment and all parts, components and materials
necessary for construction and operation of the Plant. When procuring Plant
Equipment, Contractor shall also be responsible for providing to CUC a list
of spare parts for all Plant Equipment incorporated into the Plant (which
list shall identify the supplier of such spare parts).
2.2.6) Subcontractors, Suppliers and Vendors. Unless otherwise specifically
provided in this Agreement, Contractor shall be solely responsible for
coordinating and handling all communications and negotiations with and the
supervision, administration and control of its own Subcontractors, suppliers
and vendors. During construction, Contractor shall be fully responsible for
all Plant Equipment, materials, labor or other matters related to the Work
and any part of the Work accomplished by its own Subcontractors, suppliers
and vendors; provided, however, that in no event shall Contractor be
obligated to assist in the administration of such obligations or perform
under this Agreement beyond the date that is ten (10) years after the date
of Substantial Completion of the Project.
2.2.7) Security. From the date that Authorization to Proceed is issued to
Contractor and until the date of Substantial Completion, Contractor shall
provide all security at the Site for all Work and for Work performed in the
vicinity of the Site, including but not limited to, security for all
personnel,
Page 4
150
<PAGE>
Plant Equipment materials and other items thereon, the Plant, and for all
equipment and personnel being transported by Contractor to and from the
Site.
2.2.8) Contractor's Safety Program. During the construction process,
Contractor shall initiate, maintain, and supervise all reasonable safety
precautions and programs in connection with the performance of this
Agreement. Contractor shall take all reasonable precautions for the safety
of and shall provide reasonable protection against damage, injury or loss
to: (i) Contractor's employees performing the Work and all persons who may
reasonably be anticipated to be affected thereby (ii) the Work and Plant
Equipment to be incorporated therein, whether in storage off or on the Site,
under the care custody or control of Contractor and/or its Subcontractors;
(iii) all other property on the Site or adjacent thereto, such as trees,
shrubs, lawns, walks, pavements, roadways, structures and utilities not
designated for removal, or replacement in the course of construction and
(iv) public road and rail systems used in performing the Work.
2.2.9) Waste Materials and Debris. Subject to the provisions of Section
2.2.1(ii) relating to hazardous materials, Contractor shall keep the Site
and surrounding area reasonably free from accumulation of waste materials or
rubbish caused by the Work and, at completion of the Work, Contractor shall
remove from and about the Site all waste materials, debris, rubble, rubbish,
and remove from and about the Site Contractor's tools, construction
equipment, machinery and surplus materials. If Contractor fails to clean up
as so provided herein, CUC may do so and the cost thereof shall be charged
to Contractor.
2.2.10) Operator Training Program. At any time during this Agreement upon
(90) Days' written notice provided by CUC, Contractor shall provide one (1)
session of up to one hundred ten (110) hours of operations training for up
to six (6) CUC designated personnel. The training shall be conducted by
qualified instructors and Contractor representatives and shall be conducted
on the Site in a classroom lecture format. Training will be hands-on and
address Plant Equipment manufacturers' operating instructions and
instruction on the operation of the Plant. Contractor shall utilize
schematic diagrams and illlustrations to instruct the trainees how to
start-up, operate, troubleshoot and shutdown the Plant and its various
Systems. In addition, training programs offered by Contractor, its
Subcontractors and equipment vendors on specific major Plant equipment is
included and may be conducted at Contractor's, Subcontractor's or vendor's
facility.
2.2.11) Commissioning and Testing. Contractor shall provide CUC with advance
notice of at least ten (10) Days before Plant Completion Testing and shall
allow CUC to observe such testing. Contractor shall perform all tests as are
reasonably required to ensure the adequate completion and commissioning of
and the safe and orderly start-up of the Plant.
2.3) CUC Jobsite Access and Inspection.
2.3.1) Quality Control and CUC's Right to Inspect the Work. CUC and
Contractor agree to coordinate their efforts and work to achieve the
successful implementation of all Plant facilities. Contractor shall notify
CUC of the results of any quality control and quality assurance related to
the construction of the Plant. CUC shall be notified and allowed to observe
testing that Contractor may conduct at all stages of Plant construction.
Contractor, upon CUC's request and authorization, shall allow CUC to inspect
and review all Work (including, without limitation. requisite drawings,
plans and specifications) in connection with the design and construction of
the Plant; provided that such inspection and review do not unreasonably
interfere with the normal performance and progress of the Work.
2.3.2) Office Facilities. Contractor shall provide a temporary office area
on the Site with furnishings (and air-conditioning and heating equipment as
appropriate) until thirty (30) Days after Substantial Completion of the
associated permanent office facilities described in Exhibit A.
Page 5
151
<PAGE>
2.4) Compliance with Plans and Specifications. Contractor shall design,
engineer and construct the Plant in accordance with this Agreement so that
the Plant satisfies in all material respects the applicable requirements and
standards of care, and is capable of accepting and operating on the fuel
(including without limitation, the components comprising the fuel and the
specifications of range of quality, pressure, and measurement) required for
Plant operation pursuant to Exhibit A.
2.5) Taxes and Duties. Contractor and CUC shall cooperate with and assist
each other in order to minimize liability for any taxes, duties or similar
charges imposed.
2.6) Site inspection. Contractor, by executing and entering into this
Agreement with CUC, represents that it has visited and inspected the
proposed Site and has familiarized itself with the general and local
conditions and circumstances under which the Work is to be performed,
including, but not limited to, the following: water supply and quality
conditions affecting transportation, harbor conditions, access, disposal,
handling and storage of materials at the; availability of labor (skilled and
unskilled); availability of housing; climatic conditions and seasons; and
all equipment and facilities needed for performance of the Work. CUC has
provided the estimated location of Interconnection Points. The final
Interconnection Points shall be located in the vicinity of the Site.
3.) CONTRACT TIME.
3.1) Commencement of the Work. The Work shall commence on or about the date
CUC satisfies the conditions to Contractor's obligations as set forth in
Section 9 and so notifies Contractor in writing, and shall proceed in
general accordance with the Schedule of Work prepared by Contractor as such
schedule may be amended from time to time.
3.2) Substantial Completion. The date of Substantial Completion of the Work
shall be no later than Fourteen (14) months after the Commencement of the
Work as set forth in Section 3.1, subject to adjustment in accordance with
the provisions of Sections 4 and 5 hereof
3.3) Final Plant Turnover. Final Plant Turnover shall be the date that
Contractor turns over all title and interest in the Plant to CUC in
accordance with Section 24.2 hereof. Final Plant Turnover shall occur on the
date falling ten (10) years after the date of Substantial Completion of the
Plant assuming that at such time Contractor has received all payments
required pursuant to Section 24.2 hereof.
4) DELAYS IN THE WORK.
4.1) If causes beyond Contractor's control delay the progress of the Work,
then Contractor shall be entitled to a Change Order in accordance with
Section 5.1, which shall modify the date of Substantial Completion and
assess additional charges due to such delay as appropriate. Such causes
shall include but not be limited to: changes ordered in the Work; acts or
omissions of CUC or separate contractors employed by CUC; actions by CUC to
prevent Contractor from performing the Work pending dispute resolution;
hazardous and toxic materials; differing site conditions, adverse weather
conditions not reasonably anticipated, fire, unusual transportation delays,
labor disputes, or unavoidable accidents or circumstances; and any causes
that are beyond the control and without the fault of Contractor. Contractor
shall be entitled to additional compensation and an extension of time for
all events or actions that are in whole or in part caused by CUC. At
minimum, Contractor shall be entitled to an extension of time and equitable
adjustment in compensation for all delay events that are beyond its control
4.2) In the event delays to the Project are encountered for any reason, the
parties hereto agree to undertake reasonable steps to mitigate the effect of
such delays.
Page 6
152
<PAGE>
5) CHANGES IN THE WORK.
5.1) Change Orders. A Change Order is a written instrument, issued after
execution of this Agreement, signed by CUC and Contractor stating their
agreement upon a change and any adjustment in the Work, the price therefor
and the date of Substantial Completion. Payment for a Change Order shall be
made by CUC promptly upon CUC's receipt of an invoice unless otherwise
agreed in writing.
5.2) No Obligation to Perform. Contractor shall not be obligated to perform
changed Work until a Change Order has been executed by CISC and Contractor.
5.3) Unknown or Hazardous Conditions. If in the performance of the Work
Contractor finds (i) Pre-Existing Hazardous Materials and/or (ii) latent,
concealed or subsurface physical conditions which differ from the conditions
Contractor could have reasonably anticipated, or are materially different
from those normally encountered and generally recognized as inherent in the
kind of work provided for in this Agreement, then CUC shall issue a change
order to reflect increased costs attributable to the conditions encountered
and shall extend the date of Substantial Completion.
6) CONTRACT PRICE AND PAYMENT TERMS.
6.1) Guaranteed Price and Fee For Associated Services.
6.1.1) Guaranteed Price.
(i) CUC shall pay Contractor for the performance of the Work the total sum
of Twenty-One Million Six Hundred Thousand Dollars ($21,600,000)
("Guaranteed Price") payable in one hundred and twenty (120) consecutive,
equal monthly installments of One Hundred Eighty ($180,000), each
represented by a separate promissory note in accordance with Section 6.1.2,
and each payable on the last day of each month, commencing with the first
month that follows the date of Substantial Completion.
(ii) The Guaranteed Price shall be inclusive of Nine Million Nine Hundred
Fifty-Nine Thousand Dollars ($9,959,000) for construction and installation
costs, and Eleven Million Six Hundred Forty-One Thousand Dollars
($11,641,000) for financing costs and fees for associated services. provided
by this Agreement
(iii) Said Guaranteed Price for the Work shall be a fixed sum and not
subject to any alteration except as provided in Section 6.1.3 (Prepayment).
6.1.2) Promissory Notes.
(i) Execution of Promissory Notes. Concurrently with the execution of this
Agreement, CUC shall execute and deliver to Contractor one hundred twenty
(120) promissory notes substantially in the form of Exhibit "B' (the
`Note"). Each Note shall be in the amount of One Hundred Eighty Thousand
Dollars ($180,000) and shall be due and payable in accordance with the
monthly payments scheduled in Section 6.1.1, supra. Each Note shall serve to
further evidence CUC's corresponding obligation to tender monthly payments
on the Guaranteed Price, but any failure by CUC to execute and deliver the
Notes shall not affect CUC's obligations under this Section 6.
(ii) Retirement of Promissory Notes. Upon receipt of the required payment in
accordance with this Section 6.1, the Note evidencing such monthly
obligation shall thereupon be retired and cancelled
Page 7
153
<PAGE>
(iii) Incorporation by Reference. The terms and conditions of the Notes are
hereby incorporated by reference into this Agreement with the same force and
effect as if fully set forth herein
6.1.3) Prepayment.
Notwithstanding any other provision of this Agreement to the contrary,
upon at least ninety (90) days notice prior to Substantial Completion or the
applicable anniversary date CUC may without penalty discharge the entire
outstanding balance of the Guaranteed Price by paying a discounted amount
equal to the Adjusted Guaranteed Price in accordance with the attached
Schedule II. Upon Contractor's receipt of the prepayment amount as required
by this Section 6.1.3, all then outstanding Notes executed by CUC pursuant
to Section 6.1.2 (i) shall be retired.
6.2) Operation, Production and Maintenance Fees. In addition to the
Guaranteed Price, CUC shall pay Contractor the following fees:
6.2.1) Operations and Maintenance Fee. CUC shall pay an Operations and
Maintenance Fee in the amount of Fifty Thousand Dollars ($50,000) per month
for services rendered by Contractor in managing power production and
operating the Plant from the date of Substantial Completion and for as long
as the Operations and Maintenance portion of this Agreement is in effect in
accordance with Section 16.1 hereof. Such Fees shall be due and payable to
Contractor on the first day of the mouth following completion of the prior
month's service
6.2.2) Production Fee. CUC shall pay a Production Fee of Two Cents ($0.02)
per Plant produced kilowatt hour to cover the costs of lubricant oils
consumables and spare parts from the date of Substantial Completion and for
as long as the Operations and Maintenance portion of this Agreement is in
effect in accordance with Section 16.1 hereof. CUC, at its own cost, shall
be responsible for providing all fuel necessary for operating the facility
at full capacity through the period of Final Plant Turnover. Such Production
Fee shall be due upon CUC's receipt of Contractor's invoice therefore, but
in no event in excess of twice per month.
6.2.4) GDPIPD Adjustment. The fees due under this Section 6.2 shall be fixed
for the first two (2) years after Substantial Completion. Beginning on the
third anniversary date of Substantial Completion and on each anniversary
date thereafter, the Operations and Maintenance and Production Fees shall be
adjusted at a rate equal to One percent (1%) over the previous year's Gross
Domestic Product Implicit Price Deflector.
6.3) General Provisions as to Payments. CUC shall pay each installment of to
Guaranteed Price not later than 3:00 P.M. (Local line) on the date when due,
in immediately available U.S. Dollars, to Contractor at Contractor's CNMI
address in Section 23 hereof. Whenever any installment of the Guaranteed
Price (or any payment of an Operations and Maintenance Fee, Production Fee,
late charge or other amount) is due on a day which is not a Business Day,
the date for payment thereof shall be extended to the next succeeding
Business Day.
6.4) Late Charges. If CUC fails to pay any installment of the Guaranteed
Price, or fails to pay any fee or other amount due with respect to this
Agreement, any Note, the Security Agreement or the Escrow Agreement, within
ten (10) Days after the date such payment was due, CUC shall pay to
Contractor a late charge equal to five percent (5%) of the amount of such
payment.
Page 8
154
<PAGE>
7) SECURITY.
The obligation of CUC to pay the Guaranteed Price, applicable late charges,
and all other debts, liabilities and obligations of CUC under this
Agreement, the Notes, and all other agreements to which CUC is a party,
shall be secured and supported, as provided in this Section 7, by:
7.1)Security Agreement.
Concurrently with the execution of this Agreement, CUC shall duly execute
and deliver to Contractor a Pledge and Security Agreement (with appropriate
financing statements), in the form of Exhibit C (the "Security Agreement"),
pursuant to which Contractor shall obtain a valid, first, prior and
perfected Lien upon all personal property and fixtures of CUC which may
constitute any part of the Site, the Plant and Plant Equipment, whether now
owned or hereafter acquired, and all accounts, accounts receivable, and
contract rights, in any way derived from or connected with any part of the
Plant and Plant Equipment or the operation thereof, including all revenues
from the production and sale of power and all proceeds and products of the
foregoing.
7.2) EscrowAgreement.
Concurrently with the execution of this Agreement, CUC shall duly execute
and deliver to Contractor an Escrow, Pledge and Security Agreement (with
appropriate financing statements) in the form of Exhibit D (the "Escrow
Agreement"), pursuant to which CISC shall be obligated to establish and
maintain an escrow account of not less than $360,000 at a bank satisfactory
to CUC and Contractor as to which escrow account Contractor shall have a
valid first, prior and perfected Lien.
7.3) Rights to Plant on the Occurrence of a CUC Event of Default
Upon and during to continuance of a CUC Event of Default, and
notwithstanding the obligation of Contractor to transfer title to the Plant
and Plant Equipment pursuant to Section 24, Contractor may, in its sole and
absolute discretion, sell, lease, assign, transfer or otherwise dispose of
all or any part of the Plant and Plant Equipment in accordance with to
provisions of Section 7.2 of the Security Agreement, free and clear of any
claims, rights or Liens of CUC. In such event, the proceeds realized by
Contractor from any such disposition shall be applied in accordance with the
provision of Section 7.5 of the Security Agreement; and in connection
therewith, Contractor shall be entitled to the benefit of the provisions of
Sections 7.3,7.4,7.8,8.1 and 8.2 of the Security Agreement as if the Plant
and Plant Equipment were Collateral thereunder.
7.4) Incorporation by Reference.
The terms and conditions of the Notes, the Security Agreement, the Escrow
Agreement and all related documents and instruments are hereby incorporated
by reference into this Agreement with the same force and effect as if fully
set forth herein.
8) CONDITIONS TO CUC'S OBLIGATIONS.
CUC's obligation to commence and continue performance of its duties under
this Agreement is subject to the execution and delivery to CUC or
Contractor, as the case may be, of a legal and valid leasehold interest in
the Site, provided however, that CUC shall put forth its best efforts to
obtain or cause Contractor to be vested with such leasehold interest. In the
event no leasehold is obtained within commercially reasonable time after the
execution of this Agreement, this Agreement shall be of no force and effect.
Page 9
155
<PAGE>
9) CONDITIONS TO CONTRACTOR'S OBLIGATIONS.
Contractor's obligation to commence and continue performance of its duties
under this Agreement is subject to the satisfaction of the following
conditions:
(i) the due execution and delivery by CUC of the Notes, the Security
Agreement, and the Escrow Agreement;
(ii)the due execution and delivery by CUC or the Government, as the case may
be, of such documentation as Contractor shall reasonably require providing
Contractor with the right to occupy and utilize the Site for the
construction, operation and maintenance of the Plant and Plant Equipment at
least through and up to Final Payment Date and the transfer of title
pursuant to Section 24.2 hereof;
(iii) the receipt by Contractor, of a title insurance policy satisfactory to
Contractor ensuring that Contractor is vested with good and marketable fee
title to the Plant (subject to no Liens or exceptions to title except as
agreed to by Contractor) and containing such affirmative insurance coverage
and endorsement as Contractor may reasonably require;
(iv) evidence satisfactory to Contractor and Contractor's counsel that
Contractor holds a valid, first, prior and perfected Lien upon, and security
interest in, all of the Collateral; and
(v) such other documentation and satisfaction of such other conditions as
Contractor shall reasonably require.
10) CUC'S RESPONSIBILITY;INFORMATION AND SERVICES PROVIDED BY CUC.
10.1) Information.
CUC shall provide full information in a timely manner regarding requirements
for the Project, including CUC's operations program and other relevant
information. Contractor shall be entitled to rely on the completeness and
accuracy of the following information and services which shall be provided
by CUC to Contractor.
10.1.1) all necessary, available and requested information describing the
physical characteristics of the Site, including surveys, Site evaluations,
legal descriptions, existing conditions, subsurface and environmental
studies, reports and Investigations in CUC's possession;
10.1.2) inspection and testing services during construction as required by
Law or as mutually agreed to enable CUC to inspect or witness the Work in
accordance with Section 11.1 of this Agreement.
10.2) On request, CUC will deliver to Contractor a sworn written assurance
indicating that funds will be available to make payments to Contractor as
provided by this Agreement and the Escrow Agreement.
10.3) CUC Responsibilities During Construction.
10.3.1) Subject to Section 2.2.1 of this Agreement regarding the disposal of
Pre-Existing Hazardous Materials, CUC shall provide the Site "as is".
10.3.2) CUC shall allow access to the Site so as to allow Contractor to
perform the Work.
10.3.3) CUC shall review the Schedule of Work and respond to its obligations
in a timely manner.
Page 10
156
<PAGE>
10.3.4) If CUC becomes aware of an error, omission or failure to meet the
requirements of the Agreement or any document or instrument executed in
connection with this Agreement or the Project or any fault or defect in the
Work, CUC shall give prompt written notice to Contractor.
10.3.5) CUC shall communicate with Contractor's Subcontractors, suppliers
and architect/engineers only through Contractor.
10.3.6) Where reasonably requested by Contractor, CUC shall assist
Contractor in obtaining all required Permits, including obtaining written
authorization from the Government of the CNMI, or any other Public Sector
Entity which has lawful authority to regulate CUC. To the extent a permit is
obtainable only by CUC us a matter of law, then CUC shall be required to
promptly obtain such Permit. Contractor shall provide CUC with any
information in Contractor's possession or control which is required in
connection with CUC's application for such Permits.
10.3.7) Contractor shall pay applicable CNMI sales taxes (if any) based on
the costs of the Work, the Plant Equipment or any portion thereof.
10.4) CUC Responsibilities During Commissioning and Testing.
10.4.1) CUC shall provide fuel to the Interconnection Points on the Day that
is one hundred eighty (180) Days prior to the scheduled date of Substantial
Completion of the Plant. Such fuel shall be of sufficient quantity and
quality for Contractor to conduct commissioning and testing and such related
Work as Contractor is obligated and/or entitled to undertake during such
time pursuant to this Agreement
10.4.2) On the Day that is one hundred eighty (180) Days prior to the
scheduled date of Substantial Completion of the Plant and every Day
thereafter, CUC shall ensure that all interconnection facilities and
transmission facilities are sufficiently complete to be able to receive
electrical energy generated by the Plant in an amount up to 10 MW for 24
hour per day continuous operation.
11) CUC REVIEW.
11.1) CUC reserves the right throughout the term of this Agreement to review
all drawings prepared as soon as such drawings become available and to
inspect Work at all stages at the Site; or to witness inspections and test
at Contractor's premises or its Subcontractors' premises; and to designate
others to review to drawings and inspect or witness the Work as may be
necessary. On reasonable notice, Contractor shall provide access to the Site
as may be necessary or appropriate for CUC inspection and for the servicing,
maintaining, modifying, or upgrading of the land or facilities located
thereon provided that such access does not interfere with Contractor's
performance of Work. Notwithstanding the foregoing, Contractor shall have
the right to maintain the security of its property at the Site.
11.2) Before starting certain Work identified in any Drawing, Contractor may
submit such Drawing to CUC for review. CUC shall respond within five (5)
Business Days of actual receipt by CUC of the Drawing. After such review CUC
shall return one copy of each such Drawing to Contractor marked "Reviewed",
"Reviewed with comments" or "Comments" as appropriate and with sufficient
explanation to enable Contractor to determine the basis for any such
comments. Contractor may proceed to implementation in the case of Drawings
marked "Reviewed". Such Drawings marked "Reviewed with Comments" may be
corrected by Contractor as appropriate but need not be re-submitted to CUC.
Drawings marked "Comments" shall be corrected by Contractor and re-submitted
to CUC. CUC, in reviewing such re-submitted Drawings shall be limited to
review of matters related to or affected by the previous "Comments'. If CUC
does not respond within five (5) Business Days of actual receipt of a
Drawing by CUC, Contractor shall proceed as
Page 11
157
<PAGE>
though CUC has no comments and CUC shall be deemed to have returned the
Drawing to Contractor marked "Reviewed".
12) DEFECTS LIABILITY; CERTAIN REPRESENTATIONS, COVENANTS AND GUARANTEES.
Contractor's obligations to provide the Plant free of material defects or
deficiencies are set forth below:
12.1) Plant.
Contractor covenants and agrees that the Plant (and all other portions of
Plant Work) shall be provided to CUC free of any material defects or
deficiencies.
12.2) Engineering Design and Performance.
12.2.1) The engineering and design of the Project, including, without
limitation, the preparation of the drawings, shall meet the requirements of
this Agreement. Contractor shall, to the extent required by Good Utility
Practice, verify the completeness and accuracy of the requirements for Plant
design, and any other information used by Contractor in connection with
performance of the Work.
12.2.2) Without prejudice to any of Contractor's obligations under this
Agreement, Contractor will use reasonable effort to obtain from its
Subcontractors and suppliers a commitment that the Work provided by such
Subcontractors shall be free of material defects or deficiencies.
12.2.3) The performance of the Plant equipment and related systems shall
meet in all material respects or exceed the performance requirements
referred in Exhibit A. Contractor shall be deemed to have complied with and
satisfied its obligations herein upon achieving Substantial Completion as
set forth in this Agreement
12.3) Equipment and Materials.
12.3.1) Contractor covenants and represents that all Plant Equipment and
material shall be new when first installed in the Project.
12.3.2) Contractor covenants and represents that the Plant will be fit for
the purposes of generating electricity.
12.4) Defects Liability Period.
Except as otherwise specifically provided in this Agreement,
Contractor shall provide to CUC the Plant free of material defects or
deficiencies, and ensure compliance with the requirements of this Section 12
as they relate to the Plant Work for a period commencing on the date the
Work or Plant Equipment is completed or installed, and continuing for a
period of twelve (12) months after the date of Substantial Completion.
12.5) Remedy Limitation.
12.5.1) Contractor does not covenant or guarantee the Project, the Plant,
the Plant Equipment, Systems, or any components of any thereof against
normal wear and tear. Nor does Contractor covenant or guarantee any
equipment not in the Work. However, with respect to the Project Contractor
shall remedy at Contractor's expense any damage to real or personal property
owned or controlled by CUC when that damage is the result of (i)
Contractor's failure to conform to the requirements of this Agreement,
including damage caused by Contractor's failure to conform to the
Page 12
158
<PAGE>
Minimum Operations and Maintenance Requirements submitted to CUC pursuant to
Section 16.1.2 of this Agreement or (ii) any martial defect or deficiency
with respect to the Plant.
13) Suspension by Contractor.
13.1) At any time prior to the daze of Substantial Completion, in the event
of CUC's failure to pay Contractor any undisputed amounts when due pursuant
to the terms of this Agreement or any change order issued pursuant to the
reams of this Agreement, Contractor shall have the right to suspend the
Work.
13.2) If Contractor elects to suspend the Work and such suspension is
subsequently removed and the Work is continued by Contractor, Contractor
shall be entitled to a Change Order in accordance with Section 5.1, which
shall modify the date of Substantial Completion and assess additional costs
due to such delay.
14) Suspension By CUC For Convenience.
14.1) CUC may order Contractor in writing to suspend, delay or interrupt all
or any part of the Work without cause for such period of time as CUC may
determine to be appropriate for its convenience.
14.2) Adjustments caused by any such suspension, delay or interruption shall
be made by Change Order in accordance with Section 5.1. which shall assess
additional charges due to such delay and/or extend the date of Substantial
Completion.
15)COMPLETION TESTING.
15.1) Plant Completion Test Procedures.
15.1.1) Specific test procedures for all necessary completion testing of the
Plant (the "Completion Testing") will be developed by Contractor in
cooperation with CUC. Completion Testing will demonstrate, among other
things, that the Plant satisfies in all material respects the requirements
of this Agreement as amended from time to time by written agreement of the
Parties.
15.1.2) Proposed test procedures for all Completion Testing will be prepared
by Contractor in cooperation with CUC and submitted to CUC for final
approval at least one hundred eighty (180) Days prior to the anticipated
scheduled start of Completion Testing.
15.2) Completion Test Notification.
15.2.1) The Plant will be deemed ready for Completion Testing when all of
the following have been completed:
(i) all required Systems are ready for normal and continuous operation;
(ii) all applicable written operating procedures, troubleshooting manuals
and operator training as required by this Agreement are substantially
complete; and
(iii) all required Permits to be obtained by Contractor are complete and in
the possession of Contractor.
15.2.2) At least ten (10) Days prior to the commencement of Completion
Testing, Contractor shall deliver to CUC a "Completion Test Notice"
proposing the date upon which Completion Testing will begin, a list of all
Systems and major components thereof to be tested, and a Completion Testing
schedule.
Page 13
159
<PAGE>
15.2.3) Within ten (10) Days of receipt of the Completion Test Notice, CUC
shall deliver to Contractor:
(i) confirmation that the Completion Testing will be conducted on the
proposed date; or
(ii) notice denying Completion Testing stating with particularity the facts
upon which denial is based, and the specific conditions which must be met
before Completion Testing can proceed.
15.2.4) CUC's failure to respond to the Completion Test Notice in accordance
with Section 15.2.3 shall act as CUC's confirmation that Completion Testing
shall proceed as planned by Contractor.
15.3) Reapplication for Completion Testing.
15.3.1) Upon receipt of CUC's notice denying Completion Testing pursuant to
Section 15.2.3(ii), Contractor shall take such action as is appropriate to
remedy the conditions described in such notice from CUC.
15.3.2) After Contractor has taken action to remedy the noticed condition,
Contractor shall deliver to CUC a new Completion Test Notice conforming to
the requirements of this Section 15 and the provisions of this subsection
shall apply with respect to such new Completion Test Notice in the same
manner as they applied to the original Completion Test Notice, except as
follows:
(i) the date for the Completion Testing shall be no earlier than seventy-two
(72) hours later than the time of delivery of such new Completion Test
Notice to CUC; and
(ii) the time within which CUC must give a new notice verifying or denying
the requested Completion Testing is no more than forty-eight (48) hours
after CUC's receipt of the new Completion Test Note from Contractor.
15.3.3) The foregoing procedure shall be repeated as often as necessary
until CUC no longer reasonably rejects the Completion Test Notice.
15.4) Completion Testing.
15.4.1) It is CUC's s responsibility to notify all other Persons that are
required to witness any such testing.
15.4.2) Contractor shall provide CUC and all persons receiving the
Completion Test Notice the opportunity to observe the Completion Testing at
the time specified in such Completion Test Notice.
15.4.3) If Completion Testing fails or is terminated prior to completion of
such testing by Contractor and testing is not restarted within twenty four
(24) hours, the notice requirements of Section 15.2.3 above, shall apply
prior to restarting testing.
16) SUBSTANTIAL COMPLETION OF PLANT.
If the Plant has passed to Completion Testing procedure, or the Plant is
ready for normal and continuous operation or the Plant it ready for
beneficial occupancy, then CUC shall, upon written request by Contractor,
issue to Contractor a Certificate of Substantial Completion evidencing that
all Work has been completed except for punch list Items. When all Plant
Punch List items have been completed by Contractor, CUC shall issue a
Certificate of Final Acceptance. CUC's failure to issue a Certificate of
Substantial Completion or a Certificate of Final Acceptance shall not
Page 14
160
<PAGE>
preclude a finding that the Plant is substantially complete or ready for a
Certificate of Final Acceptance.
16.1) Operation and Maintenance of System/Plant.
16.1.1) It is contemplated by the parties that the operation and maintenance
of the Plant shall remain under the care, custody and control of Contractor
from the date of Substantial Completion through the date of Final Plant
Turnover by Contractor to CUC unless otherwise terminated by CUC as
specified herein. As long as Contractor is operating and maintaining the
Plant, Contractor shall be responsible for operation and maintenance of the
Plant and all Systems including start-up scheduling and directing all System
operations for the Plant.
16.1.2) Contractor shall perform all maintenance and operation work in
accordance with Good Utility Practice and in accordance with the Minimum
Operations and Maintenance Requirements as subsequently agreed to in writing
by CUC and Contractor. Contractor shall operate the Plant in accordance with
the manufacturers' fuel consumption specifications as set forth in Exhibit
E, which is hereby incorporated by reference.
16.1.3) Refitting of Plant. Contractor is responsible for carrying our its
obligations so that the Plant operates safely and compiles with all
applicable law and regulation and Permits; however in the event any future
Permit requirement coming into effect after the date of Substantial
Completion shall require a material alteration in the structure of the Plant
or Plant equipment in order to insure compliance, the cost of such refitting
shall be borne solely by CUC.
16.1.4) Contractor may subcontract to other parties some or all of its
obligations under this Section 16 only with the express written consent at
CUC, which consent shall not be unreasonably withheld.
16.1.5) CUC may terminate the Operations and Maintenance portion of this
Agreement for its own convenience upon issuing a six (6) month notice of
termination provided that the date of actual termination falls on the end of
any given project fiscal year. The first project fiscal year will commence
on to date that Contractor assumes responsibility of the maintenance and
operation of the Plant. Otherwise the Operations and Maintenance portion of
this Agreement will be automatically renewed every project fiscal year.
17) INSURANCE.
17.1) Contractor's Insurance.
17.1.1) Contractor shall obtain and maintain insurance coverage for the
following claims which may arise out of the performance of this Agreement,
whether resulting from Contractor's operations or the operations of any
Subcontractor, anyone in the employ of any of them, or by an individual or
entity for whose acts they may be liable:
a) Workers' compensation, disability benefit and other employee benefit
claims under acts applicable to the Work;
b) Bodily injury, occupational sickness, disease or death claims of
Contractor's employees as required by applicable employers' liability law;
c) Bodily injury, sickness, disease or death claims for damages to persons
not employed by Contractor;
d) Personal injury liability claims for damages directly or indirectly
related to the person's employment by Contractor or for damages to any other
person;
161
<PAGE>
e) Damage to or destruction of tangible property, including resulting loss
of use, claims for property other than the Work itself;
f) Bodily Injury, death or property damage claims resulting from motor
vehicle liability in the use, maintenance or ownership of any motor vehicle;
and
g) Contractual or professional liability claims involving Contractor's
obligations under this Agreement
h) Claims made and required to be insured against by Contractor pursuant to
Paragraph 17.4 hereof.
17.2) Policy Limits.
Contractor's Commercial General, Automobile, and Professional Liability
Insurance as required by Paragraph 17.1 shall be written for not less than
the following limits of liability:
17.2.1) Commercial General Liability Insurance,
a. Each Occurrence Limit $ 1,000,000.00
b. General Aggregate: $ 2,000,0000.00
17.2.2) Comprehensive Automobile Liability Insurance.
a. Combined Single Limit Bodily Injury and Property Damage: $ 500.000.00
Each Occurrence
or
b. Bodily Injury: $25,000.00 Each Person, $500,000.00Each Occurrence
c.Property Damage: $ 1,000,000.00 Each Occurrence
17.2.3) Professional Liability Insurance: $ 250,000.00 .
17.3) CUC's Liability Insurance.
CUC shall be responsible for obtaining and maintaining its own liability
Insurance. Insurance for claims arising out of the performance of this
Agreement may be purchased and maintained at CUC's discretion.
17.4) Insurance to Protect Project
17.4.1) Contractor shall obtain and maintain property insurance covering the
entire Project for the full cost of replacement at the time of any loss in a
form acceptable to CUC. This insurance shall include as named insureds CUC,
Contractor, and Subcontractors. Insurance coverage shall include loss from
the perils of fire and extended coverage, and shall include "all risk"
insurance for physical loss or damage including without duplication of
coverage loss due to theft, vandalism, malicious mischief, transit,
collapse, falsework, temporary buildings, debris removal, flood, typhoon,
tropical storm, windstorm, earthquake, testing, and damage resulting from
defective design, workmanship or material.
Page 16
162
<PAGE>
17.4.2) Contractor shall increase limits of coverage, if necessary, to
reflect estimated replacement cost.
17.4.3) Contractor shall be responsible for any co-insurance penalties or
deductibles.
17.4.4) If CUC intends to occupy or use a portion of the Plant prior to the
date of Substantial Completion, such occupancy or use shall not commence
prior to a time mutually agreed to by CUC and Contractor or prior to the
time the insurance company or companies providing the property insurance
have consented by endorsing the policy or policies. This insurance shall not
be canceled or lapse on account of partial occupancy. Consent of Contractor
to such early occupancy or use shall not be unreasonably withheld.
17.4.5) Contractor shall obtain and maintain boiler and machinery insurance
as necessary. The interests of CUC, Contractor and its Subcontractors shall
be protected under this coverage.
17.4.6) Contractor shall purchase and maintain insurance to protect CUC,
Contractor, and Subcontractors against loss of use of CUC's property due to
those perils insured pursuant to Section 17.1.1(e). Such policy will provide
coverage for expediting the payment of expenses for materials, overhead of
CUC, Contractor, and Subcontractors, necessary expense including overtime,
loss of income by CUC and other determined exposures. Exposures of CUC,
Contractor, and Subcontractors shall be determined by mutual agreement with
separate limits of coverage fixed for each item.
17.4.7) Upon contract award, Contractor shall provide CUC with a copy of all
required policies. Copies of any subsequent endorsements shall be furnished
to CUC. CUC shall be given thirty (30) Days' notice of cancellation,
non-renewal, or any endorsements restricting or reducing coverage.
17.4.8) Contractor shall give written notice to CUC before commencement of
the Work if C Contractor will not be obtaining property insurance. In that
case CUC may obtain insurance in order to protect its interest in the Work
as well as the interest of any Subcontractors in the Work. Contractor shall
provide a change order to CUC for the cost of this insurance.
17.4.9) If CUC is damaged by failure of Contractor to purchase or maintain
property insurance or to so notify CUC, Contractor shall bear all reasonable
costs incurred by CUC arising from the damage.
17.5) Property Insurance Loss Adjustment. -
17.5.1) Any insured loss shall be adjusted with CUC and Contractor and made
payable to CUC and Contractor as trustees for to insureds, as their
interests may appear.
17.5.2) Upon the occurrence of an insured loss, monies received will be
deposited in a separate account and the trustees shall make distribution in
accordance with the agreement of the parties in interest, or in the absence
of such agreement, in accordance with an arbitration award pursuant to
Section 25. If the trustees are unable to agree between themselves on the
settlement of the loss, such dispute shall also be submitted for resolution
pursuant to Section 25.
17.6) Waiver Of Subrogation.
17.6.1) CUC and Contractor waive all rights against each other, and any of
their respective employees, consultants, and Subcontractors for damages
caused by risks covered by insurance as provided in this Section 17 to the
extent they are covered by that insurance, except such rights as they may
have to the proceeds of such insurance held by CUC and Contractor as
trustees.
Page 17
163
<PAGE>
Contractor shall require similar waivers from all Subcontractor and shall
require each of them to include similar waivers in their subsubcontracts and
consulting agreements.
17.6.2) CISC waives subrogation against Contractor, and Subcontractors on
all property and consequential loss policies carried by CUC on adjacent
properties and under property and consequential loss policies purchased for
the Project after its completion.
17.6.3) If the policies of insurance referred to in Section 17.2 require an
endorsement to provide for continued coverage where there is a waiver of
subrogation, the insured parties under such policies shall cause them to be
so endorsed.
18) INDEMNITY: LIABLIIY.
18.1) Contractor's Indemnity. Contractor shall defend, indemnify and hold
harmless CUC against any losses, liabilities, damages or claims against CUC
arising out of (i) any failure of Contractor promptly to perform any
obligations of Contractor under this Agreement provided such failure was not
caused by any act or omission of CUC, the failure of CUC to take reasonable
steps to mitigate such loss, liability, damage or claims or by events beyond
the reasonable control of Contractor; (ii) any misconduct, negligence,
malfeasance or misfeasance on the part of the Contractor, or of its
officers, employees or its Subcontractors; or (iii) any acts of Contractor
or Subcontractors or their respective employees beyond the scope of
Contractor's authority hereunder not authorized or ratified by CUC.
18.2) CUC Indemnity. CUC shall defend, indemnify and hold harmless
Contractor against any losses, liabilities, damages or claims against
Contractor or its Subcontractors arising out of failure of CUC promptly to
perform any obligations of CUC under this Agreement provided such failure
was not caused by any act or omission of Contractor or its Subcontractors,
the failure of Contractor or its Subcontractors to take reasonable steps to
mitigate such loss, liability, damage or claims, or by events beyond the
reasonable control of CUC; (ii) any misconduct, negligence, malfeasance or
misfeasance on the part of CUC, or of its officers or employees; or (iii)
any acts of CUC or its employees beyond the scope of CUC's authority not
authorized or ratified by Contractor.
18.3) Double Jeopardy.
Both CUC and Contractor shall be entitled to an indemnity under this Section
18 only to the extent that they have not received payment for the same loss,
damage, death or injury under a policy of insurance.
18.4) Consequential Losses.
In no case shall the indemnities in Sections 18.1 and 18.2 extend to
indirect or consequential loss or damage, including but not limited to loss
of use, loss of profits, and loss of production.
19) TERMINATION.
19.1) CUC Events of Default.
19.1.1) Each of the following shall constitute a CUC Event of Default:
19.1.1.1) Work has been suspended or a thirty (30) Day period:
(a) under court order, or order of other governmental authority having
jurisdiction, as a result of any action or inaction by CUC;
Page 18
164
<PAGE>
(b) pursuant to Section 13 because of CUC's failure to pay Contractor;
19.1.1.2) Work is suspended by CUC for sixty (60) Days;
19.1.1.3) CUC's failure to cure a CISC action or omission which Contractor
reasonably determines will delay Contractor in the performance of the Work
for a period of at least sixty (60) Days, within five (5) Days of
Contractor's notice to CUC of such determination;
19.1.1.4) CUC fails to furnish reasonable evidence that sufficient funds are
available and committed for the entire cost of the Project;
19.1.1.5) CUC shall fail to pay when due or within five (5) Days thereafter
any installment of the Guaranteed Price or any other amount payable to CUC
under this Agreement, any of the Notes, the Security Agreement, the Escrow
Agreement, or any related document or instrument;
19.1.1.6) CUC shall fail to observe or perform any covenant or agreement
contained in this Agreement, any of the Notes, the Security Agreement, the
Escrow Agreement or any other related document or instrument (other than
those covered by Subsection 19.1.1.6 immediately above) and shall fail to
cut such failure within fifteen (15) Days after written notice thereof shall
have been given to CUC by Contractor;
19.1.1.7) any material misrepresentation regarding any warranty,
certification or statement made by CUC in this Agreement, any Note, the
Security Agreement, the Escrow Agreement or any related document or
instrument, or in any certificate, financial statement or other document
delivered pursuant hereto or thereto;
19.1.1.8) CUC takes any affirmative action that causes the Security
Agreement, the Escrow Agreement or any related document or instrument to
cease to create a valid and perfected first priority pledge and security
interest in and to all or any part of the Collateral or causes any such
document or instrument to cease to be of full force and effect;
19.1.1.9) CUC shall (aa) commence a voluntary case or other proceeding
seeking liquidation, reorganization or other relief with respect to itself
or its debts under any bankruptcy, insolvency or other similar law now or
hereafter in effect or seeking the appointment of a trustee, receiver,
liquidator, custodian or other similar official for itself or any
substantial part of its property, or shall (bb) consent to the appointment
of or the taking of possession by any such offcial in an involuntary case or
other proceeding commenced against it, or shall (cc) make a general
assignment for the benefit of creditors, or shall (dd) take any action to
authorize any of the foregoing;
19.1.1.10) an involuntary case or other proceeding shall be commenced
against CUC seeking liquidation, reorganization or other relief with respect
to it or its debts under any bankruptcy, insolvency or other similar law now
or hereafter in effect or seeking the appointment of a trustee, receiver,
liquidator, custodian or other similar official for CUC or any substantial
part of its property, and such involuntary case or other proceeding shall
remain undismissed and unstayed for a period of ninety (90) Days, and an
order for relief shall be entered against CUC under applicable bankruptcy
laws as now or hereafter in effect; or
19.1.1.11) a material adverse change has occurred in the financial condition
of CUC since the date of this Agreement, such adverse change gives rise to a
reasonable possibility that CUC will not be able to perform its obligations
hereunder or carry on its business substantially as now being conducted, and
CUC shall fail to correct such change to the satisfaction of Contractor
within fifteen (15) Days after written notice thereof shall have been given
to CUC by Contractor;
19.1.2.) If any CUC Event of Default referenced in Section 19.1.1 shall
occur and be continuing, then in each and every such event Contractor shall
at its option by written notice to
Page19
165
<PAGE>
CUC declare the present value of the outstanding principal portion of the
Guaranteed Price as of the date of default, in addition to the balance of
all payments then due and owing on the Guaranteed Price to be due and
payable; provided however, that upon the occurrence of any CUC Event of
Default specified in Subsection 19.1.9 or 19.1.1.10, the entire balance of
Guaranteed Price shall immediately become due and payable.
19.1.3) Termination by Contractor For Cause. Upon written notice to CUC,
Contractor may terminate this Agreement upon any of the CUC Events of
Default referenced in Section 19.1.1.
19.1.4) Upon termination by Contractor in accordance with Section 19.1,
Contractor shall be entitled to recover from CUC all damages as set forth in
Section 19.3.
192) Contractor Event of Default.
19.2.1) If Contractor shall fail to observe or perform any covenant or
agreement contained in this Agreement and shall fail to cure such failure
within fifteen (15) Days after written notice thereof shall have been given
to CUC by Contractor
19.2.2) If any material misrepresentation regarding any warranty,
certification or statement in this Agreement or any related document or
instrument, or in any certificate, financial statement or other document
delivered pursuant hereto or thereto;
192.2) Upon a Contractor Event of Default CUC may, after ten (10) Days'
written notice to Contractor, during which period Contractor fails to use
its best efforts to perform such obligation, undertake to perform such
obligations for Contractor. CUC shall be entitled to any proven loss, cost
or expense incurred or paid by CUC in connection with Contractor's default
under this Agreement, including but not limited to any additional cost to
CUC of performing any of Contractor's obligations hereunder and all actual
and consequential damages.
19.2.3) Termination by CUC For Cause. CUC may terminate this Agreement for
any of the following reasons if upon ten (10) Days' written notice to
Contractor fails to take any action to remedy the any of the following:
19.2.3. 1) In the event Contractor persistently fails to abide by the
orders, regulations, roles, ordinances or laws of governmental
authorities having jurisdiction; or
19.2.3.2) In the event Contractor otherwise materially breaches any material
provision of this
19.2.3.3) Contractor shall (aa) commence a voluntary case or other
proceeding seeking liquidation, reorganization or other relief with respect
to itself or its debts under any bankruptcy, insolvency or other similar law
now or hereafter in effect or seeking the appointment of a trustee,
receiver, liquidator, custodian or other similar official for itself or any
substantial part of its property, or shall (bb) consent to the appointment
of or the taking of possession by any such official in an involuntary case
or other proceeding commenced against it or shall (cc) make a general
assignment for the benefit of creditors, or shall (dd) take any action to
authorize any of the foregoing;
19.2.4) In the event CUC properly terminates this Agreement pursuant to this
Section 19.2. CUC shall be entitled to any proven loss, cost or expense
incurred or paid by CUC in connection with this Agreement, including but not
limited to any additional cost to CUC of performing any of Contractor's
obligations hereunder and all actual and consequential damages.
19.2.4.1) If such event occurs prior to Substantial Completion, CUC without
prejudice to any other right or remedy, may take possession of the Site and
complete the Work utilizing any
Page 20
166
<PAGE>
reasonable means and CUC shall be entitled to reduce the outstanding
principal portion of the Guaranteed Price to an amount equivalent to its
present value as of the date of termination calculated upon a rate of 11.5%
and further reduced by the cost to CUC of performing the remainder of
Contractor's obligations hereunder; provided, however that in no event shall
CUC entitled to reduce such amount by the cost to CUC of performing any of
Contractor's obligations to manage and operate the Plant after the date of
Substantial Completion.
19.2.4.2). If such event occurs after Substantial Completion, CUC shall he
entitled to reduce the outstanding principal portion of the Guaranteed Price
to an amount equivalent to its present value as of the date of termination
calculated upon rate of 11.5%; provided Contractor shall be entitled to the
balance of all payments then due and owing on the Guaranteed Price plus all
Operations and Maintenance Fees and Production Fees currently due and owing
under Sections 6.2 and 6.3 hereof including all lam charges pursuant to
Section 6.4.
19.2.4.3) In the event CUC terminates this Agreement, CUC shall be obligated
to mitigate Its damages and minimize all costs incurred in its continued
performance abandonment of the Project, or delay in reprocuring or
identifying substitute performance.
19.2.5). In the event CUC exercises its rights under Subsection 19.2.1 or
19.2.3, CUC shall provide Contractor a detailed accounting of all costs
incurred by CUC under Subsection 19.2.2 or 19.2.4, as the case may be.
19.3) Wrongful Termination By CUC
19.3.1) If CUC terminates this Agreement other than as set forth in
Subsection 19.2.2 or Section
19.4, CUC shall pay Contractor all Work performed through the date of
termination based upon the Schedule of Values which CUC and Contractor shall
negotiate and agree upon following execution of this Agreement, and for any
other proven loss, cost or expense incurred or paid by Contractor in
connection with the Work, including but not limited to all proposal/contract
preparation costs, all demobilization costs, all accrued Business Gross
Revenue Tax, all incurred construction financing fees and costs, all
incurred Insurance and loan management expenses, and Contractor's actual and
consequential damages. In addition, Contractor shall be paid an amount
calculated as set forth below:
19.3.1.1) 1f CUC terminates this Agreement prior to the date of Substantial
Completion, Contractor shall be paid ten percent (10%) of the unpaid portion
of the Schedule of Values (lost profit).
193.1.2) [Reserved.]
19.3.1.3) If CUC terminates this Agreement after the date of Substantial
Completion, CUC shall pay Contractor in addition to the balance of all
payments then due and owing on the Guaranteed Price, an amount equivalent to
the present value of the outstanding principal portion of the Guaranteed
Price as of the date of termination calculated at a rate of 11.5% per annum
plus all Operations and Maintenance Fees and Production Fees due and owing
under Sections 6.2 and 6.3 hereof, including all late charges pursuant to
Section 6.4, and the balance of the Operations and Maintenance Fee and
Production Fee payable under Sections 6.2 and 6.3 up through the end of the
then current project fiscal year as set forth in Subsection 16.1.2.
19.3.1.4) CUC shall also pay to Contractor fair compensation either by
purchase or rental at the election of CUC for any equipment retained, plus
interest. CUC shall assume and become liable for obligations, commitments
and unsettled claims that Contractor has previously undertaken or incurred
in good faith in connection with the Work or as a result of the termination
of this Agreement. Contractor shall cooperate wit CUC by taking all steps
necessary to accomplish the legal assignment of Contractor's rights and
benefits to CUC including the execution and delivery of all required
permits, documents and instruments.
Page 21
167
<PAGE>
19.4) Termination by Mutual Consent. Contractor's receipt of prepayment by
CUC of the balance of the Guaranteed Price pursuant to Subsection 6.1.3 and
proper termination of the Operations and Maintenance portion of this
Agreement with due notice pursuant to Section 16.1. shall operate as a
termination of this entire Agreement by consent of the parties; provided
however,
that such termination shall not prejudice any rights or remedies of the
parties which shall have accrued prior to such termination.
19.5) Acceleration of Debt Due to Default or Termination.
19.5.1) In the event Contractor is entitled to payment by CUC of any amount
specified in Sections 19.1, 19.2 or 19.3 (depending on the basis therefor)
such amounts shall immediately become due and payable to Contractor.
19.5.2) All amounts due and payable under this Section 19.4 shall bear
interest at a rate of 11.5% from the date of written notice of the
declaration of default or the date of termination, as the case may be, until
the date payment is received. Such amount shall immediately become due and
payable without any further notice to CUC or any other act by Contractor,
and without presentment, demand, protest or other notice of any kind, all of
which ate hereby waived by CUC.
19.6) Other Remedies in the Event of Default or Termination.
If a Event of Default shall occur and be continuing, or if the Agreement is
terminated, then in each and every such event Contractor and CUC may proceed
to protect ad enforce their respective rights under this Agreement, any and
each Note, the Security Agreement, the Escrow Agreement and any related
document or instrument by exercising such remedies as are available to each
of them in respect thereof under applicable law, either by suit in equity or
by action at law or both, for specific performance of any covenant or other
agreement contained In this Agreement, any of the Notes, or any such other
document or in aid of the exercise of any power granted herein or therein.
No failure or delay by Contractor or CUC in exercising any right power or
privilege under this Agreement or any of such other documents or instruments
shall operate as a waiver thereof nor shall any single or partial exercise
thereof preclude my other or further exercise thereof or the exercise of any
other right, power or privilege. The rights and remedies herein provided
shall be cumulative and not excessive of any rights or remedies provided by
law.
20) KEY PERSONNEL.
Contractor shall ensure that there are at all times at the Site sufficient
suitably qualified ad experienced staff to supervise the Work In particular,
but without limitation, Contractor shall appoint suitably qualified and
experienced persons to fill the posts of Contractor Project Manager and
Contractor Site Representative in accordance with the provisions of Section
22 hereof
21) ASSIGNMENT.
21.1) Neither CUC nor Contractor shall assign their respective rights and
obligations under this Agreement in whole or in part to any Person, without
the prior written consent of the other, which consent shall not be
unreasonably withheld or delayed. Consent may be withheld if any assignee
proposed is not in the opinion of the consenting parry reasonably able to
fulfill the terms and obligations of this Agreement. including the payment
of any unpaid obligations owed or which may become due pursuant to this
Agreement
21.2) All Contractor's subcontracts, including. without limitation, material
supply contracts, orders for Plant Equipment, and permitted assignments,
shall be in writing and assignable by Contractor to CUC, without the
execution of any documents by the other party to any such contracts or
assignments.
Page 22
168
<PAGE>
22) CUC AND CONTRACTOR REPRESENTATIVES.
22.1) CUC Project Manager.
22.1.1) The CUC Project Manager shall be the primary representative of CUC
and shall exercise such authority as is specified in this Agreement or is
delegated to him by CUC. The general duties of the CUC Project Manager shall
be, inter alia, to act on behalf of CUC as follows
(i) to review, comment, audit and monitor the design, construction,
commissioning and performance of the Work
(u) to inspect, examine and/or witness, the materials. Plant Equipment,
testing and workmanship used or carried out in connection with the Work; and
iii) to certify payments and testing, in each case in order to report to CUC
on the progress of the Work and to report whether the Work is being carried
out in accordance with this Agreement.
22.1.2) The CUC Project Manager shall also carry out the following duties
(i) other duties that CUC designates are to be performed by the CUC Project
Manager; and
(ii) any other duties which we specified in this Agreement.
22.2) CUC Site Representative
CUC shall designate a CUC Site Representative who shall represent CUC at the
Site during construction and shall communicate with the CUC Project Manager
the Contractor Project Manager and the Contractor Site Representative, and
shall exercise all other authority of CUC as permitted or required by this
Agreement.
22.3) Designation of CUC Representatives.
22.3.l) The CUC Project Manger shall be:
Name: Timothy P. Villagomez or his Designee
Address: Lower Base, Post Office Box 1220, Saipan, MP 96950
223.2) The CUC Site Representative promptly shall be identified in writing
to Contractor
22.4) The Contractor Project Manager
Contractor shall designate a Contractor Project Manager who shall
communicate with the CUC Project Manager or the CUC Site Representative. The
Contractor Project Manager shall be responsible for Contractor's performance
of this Agreement and shall assist CUC whenever necessary to ensure complete
and satisfactory performance of this Agreement The Contractor Project
Manager will have authority to act on behalf of Contractor and to bind
Contractor on all matters relating to this Agreement.
22.5) The Contractor Site Representative.
22.5.1) The Contractor Site Representative will represent Contractor on the
Site during construction. The Contractor Site Representative will maintain
an office on the Site for purposes of remaining, in close proximity to the
Work and communicating with the CUC Project Manager and/or the CUC Site
Representative. The Contractor Site Representative will advise and consult
Page23
169
<PAGE>
with the CUC Project Manager and the CUC Site Representative as to the
performance of the Work under this Agreement.
(22.5.2) The Contractor Site Representative shall have knowledge of the
Work, the construction means, methods, techniques, sequences or procedures,
and for safety precautions and programs in connection with the Work.
22.6) Designation of Contractor's Representatives
22.6.1) The Contractor Site Representative shall be identified in writing to
CUC.
22.6.2) The Contractor Project Manager shall be:
Name: ___________________________________
Address: ___________________________________
23) NOTICES.
23.1) All notices, requests, directions, or other communications required by
this Agreement, required or permitted, shall be in writing and shall be
considered properly given when: i) delivered in person:
(ii) sent via confirmed fax:
(iii) sent certified mall confirmed by a signed return receipt; or
(iv) delivered to an express courier, correctly addressed and postage
prepaid.
23.2) Notices or other communications given in accordance with this Section
23 shall be deemed effective on the date delivered or fax confirmed in this
case of Sections 23(i) and (ii) above or upon actual receipt in the case of
Sections 23 (iii) and (iv).
Horiguchi Building, 5th Floor, PPP 402, Box 10000, Saipan, MP 96950,
23.3) Notice shall be given to Contractor as follows:
Name: Telesource CNMI
Attn: General Manager
Address: Horiguchi Building, 5th Floor
PPP 402, Box 10000, Saipan, MP 96950
Phone: (670) 233-4501
Fax: (670) 233-4505
Page 24
170
<PAGE>
23.4) Notice shall be given to CUC as follows:
Name: Commonwealth Utilities Corporation
Attn: Executive Director
Address: Lower Base
Post Office Box 1220, Saipan, MP 96950
Phone: (670) 322-4033
Fax: (670) 3224323
24) TITLE AND RISK OF LOSS.
24.1) Title in Contractor.
24.1.1) Unencumbered legal title in and to the Plant and each piece of Plant
Equipment and all material used in connection with the Plant, including all
Work and Systems and all components and items which are ancillary to all of
same, including all machinery, apparati, materials equipment and other
things to be provided in connection with the construction, operation and
maintenance of the Plant, including but not limited to the power generation
system, the sewer treatment plant, all utilities at the Site and all
connections to utilities not on the Site, transformers and grid
interconnectors, the fuel storage system the waste oil storage and disposal
system and the SCADA system, whether such property be real or personal,
tangible or intangible, shall be vested in Contractor from the moment of its
acquisition, procurement, installation or construction by or at the
instruction of Contractor for and throughout the period expiring on the date
as of which CUC has paid Contractor the full amount of the Guaranteed Price,
and all other amounts then owing to Contractor under this Agreement (the
"Final Payment Date")
24.1.2) Legal title to all work in progress and all construction and other
services related to the Plant will be vested in Contractor so long as
services are being performed in connection with the construction of the
Plant by or at the instruction of Contractor, during the period set forth in
this Section 24.1. Throughout such period, it is fully understood that
Contractor shall retain responsibility for risk of loss of the Plant, Plant
Equipment, Systems, materials and work in progress related to the
construction, operation or maintenance of the Plant, including the
responsibility for claims for damage or loss to any of same, and Contractor
shall provide CUC with satisfactory evidence of liability and extended
coverage insurance for all of same as shall be in such amounts and against
such risks as shall be standard customary in similar circumstances, and in
accordance with Section 17 hereof which insurance shall name CUC as
additional insured and loss payee to the extent of its interest pursuant to
the terms of this Agreement. During such period as Contractor shall have
legal title as aforesaid, neither Contractor, CUC nor any other person shall
allow any such property to be subject to any Lien, except for government tax
Liens or labor or materialmen or other Liens which may arise by virtue of
Law.
24.2) Title In CUC.
Subject to Section 7 of this Agreement, legal title in and to the revenue
from sale of power produced by operation of the Plant from the Date of
Substantial Completion shall be vested in CUC.
24.3) Transfer of Title.
24.3.1) Within thirty (30) Days following the Final Payment Date and
provided no CUC Event of Default then exists, Contractor shall effect the
immediate delivery and transfer of unencumbered legal title to CUC (or its
affiliate or designee), in and to the Plant, Plant, Equipment, Work
Systems and all of the above-referenced related property and materials
without further
Page25
171
<PAGE>
consideration payable to Contractor and CUC and Contractor agree to execute
such documentation and do all such further actions as may be necessary or
appropriate to effect same.
24.3.2) Immediately upon transfer of legal title pursuant to this Section
24.2, the risk of loss for all property so transferred shall immediately
pass to CUC, and CUX shall be responsible for carrying all requisite
liability and extended coverage insurance in connection therewith; provided,
however, that CUC shall name Contractor as additional insured and loss payee
to the extent of its interest pursuant to the terms of this Agreement and
any other agreement related to the Plant to which Contractor is a party.
24.3.4) At the time that delivery and legal title are transferred by
Contractor in accordance with the terms of this Section 24.2, Contractor
shall contemporaneously assign to CUC or such other person all right tide
and interest which Contractor may at such time have in any lease or sublease
for the Site. CUC shall pay all taxes, filing fees and recording, legal and
other fees necessary to effect such deliveries and assignments and transfer
of legal title.
24.4) Transfer of Title; No Release.
It is understood and agreed that the possession or transfer of legal title
as set forth in this Agreement shall not release Contractor's or CUC's
lawful responsibility, respectively, to fully carry out all of its
obligations under this Agreement and all other referenced agreements to
which it is a party or otherwise affect the provisions on risk of loss set
forth in this Agreement
25) RESOLUTION OF DISPUTES.
25.1) In General.
Claims disputes or other matters in question between the parties to this
Agreement shall first be subject to mediation before arbitration. A demand
for mediation shall be made within a reasonable time after the dispute or
claim has arisen.
25.2) Mediation.
Any mediation shall be held in accordance with the Construction Industry
Mediation Rules of the American Arbitration Association currently in effect
unless the parties mutually agree otherwise. The mediation shall take place
at a mutually convenient location in Saipan. Demand for mediation shall be
filed in writing with the other party to this Agreement and with the
American Arbitration Association. In no event shall the demand for mediation
be made after the date when institution of legal or equitable proceedings
based upon such claim, dispute or other matter in question would be barred
by the applicable statute of limitations.
25.3) Arbitration.
Any dispute or difference arising out of, or in connection with, this
Agreement which cannot be amicably settled between the parties by mediation
shall be finally settled under the Rules of Construction Arbitration of the
American Arbitration Association. The arbitration shall take place at a
mutually convenient location in Saipan The resulting arbitral decision shall
be final and binding on the parties. Judgment upon any award rendered by the
arbitrators may be entered in any court having jurisdiction thereof. The
prevailing party in any arbitration shall be entitled to recover from the
other petty all attorneys' fees, expenses and other costs incurred in
asserting or defending any claim arising under or related to this Agreement
Page 26
172
<PAGE>
25.4) Administrative Review.
Any disputes arising under this contract between CUC and Contractor shall be
submitted to administrative review and appeal as provided for in Section
5-201 of the CUC Procurement Regulations (Commonwealth Register Vol. 12,
No.6 (June 15, 1990))before any action may be brought at law or equity for a
remedy.
26) MISCELLANEOUS.
26.1) Severability of Provisions.
26.1.1) In the event that any provision of this Agreement, or the
application thereof, is held by any court of competent jurisdiction to be
illegal or unenforceable, the parties shall attempt in good faith to agree
upon an equitable adjustment to this Agreement in order to overcome to the
extent possible the effect of such illegality or unenforceability.
26.1.2) The provisions of this Agreement are intended to be performed in
accordance with, and only to the extent permitted by, all applicable
requirements of law.
26.13) If any provision of any of the Agreement or the application thereof
to any Persons or circumstance shall, for any reason and to any extent, be
invalid or unenforceable, neither the remainder of the Agreement nor the
application of such provision to other Person or circumstances or other
instruments referred to in the Agreement shall be affected thereby but,
rather, the same shall be enforced to the greatest extent permitted by law.
26.2) Entire Agreement.
This Agreement including all schedules, exhibits, attachments and drawings
referenced herein, represents the entire understanding between the parties
in relation to the subject matter hereof and supersedes any and all previous
agreements or arrangements between the parties in respect of this Project
(whether Oral or written), including without limitations all letters of
intent and clarifications submitted in response to requests for proposals or
otherwise.
26.3) Counterparts.
This Agreement may be executed in any number of counterparts, or by use of
counterpart or faxed counterpart signature pages, each of which shall be an
original, but all of which together shall constitute but one instrument.
26.4) Applicable Law.
This Agreement shall be governed by and construed according to Laws of
Commonwealth of the Northern Mariana Islands excluding any conflict of laws
provisions which would result in the application of the Laws of another
jurisdiction to the interpretation of this Agreement, and any action
whatsoever for the enforcement of, or for damages under this Agreement shall
be brought exclusively In the Federal or Commonwealth Courts of the Northern
Mariana Islands.
26.5) Successors and Assigns.
All of the terms of this Agreement shall apply to, be binding upon and inure
to the benefit of the parties hereto, their respective successors, permitted
assigns and all other Persons claiming by, through or under them.
Page27
173
<PAGE>
26.6) Non-Objection by CNMI.
The effectiveness of this Agreement shall be conditioned upon delivery by
CUC to Contractor of written notice stating that the Government of the
Commonwealth of the Northern Mariana Islands has not objected to the terms
of this Agreement and all related documents and instruments.
26.7) Inspection of Book and Records.
As required by Section 404 of Public Law 3-91, Contractor warrants and
agrees chat Contractor and any Subcontractor at any level shall provide the
Public Auditor of the Commonwealth of the Northern Mariana Islands with
access to, and the right to examine and copy, any records, data or papers
relevant to this Agreement for a period beginning with the execution of this
Agreement and continuing for a period of three (3) years from the date of
Final Plant Turnover.
26.8) No Waiver.
Any failure at any time by either party to enforce any provision of this
Agreement shall not constitute a waiver of such provision or prejudice the
right of either parry to enforce such provision at any subsequent time.
26.9) No Third Parry Beneficiary.
Except as otherwise provided elsewhere herein, this Agreement and all rights
hereunder are intended for the sole benefit of the parties hereto and shall
not imply or create any rights on the part of, or obligations to, any other
entity or individual not a party to this Agreement.
26.10) Regulations Controlling.
This Contract is null and void if either the procurement processes or
contract execution fails to comply with the CUC Procurement Regulations. Any
procurement action of a government official or employee in violation of said
regulations is not authorized by the government and is an act for which the
government will not take responsibility or be liable for in any manner.
Contractor and CUC's Contracting Officer hereby certify that they have both
read and understand said procurement regulations and have complied with all
such regulations.
26.11) Penalties for Violation of Regulations
If this Agreement is in violation of the procurement regulations referred to
above, Contractor may be subject to debarment or suspension from government
contracting and CUC's Contracting Officer may be personally liable for any
damages incurred, in addition to other penalties provided for by law or
regulations.
26.12) Gratuities.
It shall be a breach of this Agreement for Contractor to offer, give or
agree to give, any employee or former employee, or for any employee or
former employee to solicit, demand, accept or agree to accept from
Contractor, a gratuity or an offer of employment in connection with any
decision approval, disapproval, recommendations or preparation of any part
of a program requirement or a purchase request, influencing the content of
any specification or procurement standard, rendering of advice,
investigation, auditing or in any other advisory capacity in any proceeding
or application, request for ruling, determination, claim or controversy, or
other particular matter, pertaining to any program requirement or a contract
or subcontract or to any solicitation or proposal therefore.
Page 28
174
<PAGE>
26.13) Kickbacks.
It shall be a breach of this Agreement for any payment, gratuity or offer of
employment to be made on behalf of a Subcontractor under a contract to
Contractor or any person associated therewith as an adducement for the award
of a subcontract or order.
26.14) Representation of Telesource Concerning Contingent Fees.
Contractor hereby represents that it has not retained any person to solicit
or secure government contracts upon an agreement or understanding for a
commission, percentage, brokerage or contingent fee, except for the
retention of bona fide employees or bona fide established commercial selling
agencies for the purpose of securing business.
26.15) Relationship.
For the purpose of this Agreement, Contractor shall be considered as an
independent entity and not as a agent or representative of CUC, and it is
understood that neither Contractor nor its employees or Subcontractor(s)
shall act for, represent or bind CUC in any capacity or manner whatsoever,
except as specified elsewhere in this Agreement or as authorized in writing
by the Contracting Officer.
26.16) Attorney Fees.
Notwithstanding, and in addition to any other remedy available under this
Agreement, in the event court action is initiated for enforcement of, or
damages under, this Agreement; the prevailing party shall be entitled to
receive from the non-prevailing party all reasonable cost and expenses
incurred by the party with respect to such action, including (without
limitation) all costs and expenses of investigating the circumstances and
events surrounding or relating to the action, and any and all fees charged
by, and expenses of, professional consultants and advisers, including but
not limited to attorneys, accountants or engineers. Attorneys' fees shall
include, but not be limited to, cost and expenses of attorneys, expect
witnesses, paralegals, secretaries, office support, document production and
copying and other miscellaneous expenses reasonably incurred before trial,
at trial, and on appeal.
26.17) Representation of Counsel.
CUC and Contractor each acknowledge that it was represented by counsel in
the negotiation and execution of this Agreement. Both CUC and Contractor
shall be deemed to have drafted this Agreement for purposes of resolving
ambiguities in this Agreement.
Page 29
175
<PAGE>
IN WITNESS WEREOF, the parties have executed this Agreement as of the date first
set forth above.
The Commonwealth Utilities Corporation
Chief Procurement Officer
I hereby certify that to the best of my knowledge and belief this
contract is in compliance with the CUC Procurement Regulations, is for a public
purpose and dose not waste or abuse public funds.
/s/ Frank T. Flores 5/19/97
------------------------------------------------------ -----------------
------------------------------------------------------ -----------------
By: Frank T. Flores Date
Title: Special Advisor, Procurement & Supply
The Commonwealth Utilities Corporation
Corporate Comptroller, CUC
/s/ Yenny Tom 6/10/97
------------------------------------------------------ -----------------
------------------------------------------------------ -----------------
By: Yenny Tom Date
Title: Comptroller
The Commonwealth Utilities Corporation
Attorney General
/s/ Robert B. Dunlap II 6/10/97
------------------------------------------------------ -----------------
------------------------------------------------------ -----------------
By: Robert B. Dunlap II Date
Title: Acting Attorney General
The Commonwealth Utilities Corporation
/s/ Timothy P. Villagomez 5/16/97
------------------------------------------------------ -----------------
------------------------------------------------------ -----------------
By: Timothy P. Villagomez Date
Title: Executive Director
Page 30
176
<PAGE>
/s/ Benjamin A. Sahian 5/16/97
------------------------------------------------------ -----------------
------------------------------------------------------ -----------------
By: Benjamin A. Sahian Date
Title: Chairman, Board of Directors
/s/ Juan S. Tenorio 9/17/97
------------------------------------------------------ -----------------
------------------------------------------------------ -----------------
By: Juan S. Tenorio Date
Title: Chairperson of the Board
Page 31
177
<PAGE>
LIST OF EXHIBITS
EXHIBIT A Description of Plant Equipment, Capabilities and Related
Services
EXHIBIT B Form of Promissory Note EXHIBIT C Form of Pledge and
Security Agreement EXHIBIT D Form of Escrow, Pledge and Security
Agreement EXHIBIT E Manufacturer's Fuel Consumption Specifications
LIST OF SCHEDULES
Schedule I Definitions
Schedule II Prepayment Schedule
Page32
178
<PAGE>
SCHEDULE 1: DEFINITIONS
The defined terms used in this Agreement and in all Exhibits
shall have the meanings specified In this Schedule I.
"Adjusted Guaranteed Price" has the meaning set forth in Section 6.1.3
and Schedule II.
"Agreement" means this document, the attached Schedules, and the
attached Exhibits "A" through "D," inclusive. In the event of any
conflict, inconsistency or variation between this document and any of
the Schedules or Exhibits, the terms and provisions of this document
shall prevail.
"Authorization to Proceed" shall mean written notice from CUC to
Contractor warranting to Contractor that CUC has fulfilled all
conditions precedent as set forth in Section 9 and authorizing
Contractor to begin Commencement of the Work as set forth in Section
3.1.
"Business Day" means each Day on which banks are legally permitted to
be open for business in the Commonwealth of the Northern Mariana
Islands.
"Certificate of Final Acceptance" has the meaning set forth in
Section 14.
"Certificate of Substantial Completion" has the meaning set forth in
Section 14.
"Change Order" has the meaning set fort in Section 5.1.
"CNMI" has the meaning set forth in the first "Whereas" clause of this
Agreement.
"Collateral" means all property which is subject or is to be subject
to a Lien created by the Security Agreement.
"Complete Testing" has the meaning set forth in Section 13.1.1.
"Completion Test Notice" has the meaning set forth in Section 13.2.2.
"Contractor" has the meaning set forth in the preamble to this
Agreement.
"Contractor Project Manager" means the Person identified in Section
20.6.2 and designated by Contractor as agent to perform those
responsibilities and duties set forth in Section 20.5.
"Contractor Site Representative" means the Person designated by
Contractor as agent to perform those responsibilities and duties set
forth in Section 20.4.. "Contractor's Commercial General, Automobile,
and Professional Liability Insurance" means the required insurance
coverages set forth in Section 15.1.
"CUC" has the meaning set forth in the preamble to this Agreement.
"CUC Events of Default" are the events enumerated in Section 17.1.
"CUC Project Manager" means the Person identified in Section 20.3.1
and whose duties are described in Section 20.2.
Schedule 1 Page 1
179
<PAGE>
"CUC Site Representative" means the Person to be identified by CUC
pursuant to Section 20.3.2.
"Day" or "Days" means calendar days unless otherwise specifically
defined.
"Dollars" means United States of America (U.S.) dollars.
"Environmental Laws" shall mean all Federal, state, and local
statutes, laws, codes, rules, regulations, ordinances, orders and
decrees, including without limitation, the Clean Water Act, the
Rivers and Harbors Act, the Coastal Zone Management Act, the
Comprehensive Environmental Response, Compensation and Recovery Act
of 1980, the Resource Conservation and Recovery Act of 1976, the
Toxic Substances Control Act, the Hazardous Materials Transportation
Act and any other statutes regulations and ordinances which pertain
to the protection of human health or animal habitats, environmentally
sensitive areas or the quality, use or condition of air, soil, water,
shorelines or wetlands.
"Escrow Agreement" has the meaning set forth in Section 7.2.
"Exhibit" means each of the exhibits attached to this Agreement and
marked "A" through "D."
"Final Acceptance" has the meaning set forth in Section 14.
"Final Payment Date" has the meaning set forth in Section 22.1.1.
"Final Plant Turnover" has the meaning set forth in Section 3.3.
"Good Utility Practice" means that the Work and Contractor's
performance with respect to the Work shall be in accordance with all
applicable Laws, the professional practices, standards and codes of
the electric power generating industry of the United States and shall
be performed in a workmanlike manner consistent with those used by a
reasonable, prudent construction contractor under contracts for the
design, supply of plant and equipment and construction of electric
power generation facilities under similar circumstances and
conditions. Good Utility Practice is not intended to be limited to the
optimum practice or method to the exclusion of all others, but rather
to be a spectrum of reasonable and prudent practices and methods of
the industry and Contractor. In applying the standard to any matter
under this Agreement, equitable consideration should be given to the
circumstances, requirements and obligations of each the Parties.
"Guaranteed Price" has the meaning set forth in Section 6.1.1.
"Hazardous Material" means all hazardous toxic; infectious, or
radioactive substances, hazardous wastes, or materials listed, defined
or regulated by any Environmental Law and specifically shall include
petroleum, oil and its fractions, asbestos, urea formaldehyde, radon
and any other hazardous, toxic or dangerous waste, substance or
material.
"Interconnection Points" means the tie-points of the Plant to
facilities owned or under the control of Parsons other than CUC or
Contractor.
"Law" means any law, including, without limitation, any act,
requirement, ordinance, rule, order, statutory revisionary order,
executive order, decree, judicial decision, notification or other
similar directive (to the extent any such notification or directive is
mandatory), resolution or regulation of any governmental authority or
agency (federal, national, provincial, municipal, local or other),
court or tribunal that is at any time applicable to the Project, the
Premises or the Work or any part
Schedule 1 Page2
180
<PAGE>
thereof, and shall include, without limitation, the Standards and
all applicable environmental and hazardous waste laws, as any such
law, act, requirement, ordinance, rule, resolution, regulation or
Standard may be amended from time to time.
"Lien" means, with respect to any asset, any material mortgage, lien,
pledge, charge, security interest or encumbrance of any kind in
respect to such asset (including the interest of a vendor or lessor
under any conditional sale agreement, capital lease or other title
retention agreement relating to such asset).
"Local Time" means the time in the CNMI.
"MW" has the meaning set forth in the first "Whereas" clause of this
Agreement.
"Note" has the meaning set forth in Section 6.1.2(i).
"Operation and Maintenance Fee" has the meaning set forth in
Section 6.2.1.
"Party" means one of the parties to this Agreement
"Permits" means all approvals, consents, authorization, notifications,
concessions, acknowledgments, agreements, licenses, decisions or
similar items legitimately and lawfully required to be obtained from
any Person for Contractor to perform its obligations under this
Agreement.
"Person" means an individual, partnership, corporation, business
trust, joint stock company, limited liability company, trust,
trustee, unincorporated association, joint venture, governmental
entity or authority or agency.
"PID's" has the meaning set fort in Section 2.2.3(i).
"Plant" means the complete power generation facility to be constructed
on the Premises as contemplated by this Agreement, including all Work
and Systems and all ancillaries of all such works and such facilities
to be constructed pursuant to this Agreement (including all machinery,
apparatus, materials and other things to be provided under this
Agreement for incorporation into such power generation facility).
"Plant Equipment" means the generators, buildings, other structures and
all other engineered, manufactured and produced items, materials,
supplies and goods required to be incorporated into the Plant for the
construction and operation of the Plant in accordance with this
Agreement.
"Plant Fixtures" has the meaning set forth in the Security Agreement
"Plant Punch List" unfinished items of Plant construction which do not
affect the operation, safety or integrity of the Plant and do not
impact the performance or life of the Plant Equipment, but are included
in the Work.
"Pre-Existing Hazardous Material" means any and all Hazardous Material
on the Site, whether known or unknown, before the date of the issuance
of the Authorization to Proceed hereunder.
"Production Fee" has the meaning set forth in Section 6.2.2 hereof.
Schedule I Page 3
181
<PAGE>
"Project" has the meaning set forth in the third "Whereas" clause of
this Agreement.
"Public Sector Entity" means any governmental authority, agency or court
(federal, national, provincial, municipal, local or other) of the CNMI
and Tinian Island that has lawful jurisdiction over the Project, the
Work or any part thereof.
"Schedule of Values" means the listing of: (a) all Work to be performed
and Plant Equipment to be provided on the Project, and (b) the
corresponding amount of the construction and installation costs set
forth in Section 6.1.1(ii) hereof that Contractor shall be entitled to
for providing such Work and Plant Equipment. The Schedule of Values
shall identify both principal portion of the construction and
installation costs as well as those additional interest amounts which
represent construction phase financing.
"Schedule of Work" means the schedule developed by CUC and Contractor to
govern their performance of this Agreement, as amended from time to
time.
"Scope of Work" has the meaning set forth in Section 2.1.
"Security Agreement" has the meaning set forth in Section 7.1.
"Site" means the location where the Plant is to be constructed.
"Subcontractor" means any Person, including without limitation, all
suppliers, vendors and manufacturers of Plant Equipment, and permitted
assignees of Contractor, any other subcontractor or such Person, who has
a contract with, agreement with, or order from, Contractor.
"Substantial Completion" has the meaning set forth in Section 3.2.
"System" means the Plant Equipment and all associated components,
including, but not limited to, piping, valves, wiring, controls and
supports and other equipment and components agreed to in writing by the
Parties, which are required to perform a given function or combination
of functions on or with respect to the Plant.
"Work" means all Plant Work to be provided and all work and services to
be carried out by Contractor under and in accordance with this Agreement
(including without limitation, the design, engineering, construction,
completion, commissioning, testing, training and start-up, including the
manufacture , procurement, delivery, installation and respective testing
of the Project), and the Description of Plant Equipment, Capabilities
and Related Services set forth in Exhibit A.
Schedule I Page4
182
<PAGE>
SCHEDULE 2
(Inclusive of Construction Financing Costs)
Prepayment Date Amount In U.S.$
Substantial Completion 12,250,000.00
End of Year 3 9,783,000.00
End of Year 4 8,821,000.00
End of Year 5 7,750,000.00
End of Year 6 6,540,000.00
End of Year 7 5,200,000.00
End of Year 8 3,900,000.00
183
<PAGE>
EXHIBIT "A"
Design construction of Power Generation Plant on the island of Tinian,
consisting of the following:
1. The design, engineering and erection of a power generation facility capable
of self-sustained operation with 10MW load.
2. Performance of all site civil works and related services.
3. Supply, installation, testing, and commissioning of four 2.5MW, 4.6KV, 720
RPM, 60Hz diesel generator sets with all required auxiliaries for a fully
integrated operational system, in addition to a 300KW, 1800RPM, housekeeping
diesel generator, and SCADA system for the automatic control of the power
plant.
4. Provision and installation of station transformers.
5. Provision and installation of 420,000 gal. capacity fuel storage tank.
6. Design and construction of adequate buildings to house the diesel generators
and auxiliaries, storage and administration facilities as per CUC
requirements.
7. Insure adequacy and compliance with all relevant regulations.
8. Operation and maintenance of the station (as an option) based on
manufacturers recommendations and applicable international codes and
standards to insure efficient and safe operation.
9. Provision of all necessary documentation and training to CUC personnel.
184
<PAGE>
EXHIBIT "B"
NEGOTIABLE
PROMISSORY NOTE
$180,000.00 ___________________, 1997
FOR VALUE RECEIVED, the undersigned, The Commonwealth Utilities
Corporation, a ___________________ (the "Maker"), promises to pay to the order
of Telesource CNMI, Inc. (the "Holder"), at Horiguchi Building, 5th Floor,
PPP4O2, Box 10000, Saipan, MP 96950, or such other place as the Holder may later
designate to Maker in writing, in lawful money of the United States, the amount
of One Hundred Eighty Thousand Dollars ($180,000.00) (the "Note Amount"), which
Note Amount comprises principal and interest thereon, in accordance with the
terms set forth herein (this "Note").
Section 1. Payments and Maturity.
The Note Amount shall be due and payable , [1st day of each month,
for a period of 120 months, commencing the first month following Substantial
Completion, as defined in the Contract].
Section 2. Late Charges.
To the extent permitted by applicable law, if Maker shall fail to
make a payment due under the terms of this Note within fifteen (15) calendar
days after the date such payment is due, Maker shall pay Holder, on demand, a
late charge equal to three percent (3%) of the Note Amount.
Section 3. Application and Place of Payments.
All payments made on account of this Note shall be applied first to
the payment of any expenses or late charges then due hereunder, and second to
the unpaid Note Amount. All payments on account of this Note shall be paid in
lawful money of the United States of America in immediately available funds
during regular business hours at Holder's aforestated address.
Section 4. Prepayment
Upon ten (10) days written notice to Holder, Maker may, at any time,
prepay all (but not less than all) of the Note Amount by paying to Payee an
amount equal to the aggregate balance of all then outstanding promissory notes
(the "Other Notes") executed and delivered to Holder in connection with the
construction of a power plant on Tinian, Commonwealth of the Northern Mariana
Islands, as such balance may be discounted in accordance with the attached
Schedule. Maker acknowledges and agrees that such prepayment values represent a
reasonable and fair estimate of compensation for the loss that Holder may
sustain from the prepayment of this Note.
Section 5. Events of Default.
The following shall constitute Events of Default hereunder:
Promissory Note Page 1
185
<PAGE>
(a) If Maker fails to pay to Holder when due the Note Amount or any
other amount due under this Note;
(b). If Maker falls to pay the Holder when due any amount owing
under any of the Other Notes;
(c) If Maker breaches or violates any covenant or agreement
contained herein, in any of the Other Notes, or in the Security Agreement (as
defined in Section 7 below) or in any document or instrument referenced herein
or therein.
(d) If Maker shall (i) make a general assignment for the benefit of
creditors, or (ii) apply for or consent to the appointment of a receiver,
trustee or liquidator for itself or all or a substantial part of its assets, or
(iii) be adjudicated a bankrupt or insolvent, or (iv) file a voluntary petition
in bankruptcy or file a petition or an answer seeking reorganization or an
arrangement with creditors or seeking to take advantage of any other law
relating to relief of debtors, or admit (by answer, by default or otherwise) the
material allegations of a petition filed against it in any bankruptcy,
reorganization, insolvency or other proceeding relating to relief of debtors, or
(v) suffer or permit to continue unstayed and in effect for sixty (60)
consecutive days any judgment, decree or order entered by a court of competent
jurisdiction, which approves an involuntary petition seeking reorganization of
Maker or appoints, pursuant to such a petition, a receiver, trustee or
liquidator for it or all or a substantial part of its assets.
Section 6. Remedies.
(a) Upon the happening of an Event of Default, Holder may, in
Holder's sole and absolute discretion and without notice or demand to Maker,
declare the entire Note Amount, together with all amounts owing under the Other
Notes, immediately due and payable, whereupon, the same shall forthwith become
and be due and payable without any presentment, protest, demand or notice of any
kind, all of which are expressly waived by Maker.
(b) If an. Event of Default shall occur, the Maker shall pay the
Holder, on demand by the Holder, all reasonable costs and expenses incurred by
the Holder in connection with the collection and enforcement of this Note and/or
all of the Other Notes, including reasonable attorneys' fees, and Holder shall
have all of the rights, power and remedies available under the terms of this
Note and all applicable documents, instruments and laws.
Section 7. Security.
This is one of the Notes referred to in that certain Pledge and
Security Agreement by and between Maker and Holder, dated of even date herewith
(the "Security Agreement"), and the indebtedness evidenced by this Note is
secured pursuant to the Security Agreement. All terms, covenants, provisions,
conditions and promises contained in the Security Agreement to be kept, observed
and performed by Maker are incorporated in and made a part of this Note, by this
reference, to the same extent and force as if they were fully set forth in this
Note, and Maker unconditionally agrees to keep, observe and perform them
strictly in accordance with the terms and provisions of the Security Agreement.
Section 8. Miscellaneous.
(a) This Note shall be deemed to be made and entered into under the
laws of the Commonwealth of the Northern Mariana Islands and for all purposes
shall be construed and enforced in accordance with the laws of the said
jurisdiction.
Promissory Note Page 2
186
<PAGE>
(b) This Note shall be binding upon Maker and Maker's successors and
assigns and shall inure to the benefit of Holder and Holder's successors and
assigns; except that Maker may not assign or otherwise transfer any of its
obligations under this Note without prior written consent of Payee. Each
reference herein to Maker or to Payee shall, except where the context shall
otherwise require, be deemed to include its respective successors and assigns.
(c) Any notice, request, or demand to or upon Maker or Holder shall
be deemed to have been properly given or made when delivered.
(d) In the event any provision of this Note (or any part of any
provision) is held by a court of competent jurisdiction to be invalid, illegal,
or unenforceable in any respect, such invalidity, illegality, or
unenforceability shall not affect any other provision (or remaining part of the
affected provision) of this Note; but this Note shall be construed as if such
invalid, illegal, or unenforceable provision (or part thereof) had not been
contained in this Note, but only to the extent that such provision, or part
thereof, is invalid, illegal, or unenforceable.
(e) The captions herein set forth are for convenience of reference
only and shall not be deemed to define, limit or describe the scope or intent of
this Note.
(f) Maker consents, without notice, to any and all extensions in the
maturity of this Note, to the acceptance of partial payments before or after
maturity, and to the acceptance, release and substitution of security, all
without prejudice to Holder.
(g) Maker agrees that in the event this Note, or the obligations
evidenced by this Note, shall at any time be held to be subject to the payment
of any documentary stamp, intangible or other tax (other than income taxes of
Holder), Maker will pay such tax, together with interest and penalties thereon,
if any.
(h) Holder shall have the right to transfer or convey this Note or
transfer, assign or sell participations in this Note to any Person; provided
that no participation shall adversely affect Maker's or Holder's obligations
hereunder.
(i) Maker certifies that this Note evidences a commercial obligation
of Maker to Holder.
(j) Any failure or delay by Holder to exercise any right or remedy
hereunder shall not constitute a waiver of the right to exercise the same or any
other right or remedy at any subsequent time, and no single or partial exercise
of any right or remedy shall preclude other or further exercise of the same or
any other right or remedy.
(k) None of the terms and provisions hereof may be waived, altered,
modified, or amended except by an agreement in writing signed by Maker and
Holder.
(1) THE MAKER HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES
THE RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON, OR RELATED
TO, THIS NOTE. THE PAYEE FURTHER ACKNOWLEDGES THAT IT HAS BEEN REPRESENTED IN
THE SIGNING OF THIS NOTE AND IN THE MAKING OF THIS WAIVER BY INDEPENDENT LEGAL
COUNSEL, SELECTED OF ITS OWN FREE WILL, AND THAT IT HAS HAD THE OPPORTUNITY TO
DISCUSS THIS WAIVER WITH COUNSEL. THE FOREGOING WAIVER OF A TRIAL BY JURY IS A
MATERIAL INDUCEMENT FOR THE PAYEE TO MAKE
Promissory Note Page 3
187
<PAGE>
THE LOAN EVIDENCED BY THIS NOTE. Any legal action or proceeding with respect to
this Note or any document related hereto shall be brought in the Superior Court
of the Commonwealth of the Northern Mariana Islands, and by execution and
delivery of this Note, the Holder hereby accepts for itself and in respect of
its property, generally and unconditionally, the jurisdiction of aforesaid
courts. The Holder hereby knowingly, voluntarily, irrevocably and
unconditionally waives any objection, including, without limitation, any
objection to the laying of venue or based on the grounds of the forum non
conveniens which it now or hereafter may have to the bringing of an action or
proceeding in such respective jurisdictions.
TN WITNESS WHEREOF, Maker has caused this Note to be executed by its
duly authorized officers as of the day and year first above written.
THE COMMONWEALTH UTILITIES CORPORATION
By: __________________________________________
Promissory Note Page 4
188
<PAGE>
EXHIBIT "C"
PLEDGE AND SECURITY AGREEMENT
Dated as of , 1997
between
The Commonwealth Utilities Corporation, as Obligor,
and
Telesource CNMI, Inc.
as the Secured Party
Pledge & Security Agreement Page 1
189
<PAGE>
TABLE OF CONTENTS
Article Section Page
I. DEFINITIONS
1.1. Definitions
II. SECURITY INTERESTS
2.1. Grant of Security Interests
2.2. Power of Attorney
III. GENERAL REPRESENTATIONS, WARRANTIES AND COVENANTS
3.1. Necessary Filings
3.2. No Liens; Other Financing Statements
3.3. Chief Executive Office; Name; Records
3.4. Location of Equipment, Inventory, Records
and Fixtures
3.5. No Warehouse Receipts, Bills of Lading or
Other Document of Title
3.6. Fair Labor Standards Act
3.7. Vehicles
3.8. Additional Covenants
3.9. Further Documentation
3.10. Further Actions
IV. SPECIAL PROVISIONS CONCERNING ACCOUNTS, ASSIGNED AGREEMENTS
AND GOVERNMENT CONTRACTS
4.1. Additional Representations and Warranties
4.2. Maintenance of Records
4.3. Modifications of Terms, etc.
4.4. Collection
4.5. Remedies
V. SPECIAL PROVISIONS CONCERNING ASSIGNED AGREEMENTS,
5.1. Rights and Duties of Obligor under Assigned
Agreements,
Government Contracts and Insurance Contracts
5.2. Obligor Remains Liable
5.3. Remedies
VI. [Reserved]
VII. REMEDIES UPON OCCURRENCE OF CUC EVENT OF DEFAULT
7.1. Remedies; Obtaining the Collateral upon
Default
7.2. Remedies; Disposition of the Collateral
7.3. Waiver
7.4. Expenses of Disposition of Collateral
7.5. Application of Proceeds; Obligor Liable for
Deficiency
7.6. Remedies Cumulative; No Waiver
7.7. Discontinuance of Proceedings
7.8. Secured Party's Duty as to Collateral
Pledge & Security Agreement Page 2
190
<PAGE>
VIII. INDEMNITY
8.1. Indemnity
8.2. Contract Obligations, Survival
IX. MISCELLANEOUS
9.1. Notices
9.2. Amendments, Waivers, etc.
9.3. Successors and Assigns
9.4. Severability
9.5. Heading Descriptive
9.6. Counterparts
9.7. Expenses
9.8. Governing Law
9.9. Submission to Jurisdiction
9.10. Waiver of Trial by Jury
9.11. Obligor's Duties
9.12. Termination and Reinstatement
9.13. Security Interest Absolute
9.14. Recourse
9.15. Conflicting Terms
List of Schedules
Schedule A Assigned Agreements
Schedule B Insurance Contracts
Schedule C Locations of Collateral
Pledge & Security Agreement Page 3
191
<PAGE>
PLEDGE AND SECURITY AGREEMENT
THIS PLEDGE AND SECURITY AGREEMENT, dated as of ________, 1997, is
made by The Commonwealth Utilities Corporation (the "Obligor"), in favor
of Telesource CNMI, Inc., a corporation of the Commonwealth of the
Northern Mariana Islands (the "Secured Party").
WITNESSSETH:
WHEREAS, pursuant to that certain Agreement for Design, Supply of
Plant and Equipment, Construction, Maintenance and Operation and Transfer
of Ownership (as amended, restated, supplemented or otherwise modified
from time to time, the "Contract"), dated as of the date hereof, by and
between the Secured Party and the Obligor, the Secured Party has agreed to
design, construct and finance, operate and maintain the Plant (as defined
herein); and
WHEREAS, it is a condition precedent to the Secured Party's
design, construction, financing, operation and maintenance of the Plant that the
Obligor executes and delivers this Agreement to the Secured Party;
NOW, THEREFORE, in consideration of the foregoing and for other
good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto hereby agree as follows:
ARTICLE I DEFINITIONS
1.1. Definitions. As used herein, the following terms shall have
the meanings herein specified unless the context otherwise requires.
Defined terms in this Agreement shall include in the singular number the
plural and in the plural number the singular. All capitalized terms used
herein and not otherwise defined herein shall have the meaning provided in
the Contract.
"Account Obligor" shall mean "account obligor," as defined in
Section 9-105(1)(a) of the UCC.
"Account Records" shall mean (a) all original copies of all
documents, instruments or other writings evidencing the Accounts, (b) all
books, correspondence, credit or other files, records, ledger sheets or
cards, invoices and other papers relating to the Accounts (including,
without limitation, all tapes, cards, computer tapes, computer discs,
computer runs, record keeping systems and other papers and documents
relating to the Accounts) whether in the possession or under the control
of the Obligor or any computer bureau or agent from time to time acting on
behalf of the Obligor, (c) all evidences of the filing of financing
statements and the registration of other instruments in connection with
any Accounts and amendments, supplements or other modifications thereto,
notices to other creditors or secured parties and certificates,
acknowledgments, or other writings, including, without limitation, lien
search reports, from filing or other registration officers, (d) all credit
information, reports and memoranda relating to any Accounts and (e) all
other written or non-written forms of information related in any way to
the foregoing or any Accounts.
"Accounts" shall mean those "accounts" in which the Obligor has
any right, title or interest, as defined in Section 9-106 of the UCC and
which represent all of the Obligor's rights to payment for goods sold or
leased or services rendered, whether or not earned by performance, which
are related in any way to the Plant, including, without limitation, all
rights to payment for the sale or
Pledge & Security Agreement Page 4
192
<PAGE>
production of power by the Plant, and (i) all such rights evidenced by an
account, note, contract, security agreement, chattel paper or other evidence of
indebtedness or security, (ii) all amounts and claims for amounts payable to or
for the account of the Obligor under the Assigned Agreements or the other
Collateral, (iii) all claims, rights, privileges and remedies on the part of the
Obligor, whether arising under the Assigned Agreements or the other Collateral
or by statue or at law or in equity or otherwise or arising out of or in
connection with any failure by any party to any Assigned Agreements or the other
Collateral, to receive any payment assigned hereunder, (iv) all amounts payable
by any party pursuant to any Assigned Agreements or the other Collateral as a
result of the exercise of any such claim, right, privilege or remedy, including,
without limitation, all rights and claims of the Obligor under any bonding,
insurance, indemnities, guaranties, warranties and liquidated damages arising
out of or in connection therewith, (v) all security pledged, assigned,
hypothecated or granted to or held by the Obligor to secure any and all of the
foregoing and (vi) all rights of the Obligor to exercise any election or option
or to give or receive any notice, consent, waiver or approval under or in
respect of the Assigned Agreements or the other Collateral and the right (but
not the obligation) to exercise or enforce any and all covenants, remedies,
powers and privileges thereunder and to do any and all other things the Obligor
is entitled to do thereunder, together with full power and authority, in the
name of the Obligor or otherwise, to enforce, collect, receive and give receipt
for any and all of the foregoing.
"Agreement" shall mean this Pledge and Security Agreement as the
same may from time to time hereafter be amended, restated, supplemented or
modified in accordance with its terms.
"Assigned Agreements" shall mean each of the agreements set forth
on Schedule A hereto as the same may from time to time be amended, restated,
supplemented or modified in accordance with their respective terms.
"Chattel Paper" shall mean all "chattel paper" related in any way
to the Plant in which the Obligor has any right, title or interest, as defined
in Section 9-105(1)(b) of the UCC.
"Collateral" shall have the meaning provided in Section 2.1.
"Contract" shall have the meaning provided in the first "Whereas"
clause of this Agreement.
"Contract Obligations" means any and all of the Obligor's
obligations, financial or otherwise, under the Contract and each and all of the
Assigned Agreements, including, but not limited to, the payment of the
Guaranteed Price and all accrued interest thereon.
"Contract Proceeds" shall mean any and all proceeds from the
Contract and the Assigned Agreements, in which the Obligor has any right, title
or interest.
"CUC Event of Default" shall have the meaning provided in the
Contract.
"Deposit Accounts" shall mean each and every deposit account and
each and every securities account (general or special) relating to the design,
construction, financing, operation, maintenance or ownership of the Plant,
including, without limitation, "deposit accounts," as defined in Section
9-105(1)(e) of the UCC, together with all funds, instruments and other items
credited to any such account from time to time, and all interest or other
distribution thereon and all claims of the Obligor with respect thereto.
"Documents" shall mean all "documents" related in any way to the
Plant in which the Obligor has any right, title or interest, as defined in
Section 9-105(l)(f) of the UCC.
Pledge & Security Agreement Page 5
193
<PAGE>
"Equipment" shall mean all "equipment" related in any way to the
Plant in which the Obligor has any right, title or interest, as defined in
Section 9-109(2) of the UCC and which shall include, but shall not be limited
to, all (i) Plant Equipment and Systems, (ii) all machinery, office equipment,
furniture, appliances, tools, furnishings, Vehicles and any other goods and
equipment used in connection with the design, engineering, construction,
maintenance, operation or ownership of the Plant, (iii) any manuals,
instructions, blueprints, computers, data processing equipment, computer
software and similar items which relate to any of the foregoing and (iv) any and
all additions, substitutions and replacements of any of the foregoing, together
with all improvements thereon and all attachments, components, parts, equipment
and accessories installed thereon or affixed thereto.
"Fixtures" shall mean all "fixtures" related in any way to the
Plant in which the Qbligor has any right, title or interest, as defined in
Section 9-313(1)(a) of the UCC.
"General Intangibles" shall mean all "general intangibles"
related in any way to the Plant in which the Obligor has any right, title or
interest, as defined in Section 9-106 of the UCC and, which shall include, but
shall not be limited to, (i) rights to the payment of money (other than
Accounts), (ii) all limited and general partnership interests and joint venture
interests, (iii) all Federal, state and local income tax refunds and all claims
therefor, (iv) all trade secrets and other proprietary rights, (v) all payments
due in connection with any requisition, confiscation, condemnation, seizure or
forfeiture of all or any part of the Collateral by any Governmental Authority
(or any Person acting under color of Governmental Authority), (vi) all residual
interests in trusts and credits with and other claims against any Person and
(vii) any collateral for any of the foregoing and the rights under any security
agreement granting a security interest in such collateral.
"Governmental Authority" means the government of the United
States of America, the government of the Commonwealth of the Northern Mariana
Islands, and all local and municipal governments on the Island of Tinian,
including any department, division, organziation, agency or branch thereof.
"Guaranteed Price" shall have the meaning provided in the
Contract
"Indemnitee" shall have the meaning provided in Section 8.1.
"Instruments" shall mean all "instruments" related in any way to
the Plant in which the Obligor has any right, title or interest, as defined in
Section 9-105(1)(i) of the UCC.
"Insurance Contracts" shall mean all insurance contracts and
policies procured or maintained by the Obligor related in any way to the Plant,
including, but not limited to, those set forth on Schedule B hereto, and all
amendments, renewals and modifications thereof.
"Inventorv" shall mean all "inventory" related in any way to the
Plant in which the Obligor has any right, title or interest, as defined in
Section 9-109(4) of the UCC and which shall include, but shall not be limited
to, inventory, goods, mobile goods, merchandise and other personal property
(whether such inventory, goods, mobile goods, merchandise and other personal
property are in the possession of the Obligor or of a bailee or other Person for
sale, lease, storage, transit, processing, use or otherwise and whether
consisting of whole goods, spare parts, components, supplies, materials or
consigned or returned or repossessed inventory, goods, mobile goods, merchandise
and other personal property), including, without limitation, all such inventory,
goods, mobile goods, merchandise and other personal property which are held for
sale or lease or are furnished or to be furnished under any contract of service,
which are raw materials or work in progress or material used or consumed in the
Obligor's business.
Pledge & Security Agreement Page 6
194
<PAGE>
"Obligor" shall have the meaning provided in the introductory
paragraph to this Agreement.
"Permits" shall mean all applicable authorizations, certificates,
licenses, approvals, waivers, exemptions, variances, franchises, permissions and
permits of any Governmental Authority required or obtained in connection with
(i) the purchase, acquisition, design, construction, testing, maintenance,
ownership, maintenance and operation of the Plant and the Plant Equipment and
Systems, and (ii) the transactions contemplated by the Construction Contract or
the Assigned Agreements.
"Permitted Encumbrance(s)" shall mean .
"Plant" shall have the meaning provided in the Contract.
"Plant Equipment" and "System" shall have the meanings provided
in the Contract.
"Proceeds" shall mean all "proceeds" in which the Obligor has any
right, title or interest, as defined in Section 9-306(1) of the UCC and which
shall include, but not be limited to, (i) any and all proceeds of any Insurance
Contracts, indemnity, warranty or guaranty payable to the Secured Party or the
Obligor from time to time, and claims for insurance under any Insurance
Contracts, indemnity, warranty or guaranty effected or held for the benefit of
the Obligor, with respect to any of the Collateral except to the extent that any
proceeds of Collateral described in this clause (i) are payable to a Person
other than the Secured Party or the Obligor as permitted by the terms of the
Construction Contract, (ii) any and all proceeds of any of the Deposit Accounts,
(iii) any and all payments (in any form whatsoever) made or due and payable to
the Obligor from time to time in connection with any requisition, confiscation,
condemnation, seizure or forfeiture of all or any part of the Collateral by any
Governmental Authority (or any person acting under color of Governmental
Authority) and (iv) any and all other amounts from time to time paid or payable
to or for the benefit of the Obligor under or in connection with any of the
Collateral.
"Property" or "Site" means that certain parcel of real property
located at ___________, and on which the Plant will be situated.
"Records" shall mean all books, records, computer software,
computer printouts, customer lists, blueprints, technical specifications,
manuals and similar items in which the Obligor has any right, title or interest,
and which relate to any Collateral.
"Secured Party" shall have the meaning provided in the
introductory paragraph to this Agreement.
"UCC" or "Uniform Commercial Code" shall mean the Uniform
Commercial Code as in effect from time to time in the Commonwealth of the
Northern Mariana Islands.
"Vehicles" shall mean all cars, trucks, trailers, construction
equipment and other vehicles covered by a certificate of title law which are
used in connection with the construction, maintenance, operation or ownership of
the Plant, and in which the Obligor has any right, title or interest, and all
tires and other appurtenances to any of the foregoing.
Pledge & Security Agreement Page 7
195
<PAGE>
ARTICLE II
SECURITY INTERESTS
2.1. Grant of Security Interests. As security for the prompt and
complete payment and performance in full of Obligor's Contract Obligations, the
Obligor hereby grants, mortgages, assigns, pledges and transfers to the Secured
Party a continuing security interest in all of the Obligor's right, title and
interest in, to and under the following property, in each case, whether now
owned or existing or hereafter acquired or arising, and wherever located (all of
which being hereinafter collectively called the "Collateral"):
(a) all Accounts;
(b) all Account Records;
(c) all Assigned Agreements;
(d) all Chattel Paper;
(e) all Deposit Accounts;
(f) all Documents;
(g) all Equipment;
(h) all Fixtures;
(i) all General Intangibles;
(j) all Contract Proceeds;
(k) all Instruments;
(1) all Insurance Contracts;
(n) all Inventory;
(n) all Records;
(o) all Permits owned by or granted to or for the benefit of the
Obligor or related to the design and Construction of
the Plant;
(p) all replacements, substitutions, additions or accessions to
or for any of the foregoing; and
(q) all Proceeds and products of any or all of the foregoing and,
to the extent not otherwise included, all cash constituting
proceeds of the Collateral.
The assignment of the payments and rights and the grant of the security
interests provided for in this Section 2.1 shall be effective concurrently with
the execution and delivery of this Agreement and shall not be conditioned upon
the occurrence of any default hereunder, under the Contract or under any
Assigned Agreements or of any other contingency or event.
2.2. Power of Attorney.
(a) The Obligor hereby irrevocably constitutes and appoints the Secured
Party, with full power of substitution, as the Obligor's true and lawful
attorney, with irrevocable power and authority in the place and stead of the
Obligor and in the name of the Obligor or in its own name, from time to time,
after a CUC Event of Default has occurred and so long as it is continuing, in
its sole discretion, to take, at the Obligor's sole expense, any and all
appropriate action and to execute any and all documents and instruments which
may be necessary or desirable to accomplish the purposes of this Agreement and,
without limiting the generality of the foregoing, hereby gives the Secured Party
the power and tight, on behalf of the Obligor, without notice to or assent by
the Obligor, to do, at the Obligor's sole expense, the following after a CUC
Event of Default has
Pledge & Security Agreement Page 8
196
<PAGE>
occurred and so long as it is continuing:
(i) to pay or discharge taxes or Liens levied or placed on or threatened against
the Collateral, to effect any repairs or any insurance called for by the terms
of this Agreement, the Contract or the Assigned Agreements and to pay all or any
part of the premiums therefor and the costs thereof;
(ii) to require, demand, receive and give acquittance for any sums or moneys due
or received in connection with the Contract or any of the Assigned Agreements or
Accounts, to exercise the rights, powers and remedies relating thereto, to
endorse any checks or other instruments or orders in connection therewith or to
file any claims or to take any action or institute any proceedings which the
Secured Party may deem to be necessary or advisable and to exercise any election
or option or give any notice, consent, waiver or approval under, or deliver any
requisition for payment under, or take any other action in respect of, the
Contract or any of the Assigned Agreements or Accounts;
(iii) (A) to direct any party liable for any payment under any Collateral,
including, without limitation, any Account Obligor, to make payment of any and
all monies due and to become due thereunder directly to the Secured Party or as
the Secured Party shall direct, (B) to ask, demand, collect, receive and give
acquittances and receipts for any and all monies due and to become due under,
arising out of, in respect of, or in connection with any Collateral and, in the
name of the Obligor or its own name or otherwise, to take possession of and
endorse, sign, assign, deliver and collect any checks, drafts, notices,
acceptances or other instruments for the payment of monies due under any
Collateral, (C) to sign and endorse any invoices, freight or express bills,
bills of lading, storage or warehouse receipts, drafts against debtors,
assignments, verifications and notices in connection with accounts and other
documents relating to the Collateral, (D) to commence and prosecute any suits,
actions or proceedings at law or in equity in any court of competent
jurisdiction or to take any other action deemed appropriate by the Secured Party
to enforce the Contract or any of the Assigned Agreements, Accounts or Insurance
Contracts or to collect the Collateral or any portion thereof or any amounts due
thereunder whenever payable and to enforce any other right in respect of any
Collateral, (E) to defend any suit, action or proceeding brought against the
Obligor with respect to any Collateral, (F) to settle, compromise or adjust any
suit, action or proceeding described above and, in connection therewith, to give
such discharges or releases as the Secured Party may deem appropriate and (G)
generally to sell, assign, transfer, pledge, make any agreement with respect to
or otherwise deal with any of the Collateral as fully and completely as though
the Secured Party were the absolute owner thereof for all purposes, and to do,
at the Secured Party's option and the Obligor's expense, at any time, or from
time to time, all acts and things which the Secured Party deems necessary to
protect, preserve or realize upon the Collateral and the Secured Party's
security interest therein in order to effect the intent of this Agreement, all
as fully and effectively as the Obligor might do; and
(iv) to execute and file any financing or continuation statements without the
signature of the Obligor to the extent permitted by applicable law, under the
Uniform Commercial Code in effect in any relevant jurisdiction, to perfect, or
to maintain the perfection of, the security interests granted hereby; the
Obligor hereby acknowledges that a carbon, photostatic or other reproduction of
a security agreement shall be sufficient as a financing statement.
The Obligor hereby ratifies all that the said attorney shall lawfully do or
cause to be done by virtue hereof. This power of attorney is a power coupled
with an interest and shall be irrevocable so long as any of the Collateral is
subject to the security interest granted hereunder.
(b) The powers conferred on the Secured Party are solely to
protect the interests of the
Pledge & Security Agreement Page 9
197
<PAGE>
Secured Party in the Collateral and shall not impose any duty upon the Secured
Party to exercise any such powers.
ARTICLE III
GENERAL REPRESENTATIONS, WARRANTIES AND COVENANTS
The Obligor represents, warrants and covenants, which representations,
warranties and covenants shall survive the execution and delivery of this
Agreement, as follows:
3.1. Necessary Filings. All filings, registrations, recordings and
other actions necessary or appropriate to create, preserve, protect and perfect
the security interest granted by the Obligor to the Secured Party hereby in
respect of the Collateral have been accomplished and, to the extent necessary,
will be accomplished within the applicable statutory grace periods in order to
obtain the date hereof as the effective date of recordation of such filing. The
security interest granted to the Secured Party pursuant to this Agreement in and
to the Collateral shall constitute a valid and enforceable perfected first
priority security interest therein superior and prior to the rights of all other
Persons (other than to the rights of the persons holding any Permitted
Encumbrance there in) and subject to no other liens, charge or other encumbrance
(other than Permitted Encumbrances) and shall be entitled to all the rights,
priorities and benefits afforded by the UCC or other relevant law as enacted in
any relevant jurisdiction applicable to perfected security interests or pledge
and assignments in the Collateral.
3.2. No Liens: Other Financing Statements.
(a) Except for the Liens granted to the Secured Party hereunder, the
Obligor is, and as to all Collateral acquired by it from time to time after the
date hereof, the Obligor will be, the sole and absolute owner of each item of
the Collateral free and clear of any and all Liens, rights, interests and claims
of any person (other than Permitted Encumbrances), and the Obligor shall defend
such Collateral against all claims and demands of all Persons at any time
claiming the same or any interest therein adverse to the Secured Party.
(b) There is no financing statement executed by or on behalf of the
Obligor (or similar statement or instrument of registration under the law of any
jurisdiction) covering or purporting to cover any interest of any kind in the
Collateral (except those executed by Obligor in connection with the Construction
Contract and the Assigned Agreements), and the Obligor will not (except as
aforesaid and as is otherwise provided herein) execute or authorize to be filed
in any public office any financing statement (or similar statement or instrument
of registration under the law of any jurisdiction) or statements relating to the
Collateral.
3.3. Chief Executive Office: Name: Records. The chief executive office
of the Obligor is located at _________________________________. The Obligor will
not (a) move its chief executive office or (b) change its name from, or carry on
business under any name other than, "unless it has complied with the
requirements of the last sentence of this Section 3.3. The originals of all
documents evidencing the Collateral and the only original books of account and
records of the Obligor relating thereto are, and will continue to be, kept at,
and controlled and directed (including, without limitation, for general
accounting purposes) from, such chief executive office, or at such new location
for such chief executive office as the Obligor may establish in accordance with
the last sentence of this Section 3.3. The Obligor shall not establish a new
location for its chief executive office or change its name or the name under
which it conducts its business or effect any change in its corporate structure
until (i) it has given to the Secured Party not less than 60 days' prior written
notice of its
Pledge & Security Agreement Page 10
198
<PAGE>
intention to do so, clearly describing such new location or
specifying such new name, as the case may be, and providing such other
information in connection therewith as the Secured Party may reasonably request
and (ii) with respect to such new location or such new name, as the case may be,
it shall have taken all action, satisfactory to the Secured Party, necessary to
maintain the security interest of the Secured Party in the Collateral intended
to be granted hereby at all times fully perfected and in full force and effect.
3.4. Location of Equipment. Inventory. Records and Fixtures. All
Equipment, Inventory, Records, Fixtures and other goods now or from time to time
included in the Collateral are located in the Commonwealth of the Northern
Mariana Islands. The Obligor agrees that all Equipment, Inventory, Records,
Fixtures and other goods now or from time to time included in the Collateral
shall be kept at (or shall be in transport to) the Commonwealth of the Northern
Mariana Islands, or such new location as the Obligor may establish in accordance
with the last sentence of this Section. The Obligor may establish a new location
for Equipment, Inventory, Records, Fixtures and other goods only if (i) it shall
have given to the Secured Party at least 60 days' prior written notice of its
intention to do so, clearly describing such new location and providing such
other information in connection therewith as the Secured Party may request and
(ii) with respect to such new location, it shall have taken all action,
satisfactory to the Secured Party, to maintain the security interest of the
Secured Party in the Collateral intended to be granted hereby at all times fully
perfected and in full force and effect.
3.5. No Warehouse Receipts. Bills of Lading or Other Document or Title.
No Inventory or Equipment is covered by or otherwise subject to any warehouse
receipt, bill of lading or other document of title (as each such term is defined
in Section 1-201 of the UCC), and the Obligor agrees that any Inventory or
Equipment that from time to time is included in the Collateral will either (i)
not be covered by or otherwise subject to any such warehouse receipt, bill of
lading or other document of title or (ii) if any such Inventory or Equipment is
so covered by or otherwise subject to any such warehouse receipt, bill of lading
or other document of title, then the Obligor shall immediately give notice
thereof to the Secured Party in detail reasonably satisfactory to the Secured
Party, and the Obligor shall promptly deliver such warehouse receipt, bill of
lading or other document of title to the Secured Party in pledge under and on
the terms of this Agreement, and the Obligor shall take all such other actions
and deliver all such other documents or instruments as the Secured Party may
deem necessary or appropriate to perfect its security interest in such warehouse
receipt, bill of lading or other document of title and in the Inventory and
Equipment covered thereby, and the Obligor hereby agrees that the Secured Party
may take all such actions and file all such financing statements on behalf of
the Obligor; provided, however that no such warehouse receipt, bill of lading or
other documents of title shall in any event be "negotiable" as such term is used
in Section 7-104 of the UCC or under other relevant law.
3.6. Fair Labor Standards Act. All Inventory produced by the Obligor
has been, and all Inventory hereafter produced by the Obligor and included in
the Collateral will be, produced in compliance with all applicable requirements
of the Fair Labor Standards Act, as amended.
3.7. Vehicles. As of the Closing Date, the Obligor owns no Vehicles.
With respect to any Vehicles acquired by the Obligor on or after the date
hereof, within 15 days after the date of acquisition thereof, all applications
for certificates of title or ownership indicating the Secured Party's first
priority Lien on the Vehicle covered by such certificate, and any other
documentation, shall be filed in each office in each jurisdiction which the
Secured Party may deem necessary or advisable to perfect its Liens on the
Vehicles. No Vehicle shall be removed from the the political jurisdiction which
has issued the certificate of title or ownership therefor for a period in excess
of 48 days.
Pledge & Security Agreement Page 11
199
<PAGE>
3.8. Additional Covenants. The Obligor covenants and agrees that, so
long as this Security Agreement is in effect and until the Contract Obligations
are paid in full or otherwise terminated, it will:
(a) Pay (i) all taxes, assessments and governmental charges imposed
upon it or upon its property and (ii) all claims (including, without limitation,
claims for labor, materials, supplies or services) which might, if unpaid,
become a Lien upon its property, unless, in each case, the validity or amount
thereof is being contested in good faith by appropriate proceedings and the
Obligor has maintained adequate reserves with respect thereto;
(b) Allow any representative of the Secured Party to visit and inspect
any of the Obligor's properties, to examine its books of record and account and
to discuss its affairs, finances and accounts with its officers, all at such
reasonable times and as often as the Secured Party may reasonably request;
(c) Ensure that its property, Inventory and Equipment used or useful in
its business, in whosoever possession they may be, are kept in good repair,
working order and condition (normal wear and tear excepted), and that from time
to time there are made in such properties, Inventory and Equipment all necessary
and proper repairs, renewals, replacements, extensions, additions, betterments
and improvements thereto, to the extent and in the manner customary for
companies in similar lines of business under similar circumstances; and
(d) Execute and deliver to the Secured Party, from time to time, solely
for the Secured Party's convenience in maintaining a record of the Collateral,
such written statements and schedules as the Secured Party may reasonably
require, designating, identifying or describing the Collateral.
3.9. Further Documentation. At any time and from time to time, upon the
written request of the Secured Party, and at the sole expense of the Obligor,
the Obligor will promptly execute and deliver any and all such further
instruments and documents and take such further action as the Secured Party may
deem desirable in order to obtain the full benefits of this Agreement and of the
rights and powers granted or purported to be granted hereby, including, without
limitation, the filing of any financial or continuation statements under the
Uniform Commercial Code (or equivalent law) in effect in any relevant
jurisdiction or any additional evidence of the security interest created hereby
with any patent, trademark or copyright registry, necessary or advisable (in the
Secured Party's sole discretion) to perfect, or to maintain the perfection of,
the security interests granted hereby. The Obligor also hereby authorizes the
Secured Party to file any such financing or continuation statement without the
signature of the Obligor to the extent permitted by applicable law. A carbon,
photographic or other reproduction of a security agreement or a financing
statement shall be sufficient as a financing statement. If any amount payable
under or in connection with any of the Collateral shall be or become evidenced
by any Chattel Paper, Document or Instrument, such Chattel Paper, Document or
Instrument shall be immediately pledged and delivered to the Secured Party, duly
endorsed in a manner satisfactory to the Secured Party.
3.10. Further Actions. The Obligor will, at its own expense, make,
execute, endorse, acknowledge, file and deliver to the Secured Party from time
to time such lists, descriptions and designations of its Collateral, bills of
lading, documents of title, vouchers, invoices, schedules, powers of attorney,
certificates, additional security agreements, reports and other assurances or
instruments and take such further steps relating to the Collateral and other
property or rights covered by the security interest hereby granted, which are
necessary or desirable to create, perfect, preserve, protect or validate (under
the Assignment of Claims Act of 1940, as amended, or
Pledge & Security Agreement Page 12
200
<PAGE>
otherwise, to the extent applicable), any security interest granted pursuant to
this Security Agreement or to enable the Secured Party to exercise and enforce
its rights under this Agreement with respect to such security interest.
ARTICLE IV
SPECIAL PROVISIONS CONCERNING ACCOUNTS AND ASSIGNED
AGREEMENTS
4.1. Additional Representations and Warranties. As of the time when
each of its Accounts arises, the Obligor shall be deemed to have represented and
warranted that such Accounts are genuine and in all respects what they purport
to be, and that all papers and documents (if any) relating, thereto (i) will
(subject to dispute, return, replacement, settlement or compromise) represent,
to the best knowledge of the Obligor, the legal, valid and binding obligation of
the Account Obligor for the indebtedness owing by such Account Obligor arising
out of the performance of labor or services or the sale or lease and delivery of
the merchandise or services, subject to no defense, offset or counterclaim by
the Account Obligor, (ii) will be the only original writings containing original
signatures evidencing and embodying such obligation of the Account Obligor named
therein and (iii) will be in compliance and will conform with all applicable
laws and governmental rules and regulations, including, without limitation, the
Assignment of Claims Act of 1940, as amended, to the extent applicable.
4.2. Maintenance of Records. The Obligor will keep and maintain, at
its own expense, complete records of its Accounts reasonably satisfactory to the
Secured Party, including, but not limited to, records of all payments received,
all credits granted thereon, all merchandise returned and all other dealings
therewith, and the Obligor will make the same available to the Secured Party,
for inspection at the Obligor's chief executive office, at the Obligor's own
expense, at any and all reasonable times upon demand. The Obligor shall, at its
own expense, deliver all tangible evidence that the Secured Party may request of
its Accounts (including, without limitation, all documents evidencing the
Accounts) and books and records to the Secured Party or to its representatives
(copies of which evidence and books and records may be retained by the Obligor)
at any and all times during business hours upon demand. If an Event of Default
shall have occurred and be continuing, and if the Secured Party so directs, the
Obligor shall legend, in form and substance satisfactory to the Secured Party,
the Accounts, as well as books, records and documents of the Obligor evidencing
or pertaining to the Accounts with an appropriate reference to the fact that the
Accounts have been assigned to the Secured Party and that the Secured Party has
a security interest therein.
4.3. Modification of Terms. etc. The Obligor shall not rescind or
cancel any indebtedness evidenced by any of the Accounts or modify any term
thereof or make any adjustment with respect thereto, or extend or renew the
same, without the prior written consent of the Secured Party, which consent
shall not be unreasonably withheld or compromise or settle any dispute, claim,
suit or legal proceeding relating thereto, or sell any Accounts or interest
therein. The Obligor will duly fulfill all obligations on its part to be
fulfilled under or in connection with the Accounts and will do nothing to impair
the rights of the Secured Party in the Accounts.
4.4. Collection. The Obligor shall endeavor to cause to be collected
from each Account Obligor or obligor under the Accounts, and the Assigned
Agreements, as and when due (including, without limitation, amounts which are
delinquent, such amounts to be collected in accordance with generally accepted
collection procedures in accordance with all applicable laws), any and all
amounts owing under or on account of the applicable Account or Assigned
Agreement, and apply forthwith upon receipt thereof all such amounts as are so
collected to the outstanding balance of such Account or Assigned Agreement. The
costs and expenses (including, without limitation, all
Pledge & Security Agreement Page 13
201
<PAGE>
reasonable attorneys' fees and disbursements) of collection, whether incurred by
the Obligor or the Secured Party, shall be borne by the Obligor.
4.5. Remedies. In addition to, and not in limitation of, the remedies
set forth in Article VII hereof, if a CUC Event of Default shall have occurred
and be continuing and if the Secured Party so directs, the Obligor agrees (a) to
cause all payments on account of the Accounts and the Assigned Agreements to be
made directly to the Secured Party and (b) that the Secured Party may, at its
option, directly notify any or all Account Debtors and obligors under the
Assigned Agreements to make payments with respect thereto directly to the
Secured Party. The Secured Party may collect, compromise, forgive or extend or
take any other action with respect to any right to receive any payment under any
of the Accounts or the Assigned Agreements, and the Secured Party may take any
other action with respect to any of the Accounts or Assigned Agreements, and the
Obligor agrees to be bound by any such collection, compromise, forgiveness,
extension or other action taken by the Secured Party with respect to any such
Accounts or Assigned Agreements. Without notice to or assent by the Obligor, if
a CUC Event of Default shall have occurred and be continuing, the Secured Party
may apply any or all amounts then in its possession, or thereafter deposited
with it, in the manner provided in Section 7.5 hereof. The costs and expenses
(including, without limitation, all reasonable attorneys' fees and
disbursements) of collection, whether incurred by the Obligor or the Secured
party, shall be borne by the Obligor.
ARTICLE V
SPECIAL PROVISIONS CONCERNING ASSIGNED AGREEMENTS AND INSURANCE
CONTRACTS
5.1. Rights and Duties of Obligor under Assigned Agreements and
Insurance Contracts. So long as no CUC Event of Default shall have occurred and
be continuing and except as otherwise provided in Article IV hereof or in other
provisions of this Agreement or in the Contract or the Assigned Agreements, the
Obligor may exclusively exercise all of the Obligor's rights, powers, privileges
and remedies under the Assigned Agreements and the Insurance Contracts. Anything
herein to the contrary notwithstanding, the Obligor shall not (unless otherwise
permitted under the Contract) exercise any right to terminate, amend, supplement
or otherwise modify any of the Assigned Agreements or Insurance Contracts
provided, however, that if the Obligor fails to perform any provision of any of
the Assigned Agreements or Insurance Contracts, each in accordance with its
respective terms, and the failure to effect such performance is likely to
adversely affect the value of the security granted to the Secured Party
hereunder or under the Contract or the Assigned Agreements, the Secured Party
may, upon written notice to the Obligor, unless the Obligor is itself diligently
pursuing a cure for such failure that cannot be obtained more quickly by the
Secured Party's performance as specified herein, itself perform (including,
without limitation, by satisfying any payment obligation), or cause the
performance of, any such Assigned Agreements or Insurance Contracts, in
accordance with the terms thereof, and the expenses of the Secured Party
incurred in connection therewith shall be payable by the Obligor pursuant to
Article VIII hereof. The Obligor shall, at its sole expense, fully perform and
comply with all of the terms of each of the Assigned Agreements and the
Insurance Contracts to be performed or complied with by it, and will do all
things necessary, on its part to maintain each such Assigned Agreement and
Insurance Contract in full force and effect, will do all things necessary to
keep unimpaired all of its rights, powers and remedies thereunder and to prevent
any forfeiture or impairment thereof, will enforce each such Assigned Agreement
and Insurance Contract, in accordance with its respective terms, and will take
all such action to that end or to enforce any such Assigned Agreement and
Insurance Contract as from time to time may be requested by the Secured Party.
No settlement on account of any loss, in excess of $25,000 per each such loss
and $125,000 in the aggregate, related to any property covered by any of the
Insurance Contracts shall be made without the written consent of the Secured
Party, which consent shall not be unreasonably withheld.
Pledge & Security Agreement Page 14
202
<PAGE>
5.2. Obligor Remains Liable. Anything herein to the contrary
notwithstanding, except as set forth in the next succeeding sentence, the
Obligor shall remain liable under each of the Assigned Agreements and Insurance
Contracts and all other contracts and agreements included in the Collateral and
shall fully perform all of its duties and obligations thereunder to the same
extent as if this Agreement had not been executed. The exercise by the Secured
Party of any of its rights hereunder shall not release the Obligor from any of
its duties or obligations under any of the Assigned Agreements or Insurance
Contracts or any other contracts and agreements included in the Collateral,
except that in the event of foreclosure upon any Collateral by the Secured Party
and the exercise by the Secured Party of its rights to sell such Collateral as
between the Obligor and the Secured Party, the Obligor shall be under no further
obligation to the Secured Party to perform its obligations under such Collateral
after such event. The Secured Party shall not have any obligation or liability
under any of the Assigned Agreements or Insurance Contracts or any other
contracts and agreements included in the Collateral solely by reason of this
Agreement or the Construction Contract, nor shall the Secured Party be obligated
to perform any of the obligations or duties of the Obligor thereunder or to take
any action to collect or enforce any claim for payment assigned hereunder.
5.3. Remedies. In addition to and not in limitation of the
remedies set forth in Article VII hereof, if a CUC Event of Default shall have
occurred and be continuing, the Secured party may, upon notice to the Obligor in
compliance with any mandatory requirements of applicable law, take any or all of
the following actions: (a) enforce all remedies, rights, powers and privileges
of the Obligor under any or all of the Assigned Agreements and Insurance
Contracts or (b) substitute itself or any nominee or trustee in lieu of the
Obligor as party to any or all of the Assigned Agreements and Insurance
Contracts and (c) notify the Account Obligor of any or all Accounts, Assigned
Agreements, Insurance Contracts or General Intangibles (the Obligor hereby
agreeing to deliver, at its own expense, any such notice at the request of the
Secured Party) that all payments and performance under the relevant Accounts,
Assigned Agreements, Insurance Contracts and General Intangibles shall be made
or rendered to the Secured Party or such other person as the Secured Party may
designate.
ARTICLE VI
[RESERVED]
ARTICLE VII
REMEDIES UPON OCCURRENCE OF CUC EVENT OF DEFAULT
7.1. Remedies: Obtainin2 the Collateral Upon Default. The Obligor
agrees that if a CUC Event of Default shall have occurred and be continuing,
then, and in every such case, the Secured Party may exercise, in addition to all
other rights and remedies granted to the Secured Party in this Agreement, the
Contract, any of the Assigned Agreements, and any other instrument or agreement
securing, evidencing or relating to any of the foregoing, all rights and
remedies of a secured party under the Uniform Commercial Code in effect in any
relevant jurisdiction or under other applicable law in any relevant
jurisdiction. Without limiting the generality of the foregoing, the Secured
Party may do any or all of the following:
(a) personally, or by trustees or attorneys, immediately take
possession of the Collateral or any part thereof from the Obligor or any other
Person who then has possession of any part thereof, with or without notice or
process of law, and for that purpose may enter upon the Obligor's premises, or,
to the extent permitted by applicable law, such other Person's premises,
Pledge & Security Agreement Page 15
203
<PAGE>
where any of the Collateral is located and remove the same and use in connection
with such removal any and all services, supplies, aids and other facilities of
the Obligor; and
(b) take possession of the Collateral or any part thereof by directing
the Obligor to deliver (to the extent such Collateral is a physical nature so
that it may be so delivered) the same to the Secured Party at any place or
places designated by the Secured Party and reasonably convenient to both
parties, in which event the Obligor shall, at its own expense:
(i) forthwith cause the same to be moved to the place or places so
designated by the Secured Party and there delivered to the Secured Party;
(ii) store and keep any Collateral so delivered to the Secured Party at
such place or places pending further action by the Secured Party as provided in
Section 7.2; and
(iii) while the Collateral shall be so stored and kept, provide such
guards and maintenance services as shall be necessary to protect the same and to
preserve and maintain them in good condition.
The Obligor's obligation to deliver the Collateral is of the essence of this
Agreement and, accordingly, upon application to a court of equity having
jurisdiction, the Secured Party shall be entitled to obtain a decree requiring
specific performance by the Obligor of the said obligation.
7.2. Remedies: Disposition of the Collateral. Any Collateral seized by
the Secured Party pursuant to this Agreement, and any other Collateral, whether
or not so seized by the Secured Party, may be sold, leased, assigned,
transferred or otherwise disposed of under one or more agreements or as an
entirety, and without the necessity of gathering at the place of sale of the
property to be sold, and in general in such manner, at such time or times, at
such place or places and on such terms as may be commercially reasonable and in
compliance with any mandatory requirements of applicable law. Any of the
Collateral may be sold, leased, assigned, transferred or otherwise disposed of,
in the condition in which the same existed when taken by the Secured Party or
after any overhaul or repair which may be commercially reasonable and in
compliance with any mandatory requirements of applicable law. Any such
disposition shall be made upon not less than 10 days' written notice to the
Obligor (which the Obligor agrees is reasonable notification within the meaning
of Section 9-504(3) of the UCC) specifying the time such disposition is to be
made and, if such disposition shall be a public sale, specifying the place of
such sale. Any such sale may be adjourned by announcement at the time and place
fixed therefor, and such sale may, without further notice, be made at the time
and place to which it was so adjourned. To the extent permitted by law, the
Secured Party may itself bid for and become the purchaser of the Collateral or
any item thereof offered for sale at a public auction without accountability to
the Obligor (except to the extent of surplus money received as provided in
Section 7.5).
7.3. Waiver.
(a) Except as otherwise provided in this Agreement, THE OBLIGOR HEREBY WAIVES,
TO THE EXTENT PERMITTED BY APPLICABLE LAW, NOTICE OR JTJDICIAL HEARING IN
CONNECTION WITH THE SECURED PARTY'S TAKING POSSESSION OR THE SECURED PARTY'S
DISPOSITION OF ANY OF THE COLLATERAL, INCLUDING, WITHOUT LIMITATION, ANY AND ALL
PRIOR NOTICE AND HEARING FOR ANY PREJUDGMENT REMEDY OR REMEDIES AND ANY SUCH
RIGHT WHICH THE OBLIGOR WOULD OTHERWISE HAVE UNDER THE CONSTITUTION OR ANY
STATUTE OF THE UNITED STATES OR OF ANY STATE, and the Obligor hereby further
waives:
Pledge & Security Agreement Page 16
204
<PAGE>
(i) all damages occasioned by such taking of possession,
except any damages which are determined to have been the result of the Secured
Party's gross negligence or willful misconduct;
(ii) all other requirements as to the time, place and
terms of sale; and
(iii) all rights of redemption, appraisement, valuation, stay,
extension or moratorium now or hereafter in force under any applicable law in
order to prevent or delay the enforcement of this Agreement or the absolute sale
of the Collateral or any portion thereof, and the Obligor, for itself and all
who may claim under it, insofar as it or they may now or hereafter lawfully do
so, hereby waives the benefit of such laws.
(b) Without limiting the generality of the foregoing, the Obligor
hereby: (i) acknowledges that the Secured Party, in the sole discretion of the
Secured Party and without notice to or demand upon the Obligor and without
otherwise affecting the obligations of the Obligor hereunder, from time to time
may take and hold other collateral (in addition to the Collateral) for payment
of any of the Contact Obligations or any part thereof, may exchange, enforce or
release such other collateral or any part thereof, may accept and hold any
endorsement or guarantee of payment of the Contract Obligations or any part
thereof and may release or substitute any endorser or guarantor or any other
Person granting security for or in any way obligated upon any Contract
Obligations or any part thereof; and (ii) waives and releases any and all right
to require the Secured Party to collect any of the Contract Obligations from any
specific item or items of Collateral or from any other party liable as guarantor
or in any other manner in respect of any of the Contract Obligations or from any
collateral (other than the Collateral) for any of the Contract Obligations.
(c) Any sale of, or the grant of options to purchase, or any other
realization upon, any Collateral shall operate to divest all right, title,
interest, claim and demand, either at law or in equity, of the Obligor therein
and thereto and shall be a perpetual bar both at law and in equity against the
Obligor and against any and all Persons claiming or attempting to claim the
Collateral so sold, optioned or realized upon, or any party thereof, from,
through and under the Obligor.
7.4. Expenses of Disposition of Collateral. The Obligor agrees to pay
all costs and expenses of the Secured Party (including, without limitation, all
reasonable attorneys' fees and disbursements) incurred by the Secured Party in
connection with the collection of any of the Contract Obligations and the
enforcement of any of its rights, remedies and privileges hereunder, under the
Contract, any of the Assigned Agreements, and under any other instrument or
agreement securing, evidencing or relating to any of the foregoing.
7.5. Application of Proceeds; Obligor Liable for Deficiency. The
proceeds of any Collateral realized upon pursuant hereto or disposed of pursuant
to Section 7.2 shall be applied as follows:
(a) to the payment of any and all expenses and fees (including, without
limitation, all reasonable attorneys' fees and disbursements) incurred by the
Secured Party in obtaining, taking possession of, removing, insuring, repairing,
storing and disposing of Collateral and any and all amounts incurred by the
Secured Party in connection therewith;
(b) next, to the payment of the Contract Obligations in such order as
the Secured Party may determine; and
(c) next, if no Contract Obligation is outstanding, any surplus then
remaining shall be paid to the Obligor (or whoever shall be lawfully entitled
thereto) subject, however, to the rights of
Pledge & Security Agreement Page 17
205
<PAGE>
the holders of any existing Liens of which the Secured Party has actual
notice (without any investigation required);
it being understood that the Obligor shall remain liable to the Secured Party to
the extent of any deficiency between the amount of the proceeds of the
Collateral and the aggregate amount of the sums referred to in clauses (a) and
(b) of this Section.
7.6. Remedies Cumulative: No Waiver. Each and every right, power,
privilege and remedy hereby specifically given to the Secured Party shall be in
addition to every other right, power, privilege and remedy specifically given
under this Agreement or under the Contract or any of the Assigned Agreements or
now or hereafter existing at law or in equity, or by statute, and each and every
right, power, privilege and remedy whether specifically herein given or
otherwise existing may be exercised from time to time or simultaneously and as
often and in such order as may be deemed expedient by the Secured Party. All
such rights, powers, privileges and remedies shall be cumulative, and the
exercise or the partial exercise of one shall not be deemed a waiver of the
right to exercise of any other. No failure, delay or omission on the part of the
Secured Party in the exercise of any of its rights, remedies, powers and
privileges hereunder or under the Contract or any of the Assigned Agreements and
no course of dealing between the Obligor and the Secured Party shall operate as
a waiver thereof; nor shall any partial or single exercise thereof preclude any
other or further exercise thereof or any other right, remedy, power or privilege
hereunder or thereunder, and no renewal or extension of any of the Contract
Obligations shall impair any such right, remedy, power or privilege or shall
constitute a waiver thereof. No notice to or demand on the Obligor in any case
shall entitle the Obligor to any other or further notice or demand in similar or
other circumstances or constitute a waiver of the rights of the Secured Party to
any other or further action in any circumstances without notice or demand.
7.7. Discontinuance of Proceedings. In the case where the Secured Party
shall have instituted any proceeding to enforce any right, power or remedy under
this Agreement by foreclosure, sale, entry or otherwise, and such proceeding
shall have been discontinued or abandoned for any reason or shall have been
determined adversely to the Secured Party, then, in every such case, the
Obligor, the Secured Party and each holder of any of the Contract Obligations
shall be restored to their former positions and rights hereunder with respect to
the Collateral, subject to the security interest created under this Agreement,
and all rights, remedies and powers of the Secured Party shall continue as if no
such proceeding had been instituted.
7.8. Secured Party's Duty as to Collateral. The Secured Party shall
have no duty as to any Collateral or as to the taking of any necessary steps to
preserve rights against prior parties or any other rights pertaining to any
Collateral. The Secured Party's sole duty with respect to the custody,
safekeeping and physical preservation of the Collateral in its possession, under
Section 9-207 of the UCC or otherwise, shall be to deal with it in the same
manner as the Secured Party deals with similar securities and property for its
own account. Neither the Secured Party nor any of its partners, nor its or their
directors, officers, equity holders, employees or agents shall be liable for
failure to demand, collect or realize upon any of the Collateral or for any
delay in doing so or shall be under any obligation to sell or otherwise dispose
of any Collateral upon the request of the Obligor or any other Person. Any
increase or profits (except money) received from any Collateral in connection
with the exercise of such powers shall become part of the Collateral, and any
money so received shall be applied in accordance with Section 7.5.
Pledge & Security Agreement Page 18
206
<PAGE>
ARTICLE VIII
INDEMNITY
8.1. Indemnity.
(a) The Obligor agrees to indemnify, defend and hold harmless the
Secured Party and their respective successors, assigns, directors, partners,
officers, employees, agents, attorneys, trustees and servants (each an
"Indemnitee" and, collectively, the "Indemnitees") from any and all liabilities,
obligations, damages, injuries, penalties, claims, demands, actions, suits,
judgments and any and all costs and expenses (including, without limitation, all
reasonable attorneys' fees and disbursements) (such expenses, the "expenses") of
whatsoever kind and nature imposed on, asserted against or incurred by any of
the Indemnitees in any way relating to, connected with or arising out of (i)
this Agreement, the Contract, the Assigned Agreements, or other documents
executed in connection herewith or therewith, or in any way connected with the
enforcement of any of the terms hereof or thereof, or the preservation of any
rights hereunder or thereunder, (ii) the ownership, purchase, delivery, control,
acceptance, lease, financing, possession, operation, condition, sale, return or
other disposition, or use of, the Collateral, (iii) the violation by the Obligor
of any law or governmental rule, (iv) any tort of the Obligor or its agents
(including, without limitation, claims arising or imposed under the doctrine of
strict liability or products liability, or for or on account of injury to or the
death of any person (including any Indemnitee), or property damage or (v) any
contract claim against the Obligor or its agents, excluding any of the foregoing
in (i) - (v) determined to have arisen from the gross negligence or willful
misconduct of any Indemnitee. The Obligor agrees that, upon written notice by
any Indemnitee of the assertion of such a liability, obligation, damage, injury,
penalty, claim, demand, action, judgment or suit, the Obligor shall assume full
responsibility for the defense thereof.
(b) Without limiting the application of Section 8.1(a), the Obligor
agrees to pay each Indemnitee for any and all reasonable fees, costs and
expenses of whatever kind or nature (including, without limitation, all
reasonable attorneys' fees and disbursements) incurred in connection with the
creation, preservation, protection or validation of the Secured Party's Liens
on, and security interest in, the Collateral, including, without limitation, all
fees, taxes and other governmental charges in connection with the recording or
filing of instruments and documents in public offices, payment or discharge of
any taxes or Liens upon or in respect of the Collateral, premiums for insurance
with respect to the Collateral and all other fees, costs and expenses in
connection with protecting, maintaining or preserving the Collateral and the
Secured Party's interest therein, whether through judicial proceedings or
otherwise, or in defending or prosecuting any actions, suits or proceedings
arising out of or relating to the Collateral.
(c) If and to the extent that the obligations of the Obligor under this
Section 8.1 are unenforceable for any reason, the Obligor hereby agrees to make
the maximum contribution to the payment and satisfaction of such obligations
which is permissible under applicable law.
8.2. Contract Obligations: Survival. Any amounts paid by an Indemnitee
as to which such Indemnitee has the right to reimbursement and any amounts paid
by the Secured Party in preservation of any of its rights, remedies and interest
in the Collateral, together with interest on such amounts from the date paid
until reimbursement in full at a rate per annum equal to [20%], shall constitute
Contract Obligations secured by the Collateral. The indemnity obligations of the
Obligor contained in this Article VIII shall continue in full force and effect,
notwithstanding the full payment of the Contract Obligations and notwithstanding
the discharge thereof (but only in respect of those claims, any of the basis of
which arises before such full payment and discharge).
Pledge & Security Agreement Page 19
207
<PAGE>
ARTICLE IX
MISCELLANEOUS
9.1. Notices. All notices and other communications provided for
hereunder shall be given in accordance with, and shall be effective as provided
in, Section 21 of the Contract and at the address and telecopy number specified
below their respective names on the signature pages hereof.
9.2. Amendments. Waivers. etc. No amendment or waiver of any provision
of this Agreement nor consent to any departure by any party from the provisions
hereof shall in any event be effective unless the same shall be in writing and
signed by the parties hereof, and then in such case such amendment, waiver or
consent shall be effective only in the specific instance and for the specified
purpose for which given.
9.3. Successors and Assigns. This Agreement shall create a continuing
security interest in the Collateral and shall (i) remain in full force and
effect until payment in full of the Contract Obligations, (ii) be binding upon
the Obligor, its successors and assigns and (iii) inure, together with the
rights and remedies of the Secured Party hereunder, for the benefit of the
Secured Party and their respective successors, transferees and assigns.
9.4. Severability. In the case where any provision in or obligation
under this Agreement shall be invalid, illegal or unenforceable in any
jurisdiction, the validity, legality and enforceability of the remaining
provisions or obligations, or of such provision or obligation in any other
jurisdiction, shall not in any way be affected or impaired thereby.
9.5. Headings Descriptive. Headings used herein are for convenience of
reference only and shall not in any way affect the meaning or construction of
any provision of this Agreement.
9.6. Counterparts. This Agreement may be executed in any number of
counterparts and by the different parties hereto on separate counterparts, each
of which when so executed and delivered shall be an original, but all of which
shall together constitute one and the same instrument.
9.7. Expenses. The Obligor agrees to pay on demand to the Secured Party
all reasonable costs and expenses of collection (including, without limitation,
the fees and disbursements of counsel) incident to the enforcement, protection
or preservation of any right, remedy, power or privilege of the Secured Party
under this Agreement.
9.8. GOVERNING LAW. THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS AND THE
RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER AND THEREUNDER SHALL BE GOVERNED
BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE COMMONWEALTH OF THE
NORTHERN MARIANA ISLANDS (WITHOUT GIVING EFFECT TO THE PRINCIPLES THEREOF
RELATING TO CONFLICTS OF LAW).
9.9 SUBMISSION TO JURISDICTION. ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO
THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS OR ANY DOCUMENT RELATED HERETO OR
THERETO AND ANY ACTION OR PROCEEDING FOR ENFORCEMENT OF ANY JUDGMENT IN RESPECT
HEREOF OR THEREOF MAY BE BROUGHT IN THE COURTS OF THE COMMONWEALTH OF THE
NORTHERN MARIANA ISLANDS, AND THE OBLIGOR HEREBY ACCEPTS FOR ITSELF AND IN
Pledge & Security Agreement Page 20
208
<PAGE>
RESPECT OF ITS PROPERTY, GENERALLY AN]) UNCONDITIONALLY, THE NON-EXCLUSIVE
JURISDICTION FOR THE AFORESAID COURTS. THE OBLIGOR HEREBY IRREVOCABLY CONSENTS
TO THE SERVICE OF THE PROCESS OUT OF ANY OF THE AFOREMENTIONED COURTS IN ANY
SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY REGISTERED OR
CERTIFIED MAIL, POSTAGE PREPAID, TO SUCH OBLIGOR AT ITS ADDRESS SET FORTH
OPPOSITE ITS SIGNATURE BELOW. THE OBLIGOR HEREBY IRREVOCABLY WAIVES ANY
OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY OF
THE AFORESAID ACTIONS OR PROCEEDINGS IN RESPECT OF OR IN CONNECTION WITH THIS
AGREEMENT OR THE OTHER LOAN DOCUMENTS OR ANY DOCUMENT RELATED HERETO OR THERETO
BROUGHT IN THE AFOREMENTIONED COURTS AND HEREBY FURTHER IRREVOCABLY WAIVES AND
AGREES NOT TO PLEAD OR CLAIM IN ANY SUCH COURT THAT ANY SUCH ACTION OR
PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.
NOTHING HEREIN SHALL AFFECT THE RIGHT OF THE SECURED PARTY TO SERVE PROCESS IN
ANY MANNER PERMITED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED
AGAINST THE OBLIGOR IN ANY OTHER JURISDICTION.
9.10. WAIVER OF TRIAL BY JURY. TO THE EXTENT PERMITTED BY APPLICABLE
LAW, THE PARTIES HERETO HEREBY IRREVOCABLY WAIVE ALL RIGHT OF TRIAL BY JURY IN
ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR IN CONNECTION WITH THIS
AGREEMENT OR THE OTHER LOAN DOCUMENTS OR ANY DOCUMENT RELATED HERETO OR THERETO
OR ANY MATTER ARISING HEREUNDER OR THEREUNDER
9.11. Obligor's Duties. Except as provided in Section 5.2, the Obligor
shall remain liable to perform all of its obligations under or with respect to
the Collateral, and the Secured Party shall not have any obligations or
liabilities under or with respect to any Collateral by reason of or arising out
of this Agreement (except any duty to act in a commercially reasonable manner
expressly imposed hereunder or by applicable law), nor shall the Secured Party
be required or obligated in any manner to perform or fulfill any of the
obligations of the Obligor under or with respect to any Collateral.
9.12.Termination and Reinstatement.
(a) When all Contract Obligations have been terminated or indefeasibly
paid in full in cash or cash equivalent, this Agreement shall terminate (except
as otherwise provided in the Contract), and the Secured Party, at the request
and expense of the Obligor, will promptly execute and deliver to the Obligor the
proper instruments acknowledging the termination of this Agreement, and will
duly assign, transfer and deliver to the Obligor (without recourse and without
any representation or warranty of any kind) such of the Collateral as may be in
the possession of the Secured Party and has not theretofore been sold or
otherwise applied or released pursuant to this Agreement.
(b) This Agreement shall continue to be effective or be reinstated, as
the case may be, if at any time any amount received by the Secured Party in
respect of the Contract Obligations is rescinded or must otherwise be restored
or returned by the Secured Party upon the insolvency, bankruptcy, dissolution,
liquidation or reorganization of the Obligor or upon the appointment of any
intervenor or conservator of, or trustee or similar official for, the Obligor or
any substantial part of its assets, or otherwise, all as though such payments
had not been made.
Pledge & Security Agreement Page 21
209
<PAGE>
9.13.Security Interest Absolute. All rights of the Secured Party,
and the security interests granted hereunder, shall be absolute,
irrespective of:
(a) any lack of validity or enforceability of the Contract or any
other agreement or instrument relating hereto or thereto;
(b) any change in the time, manner or place of payment of, or in any
other term of, all or any of the Contract Obligations or any other amendment or
waiver of or any consent to any departure from the Contract or any other
agreement or instrument relating hereto or thereto;
(c) any exchange, release or non-perfection of any other collateral,
or any release or amendment or waiver of or consent to departure from any
guaranty, for all or any of the Contract Obligations; or
(d) any other circumstance which might otherwise constitute a defense
available to, or a discharge of, the Obligor or a third party other than the
full and indefeasible discharge of all of the Contract Obligations.
9.14. Recourse. This Agreement is made with full recourse to the
Obligor and pursuant to and upon all warranties, representations, covenants and
agreements on the part of the Obligor contained herein, in the Contract, the
Assigned Agreements and otherwise in writing in connection herewith and
therewith; provided, however, that no person other than the Obligor (nor any
officer, employee, servant, controlling person, executive, director, agent,
authorized representative or affiliate of the Obligor or of any other person
(herein referred to as "Operatives")) shall be personally liable for payments
due hereunder or under the Contract or any of the Assigned Agreements or for the
performance of any obligation hereunder or thereunder. The sole recourse of the
Secured Party for satisfaction of the obligations of the Obligor hereunder and
under the Contract or any of the Assigned Agreements shall be against the
Obligor (and not against any assets or property of any Operatives) and to the
security interest and remedies provided hereunder and thereunder as may be
provided in any documents relating hereto or thereto. In the event that a
default occurs in connection with such obligations, no action shall be brought
against any such other person or the Operatives of the Obligor or such other
person by virtue of its direct or indirect ownership interest in the Obligor,
and any judicial proceeding and the Secured Party may institute against the
Obligor shall be limited to seeking the preservation, enforcement, foreclosure
or other sale or disposition of the security interests now or any time hereafter
securing the repayment of the Contract Obligations and performance by the
Obligor of its other covenants and obligations hereunder and under the Contract
or any of the Assigned Agreements. In the event of foreclosure or other sale or
disposition of the Collateral or any part thereof, no judgment for any
deficiency upon the obligations hereunder or under the Contract shall be
obtainable by the Secured Party against any person or the Operatives of the
Obligor or such other person by virtue of its direct or indirect ownership
interest in the Obligor.
9.15. Conflicting Terms. To the extent a term or provision of this
Agreement conflicts with the Contract, the Contract shall control with respect
to such term or provision.
Pledge & Security Agreement Page 22
210
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed and delivered by their duly authorized officers as of the date first
above written.
The Commonwealth Utilities Corporation Telesource CNMI, Inc.
By: ___________________________ By:________-_________________
Title: ___________________________ Title: ______________________
Pledge & Security Agreement Page 23
211
<PAGE>
Schedule A
Assigned Agreements
[to be reviewed]
[Ground] Lease of Real Property
Tranmission/ Wheeling Agreements
Power Distribution Agreements
Power Sales Agreements
Interconnect Agreements
Power Purchase Agreements
Invoices for Sales of Power
Fuel Supply Contracts
Insurance Contracts
Pledge & Security Agreement Page 24
212
<PAGE>
EXHIBIT "D"
- -------------------------------------------------------------------------------
ESCROW, PLEDGE AND SECURITY
AGREEMENT
among
TELESOURCE CNMI INC.
and
THE COMMONWEALTH UTILITIES CORPORATION
and
[AGENT]
Dated as of , 1997
ESCROW, PLEDGE AND SECURITY AGREEMENT
AN AGREEMENT, dated as of the _____day of___________ 1997, among
Telesource CNMI, Inc., Horiguchi Building, 5th Floor, PPP4O2, Box 10000, Saipan,
MP 96950 ("Telesource"), The Commonwealth Utilities Corporation, P.O. Box 1220
Lower Base, Saipan, MP 96950 ("CUC") and _______________________________ having
an address ("Agent").
WITNESSETH:
WHEREAS, Telesource and CUC have entered into an Agreement for Design, Supply of
Plant and Equipment, Construction, Maintenance and Operation, and Transfer of
Ownership (the "Contract") and related instruments, including a series of 120
promissory notes (the "Notes," or each "Note") and related Pledge and Security
Agreement; and
WHEREAS, Telesource has requested and CUC has agreed to provide additional
security for its obligations under the Contract and the Notes by arranging for
the deposit by CUC of certain assets in a collateral account, on which
Telesource shall have a first secured lien, to be administered by the Agent for
the benefit of Telesource; and
Escrow, Pledge and Security Agreement Page 1
213
<PAGE>
WHEREAS, the Agent agrees for an on behalf of Telesource as its agent to hold
and invest such assets and administer an account in accordance with the terms
and conditions agreed upon by the parties.
NOW, THEREFORE, in consideration of the covenants and conditions herein
contained and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties hereto agree as follows:
1. Agency Relationship. Telesource and the Agent hereby agree that
during the term of this Agreement the Agent shall serve as Agent for and on
behalf of Telesource and shall hold and invest the funds to be deposited with it
in an account in accordance with all of the terms and conditions of this
Agreement, which account and all assets of whatever type are herein collectively
referred to as the "Escrow Account."
2. Compensation and Expenses. The Agent shall receive as compensation
during the term of this Agreement a fee of $___________ per calendar year
payable annually in advance by Telesource on or before ____________ of each
calendar year (commencing). In addition, the Agent shall be paid by Telesource
$______ per transaction and shall be reimbursed for any reasonable out-of-pocket
expenses incurred by the Agent in order to perform its duties as outlined
herein. No funds shall be distributed by the Agent in accordance with the terms
of this Agreement unless and until the Agent has received all funds required to
be paid or reimbursed to it in accordance with Sections 2 and 4 of this
Agreement.
3. Term. The term of this Agreement shall commence on _____________ and
shall terminate upon the full payment and delivery by the Agent of all funds on
deposit, together with all interest earned thereon (net of losses) to CUC or
Telesource, pursuant to the terms of this Agreement. Such term shall not exceed
twenty-seven years unless the Agent shall be holding funds pursuant to a court
order or pending instructions from a court regarding the distribution of funds.
4. Indemnification and Reimbursement of Agent and Telesource.
a. Telesource expressly agrees to indemnify, reimburse and hold
harmless the Agent for all liabilities, obligations, claims, suits, costs,
damages, judgments and expenses, including reasonable attorneys' fees, imposed
on, asserted against, or suffered or incurred by the Agent to third parties
relating to, arising from or in connection with the performance of its duties
under this Agreement or its enforcement of any of the terms hereof or the
investment of the Escrow Account, including, without limitation, any suit or
proceeding in the nature of an inter-pleader brought by or against the Agent or
the proceeds of part or all of the Escrow Account; provided, however, that
Telesource shall not be liable to the Agent for any costs, damages, judgments or
expenses which arise as a result of or in connection with the negligence, breach
of this Agreement, willful failure or willful misconduct or bad faith of the
Agent or its employees, agents or representatives, respectively.
b. CUC expressly agrees to indemnify, reimburse and hold harmless
Telesource for all liabilities, obligations, claims, suits, cost, damages,
judgments and expenses, including reasonable attorneys fees, imposed on,
asserted against, or suffered or incurred by Telesource to the Agent or to any
third party relating to, arising from or in connection with the performance by
Telesource of the terms of this Agreement or its enforcement of any of the terms
hereof or its investment through the Agent of the Escrow Account, including,
without limitation, any suit or proceeding in the nature of an interpleader
brought by or against Telesource or the proceeds of part or all of the Escrow
Account, provided, however, that CUC shall not be liable to Telesource for
Escrow, Pledge and Security Agreement Page 2
214
<PAGE>
any costs, damages, judgments or expenses which arise as a result of or in
connection with Telesource's willful failure or willful misconduct or gross
negligence of Telesource or its employees, agents or representatives,
respectively.
c. The obligations and indemnities contained in this Section 4 shall
continue in force notwithstanding the termination of this Agreement.
5. Liability of Agent and Telesource. The duties of the Agent and Telesource are
only such as are herein expressly and specifically provided, and neither the
Agent nor Telesource shall be liable or accountable hereunder, to any party
except for the liability arising from (i) in the case of Telesource, the willful
failure or willful misconduct or gross negligence of Telesource, its employees,
agents or representatives, and (ii) in the case of the Agent, the willful
misconduct, negligence, breach of this Agreement or bad faith of the Agent, its
employees, agents or representatives. The Agent shall not be bound or in any way
affected by any notice of any modification, cancellation, abrogation or
rescission of this Agreement, or of any facts or circumstances affecting or
alleged to affect the rights or liabilities of the parties hereto, other than as
herein set forth, or affecting or alleged to affect the rights or liabilities of
any other persons, unless certified to it in writing, delivered to it, and
signed by the appropriate parties; nor, in the case of a modification, unless
such a modification shall be satisfactory to the Agent, as evidenced by its
written consent thereto. The Agent shall not be required to recognize any
person, firm or corporation as an assign or successor of either Telesource or
CUC unless there shall be presented to the Agent evidence reasonably
satisfactory to the Agent of such valid assignment or succession. The Agent
shall not have any duty to insure that funds required to be deposited by CUC
pursuant to paragraph 10 of this Agreement are in fact deposited with the Agent,
or to insure or determine that any funds disbursed to CUC or to Telesource in
accordance with the terms of this Agreement are properly applied or used by CUC
or Telesource.
6. Right to Interplead. In the event that the Agent or Telesource shall be
subject to any conflicting demand as to the disposition of any assets placed in
its hands pursuant to this Agreement, the Agent or Telesource, as the case may
be, shall have the tight to interplead any or all of such assets in its hands
into a court of competent jurisdiction for the purpose of determining the party
or parties entitled thereto.
7. Resignation of Agent. The Agent shall have the right to resign at any time by
giving forty-five (45) days' written notice to CUC and Telesource. The Agent
shall resign immediately upon receipt of written request therefor from an
Authorized Officer of Telesource. Contemporaneously with any resignation, the
Agent shall assign, transfer, deliver and pay over the Escrow Account and all
documents in its possession relating to the Escrow Account or this Agreement to
the successor agent, as provided in Section 8 thereof, and the Agent shall
execute all documents and do all such things as shall be reasonably required by
Telesource to effect same. The Agent shall be paid any monies owing to it
pursuant to Section 2 or Section 4 thereof prior to effecting its resignation in
accordance with the foregoing terms.
8. Successor Agent. In the event that, prior to the termination of this
Agreement, the Agent shall become unable or unwilling to serve in such capacity,
then a successor agent shall be selected by Telesource, and Telesource shall pay
all fees and expenses charged by such successor agent, subject to the right to
reimbursement of same pursuant to the provisions of Section 4(b) hereof. Any
successor agent shall be a commercial bank or trust company authorized to do
business in the United States and having a combined capital and surplus of not
less than $100 million. The rights and obligations of the Agent shall be
assigned to and binding upon such successor agent, and the successor agent shall
execute and instrument accepting such appointment and agreeing to serve as
"Agent" in accordance with the terms of this Agreement.
Escrow, Pledge and Security Agreement Page 3
215
<PAGE>
If the Agent, or any successor agent thereto, resigns for any reason in
accordance with the terms of this Agreement, CUC agrees to take all such action
reasonably requested of it to renegotiate the terms of this Agreement, to record
or revise the recordation of Telesource's' security interest in the Escrow
Account and to obtain any approvals and consents which may be required. If
Telesource cannot find a commercial bank or trust company to qualify and serve
as a successor agent pursuant to this Agreement, and, during such time, if any,
as there shall be no successor agent installed and acting pursuant to this
Agreement, Telesource may, if it so elects, hold the Escrow Account in
Telesource's' name in an institution selected by Telesource until such a
successor agent is secured, which institution shall have a combined capital and
surplus of not less than $100 million. In the event that for any reason CUC is
prevented from taking any action required by this Section 8, CUC hereby appoints
Telesource as its attorney-in-fact solely for purposes of taking any actions and
signing any documents required by this Section 8.
9. Authorized Officer of Telesource. The term "Authorized Officer of
Telesource" as used in this Agreement shall mean any officer of Telesource whose
name, title and signature appears on Exhibit A to this Agreement as long as such
officer continues to hold the title listed. Telesource at any time may provide
to the Agent a substitute Exhibit A, provided such substitute is in the form of
the original Exhibit A and executed by at least one officer listed on the
Exhibit A which is being replaced or by the President of Telesource. The Agent
shall have no obligation to verify any replacement Exhibit A or to determine
whether any individual holds any office which he purports to hold.
10. Deposit of Funds to the Escrow Account. On or before
______________________ the Agent shall receive _______________ ($ ), which shall
constitute the original deposit in the Escrow Account. Additional deposits to
the Escrow Account shall be made from time to time by CUC such that at all times
during the term of this Agreement the Escrow Account shall contain not less than
$360,000. The Agent shall advise each of CUC and Telesource if the balance of
the Escrow Account at any time is less than $360,000, and CUC shall provide such
additional funds as are necessary to replenish the Escrow Account within one (1)
business day thereafter. Failure by CUC to maintain the balance of the Escrow
Account in accordance with this Section 10 shall constitute a "CUC Event of
Default" under the Contract. All funds deposited with the Agent at all times
shall be owned beneficially and of record by CUC and shall be deposited in a
separate account with the Agent to be identified as the "Telesource CNMI, Inc.
Secured Account (The Commonwealth Utilities Corporation)," or by a similar
designation. The Agent shall keep accurate records setting forth the amount
deposited and the date of such deposit.
11. Investment of Funds.
a. All funds deposited with the Agent shall be invested and reinvested
by the Agent at the direction of an Authorized Officer of Telesource in (i)
bills, bonds, notes, or other obligations issued or guaranteed by the United
States of America or agencies thereof, (ii) Federal Farm Credit consolidated
issues, bonds or notes, or (iii) repurchase agreements having a maturity of 90
days or less with any bank or trust company organized under the laws of any
state of the United States or any national banking association or government
bond dealer reporting to, trading with and recognized as a primary dealer by the
Federal Reserve Bank of New York, which such agreements are (A) secured solely
by obligations described in clause (i) above or (B) the obligations of a
commercial bank the senior debt securities of which are rated by a nationally
recognized rating agency in their highest category. Telesource may instruct the
Agent to sell any investment prior to its maturity.
Escrow, Pledge and Security Agreement Page 4
216
<PAGE>
b. If the Agent does not receive investment instructions from
Telesource, after the Agent's written notice of same to Telesource and to CUC,
the Agent may accept investment instructions from CUC to invest in securities or
instruments described in clauses (i), (ii) or (iii) of Section 11(a) hereof.
c. If the Agent does not receive investment instructions, the Agent, at
its own discretion, may invest in instruments described in clause (i) or (ii) of
Section 11(a) hereof.
d. Neither Telesource nor the Agent shall be liable for losses incurred
on any authorized investments, except as set forth in Section 5 hereof. The
Agent shall not be liable for any failure to make investments if the Agent
receives no instructions from Telesource or from CUC. CUC hereby authorizes and
grants its power of attorney to the Agent and Telesource o make all decisions
from time to time during the term of this Agreement for the investment, in whole
or in part, of the Escrow Account in accordance with the terms of this
Agreement, and CUC ratifies and confirms each and every such investment decision
made by the Agent or Telesource during the term of this Agreement. CUC hereby
releases the Agent and Telesource from any and all loss or liability which
arises or which may arise by virtue of the Agent's or Telesources' investment in
whole or in part of the Escrow Account in accordance with the terms of this
Agreement at any time during the term of this Agreement.
12. Balance of the Escrow Account. The phrase "balance of the Escrow Account"
shi.i21 mean at any time the fair market value of all funds and assets held by
the Agent in the Escrow Account. The fair market value of any security held in
the Escrow Account shall mean, is determined as of the date of valuation
thereof, (i) as to obligations which mature within six months from the date of
valuation, the par value of such obligations, and (ii) as to obligations which
mature more than six months after the sate of valuation, the lesser of (1) the
amortized cost of such obligations, or (2) the bid quotation price thereof as
reported in The Wall Street Journal as of tie date of valuation, or in the event
such newspaper is not published or such price is not reported in said newspaper,
in a newspaper of general circulation or a financial journal published in Mw
York, New York selected by Telesource, or (3) the price at which such
obligations are then redeemable by the holder at his option; provided however,
if the balance of the Escrow Accounts to be determined for purposes of
distributing the entire amount of the Escrow Account, then tie proceeds received
from the disposition of any securities contained in the Escrow Account or
recognized market therefor plus any cash in the Escrow Account so distributed,
less commission.. shall be the fair market value of the Escrow Account. The
computations made under the preceding. sentence shall include accrued interest.
The Agent and Telesource shall not be liable for any gold faith determination of
the balance of the Escrow Account, and any such determination shall be presumed
to be correct. Upon receipt of a request from an Authorized Officer of
Telesource at any time, the Agent shall advise such person of the balance of the
Escrow Account or give the such person sufficient information for such person to
determine the balance of the cash collateral account.
13. Payments from the Escrow Account. Upon receipt of a written certification of
in Authorized Officer of Telesource that there is an amount in the Escrow
Account in excess of tie balance required by Section 10 hereof and that CUC is
entitled to be paid such excess amount from the Escrow Account, the Agent shall
release from the Escrow Account and pay to CUC an amount which equals such
excess amount.
a. Upon receipt of written certification of an Authorized Officer of
Telesource that CUC is no longer obligated to Telesource under the Contract or
any of the Notes, the Agent shall distribute the balance of the Escrow Account
in the manner described in the following sentence. The Agent shall distribute to
Telesource an amount equal to the lesser of (i) the balance of tie
Escrow, Pledge and Security Agreement Page 5
217
<PAGE>
Escrow Account or (ii) the amount certified by an Authorized Officer of
Telesource as the sum of all outstanding and unpaid obligations of CUC to
Telesource pursuant to the Contract and the Notes; the Agent shall distribute to
CUC the remainder, if any, of the balance of the Escrow Account.
b. If the Agent has not received notice described in the foregoing
paragraph (b) on or before ________________ the balance of the Escrow Account
shall be distributed by the Agent to CUC.
c. Any payments or distributions required to be made pursuant to this
Section 13 shall be made by the Agent five (5) business days after written
notification requesting such payment, or at such later date as may be requested
by the party entitled to receive such payment and approved by an Authorized
Officer of Telesource. The Agent may, if so requested by the party receiving the
distribution, distribute securities in which the funds have been invested in
lieu of disbursing cash.
d. If the Agent receives a certified notice of an Authorized Officer of
Telesource that a CUC Event of Default has occurred under the Contract and that,
as a result of such CUC Event of Default, Telesource is entitled to a remedy
described in the Contract or in any of the Notes, the Agent shall not make any
distribution to CUC pursuant to Section 13(a) hereof until such time as an
Authorized Officer of Telesource gives written notice to the Agent that such CUC
Event of Default has been timely remedied.
e. Notwithstanding any provision herein contained to the contrary, at
any time, upon the receipt of a written certification and request signed by an
Authorized Officer of Telesource, the Agent shall distribute the balance of the
Escrow Account (or any portion thereof) in accordance with such request.
f. In the event that, in accordance with Section 8 hereof, no successor
agent has been appointed by Telesource, the balance of the Escrow Account shall
be delivered by the Agent to Telesource or, in Telesource's name, to such
financial institution as shall be selected by Telesource, as provided for in
Section 8 hereof.
g. The Agent shall be protected in acting upon any written notice,
request, waiver, consent, receipt or other paper or document furnished to it,
not only as to the document's due execution and the validity and effectiveness
of its provisions, but also as to the truth and acceptability of any information
therein contained which the Agent in good faith believes to be genuine and what
it purports to be.
h. Notwithstanding the terms and provisions of this Section 13, if the
Agent shall have been served with or otherwise subjected to a court order,
injunction or other process or decree restraining or seeking to restrain the
Agent from making any payment from the Escrow Account required by the terms
hereof, such payment shall be made upon, but not prior to, the Agent's receipt
of an opinion from its counsel to the effect that a final and unappealable
judgment or order has been rendered or issued either terminating the order,
injunction or the process or decree restraining the Agent from making payment
under this Section 13 or permanently enjoining the Agent from paying out the
Escrow Account in accordance with the terms of this Agreement.
i. For purposes of this Agreement, the term "business day" shall mean
any day other than a Saturday, Sunday, public holiday or bank holiday (or the
equivalent for banks generally) under the laws of the Commonwealth of the
Northern Marinas Islands.
Escrow, Pledge and Security Agreement Page 6
218
<PAGE>
14. Incomes Taxes. Any and all federal income taxes and any state or
local income or franchise taxes payable with respect to income or capital gains
earned on or by -reason of the Escrow Account shall be paid by CUC from its own
assets outside the Escrow Account. CUC indemnifies and agrees to hold harmless
the Agent and Telesource for the amount of any such taxes, and any penalties or
interest associated therewith, if such taxes, penalties or interest are imposed
on the Agent or Telesource.
15. Pledge and Security Interest. CUC hereby pledges and lawfully grants to
Telesource a security interest in and to the Escrow Account and all funds and
assets at any time contained therein, whether in the form of cash, bonds, bills,
notes, securities, other instruments, or other obligations, regardless of where
or by which person or entity the Escrow Account or such funds or assets shall be
held. For purposes of this Agreement and Telesource's continuing security
interest in the Escrow Account, the Agent shall maintain at its principal office
at the address stated above in ________________, ________________, the funds and
other assets comprising the Escrow Account or evidence of record and/or
beneficial ownership thereof in accordance with the terms of this Agreement.
This Agreement and the Escrow Account shall secure, for the benefit of
Telesource and its successors and assign, all current and future obligations of
CUC to Telesource pursuant to the Contract and the Notes and any successor
instrument thereto. Each party hereto agrees and covenants to take all such
action as may be reasonably requested of it to perfect Telesource's first
priority security interest in the Escrow Account; provided however, that such
security interest shall not be superior to the Agent's rights to be compensated
or indemnified in accordance with the terms hereof. Without the prior written
consent of Telesource, CUC will not sell, assign, transfer or otherwise dispose
of, grant any option with respect to, or mortgage, pledge or otherwise encumber
to any person other than Telesource all or part of the Escrow Account or any
interest therein.
If there occurs any change in the law, rules or regulation or any
judicial decision or any other event or circumstance pertaining to or affecting
rights of creditors in bankruptcy or insolvency proceedings the result of which
would be to increase the likelihood in Telesource's view that the Escrow Account
would not or may not be available to Telesource for the purposes described
herein and in the Contract, CUC agrees, upon Telesource's request, (i) to
negotiate in good faith with Telesource changes in this Agreement and/or the
entire mechanism by which CUC's obligations under the Contract and the Notes are
secured and (ii) to permit Telesource to hold the balance of the Escrow Account
in an account in Telesource's name in an institution selected by Telesource,
which institution shall have a combined capital and surplus of not less than
$100 million. Telesource shall bear its own costs of such negotiations and
associated document preparation. CUC shall not be obligated to accept any new
arrangement which increases the amount of collateral that it must provide to
secure its repayment and payment obligations under this Agreement. In the event
that there is any change in the location of all or part of the Escrow Account,
CUC agrees to take all action requested by Telesource to amend, modify or
replace Telesource's filings perfecting its security interest in the Escrow
Account, or to enable Telesource to effect any required new or additional filing
to perfect its said security interest.
16. Binding Effect. This Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their respective successors and assign.
17. Counterparts. This Agreement may be executed simultaneously in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same Agreement.
Escrow, Pledge and Security Agreement Page 7
219
<PAGE>
18. Notices. Notices under this Agreement shall be in writing and addressed as
set forth above in this Agreement, and shall be deemed given and received upon
receipt. Notices to the Agent shall be addressed Attention: Escrow Department.
19. Governing Law. This Agreement shall be governed by, and construed in
accordance with, the laws of the Commonwealth of the Northern Marianan Islands.
20. Amendments. No amendment or modification to this Agreement shall be
effective unless in writing and signed by all parties hereto.
21. Headings. Section headings in this Agreement are included herein for
convenience of reference only and shall not constitute a part of this Agreement
for any other purpose.
Escrow, Pledge and Security Agreement Page 8
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed and delivered by their respective officers thereunto duly authorized
TELESOURCE CNMI, INC.
By: Khajadour J. Semikian
Title: President
THE COMMONWEALTH UTILITIES CORPORATION
By: ___________________________________
Title: __________________________________
By: -----------------------------------
Title: __________________________________
Escrow, Pledge and Security Agreement Page 9
220
<PAGE>
EXHIBIT A
To the Escrow, Pledge
and Security Agreement
TELESOURCE CNMI, INC.
AUTHORIZED OFFICERS
NAME POSITION SIGNATURE
Khajadour J. Semikian President ___________________
Escrow, Pledge and Security Agreement Page 10
221
<PAGE>
EXHIBIT "E"
CUC D/G FUEL CONSUMPTION PER KWT
<TABLE>
<CAPTION>
A B C D E F G H
- ---------------- ------------- ------------- -------------- -------------- -------------- ------------- --------------
- ---------------- ------------- ------------- -------------- -------------- -------------- ------------- --------------
FUEL FUEL FUEL
% LOAD BHP KW BSFC CONMPT. CONSMPT. CONSMPT. COST PER
PER HOUR PER KW IN KWT
OUTPUT GAL/KWT
lb/BHP-HR E=DXB(lb) F=E/C H=GX$0.72
(lb/Kw) G=FX0.137 (cents/kwt)
- ---------------- ------------- ------------- -------------- -------------- -------------- ------------- --------------
- ---------------- ------------- ------------- -------------- -------------- -------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
100 3600 2580 0.341 1227 0.476 0.065 4.68
- ---------------- ------------- ------------- -------------- -------------- -------------- ------------- --------------
- ---------------- ------------- ------------- -------------- -------------- -------------- ------------- --------------
75 2700 1935 0.345 931 0.481 0.0659 4.74
- ---------------- ------------- ------------- -------------- -------------- -------------- ------------- --------------
- ---------------- ------------- ------------- -------------- -------------- -------------- ------------- --------------
50 1800 1290 0.360 648 0.502 0.0688 4.95
- ---------------- ------------- ------------- -------------- -------------- -------------- ------------- --------------
</TABLE>
222
<PAGE>
Architectural Drawing of CADASTRAL PLAT
223
<PAGE>
GRANT OF PUBLIC DOMAIN LANDS
This Grant, is made and entered into this 23rd day of March ,
1998, by the Division of Public Lands of the Department of Lands and
Natural Resources, established under Public Law 10-57, having the
authority and responsibility over the management arid disposition of
Northern Marianas public lands, hereinafter referred to as the
"GRANTOR," and the COMMONWEALTH UTILITIES CORPORATION, hereinafter
referred to as the "GRANTEE."
WITNESSETH:
WHEREAS, all public lands in the Northern Mariana Islands
belong collectively to the people of the Commonwealth and it is
intended that the management and disposition of public lands should
ultimately benefit the people of the Commonwealth; and
WHEREAS, the Grantor desires that certain parcels of public
land be used exclusively for the construction and operation of a ten
(10) megawatt (MW) electric power plant; and
WHEREAS, pursuant to Public Law 4-47, Grantee is a public
corporation responsible for providing the people of the Commonwealth
with electrical utility service; and
WHEREAS, Grantee requires the real property. described herein
for the construction and operation of a 10 MW electrical power plant
that will provide electrical utility service to the people of the
Commonwealth; and
WHEREAS, Grantee, in developing and constructing an electrical
power plant, has agreed to work in cooperation with those other
governmental agencies necessary to construct and operate. such
facility; and
224
<PAGE>
NOW, THEREFORE, in view of the above recitals, together with the public
objectives to be accomplished, and for and in consideration of the
substantial benefits that the CNMI people will derive from the
Grantee's construction and operation of an electric power plant to be
located on the public lands described hereinbelow, Grantor does by
these presents hereby grants to the Grantee, for its use, the
below-described properties, as follows:
Beginning at the corner which is designated as Corner No. 1
having plane rectangular coordinates of 28,598.0707 meters North and
39,788.9639 meters East of the Mariana Islands District Coordinates
System of 1996. Thence; N 56(Degree) 46' 23" W, 200.000 m to Cor. 2,
thence; 33(Degree) 13' 37" E, S 33(Degree) 13' 37" W, 100.000 m Cor. 1
the point of beginning.
TO HAVE AND TO HOLD, the above-described properties, together
with the hereditaments and appurtenances thereunto, but reserving and
excepting therefrom all existing roadways, easements and rights-of-way.
Any other uses inconsistent with the above-stated purposes shall
nullify this Grant, and said land shall revert to Grantor.
IN WITNESS WHEREOF, the Grantor hereby affixes its hand on the
day and year first above written, at Saipan, Northern Mariana Islands.
BOARD OF PUBLIC LANDS
/s/ Tomas B. Aldan 3/23/98
----------------------------------------------------- ---------------
----------------------------------------------------- ---------------
TOMAS B. ALDAN DATE
Chairman, Board of Public Lands
APPROVED AS TO FORM AND LEGAL SUFFICIENCY:
/s/Alvin S. Slome for Robert Dunlap 3/23/98
----------------------------------------------------- ---------------
----------------------------------------------------- ---------------
ATTORNEY GENERAL AS LEGAL COUNSEL FOR DATE
Division of Public Lands
COMMONWEALTH OF THE )
) 55: ACKNOWLEDGMENT
NORTHERN MARIANA ISLANDS )
---------------------------------)
225
<PAGE>
ON THIS 23 day of March, 1998, before me, a Notary Public in
and for the Commonwealth of the Northern Mariana Islands, personally
appeared Tomas B. Aldan, Chairman of the Board of Public Lands, known
to me to be the person whose name is subscribed to the foregoing
instrument, and acknowledged to me that he executed the same on his
free and voluntary act and deed for the purposes therein set forth.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my
official seal the day and year first above written.
/s/ Gregory Stephen P. Clavo, Jr.
NOTARY PUBLIC
SEAL Gregory Stephen P. Clavo, Jr.
NOTARY PUBLIC
Commonwealth of the Northern Mariana Islands
My Commission Expires on the 25 day of
June, 1999
226
<PAGE>
Exhibit 10.02
Agreement for Design, Supply of Plant and Equipment
227
<PAGE>
CHANGE ORDER
Change Order Date: November 30. 1998 Change Order No.01
Contractor: Telesource CNMI. Inc. CUC Contract No. CUC-PG-97-C057
- --------------------------------------------------------------------------------
This CHANGE ORDER NO.01 is made in reference to the AGREEMENT FOR
DESIGN, SUPPLY OF PLANT AND EQUIPMENT, PRIVATE CONSTRUCTION,
MANINTENANCE AND OPERATION, AND TRANSFER OF OWNERSHIP (Contract
No. CUC-PG-97-C057) effective as of September 17, 1997 between the
COMMONWEALTH UTILITIES CORPORATION and TELESOURCE CNMI, INC. (the
"Original Agreement"). To the extent the terms and conditions of
the Original Agreement are not in conflict with the terms and
conditions of this Change Order No. I the provisions of both the
Original Agreement and this Change Order No. 1 shall hereafter
govern the rights and obligations of the parties (collectively the
"Expanded Agreement").
RECITALS
A. On October 11, 1996 CUC issued Request for Proposal No.
97-0002 (the "RFP"), which solicited responses from independent
power producers for the design engineering, erection and
operation of a power production facility on the island of Tinian
which was capable of sustaining a 10 MW load expandable up to 30
MW. B. On March 6, 1997, after discussions with those responsible
offerors who responded to the RFP, CUC awarded the project to the
Contractor and on September 17, 1997 executed the Original
Agreement for the construction, ownership, operation and eventual
transfer to CUC of the 10 MW expandable Plant
C. During a special session of the Tinian Delegation and
Municipal Council on September 2, 1998, a Joint Resolution was
passed recommending that as per the intent and spirit of the
project RFP, the 10 MW Plant be expanded as quickly as possible
in order to meet the growing power needs of the island.
D. On September 19, 1995, the CUC Operations Committee after
discussions with the Contractor and the Tinian leadership, made a
determination that it was in the best interests of CUC and the
people of Tinian for the expansion the Plant to be undertaken
before the current phase of construction is completed.
228
<PAGE>
E. On September 25, 1998, after a Special Meeting of the CUC
Board of Directors acting upon the recommendation of the CUC
Operations Committee, the Board of Directors determined after a
complete review of all the circumstances surrounding this
project, the terms and conditions of the original RFP and the
Original Contract, and the Contractor's unique position as
general contractor, owner and operator of the Plant, there was a
demonstrated benefit to CUC for the Contractor to commence, the
immediate expansion the Plant pursuant to Change Order in
accordance with Paragraph 5.1 of the Original Agreement "Changes
in the Work," and the terms and conditions of this Change Order
No.1.
AGREEMENT
1. Definitions. Unless otherwise defined, all capitalized
terms used in this Change Order No. 1 are defined in the
Original Agreement and are used herein as so defined.
CHANGE IN THE SCOPE OF WORK
2. Expansion of the Plant Facilities. Subject to the provisions
of Paragraphs 5 and 9 of this Change Order No. 1, Contractor
shall perform all services and furnish all equipment tools,
materials and supplies needed for the fabrication,
installation, assembly, testing, and commissioning of such
additional facilities as are necessary to increase the load
of the Plant and Plant Equipment (collectively the "Plant
Facilities") from 10 MW to 30 MW (the "Expansion").
3. Expansion of Existing Physical Plant. The Expansion shall
include but shall not be limited to all necessary additions
and modifications to the fuel tanks and the building which
houses the generation units, which are currently being built
under the Original Agreement. No additions or modifications
to the warehouse or Plant office shall be included in the
Expansion as these facilities, as currently designed, are
adequate for post-Expansion use.
4. Addition of 30 MW Substation. The Expansion shall include the
construction, testing and commissioning of a new 30 MW
substation to be located on the Site adjacent to the Plant
Facilities (the "Substation"). The Substation addition shall
include all buildings, structures, switchgears, transformers
and other equipment necessary to fully integrate the expanded
Plant Facilities with CUC's existing distribution system, as
generally described in the attached Exhibit "A" which is
hereby incorporated by this reference.
5. Addition of Generation Units. Within fourteen (14) months
after the execution of this Change Order No. 1. Contractor
shall furnish, install, test and commission two (2) five (5)
MW, 720 RPM power generation units which,
229
<PAGE>
in conjunction with the four (4) two and one-half (2.5) MW
generation units provided under the Original Agreement, shall
increase Plant power generation capacity to a load of twenty
(20) MW. In addition to the installation of the two (2) five
(5) MW units as mentioned above, in the event Contractor in
its sole discretion determines that the Plant Facilities
require expansion in order to satisfy any additional demand
for power, Contractor may install from time to time
throughout the Extended Term as set forth in Paragraph 9 of
this Change Order No.1, one or more additional five (5) MW
generation units; provided, however, that at no time shall
the load of the expanded Plant Facilities exceed thirty (30)
MW and in no event shall the replacement or refurbishment of
any previously installed generation unit be counted as an
additional unit.
1. Expanded Operation and Maintenance Services.
Throughout the Extended Term, as set forth in
Paragraph 9, Contractor shall provide all
services necessary to operate and maintain the
Plant Facilities in the most efficient manner
practical under the manufacturer's
specifications and in coordination with CCC
(the "Plant Operations"). At a minimum, Plant
Operations shall include all services necessary
to operate the Plant Facilities within the
parameters set forth in the Original
Agreement as well as any additional services
necessary for the operation of the
expanded Plant Facilities, as its maximum
capacity is increased from time to time,
upon the same terms.
2. Fuel Consumption and Generator Efficiency.
Contractor shall operate the Plant in accordance
with the manufacturers' fuel consumption
specifications for each generation unit and shall
perform all maintenance and operation work in
accordance with Good Utility Practice and the
Minimum Operations and Maintenance Requirements
as subsequently agreed to in writing by CUC and
Contractor in accordance with the terms and
conditions of the Original Agreement.
8. Fuel Oil. CUC shall, at its own cost, provide all fuel oil
necessary for the operation of the Plant at its maximum
capacity, as such capacity may be increased from time to time
throughout the Extended Term. Fuel shall at a minimum meet
the specifications as set forth in Exhibit A of the Original
Agreement.
CHANGE IN CONTRACT TERM
9. Extended Term. This Extended Agreement shall become effective
upon the execution of this Change Order No.1, and shall
remain in full force and effect until the expiration of ten
(10) years after the successful testing and commissioning of
the last power generation unit installed under Paragraph 5,
unless sooner terminated under Paragraph 11 of this Change
Order or Paragraph 19 of the Original Agreement.
Notwithstanding any other provision in this Change Order No.
1, no additional units shall be installed,
230
<PAGE>
tested or commissioned so as to allow the Extended Term
to continue beyond the Term of the Lease for the Site,
recorded at File No. 98-2806, Commonwealth Recorder.
CHANGE IN CONTRACT PRICE
10. Payment. Upon receipt of Contractor's monthly invoice, CUC
shall pay each of the following production fees to
Contractor:
(a) For a period of ten (10) years from the date of
Substantial Completion as defined in the Original
Agreement, CUC shall pay for the first 5,140,000
kilowatt-hours produced each month (the "Base Load")
in the manner set forth in Paragraph 6.2 of the
Original Agreement.
(b) For a period of ten (10) years commencing upon the
completion of the expanded 30 MW Plant Facilities and
the successful testing and commissioning of the first
two additional 5 MW generation units, CUC shall pay
in addition to payment under Paragraph (a) above, a
fixed fee of $0.065 (six and a half cents) (the
"Expansion Rate") per each kilowatt-hour produced
each month in excess of the Base Load (the "Second
Phase Load").
(c) In the event any additional generation unit(s) are
added by Contractor pursuant to Paragraph 5, and for
a period of ten (10) years commencing upon the their
successful testing and commissioning, CCC shall pay
in addition to payment under Paragraphs (a) and (b)
above, an additional fee for power produced in excess
of the Base and Second Phase Loads, at a rate of
$0.065 (six and a half cents) per each kilowatt-hour
or as mutually agreed upon by the parties.
(d) From the expiration of each ten year period as
set forth in Paragraphs (a) and (b)
above through the end of the Extended Term, the
fee due from CUC to contractor for each kilowatt-
hour produced under such Paragraph shall be
reduced to $0.03 (three cents) per kilowatt-hour,
adjusted to reflect the annual increase in the
Gross Domestic Product Implicit Price Deflector
for each year commencing as of 1999. This
reduced fee shall represent the cost of operation and
maintenance, including manpower, consumables,
spare parts and lubricating oil, but shall not
include the cost of CUC provided fuel.
11. Prepayment. CUC shall be entitled to terminate this Expanded
Agreement for convenience upon pre-payment of the sum of the
pre-payment purchase price for the applicable period as set
forth in Schedule 2 to the Original Agreement and the
pre-payment purchase price for the expansion as set forth in
Schedule 2.1, which is attached to this Change Order No. 1 as
Exhibit "B" and is hereby incorporated by reference. CUC's
option to terminate for convenience by pre-payment may be
exercised by giving written notice to Contractor at least
ninety (90) days prior to the applicable buy-out date listed
231
<PAGE>
in Schedule 2.1, and by payment of the sum of the applicable
pre-payment purchase prices as set forth in Schedule 2 and
Schedule 2.1. Pre-payment shall be possible only in those
years in which pre-payment is allowed under both Schedule 2
and Schedule 2.1.
EQUITABLE ADJUSTMENTS TO ORIGINAL AGREEMENT
12. Final Payment Date. Title and risk of loss shall pass from
Contractor to CUC in the manner set forth in Paragraph 24.1
of the Original Agreement; provided however that title and
risk of loss shall remain in Contractor, to protect
Contractor's security interest in the expanded Plant
Facilities, until all payments owing under this Extended
Agreement are paid in full. Notwithstanding any other
provision in this Change Order No. 1, after the final payment
is made by CUC pursuant to sub-Paragraph 10(b) of this Change
Order No. 1, Contractor shall not have nor allow any third
party liens or any other third party encumbrances to remain
or be placed on the Plant or Plant Facilities constructed
under the Original Agreement, or the Plant or Plant
Facilities comprising the expansion to twenty (20) MW
pursuant to Paragraphs 2, 3,4 and 5 of this Change Order
No.1.
13. Damages. In addition to all rights and remedies available to
the parties under the Original Agreement, each party shall be
entitled to recover any proven loss, cost, expense, or
damages incurred, including lost profits, attributable to a
breach by the other party of this Extended Agreement;
provided that the damages provisions of the Original
Agreement shall be applicable as set forth In Paragraph 14
below.
14. Savings Clause. All rights and obligations of the parties as
set forth in the Original Agreement shall apply to this
Extended Agreement to the extent they do not conflict with
the express terms of this Change Order No. 1. To the extent
there is an ambiguity between this Change Order No. 1 and the
Original Agreement, the Original Agreement shall be deemed to
express the over-all intent of the Parties in interpreting
the express provisions of this Change Order No.1.
[This space intentionally left blank]
232
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Change
Order No. 1 as on the date(s) set forth below.
Procurement and Supply
I hereby certify that to the best of my information and
belief this Change Order is in compliance with the CUC
Procurement Regulations, is for a public purpose, and does not
waste or abuse public funds.
/s/ Mariano Dlg. Fajardo Date: 12/4/98
------------------------------- -------------------------
------------------------------- -------------------------
Mariano DLG. Fajardo
Manager, Procurement & Supply
Commonwealth Utilities Corporation Comptroller
I hereby certify that there are sufficient funds
available for the execution of this Change Order.
/s/ Yenny Tom Date: 12/3/98
-------------------------------- -----------------------
-------------------------------- -----------------------
Yenny Tom
Comptroller
Attorney General
I hereby certify that this Change Order has been
numbered, reviewed and approved as to form and legal capacity.
/s/ Willaim J. Ohli for Maya B. Kara Date: 12/3/98
---------------------------------------- ----------------------
---------------------------------------- ----------------------
Maya B. Kara
Attorney General (Acting)
233
<PAGE>
Commonwealth Utilities Corporation
/s/ Timothy P. Villagomez Date: 12/3/98
------------------------------- -----------------------------
------------------------------- -----------------------------
Timothy P. Villagomez
Executive Director
/s/ Juan S. Dela Cruz Date: 12/3/98
------------------------------ ----------------------------
------------------------------ ----------------------------
Juan S. Dela Cruz
Chairman, Board of Directors
Commonwealth Development Authority
/s/ Juan S. Tenorio Date: 12/9/98
------------------------------- -----------------------------
------------------------------- -----------------------------
Juan S. Tenorio
Chairman, Board of Directors
Telesource CNMI, Inc.
On behalf of Telesource CNMI, Inc., I represent that I am
authorized to bind Telesource CNMI Inc. to the terms of this
Change Order, and by my signature I do so hereby accept for
Telesource, CNMI, Inc., and bind Telesource CNMI, Inc. to, the
terms of this Change Order. I further represent for Telesource
CNMI, Inc. that no person associated with Telesource CNMI, Inc.
has retained any person in violation of Section 6-205 of the CUC
Procurement Regulations.
/s/ Khajardour S. Semikian Date: 11/30/98
--------------------------------- -----------------------------
--------------------------------- -----------------------------
Khajadour S. Semikian
President
- ------------------------------------------------------------------------------
CERTIFICATION OF CONTRACT COMPLETION
I hereby certify that this contract bears all signatures
and is therefore complete.
/s/ Mariano DLG. Fajardo Date: 12/10/98
----------------------------------- ----------------------------
----------------------------------- ----------------------------
Mariano DLG. Fajardo
Manager, Procurement & Supply
SCHEDULE OF
EQUIPMENT
234
<PAGE>
(General Description of Equipment, Subject to Modification and
Elaboration)
The following lists a general description of the
equipment making up the major components of the first expansion
from a 10 MW facility to a 30 MW facility capable of a 20 MW
maximum load:
1. 2 X 5 MW Diesel Generator Sets
2. Cooling System
3. Breeching System with Mufflers
4. Stack Suitable for Four (4) Exhaust Units
5. Building Expansion Suitable for
Thirty (30) MW
6. Extension of Existing Switchgear
7. Main 420,000 Gallon Fuel Storage Tank
8. Daily Fuel Tanks with Fuel Accessories
9. Compressed Air Starting System
10. Lube Oil Distribution System
Ii. Waste Oil Disposal System
12. Substation
13. Ventilation Fans and Air Intake System
Please see the attached layout drawings and schematics
for further detail.
PAGE 8
235
<PAGE>
EXHIBIT "B"
SCHEDULE 2.1
PREPAYMENT FOR EXPANSION PHASE
(To Be Paid in Addition to the Prepayment Price Set Forth
in Schedule 2)
EXPANDED 20 MW PHASE AMOUNT IN US$
Commissioning & Testing 12,250,000.00
End of Year 3 9,783,000.00
End of Year 4 8,821,000.00
End of Year 5 7,750,000.00
End of Year 6 6,540,000.00
End of Year 7 5,200,000.00
End of Year 8 3,900,000.00
EXHIBIT "B"
PAGE l OF 1
236
<PAGE>
237
<PAGE>
Exhibit 10.03
Agreement for Desgin, Supploy of Plant
CHANGE ORDER
Change Order Date: November 3O, 1998 Change Order No. 02
Contractor: Telesource CNMI, Inc. CUC Contract No. CUC-PG-97-CO57
- --------------------------------------------------------------------------------
This CHANGE ORDER NO.02 is made in reference to the
AGREEMENT FOR DESIGN, SUPPLY OF PLANT AND EQUIPMENT, PRIVATE
CONSTRUCTION, MAINTENANCE AND OPERATION, AND TRANSFER OF OWNERSHIP
(Contract No. CUC-PG-97-COS7) effective as of September 17, 1997
between the COMMONWEALTH UTILITES CORPORATION and TELESOURCE CNMI,
INC. (the "Original Agreement"). To the extent the terms and
conditions of the Original Agreement and Change Order No. 1 are
not in conflict with the terms and conditions of this Change Order
No. 2 the provisions of both the Original Agreement, Change Order
No. 1 and this Change Order No. 2 shall together hereafter govern
the rights and obligations of the parties.
RECITALS
A The parties to the Original Agreement desire to implement a
more detailed procedure for submission and review of the drawings
and technical specifications used in the performance of the Work,
including a procedure to facilitate communications between CUC
and the Contractor in the event that there is a need to clarify
the technical portions of the Original Agreement or any change
order issued thereunder.
B. The parties further desire to amend and clarify Paragraph 11.2
of the Original Contract, which sets forth CUC rights regarding
the review, comment and approval of all Drawings.
AGREEMENT
1. Definitions. Unless otherwise defined, all capitalized
terms used in this Change Order No. 2 are defined in the
Original Agreement and are used herein as so defined.
2. Reference to Paragraph 11.2. Reference is hereby made to
Paragraph 11.2 of the Original Agreement, which states in its
entirety:
11.2) Before starting certain Work identified in any
Drawing. Contractor may submit such Drawing to CUC for
review. CUC shall respond within five (5) Business Days of
238
<PAGE>
actual receipt by CUC of the Drawing. After such review
CUC shall return one copy of each such Drawing to
Contractor marked "Reviewed", "Reviewed with Comments" or
"Comments" as appropriate and with sufficient explanation
to enable Contractor to Determine the basis for any such
comments. Contractor may proceed to implementation in the
case of Drawings marked "Reviewed". Such Drawings marked
"Reviewed with Comments" may be corrected by Contractor as
appropriate but need not be re-submitted to CUC. Drawings
marked "Comments" shall be corrected by Contractor and
re-submitted to CUC. CUC, in reviewing such resubmitted
Drawings shall be limited to review of matters related to
or affected by the previous "Comments". If CUC does not
respond within five (5) Business Days of Actual receipt of
a Drawing by CUC, Contractor shall proceed as though CUC
has no comments and CUC be deemed to have returned the
Drawing to Contractor marked "Reviewed".
CLARIFICATION OF GENERAL PROVISIONS
3. Amendment to Paragraph 11.2. Paragraph 11.2 of the Original
Agreement, is hereby replaced in its entirety by the
following:
11.2) Review of Drawings and Specifications.
11.2.1) Submittals. Before starting the Work identified
in any Drawing or technical Specification (each a
"Submittal"), Contractor shall submit three (3) copies of
such Submittal to the CUC Project Manager for review.
Submittals shall be delivered to the CUC Project Manager
in a timely fashion so as to allow time for review, as
set forth in Section 11.2.3) below, without impeding the
progress of the Work.
11.2.2) Form of Submittal. Each Submittal shall clearly
identify the following, as appropriate:
a) Date of submission and dates of any
previous submissions.
b) Project title and number.
c) Contact identification.
d) Names of Contractor, Supplier and
Manufacturer.
e) Identification of product, with
Specification section number.
f) Field dimensions, clearly identified as
such.
g) Relation to adjacent or critical features
of the Work or materials.
h) Applicable standards, such as ASTM or
federal specification numbers.
i) Identification of deviations from the
Scope of Work.
j) Identification of revisions on
resubmittal.
k) A blank space for the Contractor and CUC
Project Manager stamps.
l) Contractor shall initial or sign each
Submittal, and by so-doing he shall be
deemed to have represented to CUC that
Contractor has either determined and
verified all quantities,
239
<PAGE>
dimensions, field construction criteria,
materials, catalog number, and similar
data, or assumes full responsibility for
doing so and has reviewed or coordinated
each Submittal with the requirements of
the Scope of Work.
m) If the Scope of Work includes performance
specifications stating required results
which can be verified as meeting
stipulated criteria, so that further
detailed design by Contract prior to
fabrication is necessary, such Submittal
must be prepared under the seal of a
professional engineer registered in the
appropriate jurisdiction and contain a
certification in a form substantially as
follows:
"I hereby certify that this Submittal
was prepared by me or under my direct
personal supervision or that I have
personally reviewed this Submittal
which was prepared by others, and I
accept responsibility for the
adequacy of the Submittal to meet the
criteria stipulated in the Scope of
Work to the same degree that I would
If I had prepared it, and that I am a
duly registered professional
engineer, under the laws of the
Commonwealth of the Northern Mariana
Islands, and that I am competent to
prepare or review this Submittal."
11.2.3) CUC Review. CUC shall respond within ten (10)
Business Days of actual receipt by CUC of the Submittal.
CUC's review shall be limited to the Submittal's general
conformance to the design concept of the Plant and
compliance with information set forth in the Scope of
Work. CUC review shall not extend to means, methods,
sequences, techniques or procedures of construction or to
safety precautions or programs incident thereto. Review
of a separate item as such will not indicate approval of
the assembly in which the item functions. After such
review CUC shall return one copy of each such Drawing to
Contractor marked "Reviewed", "Reviewed with Comments",
"Comments" or "Returned" as appropriate and with
sufficient explanation to enable Contractor to Determine
the basis for any such designation.
11.2.3.1) "Reviewed". Submittals marked
"Reviewed" has been designated by CUC
to be in conformance to the design
concept of the Plant and Scope of
Work. Contractor may proceed to
implementation in the case of
"Reviewed" Submittals.
11.2.3.2) "Reviewed with Comments". Submittals
marked "Reviewed with Comments" have
been reviewed by CCC and appear to be
in conformance to the design concept
of the Plant and Scope of Work,
except as noted by the CCC Project
Manager. Contractor may proceed with
the implementation in the case of
Submittals "Reviewed with Comments"
with the modifications and
corrections as indicate by the CUC
Project Manager. Submittals "Reviewed
with Comments" need not be
resubmitted to CUC.
240
<PAGE>
11.2.3.3) "Comments". Submittals marked
"Comments" have been reviewed by CUC
and appear to fail to conform to the
design concept of the Plant and
Scope of Work. The Contractor
shall not implement the Work related
to such "Returned" Submittals, but
shall cure the defects and resubmit
such Submittal for CUC review in
the same manner as set forth in
this Section 11.2). All changes
from the previous submittal shall
be clearly identified by Contractor.
CUC, in reviewing such resubmittals
shall be limited to review of
matters related to or affected by
the previous "Comments".
11.2.3.4) "Returned". Submittals marked
"Returned" have not been reviewed due
to a defect in the form required
under Section 11.2.2) or are
substantially contrary to the design
concept of the Plant and Scope of
Work. The Contractor shall not
implement the Work related to such
"Returned" Submittals, but shall cure
the defects and resubmit such
Submittal for CUC review, if
required.
11.2.3.5) CUC's Failure to Respond. If CUC does
not respond within ten (10) Business
Days of Actual receipt of a Submittal
by CUC, or before the expiration of
any extension thereof, Contractor
shall proceed as though CUC has no
comments and CUC shall be deemed to
have returned the Submittal to
Contractor marked "Reviewed".
11.2.4) Request for Extension. For good cause
demonstrated by CUC, Contractor shall grant, and CUC
shall be entitled to, one (1) extension of reasonable
length to the response period set forth in Paragraph
11.2.3), above, the length of such extension to be
mutually agreed upon by the parties on a case by case
basis; provided CUC shall have requested such extension
in writing within the original ten (10) day response
period; and provided further that Contractor shall be
entitled to a Change Order under Section 5 of the
Original Agreement, equitably adjusting the Contract Term
and/or Price to reflect any delays caused by CUC's
failure to respond within the original ten (10) day
response period.
1125) Deviations. CUC's review of Submittals under this
Section 11.2) shall not relieve Contractor from its
responsibility for any deviations from the Scope of Work
unless Contractor has, in writing, called the CUC Project
Manager's attention to the deviation at the time of
submission, and the CUC Project Manager has given his
written concurrence to such deviation through a change in
the Scope of Work evidenced by a Change Order executed
under Section 5 of the Original Agreement. CUC consent
under this Section 11.2.5) shall not relieve Contractor
from its responsibility for errors or omissions in
Submittals.
11.2.1) Work in Progress. All Submittals under which Work
is currently on-going as of the date of this Change Order
No. 2 shall be deemed to be
241
<PAGE>
marked "Reviewed". All other Submittals, including those
Submittals related to Change Order No. 1 shall be subject
to the amended review procedures of this Section 11.2).
4. Procedure for Clarifying Drawings and Technical
Specifications. Paragraph 11.3 shall be added to the Original
Agreement setting forth the procedure for obtaining
clarifications to the Drawings and technical Specifications
as follows:
11.3) Requests for Information.
11.3.1) RFI Procedure. In the event Contractor requires
technical or other information from CUC relating to the
Work, he may request such information from CUC through a
"Request For Information". CUC shall respond to all
Requests For Information within ten (10) Business Days of
their receipt, including in their response all detail
necessary for the completion of the Work.
11.3.2) Contractor Action. Responses to Requests for
Information which do not involve a change in the Contract
Price or Term, and which are consistent with the overall
intent of the Original Agreement including the provisions
of Change Order No. 1, shall be preformed by Contractor
without additional claim or charge.
11.3.3) Change Orders. In the event any response to a
Request for Information necessitates a change or
adjustment in the Work, other than a change under Section
11.3.2, above, Contractor shall be entitled a Change
Order which references the applicable Request for
Information and adjusts the Contract Price and/or Term in
accordance with Section 5 of the Original Agreement.
11.3.4) CUC's Failure to Respond. If CUC does not respond
within ten (10) Business Days of Actual receipt of the
Request for Information by CUC, unless an extension is
granted under the same procedure as provided in Paragraph
11.2.4, above, Contractor shall be entitled to a Change
Order under Section 5 of the original Agreement, which
makes an equitable adjustment to the Contract Term and/or
Price to reflect any delays caused by CUC's failure to
act.
(This space intentionally left blank]
242
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Change
Order No.2 as of the date(s) set for the below.
Procurement and Supply
I hereby certify that to the best of my information and
belief this Change Order is in compliance with the CUC
Procurement Regulations, is for a public purpose, and does not
waste or abuse public funds.
/s/ Mariano DLG. Fajardo Date: 12/4/98
------------------------------ -----------------------
------------------------------ -----------------------
Mariano DLG. Fajardo
Manager, Procurement & Supply
Commonwealth Utilities Corporation Comptroller
I hereby certify that there are sufficient funds
available for the execution of this Change Order.
/s/ Yenny Tom Date: 12/3/98
------------------------------ ----------------------
------------------------------ ----------------------
Yenny Tom
Comptroller
Attorney General
I hereby certify that this Change Order has been
numbered, reviewed and approved as to form and legal capacity.
/s/ William J. Ohile for Maya B. Kara Date: 12/3/98
------------------------------------ -----------------------
------------------------------------ -----------------------
Maya B. Kara
Attorney General (Acting)
243
<PAGE>
Commonwealth Utilities Corporation
/s/ Timothy P. Villagomez Date: 12/3/98
------------------------- ----------------------------
------------------------- ----------------------------
Timothy P. Villagomez
Executive Director
/s/ Juan S. Dela Cruz Date: 12/3/98
-------------------------- ----------------------------
-------------------------- ----------------------------
Juan S. Dela Cruz
Chairman, Board of Directors
Commonwealth Development Authority
/s/ Juan S. Tenorio Date: 12/9/98
-------------------------- --------------------------
-------------------------- --------------------------
Juan S. Tenorio
Chairman, Board of Directors
Telesource CNMI, Inc.
On behalf of Telesource CNMI, Inc., I represent that I am
authorized to bind Telesource CNMI Inc. to the terms of this
Change Order, and by my signature I do so hereby accept for
Telesource, CNMI, Inc., and bind Telesource CNMI, Inc. to, the
terms of this Change Order. I further represent for Telesource
CNMI, Inc. that no person associated with Telesource CNMI, Inc.
has retained any person in violation of Section 6-205 of the CUC
Procurement Regulations.
/s/ Khajarour S. Semikian Date: 11/30/98
-------------------------- --------------------------
-------------------------- --------------------------
Khajadour S. Semikian
President
- --------------------------------------------------------------------------------
CERTIFICATION OF CONTRACT COMPLETION
I hereby certify that this contract bears all signatures
and is therefore complete.
/s/ Mariano DLG. Fajardo Date: 12/10/98
------------------------- -----------------------------
------------------------- -----------------------------
Mariano DLG. Fajardo
Manager, Procurement & Supply
244
<PAGE>
Exhibit 10.04
Kloberville Agreement
245
<PAGE>
COMMONWEALTH OF THE NORTHERN MARIANA ISLANDS
DEPARTMENT OF PUBLIC WORKS
Saipan, MP 96950
CONTRACT NO. NMHC KEP-9907-001
AGREEMENT and CONTRACT
for CONSTRUCTION
This Agreement and Contract is entered into between the
Commonwealth of the Northern Mariana Islands (the "Commonwealth"),
represented by the Contracting Officer, and TELESOURCE CNMI, INC., P.0.
Box PPP 402, Box 10000, Saipan. MP 96950 (the "Contractor") for the
construction of the KOBLERVILLE EXPANSION PROJECT (the "Project"). The
Commonwealth and the contractor agree as follows-- ARTICLE 1. THE
CONTRACTOR SHALL furnish all materials, labor, equipment, tools and
services necessary to perform in a workmanlike manner all work required
for the completion of the Project, as described in the Scope of Work and
in strict compliance with the Contract Documents, for the firm fixed price
of Six Million Three Hundred Ten US Dollars ($6,310,000.00).
(a)Payments to Contractor. The Commonwealth shall make progress
payments to the Contractor in accordance with the General Conditions. No
other payments will be made.
(b)Contract Time. The Contractor shall commence work on the date
stated in the written Notice to Proceed issued by the Contracting Officer,
and shall complete the Project ready for use within four hundred fifty
(450) calendar days of commencement, exclusive of any review time or
suspension time imposed by the government that delays the orderly
prosecution of the work.
(c)Subcontractors. The Contractor agrees to bind every
subcontractor by the terms of the Contract Documents. The Contract
Documents shall not be construed as creating any contractual relation
between any subcontractor and the Government. ARTICLE 2. LIQUIDATED
DAMAGES. The Contractor shall pay to the Commonwealth the sum of One
Thousand U.S. Dollars ($1000.00) Daily, not as a penalty but as reasonable
liquidated damages for breach of this Contract by the Contractor, by his
failing, neglecting or refusing to complete the work within the time
herein specified, and said sums shall be paid for each consecutive
calendar day that the Contractor shall be in default beyond the time
stipulated in the Contract for completing the work. ARTICLE 3. RECORDS.
The Contractor and subcontractors at all levels shall provide the Public
Auditor of the Commonwealth of the Northern Mariana Islands access to
examine and copy any records, data, or papers relevant to the Contract
until three (3) years have passed since the final payment under the
Contract. (Reference 1 CMC ss.7845.) ARTICLE 4. DEBARMENT AND SUSPENSION.
In addition to other causes set forth in the CNMI Procurement Regulations
ss.6-212(2), a breach of ethical standards under any of the following
sections of the CNMI Procurement Regulations can be cause for (i)
debarment or suspension of the Contractor and/or (ii) termination of the
Contractor for default.
Section 6-205 Gratuities and Kickbacks.
(I) Gratuities. It shall be a breach of ethical standards for any
person to offer, give or agree to give any employee or former
employee, or for any employee or former employee to solicit, demand,
accept, or agree to accept from another person, a gratuity
- --------------------------------------------------------------------------------
DPW ver 07.28.98 CONTRACT AND AGREEMENT PAGE 1 OF 5
246
<PAGE>
or an offer of employment in connection with any decision, approval,
disapproval, recommendation, preparation of any part of a program
requirement or a purchase request, influencing the content of any
specification or procurement standard, rendering of advice, investigation,
auditing or in any other advisory capacity in any proceeding or
application, request for ruling, determination, claim or controversy, or
other particular matter, pertaining to any program requirement or a
contract or subcontract or to any solicitation or proposal therefor. (2)
Kickbacks. It shall be a breach of ethical standards for any payment,
gratuity or offer of employment to be made by or on behalf of a
subcontractor under a contract to the prime contractor or higher tier
subcontractor or any person associated therewith as an inducement for the
award of a subcontract or order.
Section 6-206 Prohibition Against Contingent Fees.
(1) Contingent fees. It shall be a breach of ethical standards for a
person to be retained, or to retain a person, to solicit or secure
government contracts upon an agreement or understanding for a commission,
percentage, brokerage or contingent fee, except for retention of bona fide
employees or bona fide established commercial selling agencies for the
purpose of securing business. (2) Representation of contractor. Every
person, before being awarded a government contract, shall represent, in
writing that such person has not retained anyone in violation of this
section. Failure to do so constitutes a breach of ethical standards.
ARTICLE 5. CONTRACT DOCUMENTS. The following instruments (if checked)
constitute the Contract Documents, and collectively evidence and
constitute the Contract. ("Future Documents" will become Contract
Documents by operation of the Contract at a later date.)
- ----------------------------------- --------------------------------------------
Existing Documents Future Documents
- ----------------------------------- --------------------------------------------
- ----------------------------------- --------------------------------------------
X Agreement and Contract X Notice to Proceed
- ----------------------------------- --------------------------------------------
- ----------------------------------- --------------------------------------------
X Scope of Work Performance and Payment Bonds
- ----------------------------------- --------------------------------------------
- ----------------------------------- --------------------------------------------
X General Conditions
- ----------------------------------- --------------------------------------------
- ----------------------------------- --------------------------------------------
X Technical Specifications
- ----------------------------------- --------------------------------------------
- ----------------------------------- --------------------------------------------
X Contractor's Proposal
- ----------------------------------- --------------------------------------------
- ----------------------------------- --------------------------------------------
X Labor Standards Provisions
- ----------------------------------- --------------------------------------------
- ----------------------------------- --------------------------------------------
X Special Provisions
- ----------------------------------- --------------------------------------------
- ----------------------------------- --------------------------------------------
X Request for Proposals REP 98-07
- ----------------------------------- --------------------------------------------
- ----------------------------------- --------------------------------------------
Invitation for Bids
- ----------------------------------- --------------------------------------------
- ----------------------------------- --------------------------------------------
Minutes of Pre-award meetings X Contract management documents issued by
the Contracting Officer
- ----------------------------------- --------------------------------------------
- --------------------------------------------------------------------------------
DPW ver 07.28.98 CONTRACT AND AGREEMENT PAGE 2 OF 5
247
<PAGE>
ARTICLE 6. SIGNATURE REQUIREMENTS. No contract can be formed prior to the
approval of all required Government officials, as evidenced by the signature
affixed hereto, of each of them. The signature of the Contractor shall be the
last in time to be affixed hereto. The Contract shall become effective upon
the execution by all required signatories.
- --------------------------------------------------------------------------------
Contracting Officer for the Commonwealth
/s/ MaryLou S. Ada Date: July 27, 1999
----------------------------- -----------------------------
----------------------------- -----------------------------
MaryLou S. Ada
Executive Director, Northern Marianas Housing
Corporation
- ------------------------------------------------------------------------------
Expenditure Authority
I declare that I have complied with the construction procedures of the CNMI
Procurement Regulations in the procurement of this contract, that this contract
is for a public purpose, and that the contract docs not waste or abuse public
funds. I declare that I, personally, have the authority to obligate the
expenditure of funds for this contract. I declare under penalty of perjury that
the foregoing is true and correct and that this declaration was executed this
day on Saipan, Commonwealth of the Northern Marianas Islands.
/s/ Juan S. Tenorio Date: July 27, 1999
- ------------------------------ -----------------------------
- ------------------------------ -----------------------------
Juan S. Tenorio
Chairman of the Board, Northern Marianas Housing
Corporation
- --------------------------------------------------------------------------------
Procurement and Supply
I hereby certify that to the best of my information and belief this contract is
in compliance with the CNMI Procurement Regulations, is for a public purpose,
and docs not waste or abuse public funds.
/s/ Herman S. Sablan Date: July 27, 1999
- ------------------------------ -----------------------------
- ------------------------------ -----------------------------
Herman S. Sablan
Director of Procurement and Supply
Northern Marianas Housing Corporation Total $6,310,000.00
I hereby certify that there are sufficient funds available in Account Number
NMHC General Funds in the amount of ____________________ for the execution of
this contract.
s/ Jean Y. Aldan Date: July 29, 1999
----------------------------- -----------------------------
----------------------------- -----------------------------
Jean Y. Aldan
Chief Accountant, NMHC
A/C#11101 $1,220,000.00
#21600 $1,100,000.00
#11114 $315,000.00
#22200 $3,675,000.00
- ---------------------------------------------------------------------------
DPW ver 07.28.98 CONTRACT AND AGREEMENT PAGE 3 OF 5
248
<PAGE>
Attorney General
I hereby certify that this contract has been numbered, reviewed and approved as
to form and legal capacity.
/s/ Maya Kara Date: July 30, 1999 at 3:45PM
-------------------------- -----------------------------
-------------------------- -----------------------------
Maya Kara
Attorney General (Acting)
- --------------------------------------------------------------------------------
Governor
/s/ Jesus R. Sablan Date: August 3, 1999
--------------------------- -----------------------------
--------------------------- -----------------------------
Jesus R. Sablan, Acting
Govenor
- --------------------------------------------------------------------------------
Commonwealth of the Northern Mariana Islands
Contractor: Contractor's Name
On behalf of the Contractor, I represent that I am authorized to bind the
Contractor to the terms of this Contract, and by my signature I do so hereby
accept for the Contractor, and bind the Contractor to, the terms of this
Contract. I further represent for the Contractor that no person associated with
the Contractor has retained any person in violation of Section 6-205 of the CNMI
Procurement Regulations.
/s/ K. J. Semikian Date: August 13, 1999
--------------------------- -----------------------------
--------------------------- -----------------------------
K. J. Semikian
Title: President
- --------------------------------------------------------------------------------
Affiliation: Telesource CNMI, Inc.
Other Contractor Information: Telephone number: 322-4501
CERTIFICATION OF CONTRACT COMPLETION
I hereby certify that this contract bears all signatures and is therefore
complete.
/s/ Herman S. Sablan Date: August 13, 1999
--------------------------- -----------------------------
--------------------------- -----------------------------
Herman S. Sablan
Director of Procurement and Supply
- --------------------------------------------------------------------------------
END OF CONTRACT and AGGREMENT
- --------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
DPW ver 07.28.98 CONTRACT AND AGREEMENT PAGE 4 OF 5
249
<PAGE>
PROCUREMENT INFORMATION
For Government Use Only
Method of Procurement (Check one only)
Competitive Sealed Bids
X Competitive Sealed Proposals 7-27-99
Small Purchase
Sole Source
Emergency
Expedited
Type of Procurement (Check one only)
X Initial Procurement 7-27-99
Subsequent Procurement
Following Bid Protest
Government's Option
Replacement for Defaulted Contractor
Government contract numbers of all related contracts with the Vendor:
"NONE"
- --------------------------------------------------------------------------------
DPW ver 07.28.98 CONTRACT AND AGREEMENT PAGE 5 OF 5
250
<PAGE>
STATE OF )
)
ILLINOIS ) S.S.
)
- SPECIAL POWER OF ATTORNEY
Know all men by these presents, that I, KHAJADOUR SEMIKIAN,
the undersigned; of PPP 184 Box 10000, Garapan, Saipan MP 96950, do hereby make,
constitute, and appoint VICTOR BALIAN,whose address is PPP 184 Box 10000,
Garapan, Saipan MP 96950, my true and lawful attorney in fact for me and in my
name, place and stead and on my behalf, and for my use and benefit:
1. To enter into, execute and deliver any contract, proposal,
offer, agreement, loan document, lease, conveyance or any other instrument that
may be deemed to be necessary and proper for the conduct of business of
Telesource CNMI, Inc.
2. To make, receive, sign, indorse, execute, acknowledge, deliver, and
possess all checks, drafts, withdrawal receipts and deposit instruments relating
to accounts or deposits in, or certificates of deposit of, savings and loan or
other institutions or associations, and such other instruments in writing of
whatever kind and nature as may be necessary or proper to carry out the business
of Telesource CNMI, Inc
3. I grant to said attorney in fact full power and authority to do,
take and perform all and every act and thing whatsoever requisite, proper, or
necessary to be done, in the exercise of any of the rights and powers
hereingranted, as fully to all intents and purposes as I might or could do if
personally present, with full power of substitution or revocation, hereby
ratifying and confirming all that said attorney in fact, or his substitute or
substitutes, shall lawfully do or cause to be done by virtue of this power of
attorney and the rights and powers herein granted.
AND I HEREBY DECLARE that any act or thing lawfully done hereunder by
my said attorney shall be binding on myself and my heirs, and personal
representatives, and assigns.
FURTHER, this Special Power of Attorney shall remain in full force and
effect for three years from the date of its execution unless earlier rescinded
by me.
IN WITNESS WHEREOF, I have hereunto set my hand on the 4th day of
August 1999.
/s/ Khajadour Semikian
-------------------------------------
-------------------------------------
KHAJADOUR SEMIKIAN
SPECIMEN SIGNATURE
"OFFICAL SEAL"
/s/ Victor Balian Christina L. Xydis
- ---------------------------------------
- ---------------------------------------
VICTOR BALIAN Notary Public, State of Illinois
My Commission Expires 2-5-00
/s/ Christina L. Xydis
---------------------------------
---------------------------------
August 4, 1999
251
<PAGE>
General Conditions -- Construction Contract
Contents
- --------------------------------------------------------------------------------
Clause Page
1. ENTIRE AGREEMENT 3
2. CONTRACT NOT ASSIGNABLE 3
3. INDEPENDENT CONTRACTOR 3
4. NO WAIVER BY COMMONWEALTH 3
5. INTERPRETATION AMD VALIDITY 3
6. DEFINITIONS 4
7. AUTHORITIES AND LIMITATIONS 4
8. PAYMENT TO CONTRACTOR 5
9. ASSIGNMENT OF CLAIMS 6
10. STATUS OF ARCHITECTURAL/ENGINEERING DESIGNS AND DATA 6
11. ADDITIONAL REQUIREMENTS FOR "DESIGN-BUILD" PROJECTS 7
12. CONTRACT AND BONDS 8
13. CONSTRUCTION PROGRESS CHART 8
14. FEES AND CHARGES 8
15. CONTRACT TIME 8
16. LIQUIDATED DAMAGES 9
17. DISPUTES AND REMEDIES 9
18. SUSPENSION OF WORK 12
19. CHANGES 12
20. EQUITABLE ADJUSTMENT 14
21. TERMINATION FOR DEFAULT 16
22. TERMINATION FOR THE CONVENIENCE OF THE COMMONWEALTH 15
23. LIABILITY TO THIRD PERSONS; INDEMNIFICATION; INSURANCE 16
24. SUPERINTENDENCE BY CONTRACTOR 17
25. RIGHTS-OF-WAY 17
26. APPROPRIATENESS OF EQUIPMENT 18
27. LAWS TO BE OBSERVED 18
28. PERFORMANCE OF WORK BY CONTRACTOR 19
29. CONDITIONS AFFECTING THE WORK 19
30. SITE INVESTIGATION 20
31. DIFFERING SITE CONDITIONS 19
- --------------------------------------------------------------------------------
DPW Rev. 07.22.98 GENERAL CONDITIONS--CONSTRUCTION CONTRACT GC--l
252
<PAGE>
32. AS-BUILT DRAWINGS 20
33. SHOP DRAWINGS, COORDINATION DRAWINGS, AND SCHEDULES 20
34. SAMPLES 21
35. INSPECTION AND ACCEPTANCE 22
36. MATERIAL AND WORKMANSHIP 23
37. OTHER CONTRACTS 23
38. SUBCONTRACTS 24
39. COMMONWEALTH OCCUPANCY 24
40. GUARANTEES 24
41. MAINTENANCE OF TRAFFIC 25
42. PERMITS AND RESPONSIBILITIES 24
43. PROJECT SIGNS 24
44. SPECIFICATIONS AND DRAWINGS 24
45. STANDARD REFERENCES 25
46. STANDARD DETAILS 25
47. MEASUREMENTS 25
48. SURVEY MONUMENTS AND BENCH MARKS 26
49. PATENT INDEMNITY 26
50. CONVICT LABOR 26
51. EQUAL OPPORTUNITY 26
52. UTILIZATION OF SMALL BUSINESS CONCERNS 27
53. WORKING HOURS 27
54. SOCIAL SECURITY 27
55. ACCIDENT PREVENTION - PUBLIC SAFETY 28
56. DEBRIS AND CLEANING 28
57. SANITATION 28
58. PROTECTION OF EXISTING VEGETATION, STRUCTURES, UTILITIES, AND
IMPROVEMENTS 28
59. STORM PROTECTION 29
60. FAILURE TO FURNISH INFORMATION AND RECORDS 29
61. PERMISSION TO ENTER THE COMMONWEALTH OF THE NORTHERN
MARIANA ISLANDS 29
62. TRANSPORTATION AND LODGING EXPENSE 29
63. OFFICIALS NOT TO BENEFIT 30
- --------------------------------------------------------------------------------
DPW Rev. 07.22.98 GENERAL CONDITIONS--CONSTRUCTION CONTRACT GC--2
253
<PAGE>
General Conditions -- Construction Contract
1. ENTIRE AGREEMENT
(a) With respect to the subject matter of the Contract, the Contract, as
expressed in the Contract Documents, represents the entire agreement
between the Commonwealth and the Contractor, and supersedes all prior
agreements and understandings. No revision to the express terms of the
contract shall be implied, except as required by law.
2. CONTRACT NOT ASSIGNABLE
(a) The Contract and all of its covenants shall inure to the benefit of
and be binding respectively upon the Commonwealth and the Contractor and
its partners, successors, assigns and legal representatives. The
Contractor may not assign, transfer, encumber, or sublet its interest or
obligations under the Contract without written consent of the
Commonwealth. No mechanic, subcontractor, supplier, or other person shall
be permitted to contract for or in any other manner have or acquire any
lien upon the services covered by the Contract, or the construction to
which the services pertain, or the land upon which the construction is
situated.
3. INDEPENDENT CONTRACTOR
(a) For purposes of the application of Article 6, "Ethics in Public
Contracting" of the CNMI Procurement Regulations, the Contractor and its
employees, agents, subcontractors, and representatives shall be considered
employees of the Commonwealth government, as provided by ss. 1-201(8) of
the CNMI Procurement Regulations.
(b) Except as stated in the CNMI Procurement Regulations or authorized in
writing by the Contracting Officer and only under the terms so stated or
authorized, neither the Contractor nor its employees or subcontractors
shall act for, represent, or bind the Commonwealth in any capacity or
manner whatsoever, or be deemed or considered an employee, agent, or
representative of the Commonwealth, or be deemed to have any relationship
with the Commonwealth other than that of independent contractor.
4. NO WAIVER BY COMMONWEALTH
(a) The failure of the Commonwealth in any one or more instances to insist
upon strict performance of any of the items of the Contract, or to
exercise any option herein conferred, shall not be construed as a waiver
or relinquishment, to any extent, of the right to assert or rely upon any
such terms or options on any future occasion.
5. INTERPRETATION AND VALIDITY
(a) This contract shall be interpreted under the laws of the Commonwealth
of the Northern Mariana Islands. Where no local law is available to
resolve a particular issue, reference shall be had to U.S. federal
procurement law and cases similar to the matter in dispute, including the
Federal Acquisition Regulation and decisions interpreting it, as well as
scholarly treatises on U.S. federal procurement law.
(b) All provisions of this Contract shall, to the extent practical, be
interpreted to be consistent with the CNMI Procurement Regulations.
In the event of an unresolvable conflict between any provision of the
contract and the CNMI Procurement Regulations, the CNMI Procurement
Regulations shall govern the Contract.
- --------------------------------------------------------------------------------
DPW Rev. 07.22.98 GENERAL CONDITIONS--CONSTRUCTION CONTRACT GC-3
254
<PAGE>
(c) In the event of a conflict between any provision of the Contract and
Agreement document and these General Conditions, the Contract and
Agreement document shall govern the Contract.
(d) If the contract documents include a "Special Conditions" document,
that document shall be interpreted to supplement these General Conditions
and shall prevail in the event of a conflict.
(e) In the event the contract or the procurement action resulting in the
contract is found to be in violation of the CNMI Procurement Regulations,
then the Contract will not be valid under the laws of the Commonwealth of
the Northern Mariana Islands, and may be found to be legally voidable. The
Commonwealth will seek to have any liability asserted against it by a
contractor which directly results from improper acts of a government
employee to be determined judicially to be the individual liability of the
employee who committed the wrongful acts. (Reference CNMI Procurement
Regulations ss. ss. 1-107, 1-108.)
6. DEFINITIONS
(a) The term "Commonwealth" as used in all Contract Documents shall mean
the government of the Commonwealth of the Northern Mariana Islands.
(b) The term "Contracting Officer" as used in all Contract Documents shall
mean the person executing the Contract as Contracting Officer and includes
a duly appointed successor or authorized representative. If the Secretary
of Public Works executes the contract as Contracting Officer, the
Secretary may, from time to time, in writing, designate another individual
to be Contracting Officer.
7. AUTHORITIES AND LIMITATIONS
(a) All work under the Contract shall be performed under the general
direction of the Contracting Officer, who alone shall have the power to
bind the Commonwealth and to exercise the rights, responsibilities,
authorities and functions vested in him by the contract documents, except
that he shall have the right to designate authorized representatives to
act for him. The authorized representatives are responsible for guiding
the technical aspects of the project and for general surveillance of the
work performed. The authorized representatives shall not make any
commitments or authorize any changes which constitute work not within the
general scope of the Contract, change the expressed terms and conditions
hereof or specifications incorporated or included herein, or by any act or
omission authorize expressly or otherwise, a basis for any increase in the
contract price or time for performance. Whenever any provisions in the
Contract specify an individual (such as, but not limited to, Construction
Engineer, Inspector, or Custodian) or an organization (whether government
or private) to perform any act on behalf of, or in the interest of the
Commonwealth, that individual or organization shall be deemed to be the
Contracting Officer's authorized representative under the Contract but
only to the extent so specified. A copy of each document vesting authority
in an authorized representative or designating an additional authorized
representative shall be furnished to the Contractor.
(b) The Contractor shall perform the Contract in accordance with any order
(including but not limited to instruction, direction, interpretation or
determination issued by an authorized representative in accordance with
his authority to act for the Contracting Officer; but the Contractor
assumes all the risks and consequences of performing the contract in
accordance with any order (including but not limited to, instruction,
direction, interpretation, or determination) of anyone not authorized to
issue such order.
(c) The work of the Contractor is subject to inspection to insure strict
compliance with the terms of the Contract. No inspector is authorized to
change any provision of the specifications without the written authority
of the Contracting Officer, nor shall the presence or absence of an
inspector relieve the Contractor from any requirements of the work.
- -------------------------------------------------------------------------------
DPW Rev. 07.22.98 GENERAL CONDITIONS--CONSTRUCTION CONTRACT GC--4
255
<PAGE>
8. PAYMENTS TO THE CONTRACTOR
<PAGE>
(a) The Commonwealth will pay the contract price as provided in this
clause.
(b) The Commonwealth will make progress payments monthly as the work
proceeds or at more frequent intervals as determined by the Contracting
Officer, on estimates approved by the Contracting Officer.
(c) Before the first progress payment under the Contract becomes due, the
Contractor shall prepare a breakdown of the contract price acceptable to
the Contracting Officer showing the amount included therein for each
principal category of the work, in such detail as requested. The values in
the breakdown will be used to provide a basis for determining progress
payments. The Contractor's overhead, profit and cost of bonds shall be
prorated throughout the life of the contract.
(d) Except as may be otherwise provided in the Contract, the contract
price shall include all applicable Federal, Commonwealth of the Northern
Mariana Islands, and local taxes and duties.
(e) Estimates on which progress payments are based shall include the value
(as determined by the Contracting Officer) of satisfactory in place work
performed pursuant to change orders.
(f) Preparatory work done will not be taken into consideration in
preparing estimates upon which progress payments are based.
(g) The Contracting Officer, at his discretion, may authorize payments for
materials delivered and stored on the work site. The Contractor is fully
responsible for the materials delivered and stored by him.
(h) The Contractor, prior to receiving a progress or final payment under
the Contract, shall submit to the Contracting Officer a certification that
the Contractor has made payments from the proceeds of prior payments, or
that he will make timely payment from the proceeds of the progress
payments or final payment due him, to his workers, subcontractors, and
suppliers in accordance with the Contractor's contractual agreement with
them.
(i) In making each progress payment, there shall be retained ten percent
(10%) of the estimated amount until final completion and acceptance of the
contract work. However, if the Contracting Officer, at any time after
fifty percent (50%) of the work has been completed, finds that
satisfactory progress is being made, the Contracting Officer may authorize
any of the remaining progress payments be made in full with not retainage.
Also, whenever the work is substantially complete, the Contracting
Officer, if he considers the amount retained to be in excess of the amount
adequate for the protection of the Commonwealth, at his discretion, may
release to the Contractor all or a portion of such excess amount.
Furthermore, upon completion and acceptance of each separate building,
public work, or other division of the contract on which the price is
stated separately in the contract, payment may be made therefore without
retention of a percentage.
(j) All material and work covered by progress payments made shall
thereupon become the sole property of the Commonwealth, but this provision
shall not be construed as relieving the Contractor from the sole
responsibility for all material and work upon which the payments have been
made or the restoration of any damaged work, or as waiving the right of
the Commonwealth to require the fulfillment of all of the terms of the
contract.
(k) Upon completion and acceptance of all work, the amount due the
Contractor under the Contract shall be paid upon the presentation of a
properly executed voucher and after the Contractor shall have furnished
the Commonwealth with a written release of all claims against the
Commonwealth arising by virtue of the Contract, other than claims stated
in amounts as may be specifically excepted by the Contractor from the
operation of the release. If the Contractor's claim to amounts payable
under the Contract has been assigned under the "Assignment of Claims"
clause, a release may also be required of the assignee.
- -------------------------------------------------------------------------------
DPW Rev. 07.22.98 GENERAL CONDITIONS--CONSTRUCTION CONTRACT GC-5
256
<PAGE>
(a) If the Contract provides for payments aggregating One Thousand Dollars
(US$1,000.00) or more, claims for monies due or to become due the
Contractor from the Commonwealth under the Contract may be assigned to a
bank, trust company or other financing institution, including any U.S.
federal lending agency, and may thereafter be further assigned or
reassigned to any such institution. Any such assignment or reassignment
shall cover all amounts payable under the Contract and not already paid,
and shall not be made to more than one party, except that any such
assignment or reassignment may be made to one party as agent or trustee
for two or more parties participating in such financing.
(b) In no event shall copies of the Contract Documents or of any drawings,
specifications, or other similar documents relating to work under the
Contract, if marked "Secret", "Top Secret" or "Confidential", be furnished
to any assignee, nor may any part of all the Contract so marked be
disclosed to such assignee without the prior written authorization of the
Contracting Officer.
10. STATUS OF ARCHITECTURAL/ENGINEERING DESIGNS AND DATA
(a) Confidential Information. All information contained in any
architectural/engineering design studies, reports, and drawings and all
parts thereof, submitted to the Commonwealth pursuant to the Contract, are
to be treated as strictly confidential and for official use of the
Commonwealth only. The Contractor shall take all reasonable steps to
unsure that no member of its staff or organization shall divulge any
information concerning the studies, reports and drawings except to a duly
authorized representative of the Commonwealth, without prior written
permission of the Commonwealth. This confidential restriction shall apply
for five (5) years after completion of the work under the Contract.
The foregoing does not apply to any information falling into any of the
following categories: (i) Information which at the time of disclosure
is or thereafter becomes within the public domain other than by
reason of Contractor's breach of the Contract. (ii) Information which
prior to disclosure hereunder was already in the Contractor's
possession without violation of any secrecy obligation to the
Commonwealth either directly or indirectly. (iii) Information which
subsequent to disclosure hereunder is obtained by the Contractor from
a third party who is lawfully in possession of such information and
which information is not subject to the secrecy obligation to the
Commonwealth or to others. (iv) Information which is developed by the
Contractor independently of its work under the Contract.
(b) Commonwealth Rights. The Commonwealth shall have unlimited rights, for
the benefit of the Commonwealth, to the architectural/engineering work
product of the Contractor created pursuant to the Contract, including all
drawings, specifications, architectural/engineering designs, notes, and
other architectural/engineering work developed in the performance of the
Contract, including the right to use some or all of the
architectural/engineering work product on any other Commonwealth work
without additional cost to the Commonwealth. The Commonwealth shall have
and enjoy a royalty-free license to all architectural/engineering work
product which the Contractor may cover by copyright and to all engineering
and architectural designs as to which the Contractor may assert any rights
to or establish any claim under the design patent or copyright laws. The
Contractor shall submit to the Commonwealth all original copies of
reports, completed drawings, notes, and other documents developed in the
performance of the Contract after completion and acceptance of the work.
- --------------------------------------------------------------------------------
DPW Rev. 07.22.98 GENERAL CONDITIONS--CONSTRUCTION CONTRACT GC--6
257
<PAGE>
11. ADDITIONAL REQUIREMENTS FOR "DESIGN-BUILD" PROJECTS.
(a)Applicability of Provisions. This clause shall apply in design-build
projects to the extent the provisions herein are not expressly covered or
contradicted by the Contract and Agreement or Scope of Work documents.
(b) Site Visits and Conference. The Contractor shall, if necessary, visit
the project site and shall hold conferences with representatives of the
Commonwealth and take such other action as may be necessary to obtain the
data required to accomplish the Project.
(c) Preliminary Sketches. Preliminary sketches shall include studies,
reports, and plans, elevations and sections developed to the extent as
will clearly indicate the proposed planning and a reasonable estimate of
the cost. Preliminary sketches, along with an estimate of the cost of the
project shown on the sketches, shall be submitted for the approval of the
Contracting Officer. The Contractor shall change the preliminary sketches
or reports for the Project to the extent necessary to meet the
requirements of the Commonwealth, and after review and approval by the
Contracting Officer, the Contractor shall furnish necessary prints of the
approved preliminary sketches and reports to the Contracting Officer.
(d) Final Drawings and Specifications. After preliminary sketches and
estimates have been approved, the Contractor shall proceed with the
preparation of reports, drawings, and specifications as required by the
Contracting Officer in connection with the Project. Reports, drawings,
specifications, and estimates shall be delivered to the Contracting
Officer in such sequence and at such times as required by the Contracting
Officer. Following review by the Contracting Officer, the Contractor shall
make such corrections as are required to obtain the Contracting Officer's
approval, and shall submit prints of the final reports, drawings, and
specifications.
(e) Deficiencies in the Work. The Contractor shall be responsible for the
professional quality, technical accuracy and coordination of all services
furnished by the Contractor under the Contract. The Contractor shall,
without additional compensation, correct or revise any errors or
deficiencies in the work, including both the design and the construction
of the Project.
(f) Work to be Continuous. Unless directed otherwise by the Contracting
Officer, work on the Project shall not be suspended during periods of
design review by the Contracting Officer.
12. CONTRACT AND BONDS
(a) If the Contractor fails to satisfactorily execute the required forms
of contract, performance bond, and payment bond, within the time
established in the Instruction To Bidders, the Commonwealth may proceed to
have the required work performed by contract or otherwise, and the
Contractor shall be liable for any excess cost to the Commonwealth and the
Contractor's bid guarantee shall be available toward off-setting such
excess cost.
13. CONSTRUCTION PROGRESS CHART
(a) Within ten (10) days after receipt of the Notice to Proceed, the
Contractor shall prepare and submit to the Contracting Officer for
approval six (6) copies of a practicable progress chart. The chart shall
show the principal categories of work corresponding with those used in the
breakdown on which progress payments are based, the order in which the
Contractor proposes to carry on the work, the date on which it will start
each of the categories of work, and the contemplated date for completing
the same. If the Project includes a design component that is the
responsibility of the Contractor, the progress chart shall include
provisions for the design and review elements specified in the Scope of
Work document and in the "Additional Requirements for Design-Build
Projects"
- -------------------------------------------------------------------------------
DPW Rev. 07.22.98 GENERAL CONDITIONS--CONSTRUCTION CONTRACT GC--7
258
<PAGE>
clause. The chart shall be in suitable scale to indicate graphically the
total percentage of work scheduled to be in place at any time. At the end
of each progress payment period, or at such intervals as directed by the
Contracting Officer, the Contractor shall: (1) adjust the chart to reflect
any changes in the contract work, completion time, or both, as approved by
the Contracting Officer; (2) enter on the chart the total percentage of
work actually in place; and (3) submit three copies of the adjusted chart
to the Contracting Officer.
(b) If, in the opinion of the Contracting Officer, work actually in place
falls behind that scheduled, the Contractor shall take such action as
necessary to improve his progress. In addition, the Contracting Officer
may require the Contractor to submit a revised chart demonstrating his
program and proposed plan to make up a lag in schedule progress and to
ensure completion of work within the contract time. If the Contracting
Officer finds the proposed plan not acceptable, he may require the
Contractor to increase the work force, the construction plan or equipment,
or the number of work shifts without additional cost to the Commonwealth.
(c) Failure of the Contractor to comply with these requirements shall be
considered grounds for determination by the Contracting Officer that the
Contractor is failing to prosecute the work with such diligence as will
ensure its completion within the time specified.
14. FEES AND CHARGES
(a) The Contractor shall pay all fees and charges pertaining to temporary
connection to utilities for construction. The Contractor will apply for
permanent utility connections with the assistance of the Commonwealth. The
Commonwealth will pay all fees and charges regarding permanent utility
connections. The Contractor shall pay all charges for the use of property
outside of the work site.
15. CONTRACT TIME (a) The Contractor shall perform fully, entirely, and in a
satisfactory and acceptable manner the work contracted, within the number
of calendar days set forth in the contract documents, which number
(adjusted by the exclusions and extensions described below, and by any
applicable amendments, addenda, or change order to the Contract) shall be
the "contract time". Time will be assessed against the Contractor beginning
with the date of the Notice to Proceed. All strikes, lockouts, unusual
delays in transportation, or any condition over which the Contractor has no
control, and also any suspensions ordered by the Contracting Officer for
causes not the fault of the Contractor, shall be excluded from the
computation of the contract time. If the satisfactory execution and
completion of the contract shall require work or materials in greater
amounts or quantities than those set forth in the original contract, then
the contract time shall be extended in the same proportion as the cost of
the additional work bears to the original work contracted for. No
allowances will be made for delays or suspensions of the prosecution of the
work due to the fault of the Contractor. In order to secure an extension of
time for delays beyond his control, the Contractor shall within ten (10)
days from the beginning of any such delay, notify the Contracting Officer
in writing of the causes of delay, whereupon the Contracting Officer will
ascertain the facts and the extent of the delay and extend the contract
time when, in his judgement, the findings of fact justify such an
extension, and his findings of fact thereon shall be final and conclusive.
(b) In design-build projects that require periods of time for government
review of design elements submitted by the Contractor, the government
review time will not be added to the total time for contract completion
unless such review so disrupts the orderly prosecution of the work by the
Contractor that normal progress is materially impeded, or the Contracting
Officer orders the work suspended pending review. The Contracting Officer
shall, by written order, adjust the contract time in an equitable fashion
to account, if necessary, for delay resulting from government review time.
- --------------------------------------------------------------------------------
DPW Rev. 07.22.98 GENERAL CONDITIONS--CONSTRUCTION CONTRACT GC--8
259
<PAGE>
16. LIQUIDATED DAMAGES
(a) The amount per day of liquidated damages, as referred to in these
General Conditions, is the sum stated as "Liquidated Damages" in the
Contract and Agreement document, or, if no amount is stated in the
Contract and Agreement, then in any document in the bid package, or, if no
amount is stated in these documents, then in the Proposal, if any. In the
event no amount for liquidated damages may be determined from the
application of the first sentence of this paragraph, then the daily amount
of liquidated damages shall be the greater of (i) one hundred dollars
($100), or (ii) two percent (2%) of the contract price divided by the
number of calendar days of the contract time, the contract time and
contract price being determined at the time of the assessment of
liquidated damages. This amount is considered to be liquidated damages to
reimburse the Commonwealth for loss and damages suffered by the
Commonwealth and is in no case a penalty. (b) In the event the Contractor
shall fail fully to perform and complete the work in conformity with the
Contract within the contract time, the Contractor shall pay to the
Commonwealth for each and every day of the additional time in excess of
the contract time liquidated damages as specified in paragraph (a) of this
clause. (c) Liquidated damages may also be assessed against the Contractor
under other provisions of the Contract, and shall be determined in
accordance with paragraph (a) of this clause. (d) The Commonwealth may
recover the amount of liquidated damages by deducting the amount thereof
out of any monies which may be due or become due the Contractor under the
Contract or under any other existing or future contract between the
Commonwealth and the Contractor, or by an action at law against the
Contractor or his surety, or by any or all of these methods.
17. DISPUTES AND REMEDIES
(a) Notwithstanding any other provision of the Contract, before the
contractor may bring any action law equity relating to any dispute
relating to the Contract, including but not limited to claims for wrongful
termination or breach, the Contractor must first submit the dispute to
administrative resolution and appeal as provided by this clause.
(b) Any dispute between the Commonwealth and the Contractor relating to
the performance, interpretation of, or compensation due under the
Contract, must be filed in writing with the Director of Procurement and
Supply and with the Secretary of Public Works within ten calendar days
after the Contractor obtains knowledge of the facts surrounding the
dispute.
(c) The Secretary of Public Works will attempt to resolve the dispute by
mutual agreement. If the dispute cannot be settled, either the Contractor
or the Contracting Officer may request a decision on the dispute from the
Director of Procurement & Supply. The Director shall review the facts
pertinent to the dispute, secure necessary legal assistance and prepare a
decision that shall include:
(i) Description of the dispute;
(ii) Reference to pertinent contract terms;
(iii) Statement of the factual areas of disagreement or agreement;
and
(iv) Statement of the decision as to the factual areas of
disagreement and conclusion of the dispute with any supporting
rationale.
(d) The Director of Procurement and Supply may require a hearing or that
information be submitted on the record, in his discretion.
(e) Whenever the Contractor has a dispute pending before the Secretary of
Public Works or the Director of Procurement and Supply, the Contractor
must continue to perform according to the
- --------------------------------------------------------------------------------
DPW Rev. 07.22.98 GENERAL CONDITIONS--CONSTRUCTION CONTRACT GC--9
260
<PAGE>
terms of the contract, and failure to so continue shall be deemed to be a
material breach of the contract unless the Contractor obtains a waiver of
this provision by the Secretary of Public Works.
(f) Paragraphs (b) through (e) are derived from ss.5-20 1 of the CNMI
Procurement Regulations, and shall be interpreted so as not to be in
conflict with the CNMI Procurement Regulations. If an officer of the
Commonwealth other than the Secretary of Public Works executes the
Contract and Agreement as "expenditure authority", then that officer shall
be substituted for "Secretary of Public Works" in paragraphs (b) through
(e).
(g) Disputes arising out of the Labor Standards Provisions of this
Contract (if any) shall be subject to this clause, except, to the extent
such disputes involve classifications or wage rates contained in the CNMI
Title and Pay Plan, which questions shall be referred to the Contracting
Officer. (h) Nothing in this clause shall serve to limit any remedies at
law or equity available to the Commonwealth.
18. SUSPENSION OF WORK
(a) The Contracting Officer may order the Contractor in writing to
suspend, delay, or interrupt all or any part of the work for such period
of time as he may determine to be appropriate for the convenience of the
Commonwealth, including, but not limited to suspensions for unfavorable
weather or other essential conditions, failure on the part of the
Contractor to prosecute properly the work in accordance with the contract,
or failure of the Contractor to carry out orders or to remove defective
materials or work.
(b) In the event of a suspension of work by the Contracting Officer under
paragraph (a), for any reason over which the Contractor has or had no
control, the contractor may be reimbursed for actual money expended on the
job during the period of suspension. No allowance will be made for
anticipated profits. The period of suspension shall be computed from the
date set out in written order for work to cease until the date of the
order for work to resume. Claims for such compensation shall be filed with
the Contracting Officer within 10 days after the date of the order to
resume work, or such claim will not be considered. The Contractor shall
submit with its claim substantiating papers covering the entire amount
shown on the claim. The Contracting Officer shall take the claim under
consideration, and may make such investigations as are deemed necessary,
and shall be the sole judge as to the equitability of such claim and such
decision shall be final.
(c) If the performance of all or any part of the work, for an unreasonable
period of time, is suspended, delayed, or interrupted by an act of the
Contracting Officer in the administration of the Contract, or by his
failure to act within the time specified in the Contract (or if no time is
specified, within a reasonable time), an adjustment shall be made for any
increase in the cost of performance of the Contract (excluding anticipated
profit) necessarily caused by such unreasonable suspension, delay, or
interruption, and the contract shall be modified in writing accordingly.
However, no adjustment shall be made under this clause for any suspension,
delay, or interruption to the extent: (1) that performance would have been
so suspended, delayed, or interrupted by any other cause, including the
fault or negligence of the Contractor; or (2) for which an equitable
adjustment is provided for or excluded under any other provision of the
Contract.
(d) No claim under paragraph (c) shall be allowed: (1) for any costs
incurred more than twenty (20) days before the Contractor shall have
notified the Contracting Officer in writing of the act or failure to act
involved (but this requirement shall not apply as to a claim resulting
from a suspension order); and (2) unless the claim, in an amount stated,
is asserted in writing as soon as practicable after the termination of
such suspension, delay, or interruption, but not later than the date of
final payment under the contract.
- --------------------------------------------------------------------------------
DPW Rev. 07.22.98 GENERAL CONDITIONS--CONSTRUCTION CONTRACT GC--l0
261
<PAGE>
(e) The Contractor shall not suspend the work without written approval by
the Contracting Officer, and prior to resuming work shall give the
Contracting Officer forty-eight (48) hours notice to afford opportunity to
re-establish inspection. (f) No provision of this clause shall be
construed as entitling the Contractor to compensation for delays due to
inclement weather, delays due to failure for surety, for suspensions made
at the request of the Contractor, or for any other delay provided for in
the contract documents, including all amendments, addenda, and change
orders.
19. CHANGES
(a) The Contracting Officer may, at any time and without notice to the
sureties, by written order designated or indicated to be a change order,
make any change in the work within the general scope of the contract,
including but not limited to changes in:
(i) The specifications (including drawings and designs); (ii) The
method or manner of performance of the work;
(iii) The Commonwealth-furnished facilities, equipment, materials,
services, or site; or
(iv) The directing of acceleration in performance of the work.
(b) Any other written order or an order (which terms as used in this
paragraph shall include direction, instruction, interpretation, or
determination) from the Contracting Officer, which causes any such change,
shall be treated as a change order under this clause, provided that the
Contractor gives the Contracting Officer written notice stating the date,
circumstances, and source of the order and that the Contractor regards the
order as a change order.
(c) Except as herein provided, no order, statement, or conduct of the
Contracting Officer shall be treated as a change under this clause or
entitle the Contractor to an equitable adjustment hereunder.
(d) If any change under this clause causes an increase or decrease in the
Contractor's cost of, or the time required for, the performance of any
part of the work under the Contract, whether or not changed by any order,
an equitable adjustment shall be made and the contract modified in writing
accordingly; provided, however, that except for claims based on defective
specifications, no claim for any change under (b) above shall be allowed
for any costs incurred more than twenty (20) days before the Contractor
gives written notice as therein required: and provided further, that in
the case of defective specifications for which the Commonwealth is
responsible, the equitable adjustment shall include any increased cost
reasonably incurred by the Contractor in attempting to comply with such
defective specifications.
(e) If the Contractor intends to assert a claim for an equitable
adjustment under this clause, he must, within thirty (30) days after
receipt of a written change order under paragraph (a) of this clause, or
the furnishing of a written notice under paragraph (b) of this clause,
submit to the Contracting Officer a written statement setting forth the
general nature and monetary extent of such claim, unless this period is
extended by the Contracting Officer. The statement of claim hereunder may
be included in the notice under paragraph (b) of this clause.
(f) No claim by the Contractor for an equitable adjustment under this
clause shall be allowed if asserted after final payment under this
contract.
(g) Additional performance and payment bond protection shall be furnished
by the Contractor in connection with any modification affecting an
increase in the price under the Contract if:
(i) The modification is for new or additional work which is
beyond the scope of the existing contract; or
- --------------------------------------------------------------------------------
DPW Rev. 07.22.98 GENERAL CONDITIONS--CONSTRUCTION CONTRACT GC--11
262
<PAGE>
(ii) The modification is pursuant to an existing provision of the Contract
and increases the contract price by $5000 or twenty five percent
(25%) of the basic contract price whichever is less.
20. EQUITABLE ADJUSTMENT
(a) The Contractor's written statement of the monetary extent of a claim
for equitable adjustment shall be submitted in the form of a lump sum
proposal (unless otherwise requested by the Contracting Officer) with an
itemized breakdown of all increases or decreases in the cost of the
Contractor's and all subcontractors' work, in at least the following
detail:
(i) Material quantities and unit costs,
(ii) Labor costs (identified with specific item of material to be
placed or operation to be performed), (iii) Workmen's Compensation
and Public Liability Insurance overhead, and - (iv) Employment taxes
under FICA, FUTA, and CNMI Social Security System.
- (b) The percentage for overhead, profit, and commission shall be
negotiated and may vary according to the nature, extent, and complexity of
the work involved, but in no case shall exceed fifteen percent (15%) of
the estimated cost of the work, and shall be considered to include, but is
not limited to, insurance other than that mentioned in this clause, bonds,
use of small tools, incidental job burdens, and general office expense. No
percentages for overhead, profit or commission, will be allowed on
employment taxes under FICA, FUTA, and CNMI Social Security System.
(c) The Contractor shall submit with the proposal, any request for time
extension related to the claim for equitable adjustment.
(d) In considering a proposal, the Contracting Officer will make check
estimates in detail, utilizing unit prices where specified or agreed upon,
with a view to arriving at an equitable adjustment.
(e) After receipt of a proposal with a detailed breakdown, the Contracting
Officer shall act promptly thereon. Provided, however, that when the
necessity to proceed with a change does not allow sufficient time to
properly check a proposal, or in the event of failure to reach an
agreement on a proposal, the Contracting Officer may order the Contractor
to proceed on the basis of price to be determined at the earliest
practicable date but not to be more than the increase or less than the
decrease proposed.
(f) Except in unusual cases where neither the Contractor nor the
Commonwealth can ascertain the full extent of the work which will be
required pursuant to a change until the work involved therein has been
substantially completed, final agreement on a proposal shall be effected
no later than the time when the work involved is estimated by the
Contracting Officer to be 50% complete; in the event final agreement
cannot be reached by that time, the Contracting Officer shall issue a
unilateral determination as to the equitable adjustment of the contract
price and the time required for performance.
21. TERMINATION FOR DEFAULT
(a) If the Contractor refuses or fails to prosecute the work, or any
separable part thereof, with such diligence as will ensure its completion
within the contract time, or fails to complete said work within the
contract time, the Commonwealth may, by written notice to the Contractor
from the Contracting Officer, terminate the Contractor's right to proceed
with the work or such part of the work as to which there has been delay,
after providing ten day's written notice and an opportunity to the
Contractor to show cause why such action should not be taken. In the event
of a termination
- --------------------------------------------------------------------------------
DPW Rev. 07.22.98 GENERAL CONDITIONS--CONSTRUCTION CONTRACT GC--12
263
<PAGE>
for default under this clause, the Commonwealth may take over the work and
prosecute the same to completion, by contract or otherwise, and may take
possession of and utilize in completing the work such materials,
appliances, and plans as may be on the site of the work and necessary
therefor. Whether or not the Contractor's right to proceed with the work
is terminated, the Contractor and his sureties shall be liable for any
damage to the Commonwealth resulting from the Contractor's refusal or
failure to complete the work within the contract time. (b) The
Contractor's right to proceed shall not be so terminated nor the
Contractor charged with resulting damage if:
(i) The delay in the completion of the work arises from unforeseeable
causes beyond the control and without the fault or negligence of the
Contractor, including but not restricted to acts of nature, acts of
the public enemy, acts of the Commonwealth in either its sovereign or
contractual capacity, acts of another contractor in the performance
of a contract with the Commonwealth, fires, floods, epidemics,
quarantine restrictions, strikes, freight embargoes, unusually severe
weather, or delays of subcontractors or suppliers of any tier arising
from unforeseeable causes beyond the control and without the fault or
negligence of both the Contractor and such subcontractors or
suppliers; and (ii) The Contractor, within ten (10) days from the
beginning of any such delay (unless the Contracting Officer grants a
further period of time before the date of final payment under the
contract), notify the Contracting Officer in writing of the cause of
delay. The Contracting Officer shall ascertain the facts and the
extent of the delay and extend the time for completing the work when,
in his judgement, the findings of fact justify such an extension and
his findings shall be final, subject only to appeal as provided in
the "Disputes and Remedies" clause.
(c) If the Commonwealth terminates the Contractor's right to proceed under
paragraph (a), the resulting damage will consist of liquidated damages
until such reasonable time as may be required for final completion of the
work, together with any increased costs occasioned the Commonwealth in
completing the work.
(d) If the Contractor is in default under paragraph (a), but the
Commonwealth does not terminate the Contractor's right to proceed, the
resulting damage will consist of applicable liquidated damages until the
work is completed or accepted.
(e) The Contractor shall be in default of the Contract, and the
Contracting Officer may immediately and without other notice, terminate
the Contractor's right to proceed with the Contract through written notice
to the Contractor of default termination, upon a determination by the
Contracting Officer that, related to this particular contract, any of the
following has occurred--
(i) The Contractor has committed any breach of ethical standards as
defined in the Contract Documents, the CNMI Procurement Regulations,
or other applicable law. (ii) The Contractor has participated in any
violation of the rules or regulations in the CNMI Procurement
Regulations to the disadvantage of the Commonwealth. (iii) The
Contractor has colluded with other potential awardees of the Contract
or with government employees to the disadvantage of the Commonwealth.
(iv) The Contractor knowingly requests and/or receives payment to
which it is not entitled under the specific terms of the Contract.
(v) The Contractor accepts payment with knowledge that government
employees or officials authorizing the payment have not complied with
the terms of the Contract or applicable law.
(f) If, after notice of termination of the contractor's right to proceed
under any-of the provisions of this clause, it is subsequently determined
by the Contracting Officer (or, upon review of the Contracting Officer's
decision, by an authorized administrative or judicial body) that the
Contractor
- --------------------------------------------------------------------------------
DPW Rev. 07.22.98 GENERAL CONDITIONS--CONSTRUCTION CONTRACT GC--l3
264
<PAGE>
was not in default under the provisions of this clause, or that the delay
was excusable under the provisions of this clause, then the rights and
obligations of the parties shall be the same as if the notice of
termination had been issued pursuant to the "Termination for the
Convenience of the Commonwealth" clause. This paragraph shall provide the
exclusive remedy for a wrongful termination for default.
(g) Any disagreement of the Contractor to any action taken by the
Commonwealth under this clause shall be a dispute within the meaning of
the "Disputes and Remedies" clause.
(h) The rights and remedies of the Commonwealth provided in this clause
are in addition to any other rights and remedies provided by law or under
the Contract.
22. TERMINATION FOR THE CONVENIENCE OF THE COMMONWEALTH
(a) Termination. The Contracting Officer may, when the interests of the
Commonwealth so require, terminate this contract in whole or in part, for
the convenience of the Commonwealth. The Contracting Officer shall give
written notice of the termination to the Contractor specifying the part of
the contract terminated and when the termination becomes effective.
(b) Contractor's Obligations. The Contractor shall incur no further
obligations in connection with the terminated work and, on the date set in
the notice of termination, the Contractor will stop work to the extent
specified. The Contractor shall also terminate outstanding orders and
subcontracts as they relate to the terminated work. The Contractor shall
settle the liabilities and claims arising out of the termination of
subcontracts and orders connected with the terminated work. The
Contracting Officer may direct the Contractor to assign the Contractor's
right, title, and interest under terminated orders or subcontracts to the
Commonwealth. The Contractor must still complete the work not terminated
by the notice of termination and incur obligations as are necessary to do
so.
(c) Right to Supplies. The Contracting Officer may require the Contractor
to transfer title and deliver to the Commonwealth in the manner and to the
extent directed by the Director of Procurement and Supply:
(i) Any completed supplies; and
(ii) Such partially completed supplies and materials, parts, tools,
dies, jigs, fixtures, plans, drawings, information, and contract
rights (hereinafter called "manufacturing material") as the
Contractor has specifically produced or specially acquired for the
performance of the terminated part of the Contract.
(d) The Contractor shall, upon direction of the Contracting Officer,
protect and preserve property in the possession of the Contractor in which
the Commonwealth has an interest. If the Contracting Officer does not
exercise the right specified in paragraph (c) , the Contractor shall use
his best efforts to sell such supplies and manufacturing materials in
accordance with the standards of the Uniform Commercial Code of the
Northern Mariana Islands, 5 CMC ss. 2706. Utilization of this procedure in
no way implies that the Commonwealth has breached the contract by exercise
of the "Termination For Convenience of the Commonwealth" clause.
(e) Compensation. The Contractor shall submit to the Contracting Officer a
termination claim specifying the amount due because of the Termination For
Convenience together with cost and pricing data to the extent required. If
the Contractor fails to file a termination claim within one (1) year from
the effective date of the termination, the Contracting Officer may pay the
Contractor, if at all, an amount set in accordance with paragraph (g).
(f) The Contracting Officer and the Contractor may agree to a settlement
provided the Contractor has filed a termination claim and that the
settlement does not exceed the total contract price plus settlement costs
reduced by payments previously made by the Commonwealth, the proceeds of
any
- ------------------------------------------------------------------------------
DPW Rev. 07.22.98 GENERAL CONDITIONS--CONSTRUCTION CONTRACT GC-14
265
<PAGE>
sales and supplies and manufacturing materials under paragraph (d), and
the contract price of the work not terminated.
(g) Absent complete agreement under paragraph (f), the Contracting Officer
shall pay the Contractor the following amounts, provided payments agreed
to under paragraph (f) shall not duplicate payments under this paragraph:
(i) contract prices for supplies or services accepted under the
contract. (ii) costs incurred in preparing to perform and performing
the terminated portion of the work plus a fair and reasonable profit
on such portion of the work (such profit shall not include
anticipatory profit or consequential damages) less amounts paid or to
be paid for accepted supplies or services; provided, however, that if
it appears that the Contractor would have sustained a loss if
completed, no profit shall be allowed or included and the amount of
compensation shall be reduced to reflect the anticipated rate of
loss. (iii) cost of settling and paying claims arising out of
termination of subcontracts or orders pursuant to paragraph (b).
These costs must not include cost paid in accordance with
subparagraph (g)(ii). (iv) the reasonable settlement costs of the
Contractor including accounting, legal, clerical, and other expenses
reasonably necessary for the preparation of settlement claims and
supporting data with respect to the terminated portion of the
contract for the termination and settlement of the contracts
thereunder, together with reasonable storage, transportation, and
other costs incurred in connection with the protection or disposition
of property allocable to the terminated portion of the Contract. The
total sum to be paid the Contractor under this subparagraph shall not
exceed the total contract price plus reasonable settlement costs of
the Contractor reduced by the amount of payments otherwise made from
the proceeds of any sales of supplies and manufacturing materials
under paragraph (d), and the contract price of work not terminated.
23. LIABILITY TO THIRD PERSONS; INDEMNIFICATION; INSURANCE
(a) The Contractor shall be liable for the torts and wrongful acts of its
employees and staff members, and shall carry insurance necessary for the
protection of its employees and staff members during the life of the
Contract, and shall indemnify and hold harmless the Commonwealth from any
and all claims, demands, suits, and causes of action whatsoever involving
third parties arising out of or connected with the negligent performance
of the Contract.
(b) The Contractor and his subcontractors shall procure and thereafter
maintain workmen s compensation, general liability, builder's risk, and
comprehensive automobile liability (bodily damage) insurance, with respect
to performance under the Contract; provided, that the Contractor may, with
approval of the Contracting Officer, maintain a self-insurance program.
All insurance required pursuant to the provisions of this paragraph shall
be in such form, in such amounts, and for such periods of time, as the
Contracting Officer may, from time to time, require or approve, and with
insurers approved by the Contracting Officer.
(c) Workmen's Compensation Insurance: The Contractor's employees engaged
in any work under the Contract shall be afforded the same coverage as that
which is extended to the employees of the Commonwealth of the Commonwealth
of the Northern Mariana Islands.
(d) Comprehensive General Liability Insurance: Coverage shall have the
following minimum amounts: Personal injury, $100,000.00 each person, and
$300,000.00 each occurrence; Property damage, $50,000.00 each occurrence,
and $100,000.00 aggregate.
(e) Builder's Risk (fire and extended coverage): The Contractor shall
carry Builder's Risk (fire and extended coverage) Insurance on all work in
place and materials stored at the work site, including
- ----------------------------------------------------------------------------
DPW Rev. 07.22.98 GENERAL CONDITIONS--CONSTRUCTION CONTRACT GC--15
266
<PAGE>
foundations and building equipment. The Builder's Risk Insurance shall be
for the benefit of the Contractor and the Commonwealth of the Northern
Mariana Islands as their interests may appear and each shall be named in
the policy or policies as an assured. Builder's Risk insurance need not be
carried on excavations, piers, footings, or foundations until such time as
work on the super structure is started and it need not be carried on
landscape work. Policies shall be in effect at all times for the full cash
value of all completed construction work, as well as materials in place and
stored at the site, whether or not partial payment has been made by the
Commonwealth of the Northern Mariana Islands. The Contractor may terminate
this insurance on building(s) taken over for occupancy by the Commonwealth
of the Northern Mariana Islands as of the date said building(s) is
accepted.
(f) Comprehensive Automobile Liability Insurance: Coverage of this
insurance for all owned, non-owned and hired vehicles shall have the
following minimum amounts: Personal injury, $100,000.00 each person, and
$300,000.00 each occurrence; Property damage, $50,000.00.
(g) The comprehensive general and automobile liability policies shall
contain a provision worded as follows:
"The insurance company waives any right of subrogation against the
Government of the Commonwealth of the Northern Mariana Islands which
may arise by reason of any payment under this policy".
(h) Prior to commencement of work under the Contract, the Contractor shall
furnish to the Contracting Officer a certificate or written statement of
the above required insurance. The policies evidencing required insurance
shall contain an endorsement to the effect that cancellation or any
material change in the policies adversely affecting the interests of the
Commonwealth in such insurance shall not be effective until 30 days after
the Contracting Officer has received written notice from the insurer, as
evidenced by return receipt of registered or certified letter.
24. SUPERINTENDENCE BY CONTRACTOR
(a) The Contractor shall give his personal superintendence to the work or
have a competent foreman or superintendent, satisfactory to the
Contracting Officer, on the work at all times during progress, with
authority to act for him. (b) The Contractor shall employ such
superintendent, foreman and workmen as are careful and competent, and the
Contracting Officer may demand the dismissal of any person employed by the
Contractor in, about, or upon the work who shall engage in misconduct or
be incompetent or negligent in the proper performance of duties, or
neglects or refuses to comply with the directions given, and such person
shall not be employed again thereon without the written consent of the
Contracting Officer. Should the Contractor continue to employ, or again
employ any person for whom the Contracting Officer has demanded dismissal
under this clause, the Contracting Officer may withhold all payments,
which are or may become due, or the Contracting Officer may suspend the
work until such orders are complied with.
25. RIGHTS-OF-WAY
(a) The Commonwealth will furnish all lands, easements, and rights-of-way
required for completion of the work. In acquiring easements or
rights-of-way the Government will proceed as expeditiously as possible,
but in the event all rights-of-way or easements are not acquired prior to
the beginning of construction, the Contractor shall begin work on such
lands and rights-of-way as have been acquired. No claim for damage will be
allowed by reason of the Commonwealth's delay in obtaining lands,
easements, or rights-of-way. In the event of litigation or other delays in
- -----------------------------------------------------------------------------
DPW Rev. 07.22.98 GENERAL CONDITIONS--CONSTRUCTION CONTRACT GC--16
267
<PAGE>
acquiring rights-of-way, the time allowed herein for completion of the
work will be extended to compensate the Contractor for time actually lost
by such delay.
26. APPROPRIATENESS OF EQUIPMENT
(a) The Contractor shall furnish such equipment as is considered necessary
for the prosecution of the work in an acceptable manner and at a
satisfactory rate of progress. All equipment, tools, and machinery used
for handling materials and executing any part of the work shall be subject
to the approval of the Contracting Officer and shall be maintained in a
satisfactory working condition. Equipment used on any portion of the work
shall be such that no injury to the work, roadways, adjacent property, or
other objects will result from its use. The contract may be terminated if
the Contractor fails to provide adequate and proper equipment for the
work.
27. LAWS TO BE OBSERVED
(a) The Contractor is assumed to be familiar with all federal and local
laws, codes, ordinances, and regulations which, in any manner, affect
those engaged or employed in the work or the material or equipment used in
or upon the site, or in any way affect the conduct of the work. No pleas
of misunderstanding or ignorance on the part of the Contractor will, in
any way, serve to modify the provisions of the contract.
(b) The Contractor, at all times, shall observe and comply with all
Federal and local laws, codes, ordinances, and regulations in any manner
affecting the conduct of the work, and the Contractor and his surety shall
indemnify and save harmless the Commonwealth and all its officers, agents
and servants any claim or liability arising from or based on the violation
of any such law, code, ordinance, regulation, order, or decree, whether by
himself or his employees.
(c) The Contractor shall be responsible for reporting to the Commonwealth
Historical Preservation Office for verification and determination any
discovery encountered during execution of this contract bearing
archaeological, cultural, or historical content.
28. PERFORMANCE OF WORK BY CONTRACTOR
(a) The Contractor shall perform on the site and with his own
organization, work equivalent to at least twelve percent (12%) of the
total amount of work to be performed under the contract. If, during the
progress of the work hereunder, the Contractor requests a reduction in
such percentage and the Contracting Officer determines that it would be to
the advantage of the Commonwealth, the percentage of the work required to
be performed by the Contractor may be reduced with the written approval of
the Contracting Officer.
29. CONDITIONS AFFECTING THE WORK
(a) The Contractor shall be responsible for having taken steps reasonably
necessary to ascertain the nature and location of the work, and the
general and local conditions which can affect the work or the cost
thereof. Any failure by the Contractor to do so will not relieve him from
responsibility for successfully performing the work without additional
expense to the Commonwealth. The Commonwealth assumes no responsibility
for any understanding or presentations concerning conditions made by any
of its officers or agents prior to the execution of the Contract, unless
so stated in the contract.
(b) The Contractor shall request assistance from appropriate Commonwealth
authorities to indicate the actual locations of existing utilities to
preclude damage during construction.
- --------------------------------------------------------------------------------
DPW Rev. 07.22.98 GENERAL CONDITIONS--CONSTRUCTION CONTRACT GC--17
268
<PAGE>
(c) The Contractor shall inquire about construction requirements from the
Technical Services Division, Department of Public Works prior to beginning
work on the project.
30. SITE INVESTIGATION
(a) The Contractor acknowledges that he has investigated and satisfied
himself as to the conditions affecting the work, including but not
restricted to those bearing upon transportation, disposal, handling and
storage of materials, availability of labor, water, electric power, roads
and uncertainties of weather, river stages, tides, or similar physical
conditions at the site, the conformations and conditions of the ground,
the character of equipment and facilities needed preliminary to and during
prosecution of the work. The Contractor further acknowledges that he has
satisfied himself as to the character, quality and quantity of surface and
subsurface materials or obstacles to be encountered insofar as this
information is reasonably ascertainable from an inspection of the site,
including all exploratory work done by the Commonwealth, as well as from
information presented by the drawings and specifications made as part of
this contract. Any failure by the Contractor to acquaint himself with the
available information will not relieve him from responsibility for
estimating properly the difficulty or cost of successfully performing the
work. The Commonwealth assumes no responsibility for any conclusions or
interpretations made by the Contractor on the basis of the information
made available by the Commonwealth.
31. DIFFERING SITE CONDITIONS
(a) The Contractor shall promptly, and before such conditions are
disturbed, notify the Contracting Officer in writing of:
(i) Subsurface or latent physical conditions at the site differing
materially from those indicated in the Contract, or; (ii) Unknown
physical conditions at the site, of an unusual nature, differing
materially from those ordinarily encountered, and generally
recognized as hindering work of the character provided for in the
Contract.
(b) The Contracting Officer shall promptly investigate the conditions, and
if he finds that such conditions do materially so differ and cause an
increase or decrease in the Contractor's cost of, or the time required for
performance of, any part of the work under the Contract, whether or not
changed as a result of such conditions, an equitable adjustment shall be
made and the contract modified in writing accordingly.
(c) No claim by the Contractor under this clause shall be allowed unless
the Contractor has given notice required in (a) above; provided, however,
the time prescribed therefore may be extended by the Commonwealth.
(d) No claim by the Contractor for an equitable adjustment hereunder shall
be allowed if asserted after final payment under this contract.
(e) The contractor shall submit all claims for equitable adjustment in
accordance with, and subject to the requirements and limitations set out
in paragraph (a) of the "Equitable Adjustment" clause.
(f) Upon written request by the Contracting Officer, the Contractor shall
submit a proposal, in accordance with the requirements and limitations set
out in paragraph (a) of the "Equitable Adjustment" clause, for work
involving contemplated changes covered by the request, within the time
limit indicated in the request or any extension of such limit as may be
subsequently granted. If, within a reasonable time after receipt of such a
proposal, the Contracting Officer orders the Contractor to proceed with
the performance of the work contemplated, the proposal submitted prior
- --------------------------------------------------------------------------------
DPW Rev. 07.22.98 GENERAL CONDITIONS--CONSTRUCTION CONTRACT GC--18
269
<PAGE>
to the order shall constitute the Contractor's statement of the monetary
extent of claim for equitable adjustment.
32. AS-BUILT DRAWINGS
(a) Upon completion of the work to be performed under the Contract, and
before final payment is made, the Contractor shall furnish the
Commonwealth with two complete sets of "as-built" drawings. These sets
shall include "marked up" prints of the contract drawings and such
additional drawings as may be necessary to reflect the complete "as-built"
work accomplished under the Contract. The "as-built" drawings shall be
initiated at the beginning of the work and shall be maintained and kept
current by the Contractor on the job site as the work progresses and until
final completion and acceptance by the Commonwealth. Markings shall be
accomplished in red and shall be complete and legible to assure that the
information presented is readily usable. The "as-built" drawings submitted
by the Contractor will be subject to review and approval of the
Contracting Officer.
33. SHOP DRAWINGS, COORDINATION DRAWINGS, AND SCHEDULES
(a) The Contractor shall submit shop drawings, coordination drawings, and
schedules for approval as required by the specifications or requested by
the Contracting Officer as follows:
(i) Shop drawings shall include fabrication, erection and setting
drawings, schedule drawings, manufacturer's scale drawings, wiring
and control diagrams, cuts or entire catalogs, pamphlets, descriptive
literature, and performance and test data. (ii) Drawings and
schedules, other than catalogs, pamphlets and similar printed
material, shall be submitted in reproducible form with two prints
made by a process approved by the Contracting Officer. Upon approval,
the reproducible form will be returned to the Contractor, who shall
then furnish the number of additional prints, not to exceed 10,
required by the Contracting Officer.
(b) The Contractor shall submit shop drawings in catalog, pamphlet and
similar printed form in a minimum of four copies plus as many additional
copies as the Contractor may desire or need for his use or use by his
subcontractors.
(c) Before submitting shop drawings on the mechanical and electrical work,
the Contractor shall submit and obtain the Contracting Officer's approval
of such lists of mechanical and electrical equipment and materials as may
be required by the specifications.
(d) The Contractor shall check the drawings and schedules, shall
coordinate them (by means of coordination drawings wherever required by
the Contracting Officer) with the work of all trades involved before
submission and shall indicate thereon his approval. Drawings and schedules
submitted without evidence of the Contractor's approval may be returned
for resubmission.
(e) Each shop drawing or coordination drawing shall have a blank area 5" x
5", located adjacent to the title block. The title block shall display the
following:
(i) Number and title of drawing,
(ii) Date of drawing or revision,
(iii) Name of project building or facility,
(iv) Name of Contractor and (if appropriate) name of subcontractor submitting
the drawing, (v) Clear identity of contents and location of work, and (vi)
Project title and contract number.
- --------------------------------------------------------------------------------
DPW Rev. 07.22.98 GENERAL CONDITIONS--CONSTRUCTION CONTRACT GC--19
270
<PAGE>
(f) Unless otherwise provided in this contract or otherwise directed by
the Contracting Officer, shop drawings, coordination drawings, and
schedules shall be submitted to the Contracting Officer sufficiently in
advance of construction requirements to permit no less than 10 working
days for checking and appropriate action.
(g) Except as otherwise provided in paragraph (h), approval of drawings
and schedules will be general and shall not be construed as:
(i) Permitting any departure from the contract requirements; (ii)
Relieving the Contractor of the responsibility for any errors
including details, dimensions, materials, etc.; or (iii) Approving
departures from full-size details furnished by the Contracting
Officer.
(h) If drawings or schedules show variations from the contract
requirements because of standard shop practice or for other reasons, the
Contractor shall describe such variations in his letter of transmittal. If
acceptable, the Contracting Officer may approve any or all such variations
and issue an appropriate change order. If the Contractor fails to describe
such variations, he shall not be relieved of the responsibility for
executing the work in accordance with the contract, even though such
drawings or schedules may have been approved.
34. SAMPLES
(a) After award of the contract, the Contractor shall furnish, for the
approval of the Contracting Officer, samples required by the
specifications or by the Contracting Officer. Samples shall be delivered
to the Contracting Officer or to the Architect/Engineer as specified or
directed by the Contracting Officer. The Contractor shall prepay all
shipping charges on samples. Materials or equipment for which samples are
required shall not be used in the work unless approved in writing by the
Contracting Officer.
(b) Each sample shall have a label indicating the following:
(i) Name of project building or facility,
(ii) Project title and contract number,
(iii) Name of Contractor and (if appropriate) the name of the
subcontractor, (iv) Identification of material or equipment with
specification requirement, (v) Place of origin, (vi) Name of sample
producer and brand (if any), and (vii) Samples of finished materials
shall be identified with the finished schedule requirements.
(c) The Contractor shall mail (under separate cover) a letter submitting
each sample shipment and the label information required in paragraph (b).
He shall enclose a copy of the letter with the sample shipment and send a
copy of the letter to the Commonwealth representative on the project site.
Approval of the sample shall be only for the characteristics of use named
in such approval and shall not be construed to change or modify any
contract requirement. Substitutions will not be permitted unless they are
approved in writing by the Contracting Officer.
(d) Approved samples not destroyed in testing will be sent to the
Commonwealth representative at the project site. Approved samples of
hardware in good condition will be marked for identification and may be
used in the work. Materials and equipment incorporated in the work shall
match the approved samples. Other samples not destroyed in testing or not
approved will be returned to the Contractor at his expense if so requested
at the time of submission.
- --------------------------------------------------------------------------------
DPW Rev. 07.22.98 GENERAL CONDITIONS--CONSTRUCTION CONTRACT GC--20
271
<PAGE>
(e) Failure of any material to pass the specified test will be sufficient
cause for refusal to consider, under the Contract, any further samples of
the same brand or make of the material. The Commonwealth reserves the
right to disapprove any material or equipment which previously has proven
unsatisfactory in service.
(f) Samples of various materials or equipment delivered on the site or in
place may be taken by the Commonwealth representative for testing. Samples
failing to meet contract requirements will automatically void previous
approvals of the item tested. The Contractor shall replace such materials
or equipment found not to have met contract requirements, or there shall
be adjustment of the contract price as determined by the Contracting
Officer.
(g) Unless otherwise specified, when tests are required, only one test of
each sample proposed for use will be made at the expense of the
Commonwealth. Samples which do not meet specification requirements will be
rejected. Testing of additional samples will be made by the Commonwealth
at the expense of the Contractor.
35. INSPECTION AND ACCEPTANCE
(a) Except as otherwise provided in the Contract, inspection and test by
the Commonwealth of material and workmanship required by the Contract
shall be made at reasonable times and at the site of the work, unless the
Contracting Officer determines that such inspection or test of material
which is to be incorporated in the work shall be made at the place of
production, manufacture, or shipment of such material. To the extent
specified by the Contracting Officer, at the time of determining to make
off-site inspection or test, such inspection or test shall be conclusive
as to whether the material involved conforms to the contract requirements.
Such off-site inspection or test shall not relieve the Contractor of
responsibility for damage to or loss of the material prior to acceptance,
nor in any way affect the continuing rights of the Commonwealth after
acceptance of the completed work under the terms of paragraph (f) of this
clause, except as provided in this paragraph.
(b) The Contractor shall, without charge, replace any materials or correct
any workmanship found by the Commonwealth not to conform to the contract
requirements unless, in the public interest, the Commonwealth consents to
accept such material or workmanship with an appropriate adjustment in
contract price. The Contractor shall promptly segregate and remove
rejected material from the premises.
(c) If the Contractor does not promptly replace such material or correct
such workmanship, the Commonwealth may: (1) by contract or otherwise,
replace such material or correct such workmanship and charge the cost
thereof to the Contractor; or (2) terminate the Contractor's right to
proceed in accordance with the "Disputes and Remedies" clause.
(d) The Contractor shall furnish promptly, without additional charge, all
facilities, labor and material reasonably needed for performing the safe
and convenient inspection and test as may be required by the Contracting
Officer. All inspection and testing by the Commonwealth shall be performed
in such manner so as to not delay the work unnecessarily. Special, full
size, and performance tests shall be performed as described in the
Contract. The Contractor shall be charged with any additional cost of
inspection when material and workmanship are not ready at the time
specified by the Contractor for its inspection.
(e) Should it be considered necessary or advisable by the Commonwealth, at
any time before acceptance of the entire work, to make an examination of
work already completed, by removing or tearing out same, the Contractor
shall, on request, promptly furnish all necessary facilities, labor, and
material. If such work is found to be defective or nonconforming in any
material respect, due to the fault of the Contractor or his
subcontractors, he shall defray all the expenses of such examination and
of satisfactory reconstruction. If, however, such work is found to meet
the requirements
- --------------------------------------------------------------------------------
DPW Rev. 07.22.98 GENERAL CONDITIONS--CONSTRUCTION CONTRACT GC--21
272
<PAGE>
of the contract, an equitable adjustment shall be made in the contract
price to compensate the Contractor for the additional services involved in
such examination and reconstruction and, if completion of the work has
been delayed thereby, he shall, in addition, be granted a suitable
extension of time.
(f) Unless otherwise provided in the Contract, acceptance by the
Commonwealth shall be made as promptly as practicable after completion and
inspection of all work required by the Contract. Acceptance shall be final
and conclusive except as regards latent defects, fraud, or such gross
mistakes as may amount to fraud, or as regards the Commonwealth's right
under any warranty or guarantee.
(g) The Contractor shall give the Contracting Officer at least 10 days
advance written notice of the date the work will be fully complete and
ready for final inspection and tests will be started within 10 days from
the date specified in the aforesaid notice unless the Contracting Officer
determines that the work is not ready for final inspection and so informs
the Contractor.
(h) The Contractor shall submit to the Contracting Officer, in writing, a
letter request for a prefinal inspection not less than 72 hours (3 days)
prior to the date of the requested inspection. The Contractor should
provide a copy of this letter to the Director, Technical Services
Division, with a date stamp mark affixed by the Contracting Officer's
office.
36. MATERIAL AND WORKMANSHIP
(a) Unless otherwise specifically provided in the Contract, all equipment,
material, and articles incorporated in the work covered by the Contract
are to be new and of the most suitable grade for the purpose intended.
Unless otherwise specially provided in the Contract, reference to any
equipment, material, article, or patented process, by trade name, make or
catalog number, shall not be construed as limiting competition, and the
Contractor may, at his option, use any equipment, material, article or
process which, in the judgment of the Contracting Officer, is equal to
that named. The Contractor shall furnish to the Contracting Officer for
his approval the name of the manufacturer, the model number, and other
identifying data and information respecting the performance, capacity,
nature, and rating of the machinery and mechanical and other equipment
which the Contractor contemplates incorporating in the work. When so
directed, samples shall be submitted for approval at the Contractor's
expense, with all shipping charges prepaid. Machinery, equipment,
material, and articles installed or used without required approval shall
be at the risk of subsequent rejection.
(b) All work under the Contract shall be performed in a skillful and
workmanlike manner. The Contracting Officer may, in writing, require the
Contractor to remove from the work any employee the Contracting Officer
deems incompetent, careless, or otherwise objectionable.
37. OTHER CONTRACTS
(a) The Commonwealth may undertake or award other contracts for additional
work, and the Contractor shall fully cooperate with such other contractors
and Commonwealth employees and carefully fit his own work to such
additional work as may be directed by the Contracting Officer. The
Contractor shall not commit or permit any act which will interfere with
the performance of work by any other Contractor, or with the performance
of work by any Commonwealth employee.
38. SUBCONTRACTS
(a) Nothing contained in this contract shall be construed as creating any
contractual relationship between any subcontractor and the Commonwealth.
The divisions or sections of the specifications
- --------------------------------------------------------------------------------
DPW Rev. 07.22.98 GENERAL CONDITIONS--CONSTRUCTION CONTRACT GC--22
273
<PAGE>
are not intended to direct the Contractor in dividing the work among
subcontractors, or to limit the work performed by any trade.
(b) Within ten (10) days after award of any subcontract by either the
Contractor or any of his subcontractors, the Contractor shall deliver to
the Contracting Officer a statement setting forth the name and address of
the subcontractor and a summary description of the work subcontracted.
(c) The Contractor shall be responsible to the Commonwealth for acts and
omissions of his own employees and of subcontractors and their employees.
He shall also be responsible for the coordination of the work of the
trades, subcontractors, and suppliers.
(d) The Commonwealth will not undertake to settle any differences between
or among the contractor, subcontractors, and suppliers.
39. COMMONWEALTH OCCUPANCY
(a) The Contracting Officer reserves the right of partial occupancy or use
of facilities, services, and utilities, prior to final acceptance, without
implying compliance or acceptance of any part of the project by the
Commonwealth. Prior to such occupancy or use, the Contracting Officer
shall furnish the Contractor with an itemized list of work remaining to be
performed or corrected.
(b) Costs incurred as a result of such partial occupancy or use of
facilities, services and utilities are subject to equitable adjustment
under the provisions of the "Changes" and the "Equitable Adjustment"
clauses.
(c) Necessary restoration and repair of damage resulting from partial
occupancy or use shall not be at the expense of the Contractor.
40. GUARANTEES
(a) Unless otherwise provided in the specifications, the Contractor
guarantees all mechanical and electrical work to be in accordance with the
contract requirements and free from defective and inferior materials,
equipment, and workmanship for one year after the final acceptance date
the equipment or work was placed in use by the Commonwealth.
(b) If, within any guarantee period, the Contracting Officer finds that
guarantee work needs to be repaired or changed because of the use of
materials, equipment, or workmanship which, in his opinion, are inferior,
defective, or not in accordance with the terms of the contract, he shall
so inform the Contractor in writing and the Contractor shall promptly and
without additional expense to the Commonwealth:
(i) Place in satisfactory condition all of such guaranteed work; (ii)
Satisfactorily correct all damage to equipment, the site, the
building or contents therein, which is the result of unsatisfactory
guaranteed work; and (iii) Satisfactorily correct any work, material,
or equipment that is disturbed in fulfilling the guarantee, including
any disturbed work, materials and equipment that may have been
guaranteed under another contract.
c) Should the Contractor fail to proceed promptly in accordance with the
guarantee, the Commonwealth may have such work performed at the expense of
the Contractor.
(d) Any special guarantees that may be required under the contract shall
be subject to the stipulations set forth above, insofar as they do not
conflict with the provisions of such special guarantees.
- --------------------------------------------------------------------------------
DPW Rev. 07.22.98 GENERAL CONDITIONS--CONSTRUCTION CONTRACT GC--23
274
<PAGE>
(e) The Contractor shall obtain each transferable guarantee or warranty of
equipment, material, and installation thereof which is furnished by any
manufacturer, supplier or installer in the ordinary course of the
manufacturer's, supplier's, or installer's business or trade. In addition,
the Contractor shall obtain and furnish to the Commonwealth all
information which is required in order to make any such guarantee or
warranty to the Commonwealth in sufficient time to permit the Commonwealth
to meet any time limit requirement specified in the guarantee or warranty
or, if no time limit is specified, prior to completion and acceptance of
all work under the Contract.
(f) This clause is not intended to limit any rights that the Commonwealth
may have as provided elsewhere in the Contract, or by law.
41. MAINTENANCE OF TRAFFIC
(a) Unless the contract specifically provides for the closing of any local
road or highway to traffic while construction is in progress, all roads or
highways shall be kept open to all traffic by the Contractor. The
Contractor shall also provide and maintain in a safe condition, temporary
approaches, crossings, and intersections with roads and highways. The
Contractor shall bear all expenses for maintaining traffic over the
section of road affected by work to be done under the Contract, and for
constructing and maintaining such approaches, crossings, intersections and
any accessory features without additional compensation, except as
otherwise provided in the Contract.
42. PERMITS AND RESPONSIBILITIES
(a) Unless otherwise agreed, the Contractor shall, without additional
expense to the Commonwealth, be responsible for obtaining all necessary
licenses and permits and for complying with all applicable Federal,
Commonwealth of the Northern Mariana Islands, and municipal codes and
regulations in connection with prosecution of the work. The Contractor
shall take proper safety and health precautions to protect the work, the
workers, the public, and the property of others. The Contractor shall be
responsible for all materials delivered and work performed until
completion and acceptance of the entire construction work, except for any
completed unit of construction thereof which therefore has been accepted.
43. PROJECT SIGNS
(a) The Contractor shall provide, place, and maintain a project sign at
each site where construction operations are underway. Each sign shall be
placed as directed by the Contracting Officer. Each sign shall be 4'-0" by
8'-0" in size, be made of 3/4" marine plywood (or approved equal). The
signs shall state thereon the name of the owner, job number, job title,
Contractor, Contracting Agency, and Design Consultant. All wording and
type, and size of lettering shall be approved by the Contracting Officer.
Upon completion of the work the signs shall become the property of the
Contractor and shall be removed from the sites.
44. SPECIFICATIONS AND DRAWINGS
(a) The Contractor shall keep on the work site a copy of the drawings and
specifications and shall at all times give the Contracting Officer access
thereto. Anything mentioned in the specifications and not shown on the
drawings, or shown on the drawings and not mentioned in the specifications
shall be of like effect as if shown or mentioned in both. In case of
difference between drawings and specifications, the specifications shall
govern. In case of discrepancy either in the figures, on the drawings, or
in the specifications, the matter shall be promptly submitted to the
Contracting Officer, who shall promptly make a determination in writing.
Any adjustment by the Contractor without such determination shall be at
his own risk and expense. The Contracting Officer shall furnish from
- -------------------------------------------------------------------------------
DPW Rev. 07.22.98 GENERAL CONDITIONS--CONSTRUCTION CONTRACT GC--24
275
<PAGE>
time to time such detail drawings and other information as he may consider
necessary, unless otherwise provided.
(b) In case of difference between small and large scale drawings, the
large scale drawings shall govern. Schedules on any contract drawing shall
take precedence over conflicting information on that or any other contract
drawing. On any of the drawings where a portion of the work is detailed or
drawn out and the remainder is shown in outline, the parts detailed or
drawn out shall apply also to all other like portions of the work.
(c) Where the word "similar" occurs on the drawings, it shall have a
general meaning and not be interpreted as being identical, and all details
shall be worked out in relation to their location and their connection
with other parts of the work.
45. STANDARD REFERENCES
(a) All documents and publications (such as, but not limited to,
handbooks, codes, standards, and specifications) which are cited in the
Contract for the purpose of establishing requirements applicable to
equipment, materials, or workmanship under the Contract, shall be deemed
to be incorporated herein as fully as if printed and bound with the
specifications of the Contract, in accordance with the following:
(b) Wherever reference is made to Interim Federal Specifications, Interim
Amendments to Federal Specifications, Interim Federal Standards, the
Contractor shall comply with the requirement set out in the issue or
edition identified in the Contract except as modified or as otherwise
provided in the specifications of the Contract. (c) Wherever reference is
made to any document other than those specified in paragraph 45(b) above,
the Contractor shall comply with the requirements set out in the edition
specified in the Contract, or, if not specified, the latest edition or
revision thereof, as well as the latest amendment or supplement thereto,
in effect on the date of the Invitation for Bids on this project, except
as modified by, as otherwise provided in, or as limited to type, class or
grade by the specifications of the Contract.
(d) Federal Specifications and Federal Standards may be obtained from the
Commonwealth Printing Office, Washington, D.C. 20420. Inquiries regarding
"Commercial Standards", "Products Standards", and "Simplified Practice
Recommendations" should be addressed to the Office of Product Standards,
National Bureau of Standards, Washington, D.C. 20234. Publications of
associations referred to in the specifications may be obtained directly
from the associations.
(e) Upon request, the Contractor shall make available at the job site
within a reasonable time, a copy of each trade manual and standard which
is incorporated by reference in the Contract and which governs quality and
workmanship.
46. STANDARD DETAILS
(a) Standard Details are applicable when listed, bound with the
specifications, noted on the drawings or referenced elsewhere in the
specifications. Where the notes on the drawings indicate modifications,
such modifications shall govern.
47. MEASUREMENTS
(a) All dimensions shown on existing work and all dimensions required for
work that is to connect with work now in place shall be verified by the
Contractor by actual measurement of the existing work. Any discrepancies
between the contract requirements and the existing conditions shall be
referred to the Contracting Officer before any work affected thereby has
been performed.
- -------------------------------------------------------------------------------
DPW Rev. 07.22.98 GENERAL CONDITIONS--CONSTRUCTION CONTRACT GC--25
276
<PAGE>
48. SURVEY MONUMENTS AND BENCH MARKS
(a) The Commonwealth has established, or will establish, such general
reference points as will enable the Contractor to proceed with work under
the Contract. The Contractor will provide new monuments, where shown or
specified. If the Contractor finds that any previously established
reference points have been destroyed or displaced, or that none have been
established, he shall promptly notify the Contracting Officer.
(b) The Contractor shall protect and preserve established bench marks and
monuments and shall make no changes in locations without written approval
of the Contracting Officer. Established reference points which may be
lost, covered, destroyed, or disturbed in the course of performance of the
work under the Contract or which require shifting because of necessary
changes in grades or locations shall, subject to prior approval of the
Contracting Officer, be replaced and accurately located (as appropriate)
at the Contractor's expense by a CNIVII licensed land surveyor.
(c) The Contractor shall verify the figures shown on the survey and site
plan before undertaking any construction work and shall be responsible for
the accuracy of the finished work.
49. PATENT INDEMNITY
(a) Except as otherwise provided, the Contractor agrees to indemnify the
Commonwealth and its offices, agents, and employees against liability,
including costs and expenses, for infringement upon any Letters Patent of
the United States and /or foreign country (except Letters Patent issued
upon an application which is now or may hereinafter be, for reasons of
national security, ordered by the Commonwealth to be kept secret or
otherwise withheld from issue) arising out of the performance of the
Contract or out of the use or disposal by or for the account of the
Commonwealth of supplies furnished or construction work performed
hereunder.
50. CONVICT LABOR
(a) In connection with the performance of work under the Contract, the
Contractor agrees not to employ any person undergoing sentence of
imprisonment at hard labor.
51. EQUAL OPPORTUNITY
(a) During the performance of the Contract-
(i) The Contractor will not discriminate against any employee or
applicant for employment because of race, color, religion, sex or
national origin. The Contractor will take affirmative action to
ensure that applicants are employed, and that employees are treated
during employment without regard to their race, color, religion, sex
or national origin. Such action shall include, but not be limited to
the following layoff or termination; rates of pay or other forms of
compensation; and selection for training, including apprenticeship.
The Contractor agrees to post in conspicuous places, available to
employees and applicants for employment, notices setting forth the
provisions of this nondiscrimination clause.
(ii) The Contractor will in all solicitations or advertisements for
employees placed by or on behalf of the Contractor, state that all
qualified applicants will receive consideration for employment
without regard to race, color, religion, sex, or national origin.
(iii) The Contractor will send to each labor union or representative
of workers with which he has a collective bargaining agreement for
the Contract, a notice, to be provided by the Contracting Officer,
advising the labor union or worker's representative of the
Contractor's commitments under this clause, and shall post copies of
the notice in conspicuous places available to employees and
applicants for employment.
- --------------------------------------------------------------------------------
DPW Rev. 07.22.98 GENERAL CONDITIONS--CONSTRUCTION CONTRACT GC--26
277
<PAGE>
(iv) The Contractor will comply with all provisions of Executive
Order No. 11246 of September 28, 1965, as amended, and of the rules,
regulations, and relevant orders of the President's Committee on
Equal Employment Opportunity created thereby.
(v) The Contractor will furnish all information and reports required
by Executive Order No. 11246 of September 28, 1965, as amended, and
by the rules, regulations and orders of the said President's
Committee, or pursuant thereto, and will permit access to his books,
records, and accounts by the Contracting Officer and the Committee
for purposes of investigation to ascertain compliance with such
rules, regulations, and orders.
(b) In the event of the Contractor's noncompliance with paragraph (a), the
Contract may be summarily cancelled, terminated for default, or
indefinitely suspended in whole or in part, and the Contractor may be
declared ineligible for further Commonwealth contracts, in accordance with
the applicable procedures in the Contract and the CNMI Procurement
Regulations
(c) The Contractor will include the provisions of paragraph (a) in every
subcontract or purchase order unless exempted by rules, regulations, or
orders of the President's Committee on Equal Employment Opportunity issued
pursuant to Section 303 of Executive Order No. 11246 of September 28,
1965, as amended, so that such action with respect to any subcontractor
purchase order as the contracting agency may direct as a means of
enforcing such provisions including sanctions for noncompliance. Provided,
however, that in the event the Contractor becomes involved in, or is
threatened with, litigation with a subcontractor or vendor as a result of
such direction by the contracting agency, the Contractor may request the
Commonwealth to enter into such litigation to protect the interests of the
Commonwealth.
52. UTILIZATION OF SMALL BUSINESS CONCERNS
(a) It is the policy of the Commonwealth as declared by the U.S. Congress
that a fair proportion of the purchase and contracts for supplies and
services for the Commonwealth be placed with small business concerns.
(b) The Contractor shall accomplish the maximum amount of subcontracting
to small business concerns that the Contractor finds to be consistent with
the efficient performance of the Contract.
53. WORKING HOURS
(a) It is contemplated that all work will be performed during the regular
working hours of the trades involved unless otherwise specified in the
Contract. "Regular working hours" shall mean from 7:30 a.m. to 4:30 p.m.,
Monday through Friday, except holidays.
(b) If the Contractor desires to carry on work outside regular working
hours, he shall submit an application to the Contracting Officer, and
shall allow ample time to enable satisfactory arrangements to be made by
the Contracting Officer for inspecting the work in progress. The cost of
inspection outside of regular working hours shall be borne by the
Contractor. Work performed by the Contractor at his own volition outside
of regular working hours shall be at no additional expense to the
Commonwealth. (c) If the Contractor chooses and the Contracting Officer
approves work at night, the Contractor shall light the different parts of
the work in an approved manner.
54. SOCIAL SECURITY
(a) All employees of the Contractor or his subcontractors shall be covered
under the Commonwealth of the Northern Mariana Islands Social Security
System. The employee withholding is 7.65% of the first $62,700.00 of wages
earned. The employer contribution is a like
- ------------------------------------------------------------------------------
DPW Rev. 07.22.98 GENERAL CONDITIONS--CONSTRUCTION CONTRACT GC--27
278
<PAGE>
amount. Additional information can be obtained from the Social Security
Office, Commonwealth of the Northern Mariana Islands, Saipan.
55. ACCIDENT PREVENTION - PUBLIC SAFETY
(a) In the performance of the contract, the Contractor shall comply with
the applicable provisions of the "Commonwealth of the Northern Mariana
Islands Safety Manual", and the provisions of the U.S. Occupational Safety
and Health Act (OSHA), and shall take all precautions necessary to protect
persons and property; including, but not limited to, providing, erecting,
and maintaining all necessary barricades, suitable and sufficient red
lights, danger signals, and signs. Roads subject to interference by the
work shall be kept open or suitable detours shall be provided and
maintained by the Contractor. If directed, the Contractor shall erect such
additional warning and directional signs in connection with the work as
may be furnished by the Commonwealth. Roads closed to traffic shall be
protected by effective barricades on which shall be placed acceptable
warning and detour signs. All barricades and obstructions shall be
illuminated at night, and all lights shall be kept burning from sunset
until sunrise. The cost of compliance with this clause shall be borne by
the Contractor.
56. DEBRIS AND CLEANING
(a) The Contractor shall, during the progress of the work, remove and
dispose of the resultant dirt and debris and keep the job site clean.
(b) Upon completion of the work, the Contractor shall remove from the
vicinity of the work all plant, buildings, rubbish, unused materials,
concrete forms and other like material and construction equipment
belonging to him or used under his direction during construction, except
as otherwise directed, and in the event of his failure to do so to the
satisfaction of the Commonwealth, the same may be removed by the
Commonwealth or otherwise, at the expense of the Contractor, and his
surety or sureties shall be liable therefore.
57. SANITATION
(a) Adequate sanitary conveniences of an approved type for the use of
persons employed on the work, and properly secluded from public
observation, shall be provided and maintained by the Contractor in such a
manner and at such points as shall be required or approved by the
Contracting Officer. These conveniences shall be maintained at all times
without nuisance, and this shall be strictly enforced. Upon completion of
the work, they shall be removed from the premises, leaving the premises
clean and free from nuisance.
58. PROTECTION OF EXISTING VEGETATION, STRUCTURES, UTILITIES, AND IMPROVEMENTS
(a) The Contractor shall preserve and protect all existing vegetation such
as trees, shrubs and grass on, or adjacent to, the site of work which is
not to be removed and which does not reasonably interfere with the
construction work. Care shall be taken in removing trees authorized for
removal to avoid damage to vegetation deemed to be in place. Any limbs or
branches of trees broken during such operations or by the careless
operation of equipment, or by workmen, shall be trimmed with a clean cut
and painted with an approved tree pruning compound as directed by the
Contracting Officer.
(b) The Contractor shall protect from damage all existing improvements and
utilities at or near the site of the work, the location of which is made
known to him, and will repair or restore any damage to such facilities
resulting from failure to comply with requirements of the Contract or the
failure to
- --------------------------------------------------------------------------------
DPW Rev. 07.22.98 GENERAL CONDITIONS--CONSTRUCTION CONTRACT GC--28
279
<PAGE>
exercise reasonable care in the performance of the work. If the Contractor
fails or refuses to repair any such damage promptly, the Contracting
Officer may have the necessary work performed and charge the cost thereof
to the Contractor.
59. STORM PROTECTION
(a) The Contractor, at no additional cost to the Commonwealth, shall be
responsible for the security and safety of the construction work and the
site, including the Contractor's camp site, when warnings of winds of gale
force are issued. Gale winds are defined as having a sustained velocity of
34 knots (39 MPH) or greater and include winds of tropical storms and
typhoon intensity.
(b) Satisfactory job site clean-up is the initial, basic, day-to-day
minimal preparation the Contractor can make for winds of destructive
force. When warnings of winds of gale force are issued, the Contractor
shall carry out, without delay, all directives concerning securing action
to be taken which may be issued to him by the Contracting Officer or his
designated representative. This preparation is in accordance with the
contract terms and every practicable precaution shall be taken to minimize
the danger to persons; to prevent damage to work in place, materials,
supplies, equipment, adjacent structures, and property of others; and in
the public interest.
60. FAILURE TO FURNISH INFORMATION AND RECORDS
(a) If the Contractor or any subcontractor or the officers or agents of
the Contractor or any subcontractor shall refuse or have refused, expect
as provided otherwise by the terms Contract, to furnish to any
Commonwealth agency, or any establishment in the legislative or judicial
branch of the Commonwealth, information or records reasonably pertinent to
the Contract or any other Commonwealth contract in connection with which
the Contractor or any such subcontractors has or shall have performed work
or furnished materials or supplies or undertaken so to do, the following
action may be taken:
(b) In the case of a refusal by the Contractor, its officers or agents,
the Commonwealth may, after affording an opportunity to explain or justify
such refusal, terminate the Contractor's right to proceed with the work
under the Contract and thereupon the Commonwealth may avail itself of the
rights and remedies provided in the "Termination for Default" clause, in
addition to any other rights and remedies provided by law or under the
Contract.
(c) In the case of a refusal by a subcontractor, its officers or agents,
the Commonwealth may, after affording an opportunity to explain or justify
such refusal, require the Contractor to terminate the subcontract without
cost to the Commonwealth, or if the Contractor fails or refuses to effect
such termination, the Commonwealth may terminate the Contractor's right to
proceed with the work under the Contract and thereupon the Commonwealth
may avail itself of the rights and remedies referred to in the
"Termination for Default" clause.
61. PERMISSION TO ENTER THE COMMONWEALTH OF THE NORTHERN MARIANA ISLANDS (a)
Permission to enter the Commonwealth of the Northern Mariana Islands must
be secured from the CNMI Department of Commerce and the CNMI Department of
Labor and Immigration, by filling out the requisite CNMI standard forms.
62. TRANSPORTATION AND LODGING EXPENSE
(a) If the Contractor utilized nonresident labor as defined in Title 49 of
the CMI Code, and if the Contractor provides either transportation,
lodging or lodging expense, or room or board expenses to any such
employee, then such Contractor shall provide the same benefits to resident
employees, as defined in
- -------------------------------------------------------------------------------
DPW Rev. 07.22.98 GENERAL CONDITIONS--CONSTRUCTION CONTRACT GC--29
280
<PAGE>
Title 49; provided, however, that transportation, lodging, or lodging
expenses; or room or board expenses need not be provided when a resident
employee maintains his principal place of residence within normal
commuting distance, as defined by regulations implementing Public Law No.
4C-49, from his place of employment with such Contractor.
63. OFFICIALS NOT TO BENEFIT
(a) No member of Congress of the United States, member of the
Commonwealth of the Northern Mariana Islands Legislature or the
Governor of the Commonwealth of the Northern Mariana Islands shall be
admitted to any share of the Contract, or to any benefit that may
arise therefrom; but this provision shall not be construed to extend
to the Contract if made with a corporation for its general benefit.
- --------------------------------------------------------------------------------
DPW Rev. 07.22.98 GENERAL CONDITIONS--CONSTRUCTION CONTRACT GC--30
281
<PAGE>
Exhibit 10.05
Agreement and Contract
TBPBA
282
<PAGE>
Exhibit 10.06
Agreement and Contract for Construction
TBPBA
283
<PAGE>
284
<PAGE>
Exhibit 10.07
Agreement between Sayed Hamid Behbehani
SHBC-TELESOURCE
CONTRACT OF AGREEMENT
285
<PAGE>
This agreement is hereby entered into by and between Sayed Hamid
Behbehani & Sons Co. which is a corporation duly organized and existing under
the laws of the State of Kuwait (herein after referred to as "Company"), and
Telesource CNMI Inc. (herein after referred to as "Subcontractor").
Witnesseth that, whereas Company desires to utilize the services of the
Subcontractor and the Subcontractor desires to provide those services, now
therefore in consideration of the promises contained herein Company and the
Subcontractor do mutually agree as follows.
1. The Subcontractor, acting as an independent contractor and not as an
agent, representative, or employee of Company, shall build on a turn-key basis
all the necessary facilities (as described in the attached VOA RFP), with its
own personnel and building equipment and shall otherwise do all things necessary
or incident to the performance of the services as agreed upon herein. Attached
hereto and made a part hereof is the latest version of the Request for Proposal
issued by the United States Information Agency. All parts of this RFP which are
relevant to Subcontractors scope of work are hereby identified as the Statement
of Work. The Subcontractors scope of work excludes the provision of all major
equipment and supplies necessary for the completion of the project: such as
buildings, transmitters, fuel tanks, towers, antennas, cable, diesel generators,
water treatment systems, etc., and all related ancillary equipment and supplies.
These items will be provided by the Company and shipped to Saipan/Tinian by the
Company for the "custody" of Subcontractor. It is acknowledged by both parties
that by the time the referenced equipment arrives in the CNMI it has been paid
for by the Voice Of America, and that rightful title to said equipment lies with
the Voice Of America. Upon receipt of said equipment, Subcontractor will act in
a fiduciary capacity to the Voice Of America and the Company, and will handle
the equipment accordingly. Subcontractor will transport the equipment to the
project site and commence with the erection and installation process as per the
terms and conditions of this Agreement.
2. The services to be performed by the Subcontractor shall
commence on November 1,1996 and shall continue through March 1,1999. This period
includes time for the delivery of all required items including the final report
unless otherwise specifically stated elsewhere in this agreement.
3. This is a cost-plus-fixed-fee technical services agreement. It is
estimated that the total cost of the work under this agreement will be $
2,000,000 (Two Million Dollars), which includes an estimated cost of
$1,850,000,( One Million Eight Hundred and Fifty Thousand Dollars) and a fixed
fee of $ 150,000 (One Hundred and Fifty Thousand Dollars). Unless the agreement
is incrementally funded as noted elsewhere, this is the amount presently
authorized.
For performance of this agreement, Company shall pay to the
Subcontractor in consideration for its efforts the incurred costs and fixed fee
thereof determined to be allowable in accordance with Federal Acquisition
Regulation 52.216-07 and 52.216-08. Payment on account of allowable costs shall
not in the aggregate exceed the amount authorized.
Whenever the Subcontractor has reason to believe that the total cost of
the work under this agreement will be greater or substantially less than the
amount authorized, the
286
<PAGE>
Subcontractor shall promptly notify the Company in writing when the aggregate of
expenditures plus outstanding commitments and liabilities allowable is equal to
85 percent of the amount then authorized. When such expenditures and outstanding
commitments and liabilities equal 100 percent of such amount, the Subcontractor
shall make no further commitments or expenditures and shall be excused form
further performance of the work unless and until the Company thereafter shall by
written notice increase the amount authorized.
The Subcontractor may bill on each invoice the amount of fee bearing the same
percentage to the total fixed fee as the amount of cost billed bears to the
total estimated cost. After payment of 85 percent of the fixed fee set forth
above, Company will temporarily withhold further payment of fee. This reserve
will not be paid until the Subcontractor has complied with all material
requirements of this agreement. The reserve will not accrue any interest.
4. This agreement is a completion type wherein the technical effort
and deliverables are required to be provided as part of the effort. In the event
that the technical effort and one or more of the deliverables cannot be provided
within the estimated cost, Company can elect to provide additional funds in an
amount mutually agreed to so that the technical effort can be completed and the
deliverables provided. In no event, however, will any additional fee/profit be
paid on any such additional funds.
5. This agreement is incrementally funded. Total funds in the amount
of $1,000,000 (One Million Dollars). are presently available for payment of
allowable costs. Until such time that additional funds are committed, the
Subcontractor shall not incur costs nor will Company be liable for costs in
excess of this amount. Costs referred to in this paragraph include a
proportionate profit/fee, if applicable to this agreement.
6. The Subcontractor's obligation under this agreement is to
diligently pursue all required work and to provide all required reports and
other deliverables, if any, within the parameters of the level of effort
described herein.
7. The Subcontractor shall submit invoices to Company in its Kuwait
office. Invoices shall reflect the agreement number. Invoice terms are net 30
days. Each item of equipment having an acquisition cost of $500 or more that is
purchased shall be itemized separately. The final invoice should be marked
"Final Invoice."
8. Company may at any time, by written notice to the Subcontractor,
terminate this agreement, in whole or in part, either for the convenience of
Company or Company's prime contract sponsor or because of the failure of the
Subcontractor to fulfill its obligations. Any such action shall be in accordance
with the FAR termination clause of this agreement. However, in order to allow
Company time to complete its final termination settlement proposal, the
Subcontractor shall submit its proposal promptly but no later than nine (9)
months from the effective date of termination unless this period is extended in
writing by Company. In no event will payments be made for anticipatory profits
or consequential damages as a result of a termination of this agreement. This is
in conformance with the Federal Government's policy as set forth in Federal
Acquisition Regulation 49.108-3(a) and 49.108-5(a).
287
<PAGE>
9. Any controversy upon a question of fact and/or law pertaining to
this agreement or the performance thereof, which cannot be satisfactorily
adjusted between the parties hereto, shall be decided by recourse to any
available legal, equitable, or administrative remedies. Pending final resolution
of any request for relief, claim, appeal, or action arising under the agreement,
the Subcontractor shall diligently proceed with the performance of this
agreement unless directed by Company. This article shall to be considered to
give the Subcontractor any Rights under the "Disputes" clause of Company's prime
government contract. If as a result of any decision or judgment (including a
government audit of the Subcontractor's books and records) which is binding upon
the Subcontractor and Company, Company is unable to obtain reimbursement from
the Government under the prime contract for, or if required to refund or credit
to the Government, any amount with respect to any item of cost or fee for which
Company has reimbursed Subcontractor, the Subcontractor shall, on demand,
promptly repay such amount to Company. The rights and obligations described
herein shall survive completion of and final payment under this agreement.
10. Company, through any authorized representative, has the right, at
all reasonable times, to inspect, or otherwise evaluate the work performed or
being performed hereunder and the premises where it is being performed. . All
inspections and evaluations shall be performed in such a manner as will not
unduly delay the work.
11. Company may at any time, by written order to the Subcontractor,
require the Subcontractor to stop all, or any part, of the work called for by
this agreement for a period of up to ninety days. Upon receipt of such an order,
the Subcontractor shall forthwith comply with its terms and take all reasonable
steps to minimize the incurrence of costs allocable to the work covered by the
order during the period of work stoppage. Within the ninety-day period or any
extension of that period to which the parties shall have agreed, Company shall
either (i) cancel the stop work order, or (ii) terminate the work covered by
such order.
If a stop work order is canceled in writing, the Subcontractor shall
resume work. If the period of the order or any extension thereto merely expires,
the Subcontractor shall contact Company and ask for directions before resuming
work or treating the silence as a termination for convenience. An equitable
adjustment shall be made in the delivery schedule and/or estimated cost and
fixed fee, and the agreement shall be modified in writing accordingly, if (I)
the stop work order results in an increase in the time required for, or in the
Subcontractor's costs properly allocable to, the performance of any part of this
agreement within twenty (20) days after the end of the period of work stoppage.
If a stop work order is not canceled and the work covered is
terminated for the convenience of Company and/or its prime contract sponsor, the
reasonable costs resulting from the stop work order shall be allowed in arriving
at the termination settlement in accordance with FAR 52.249-06.
12. This agreement shall be governed and construed in all respects by
federal contract law as enunciated and applied by federal statutes and
regulations and by federal judicial bodies, boards of contract appeals, and
other judicial and quasi-judicial agencies of the federal government.
288
<PAGE>
13. The attached close-out report must be filled out, signed, dated,
and returned to the Company at the end of the period of performance of the
agreement.
14. If requested by the Company, Subcontractor agrees to close out
this agreement in accordance with the procedures established in Federal
Acquisition Regulation (FAR) 42.708. As such, the Subcontractor will negotiate
the settlement of indirect costs in advance of the determination of its final
indirect costs rates if
(a) the agreement is physically complete;
(b) the amount of unsettled indirect cost to be allocated to the
agreement is relatively insignificant; and (c) agreement can be
reached on a reasonable estimate of allocable dollars.
The provisions providing for allowable costs and payments that are a
part of this agreement will be applied, as necessary, in this procedure.
15. It is agreed that this effort is not of a research and development
nature and there is no expectation that any "invention" (defined as any
discovery which is or may be patentable or otherwise protectable under Title 35
of the United States Code) of the Subcontractor will be conceived or first
actually reduced to practice in the performance of work under this agreement.
16. The sponsor of Company's prime contract under which this work is
being funded is The United States Information Agency. The prime contract number
is IA 2101-C 6234574.
17. FAR 52.243-2, Changes - Cost Reimbursement, is hereby changed to
the extent that the time for submitting a proposal is 20 days, not 30, so that
Company will have time to prepare the proposal under its prime contract.
18. This agreement may not be assigned, in whole or in part, nor may
any assignment of any money due or to become due be made by the Subcontractor
without, in each case, the prior written consent of Company.
19. The provisions of the FAR listed below and other attached articles
and provisions, if any, as applicable, and as in effect on the date of the award
of this agreement by Company (except as required to be changed by statute), are
incorporated in this agreement by reference with the same force and effect as
though herein set forth in full. All such clauses shall, with respect to the
rights, duties and obligations of Company and the Subcontractor hereunder, be
interpreted and construed in such manner as to recognize and give effect to the
contractual relationship between Company and the Subcontractor under this
agreement and the rights of the U.S. Government with respect thereto under the
Prime Contract from which the agreement is being funded. As used therein the
term "the Contractor" and equivalent terms shall mean the Subcontract and the
terms "the Government" and "the Contracting Officer" and equivalent terms shall
include the Company and the Company's authorized representative hereunder,
respectively, except under those clauses relating to the rights to audit or
examine the Subcontractor's financial records, and all other clauses noted with
an asterisk (*), in which
289
<PAGE>
case the terms "the Government" and "the Contracting Officer" shall
mean the U.S. Government and the Contracting Officer under the Prime
Contract, respectively. The word "contract" and like terms shall mean
this agreement.
Federal Acquisition Regulations (FAR)
Cost-Plus-Fixed-Fee
52.202-01 Definitions
52.203-01 Officials Not to Benefit
52.203-03 Gratuities
52.203-05 Covenant Against Contingent Fees
52.212-08 Priorities, Allocations, and Allotments
52.215-01 Examination of Records by Comptroller General
52.215-02 Audit - Negotiation
52.215-22 Price Reduction for Defective Cost or Pricing Data
52.215-23 Price Reduction for Defective Cost or Pricing Data-
Modification
52.215-24 Subcontractor Cost or Pricing Data
52.215-25 Subcontractor Cost or Pricing Data - Modification
52.215-30 Waiver of Facilities Capital Cost of Money
52.216-07 Allowable Cost and Payment
52.216-08 Fixed Fee
52.219-08 Utilization of Small Business Concerns and Small
Disadvantaged
Business Concerns
52.219-13 Utilization of Women-Owned Small Businesses
52.220-01 Preference for Labor Surplus Area Concerns
52.220-03 Utilization of Labor Surplus Area Concerns
52.222-02 Payment for Overtime Premiums "overtime premium
cost does
Not exceed ZERO."
52.222-03 Convict Labor
52.222-26 Equal Opportunity
52.222-35 Affirmative Action for Special Disabled and Vietnam
Era Veterans
52.222-36 Affirmative Action for Handicapped Workers
52.227-01 Authorization and Consent - Alternative I
52.227-02 Notice and Assistance Regarding Patent and Copyright
Infringement
52.227-7013 Rights in Technical Data and Computer Software
52.227-7018 Restrictive Markings on Technical Data
52.227-7029 Identification of Technical Data
52.227-7030 Technical Data - Withholding of Payment
52.228-07 Insurance - Liability to Third Persons
52.230-3 Cost Accounting Standards
52.230-4 Administration of Cost Accounting Standards
52.231-7000 Supplemental Cost Principles
52.232-09 Limitation on Withholding of Payments
52.232-17 Interest
52.232-20 Limitation of Cost
290
<PAGE>
52.232-23 Assignment of Claims
52.242-01 Notice of Intent to Disallow Costs
521.242-7000 Submission of Commercial Freight Bills to the
General Services
Administration for Audit
52.243-2 Changes - Cost Reimbursement - Alternative V
52.243-7001 Pricing of Adjustments
52.244-02 Subcontracts under Cost-Reimbursement and Letter
Contracts
52.245-05 Government Property (Cost Reimbursement,
Time-and-Material, or
Labor-Hour Contracts)
52.247-01 Commercial Bill of Lading Notations
52.249-06 Termination (Cost Reimbursement)
52.249-14 Excusable Delays
52.251-7000 Ordering from Government Supply Sources
291
<PAGE>
APPENDIX
Close-out Report
SUBCONTRACTOR NO.:
SUBCONTRACTOR:
INSTRUCTIONS: Complete and return to: Sayed Hamid Behbehani & Sons
Co. C/O Nidal
Z. Zayed 180 North LaSalle St. Chicago II. USA 60601, at the end of the period
of performance of the agreement.
A. Property Certificate
The Subcontractor hereby certifies that, with respect to any property
furnished by Company and/or the Government or purchased under this agreement and
in compliance with any and all agreement provisions relating to such property,
the following applied (check one as appropriate):
--- The Subcontractor has Government and/or Company property or
scrap. (A property inventory form will be provided to the
Subcontractor by Company when this form is returned.)
--- The Subcontractor has disposed of all Government and/or
Company property and any generated scrap in accordance with
Company instructions and the terms of this agreement.
--- No Government or Company property was furnished, purchased, or
otherwise acquired by the Subcontractor or his lower tier
subcontractors under this agreement.
Signed: _____________________ Date: ____________________
Printed Name and Title: _________________________________________
B. Subcontractor's Release of Claims and Assignments of Refunds, Rebates, and
Credits.
1. Pursuant to the terms of this agreement and in consideration
thereof which has been or is to be paid under the said agreement, the
Subcontractor or its assignees, if any, upon payment of said consideration, does
remise, release, and discharge Company and the U.S. Government (including their
officers, agents, and employees) of and from all liabilities, obligations,
claims, and demands whatsoever under or arising from this agreement except:
a. Specified claims in stated amounts or in estimated amounts
where the amounts are not susceptible of exact statements by
the Subcontractor, as follows.
b. Claims, together with reasonable expenses incidental
thereto, based upon the liabilities of the Subcontractor to
third parties arising out of the performance of
292
<PAGE>
this agreement, which are not known to the Subcontractor on
the date of the execution of this release and of which the
Subcontractor gives notice in writing to Company within the
period specified in said agreement, and provided further, that
the Subcontractor gives notice of such claims in writing to
Company not more than five (5) years after the date of this
release or the date of any notice to the Subcontractor that
Company is prepared to make final payment, whichever is
earlier.
c. Claims for reimbursement of costs, including reasonable
expenses incidental thereto, incurred by the Subcontractor
under any provision of this agreement relating to patents.
d. If there is included in the agreement a provision concerning
"Data Requirements," claims pursuant to such provision where a
written request by Company and/or the U.S. Government to
furnish data is made within the one-year period after final
payment.
The Subcontractor agrees, in connection with patent matters and with
claims which are not released as set forth above, that it will comply with all
provisions of this agreement, including without limitations those provisions
relating to notification to Company and relating to the defense or prosecution
of litigation.
2. Further, in consideration of the reimbursement of costs and payment
of fee under this agreement and any assignment thereunder, the Subcontractor
does hereby:
a. Assign, transfer, set over and release to Company all right,
title, and interest to all refunds, rebates, credits, or other
amounts (including any interest thereon) arising out of the
performance of said agreement, together with all the rights of
action accrued or which may hereafter accrue thereunder.
b. Agree to take whatever action may be necessary to effect
prompt collection of all refunds, rebates, credits or other
amounts (including any interest thereon); due or which may
become due, and to promptly forward to Company checks, made
payable to Company, for any proceeds so collected. The
reasonable costs of any such action to effect collection shall
constitute allowable costs when approved by Company as stated
in said subcontract and may be applied to reduce any amounts
otherwise payable to Company under the terms hereof.
c. Agree to cooperate fully with Company as to any claim or suit
in connection with refunds, rebates, credits, or other amounts
due (including any interest thereon); to execute any protest,
pleading, application, power of attorney, or other papers in
connection therewith; and to permit Company to represent it at
any hearing, trial, or other proceeding arising out of such
claim or suit.
293
<PAGE>
IN WITNESS HEREOF, the parties hereto have accepted and executed this
agreement as of the latest date noted below.
SAYED HAMID TELESOURCE CNIMI, Inc.
BEHBEHANI & SONS CO. W.L.L.
Signature: /s/ Fouad S. H. Behbehani Signature: /s/ K. J. Semikian
Printed Name and Title:
Fouad S. H. Behbehani Printed Name and Title:
K. J. Semikian
Chairman
President
Date: January 6, 1997 Date: January 6, 1997
294
<PAGE>
ADDENDUM
The following is an addendum to the agreement dated 6th
January 1997 between Sayed Humid Behbehani & Sons Co. (herein
after referred to as "Company" and Telesource CNMI, Inc
(herein after referred to as "Subcontractor")
Witnesseth that, whereas Company desires to continue
utilizing the services of the subcontractor and the
Subcontractor desires to provide those services, now
therefore in consideration of the promises contained herein
Company and the Subcontractor do mutually agree as follows:
l- All terms and conditions and statements of the January
6, 1997 contract not specifically addressed in this
addendum are still valid.
2- Subcontractor shall raise a single invoice per month
covering the activities carried out on a fix price
bases as follows:
2.1 Manpower . . $ 30,000.00
2.2 Construction Equipment rentals $ 35,000.00
2.3 Tower Crane rental $ 50,000.00
2.4 Misc. expenses for all services
Provided, such as: housing, food,
Communications, fuel, etc.. $ 45,000.00
Total of monthly lump-sum cost $ 160,000.00
Overhead and profit $ 12,000.00 Grand total of
monthly invoice $ 172,000.00
3- In addition all local purchases and procurements shall be
invoiced to the Company on monthly bases plus 7.5% overhead
and profit. 4- This Addendum shall be effective from September
1st 1998.
IN WITNESS HEREOF, the parties hereto have accepted and
executed this agreement as of the latest date noted below.
SAYED HAMID TELESOURCE CNIMI, Inc.
BEHBEHANI & SONS CO. W.L.L.
Signature: /s/ Fouad S. H. Behbehani Signature: /s/ K. J. Semikian
Printed Name and Title: Fouad S. H.
Behbehani Printed Name and Title:
K. J. Semikian
Chairman President
Date: August 27, 1998 Date: August 27, 1998
295
<PAGE>
Exhibit 10.08
Memordandum of understanding - first right
296
<PAGE>
October 15, 1999
Via Fax
Mr. Nasrallah Behbehani
General Manager
Sayed Hamid Behbehani & Sons Co. W.L.L.
Dasman Complex, Block 3, 3rd Floor, Sharq
P.O. Box 3065, Safat 13021, Kuwait
Re: Memorandum of Understanding
Dear Mr. Behbehani:
Per our telephone conversations, this letter will memorialize that as of October
1999, Sayed Hamid Behbehani & Sons Co. W.L.L. ("SHBC") will give Telesource
International, Inc. ("Telesource") the right of first refusal on
projects which come to SHBC's attention in the following geographic regions:
1. The United States and its Territories; an
2. The Pacific Rim; and
3. The Indian Ocean.
However, it is specifically agreed that such right of first refusal will not
apply to projects or modifications for the International Broadcasting Bureau's
stations outside the continental United States, which both SHBC and Telesource
may freely bid and execute.
If the above corresponds to your understanding, kindly sign below and return
this letter to us in Chicago by fax. As always, should you have any questions or
comments, please do not hesitate to contact us.
With Best Regards,
KJ Semikian
Director & President/CEO
Acknowledged:
- ----------------------- ---------------------
Nasrallah Behbehani Date
General Manager
297
<PAGE>
Exhibit 10.09
Memorandum of understanding - commission fees
298
<PAGE>
September 1, 1999
Via Fax
Mr. Fouad Behbehani
Chairman
Sayed Hamid Behbehani & Sons Co. W.L.L.
Dasman Complex, Block 3, 3rd Floor, Sharq
P.O. Box 3065, Safat 13021, Kuwait
Re: Memorandum of Understanding
Dear Mr. Behbehani:
Per our telephone conversations, this letter will memorialize that as of October
1999, Sayed Hamid Behbehani & Sons Co. W.L.L. ("SHBC") will discontinue paying
Telesource International, Inc. ("Telesource") a monthly advance commission fee.
Furthermore, as of October 1999, SHBC will purchase goods and services from
Telesource on a "need be" basis. Such purchases will be subject to a 7.5%
commission.
Finally, as of October 1999, SHBC will pay Telesource's reasonable travel and
per diem expenses associated with any SHBC purchases from Telesource.
If the above corresponds to your understanding, kindly sign below and return
this letter to us by fax. As always, should you have any questions or comments,
please do not hesitate to contact us. Telesource appreciates the opportunity to
be of service to SHBC and will continue to provide SHBC with quality products
and services at low prices.
With Best Regards,
Nidal Z. Zayed
Director & Executive VP
Acknowledged:
- ----------------------- ---------------------
Fouad Behbehani Date
Chairman, SHBC
299
<PAGE>
Exhibit 10.10
Agreement to supply
PAGE 19
JPK:Comm:Doors:SubK:Final November 24, 1999 17:17 PM
300
<PAGE>
Series of Doors and Associated Equipment
Agreement made this 31st day of August, 1999, ("Agreement") by and between
Telesource International, Inc., a corporation formed under the laws of the State
of Illinois ("Contractor") and P.W.S. International, Inc., a corporation formed
under the laws of North Carolina ("Supplier").
Whereas Sayed Hamid Behbehani and Sons Co. W.L.L ("Developer") has entered
into a contract with the United States Department of State ("Owner"), for the
construction of Diplomatic Housing (the "Project") in the Country of Kuwait,
which contract includes the Series of Doors and Associated Equipment to be done
under and pursuant to this subcontract agreement (the "Work");
Whereas Contractor will be providing the Developer with various items,
including the Series of Doors and Associated Equipment component of the Project;
and
Whereas Supplier desires and is willing to furnish all necessary materials,
equipment and labor to provide the Series of Doors and Associated Equipment
component of the Project in accordance with the specifications of the Owner;
Now therefore, in consideration of the mutual promises and covenants
expressed in this agreement, the Contractor and Supplier agree as follows:
1) Scope of the Work.
Supplier shall furnish all necessary labor, material, supervision and all
other services as may be required to perform all of the necessary and required
design, engineering, manufacturing, assembly, testing and fabrication as may be
required to provide the Contractor with a Series of Doors and Associated
Equipment in strict accordance with the specifications, drawings and documents
enumerated in the attached Exhibit "A ", which specifications, drawings and
documents are incorporated herein by reference and hereby become an integral
part of this Agreement. In performance of this Agreement, Supplier shall adhere
to the requirements and specifications which relate to the equipment and
services provided pursuant to this Agreement and which are contained in the
Department of State Request for Proposals attached as Exhibit "B" and the
Federal Acquisition Regulations applicable to this Agreement as scheduled in
Exhibit "C", both of which are incorporated by this reference and hereby become
an integral part of this Agreement. Nothing in this Agreement shall deprive the
Owner or Developer of any rights they may have under the Federal Acquisition
Regulations or the contract between the Owner and the Developer.
In particular, but in no way limiting Supplier's duties as set forth in
this Section 1, Supplier shall provide the services as set forth as follows:
301
<PAGE>
1.1) Supply Of Items.
Supplier shall supply and deliver to the Contractor all items as
enumerated in the attached Exhibit "D".
1.1.1) Intentionally Deleted.
1.1.2) Goods are to be shipped C&F Kuwait.
1.2) Shop Drawings, Submittals, Support Manuals and Certifications.
Supplier shall furnish the following drawings, submittals and manuals
to Contractor for approval prior to use in connection with the Project. All
submissions shall be identified as the Project Manager may require. At the
time of each submission, the Supplier shall give the Project Manager
specific written notice of each variation that the drawing, sample, manuals
certification may have from the requirements of this Agreement. No review
or approval of any drawing, submittal or manual shall constitute acceptance
of Work not in accordance with this Agreement, nor shall it serve to
release Supplier of its obligation to perform the Work in accordance with
this Agreement.
1.2.1) Shop Drawings.
Supplier shall prepare and submit to Contractor the required number of
copies of all working drawings, prints, sepias and mylars (including
revisions, addenda and modifications) to be used in connection with the
Work. The data shown on the drawings shall be complete with respect to
quantities, dimensions, specified performance and design criteria,
materials and similar data to enable meaningful review by the Project
Manager.
1.2.2) Submittals.
Supplier shall prepare and submit the required number of representative
samples of all proposed materials and equipment to be furnished by Supplier
for use in the Work. Detailed specifications of proposed materials and
equipment may be submitted in lieu of actual samples only with Contractor's
prior written consent. Each submittal shall be clearly identified as to
material, manufacturer, supplier, trade name, model or catalog designation,
reference standards and all other data pertinent to the use for which it is
intended.
302
<PAGE>
1.2.3) Support Manuals.
Suppliers shall prepare and submit the required number of copies of all
owner's manuals, installation manuals, illustrated parts breakdowns and
operations, maintenance and repair manuals, spare parts schedules and any
other data as may be required under Exhibit B in regard to the operation of
the Work.
1.2.4) Test and Compliance Certificates.
Supplier shall prepare and submit the required number of copies of all
manufacturer's test certificates and certificates of compliance as required by
the contract specifications. Such certificates shall indicate that the materials
and/or equipment conform to or exceed the requirements as specified by this
Agreement, and shall be accompanied by supporting reference data, affidavits, or
additional certifications as appropriate.
1.3) As-Built Drawings.
Supplier shall maintain one (1) set of all drawings, specifications,
addenda, written amendments, Change Orders and written interpretations,
clarifications and annotations to show all changes made during
construction. Such drawings and documents shall be maintained and updated
as appropriate to reflect the current "as built" conditions of the Work.
Upon completion of the Work, these drawings and documents shall reflect the
final "as built" condition of the Work and shall be delivered to the
Contractor.
1.4) Intentionally Deleted.
1.5) Insurance and Indemnification for Loss or Injury.
Supplier shall maintain such Public Liability, Property Damage, and
Employee's Liability and Compensation insurance as will protect Contractor
from all customarily insurable risks of loss which may result in any way
from any act or omission of Supplier, its agent, employees, or
subcontractors, including any injury to person or property during the
progress of the Work, and from any claims under any applicable Workmen's
Compensation and Occupational Disease Acts.
303
<PAGE>
2) Commencement and Progress of the Work.
2.1) Commencement of the Work.
Supplier shall commence performance of the Work immediately upon
execution of this Agreement and shall proceed in accordance with the
Delivery and Completion Schedule, as may be adjusted from time to time in
accordance with Section 2.2 and Section 2.3 of this Agreement.
2.2) Delivery and Completion Schedule; Monthly Status Reports.
2.2.1) Within two (2) weeks after the execution of this Agreement, Supplier
shall prepare and deliver to Contractor a comprehensive delivery schedule
(the "Delivery Schedule") showing expected shipping ex-factory dates of
materials and all relevant activities. Where necessary, the dates shall be
based on time from the date that Contractor approves Supplier's submittals.
Each of Supplier's activities shall be allocated a price, and the sum of
these prices shall equal the total contract price.
2.3) Progress and Completion.
2.3.1) All time limits stated in this Agreement, including those stated in
the Delivery Schedule, are of the essence of this Agreement. Supplier
is aware that Developer is liable to Owner for Developer's delays, with
minimum liquidated damages payable by Developer to Owner of $4,500.00
per day. In turn, Contractor is liable to Developer for Contractor's
delays. Similarly, the Supplier will be liable to Contractor for
Supplier's delays to the extent and only to the extent the delays were
caused by the Supplier or his suppliers.
2.3.2) Contractor may, at any time, by written order to Supplier, require
the Supplier to stop all or any part of the Work. However the
Contractor will only order the work stopped if the Owner issues a Stop
Order. Supplier has all of the rights and remedies against the Owner
available to the Contractor, incluing rights to equitable adjustment or
time of performance or Contract Price.
304
<PAGE>
2.4) Responsibility for Progress and Completion.
2.4.1) Supplier shall at all times furnish such employees, materials,
facilities and equipment and shall work such hours, including extra
shifts and overtime as necessary, to ensure the prosecution and
completion of the Work in accordance with the Delivery Schedule.
2.4.2) If the Work is not being performed in accordance with the Supplier's
Delivery Schedule, or if it becomes apparent to the Contractor that the
Work shall not be completed within the scheduled time, Contractor shall
notify Supplier in writing of such nonconformity, at which time
Supplier shall immediately take all necessary actions to improve its
progress, including the following, at no additional cost:
(a) Increase the number of employees in such crafts as shall
regain the lost schedule progress;
(b) Increase the number of working hours per shift, shifts per
working day, working days per week, and the amount of
equipment or any combination thereof to regain lost schedule
progress; and
(c) Expediting shipments of materials and supplies, including
shipping by a method other than that originally anticipated by
this Agreement.
2.4.3) Intentionally Deleted.
2.4.4) Intentionally Deleted.
3) Contract Price and Application For Payment.
3.1) Contract Price.
Contractor agrees to pay Supplier the lump sum of the unit prices in
Exhibit "G" for Supplier's performance of all the Work (the "Contract
Price") as per the attached Purchase Order which is made an integral part
of this Agreement. No additional claims or charges will be entertained
except as specifically provided by this Agreement.
3.2) Clear Title.
Supplier warrants and guarantees that title to all Work, materials and
equipment covered by any application for payment, whether incorporated in
the Project or not, shall pass to the Owner free and clear of all liens,
charges, security interests and encumbrances no later than at the time of
payment. In addition, the Supplier's final invoice warrants that he has
obtained a waiver of liens for all work performed under the contract.
305
<PAGE>
3.3) Payment Withheld.
Upon the occurrence of any of the following events, the Project Manager
may deny Supplier's application for payment and withhold payment until such
event of failure is cured:
(a) Failure to remedy a defect in the Work;
(b) Failure of Supplier to pay lower tier contractors or vendors;
(c) Failure to adhere to the Delivery Schedule;
(d) Failure to perform the Work in accordance with this Agreement;
(e) Project Manager's reasonable determination that liens or claims
against the Supplier and Supplier furnished materials have been
filed or shall be asserted;
3.4) Set-Off.
Contractor shall be entitled at all times to set-off any amount owing
at any time from Supplier to Contractor or any of its affiliated companies
against any amount payable at any time by Contractor in connection with
this order. Any set-off will be first made against retainage.
4) Changes In the Work.
Upon the instructions of the Developer or the Owner, Contractor may from
time to time order additions, deletions, deductions or revisions in the Work,
including adjustments due to performance of any part of the Work by one other
than the Supplier, pursuant to a mutually agreed upon change order.
4.1) Change Orders.
A Change Order is a written instrument, issued after the execution of
this Agreement, signed by the Contractor and the Supplier stating their
agreement upon a change and any adjustment in the Work, the price therefor
and the Suppliers Delivery Schedule. Adjustments which do not involve a
change in the Contract Price and which are consistent with the overall
intent of this Agreement shall be promptly performed by Supplier without
additional claim or charge.
306
<PAGE>
4.2) Change Order Request.
4.2.1) Within ten (10) days of the receipt of Contractor's proposed change
in the Work, the Supplier shall submit to the Contractor a request for
a Change Order, which shall detail information concerning the cost and
time adjustments, if any, necessary to perform the proposed change
(Change Order Request). When approved by the Owner, the Contractor
shall authorize the adjustment to the Work contained in the Change
Order Request by issuing a Change Order. Such Change Order shall
thereupon be incorporated into the Suppliers Delivery Schedule.
4.3) Valuation of Change.
The value of any work included in any Change Order or Change Order
Request, which increases or decreases the Contract Price shall be
negotiated in good faith by the parties.
5) Supplier's Warranties; Non-Conforming Work.
5.1) Warranty.
In addition to any warranties provided by law, Supplier warrants that
the equipment and services provided pursuant to this Agreement shall be
free from defects in material and workmanship and shall completely meet all
the terms and conditions of Exhibit "B" and the Federal Acquisition
Regulations scheduled in Exhibit "C". This warranty shall remain in full
force for the period reflected in Exhibit "B" (Owner's Request for
Proposal).
5.2) Non-Conforming Work.
Supplier understands it is bidding on the exact specifications of the
Owner. If any of the materials or services provided by Supplier are found
to be defective in workmanship or otherwise not in conformity with the
requirements of this Agreement, Contractor, in addition to any other rights
which it may have under warranties or otherwise, shall have the right to
reject and return such goods or services at Supplier's expense (including
Supplier's shipping and handling charges), or require that such articles or
materials be corrected or replaced promptly with satisfactory material or
workmanship at Supplier's expense, including shipping and handling.
307
<PAGE>
6) Indemnification.
6.1) Indemnification for Loss.
If Supplier causes damage to the Work or property of the Owner, the
Developer, the Contractor, or any other subcontractor, or if any claim
arises out of Supplier's performance of the Work including delay due to
Supplier, Supplier shall act promptly to remedy such damage and/or attempt
to settle any such claim. Supplier shall have the right to timely repair or
replace any defective items before any field charges occur. Supplier shall
indemnify Contractor against all loss, direct or indirect, which may result
in any way from any act or omission of Supplier, its agent, employees, or
subcontractors, including delay or any injury to person or property during
the progress of such work provided such loss is foreseeable by Supplier or
his suppliers/subcontractors relating to the work, except to the extent
that any such injury is due solely and directly to Contractor's or
Developer's or Owner's negligence or willful acts as the case may be.
6.2) Patent Indemnity.
6.2.1) Supplier shall handle all claims and defend any suit or proceeding
brought against Contractor or its customers (which term throughout this
paragraph shall include without limitation the Owner, the Developer,
Contractor's lessees, bailees, transferees and assigns) so far as based
on any claim that the manufacture or furnishing of goods under this
order, or the use or sale of such goods constitutes infringement of any
patent of any country. Supplier shall indemnify and save Contractor and
its customers harmless from and against any expense or liability in
connection therewith, including costs and damages arising out of such
claim, suit or proceeding. In case said goods are enjoined, Supplier
shall, at its own expense and option, procure for Contractor and its
customers the right to continue using said goods, or modify them so
they become non-infringing, or with the written approval of Contractor,
remove said goods and refund the purchase price and the transportation
and installation costs thereof. The foregoing patent indemnity and
warranty obligations shall be inapplicable: (a) where the alleged
infringement results from detail designs supplied by Contractor, unless
goods embodying such designs are normally sold or advertised for sale
to others by Supplier, or (b) to the extent that a suit based on said
infringement claim may be maintained only against the U.S. Government
and Contractor has not indemnified the U.S. Government.
308
<PAGE>
6.2.2) The above patent warranty and indemnity obligations are in lieu of
all other patent warranties and indemnities whatsoever, whether oral,
written, express or implied.
7) Title and Risk of Loss.
7.1) Drawings and Specifications.
7.1.1)The Contractor shall be furnished the required number of sets of the
documents set forth in Exhibit "A". Additional copies shall be
furnished upon request for the cost of reproduction.
7.1.2) All specifications, drawings, technical information and data
furnished by Contractor to Supplier hereunder shall remain the property
of the Contractor. None shall be copied, duplicated in any manner, nor
shall extract be taken therefrom for a purpose of use unrelated to the
Work without Contractor's advance written consent. Such documents shall
be used only in the manufacture and production of supplies for
Contractor and shall be returned to Contractor at Contractor's request.
8) Intentionally Deleted.
9) Termination.
9.1) Termination by Contractor for Cause.
9.1.1) Contractor may terminate this Agreement upon ten (10) days written
notice to Supplier upon the following events of Supplier default,
provided however that Supplier shall be afforded reasonable time to
cure:
(a) Supplier ceases to conduct its operations in the normal course of
business (including inability to meet its obligations as they
mature);
(b) A proceeding under the bankruptcy or insolvency laws is brought by
or against Supplier, or a receiver is appointed or applied for;
(c) Supplier makes a general assignment for the benefit of creditors;
(d) Supplier disregards the laws and regulations of any government
entity having jurisdiction over any activity performed in
connection with the Work or this Agreement;
(e) Supplier disregards the authority or instructions of the Project
Manager;
309
<PAGE>
(f) Supplier persistently fails to perform the Work in accordance with
this Agreement, including but not limited to, failure to adhere to
the Delivery Schedule or the CPM, and failure to provide
conforming equipment and materials; or
(g) Supplier otherwise materially breaches this Agreement.
9.1.2) Intentionally Deleted.
9.1.3) Termination for cause pursuant to this Section 9.1 shall be without
liability to Contractor except for payment of amounts due for materials
and equipment previously delivered to the Site or previously completed
and subsequently delivered to the Site in accordance with the terms of
this Agreement or work in progress; provided however that such amount
shall not be due and payable until completion of the Work by substitute
performance and shall be reduced by the following:
(a) Costs incurred by Contractor in the performance of the Work
terminated, including but not limited to preparatory expenses,
additional engineering and design professional costs, and
incidental costs, and all additional expenses incurred in
acquiring or undertaking substitute performance; and
(b) Contractor's reasonable costs of termination and settlement,
including but not limited to accounting costs, legal fees and
arbitration expenses.
Nothing in this Agreement shall obligate Contractor to obtain the
lowest price for costs incurred or work performed pursuant to this
Section 9.1.3.
9.2) Termination by Contractor upon Owner Stop Order.
9.2.1) Contractor may, by written notice, terminate this Agreement in whole
or in part upon issuance of a Stop Order by Owner.
9.2.2) Termination pursuant to this Section 9.2 shall be without liability
to Contractor except for payment of amounts due pursuant to Sections
9.3.2 and 9.3.3 of this Agreement.
310
<PAGE>
9.3) Termination by Supplier for Cause.
9.3.1) Supplier may terminate this Agreement upon ten (10) days written
notice to Contractor upon the following events of Contractor default,
provided however that Contractor shall have reasonable time to cure:
(a) Contractor ceases to conduct its operations in the normal course
of business (including inability to meet its obligations as they
mature);
(b) A proceeding under the bankruptcy or insolvency laws is brought by
or against Contractor, or a receiver is appointed or applied for;
(c) Contractor makes a general assignment for the benefit of creditors;
(d) Contractor disregards the laws and regulations of any government
entity having jurisdiction over this Agreement;
(e) Contractor fails to pay Supplier amounts due Supplier pursuant to
this Agreement within ten (10) days of the due date; or
(f) Contractor otherwise materially breaches this Agreement.
9.3.2) Upon Supplier's termination for cause pursuant to this Section 9.3
Supplier shall be entitled to payment for all Work performed, and for
all materials and equipment previously delivered to the Site or
previously completed and subsequently delivered to the Site, and for
work in progress in accordance with the terms of this Agreement.
311
<PAGE>
9.3.3) In addition to payment pursuant to Section 9.3.2, Supplier shall
within ten (10) days of the date of the notice of termination be
entitled to claim for damages from Contractor arising out of such
termination, which claim shall be subject to negotiation between
Contractor and Supplier. Any negotiated settlement of Supplier's claim
shall be reduced to writing by Contractor and signed by Supplier prior
to payment of settlement damages. Damages claimed pursuant to this
Section 9.3.3 shall be restricted to actual out of pocket damages.
10) On-Site Representatives.
10.1) Contractor's Project Manager.
10.1.1) Contractor's Project Manager shall be the primary representative of
Contractor and shall exercise such authority as is specified in this
Agreement or is delegated to him by Contractor. The general duties of
the Project Manager shall be, inter alia, to act on behalf of
contractor as follows:
(a) to review, comment, audit and monitor the design, construction,
commissioning and performance of
the Work;
(b) to inspect, examine, and witness the materials, equipment, testing
and workmanship used or carried out in connection with the Work;
and
(c) to certify applications for payment and to report to Contractor on
the progress of the Work and to report whether the Work is being
carried out in accordance with this Agreement.
10.1.2) The Project Manager shall also carry out the following duties:
(a) other duties that Contractor designates are to be performed by the
Project Manager; and
(b) any other duties which are specified in this Agreement.
10.2) Designation of Representatives.
10.2.1) The Contractor's Project Manager shall be promptly identified in
writing to Supplier.
10.2.2) The Supplier's Site Representative (if any) shall be promptly
identified in writing to Contractor.
312
<PAGE>
11) Notices.
11.1)All notices, requests, directions, or other communications required by this
Agreement, required or permitted, shall be in writing and shall be
considered properly given when:
(a) delivered in person;
(b) sent via confirmed fax;
(c) sent certified mail confirmed by a signed return receipt; or
(d) delivered to an express courier, correctly addressed and postage
prepaid.
11.2)Notices or other communications given in accordance with this Section 11
shall be deemed effective on the date delivered or fax confirmed in the
case of Sections 11(a) and (b) above; or upon actual receipt in the case of
Sections 11(c) and (d).
11.3) Notice shall be given to Contractor as follows:
Name: Telesource International, Inc.
Attn: Larry Stiff
Address: 860 Parkview Boulevard
Lombard, Illinois 60148
Phone: (630) 620-4787
Fax: (630) 620-4753
11.4) Notice shall be given to Supplier as follows:
Name: P.W.S. International, Inc.
Attn: Fred Parker
Address: P.O. Box 410081
Charlotte, NC 28241
Phone: (704) 588-3013
Fax: (704) 588-3017
313
<PAGE>
12) Compliance With Laws.
Supplier agrees to comply with all federal, state and local laws,
standards, rules regulations and directions (hereafter collectively Laws)
applicable to and in effect at the time of the execution of this Agreement.
Supplier's failure to comply with such Laws will be considered a material breach
of this Agreement and may be grounds for termination by Contractor, provided
however that Supplier shall have reasonable time to cure.
In particular, but in no way limiting Supplier's duties as set forth in
this Section 12, Supplier shall comply with the following:
12.1) Fair Labor Standard Act.
In accepting this order, Supplier shall be deemed to represent that the
goods to be furnished hereunder were or will be produced in compliance with
the requirements of the Fair Labor Standards Act as amended, and unless
otherwise agreed in writing, Supplier shall insert a certificate on all
invoices submitted in connection with this order stating that the goods
covered by the invoice were produced in compliance with the requirements of
said Act, as amended, and of regulations and orders of the United States
Department of Labor issued pursuant thereto.
12.2) Chemical Substances.
Notwithstanding anything to the contrary heretofore or hereafter
represented by either party to the other, Supplier warrants that each and
every chemical substance sold or otherwise transferred by Supplier pursuant
to this Agreement, as of the time of such sale or transfer, is on the list
of chemical substances compiled and published by the Administrator of the
Environmental Protection Administration pursuant to the Toxic Substance
Control Act (PL 94-469). Supplier further warrants that each an every
chemical substance constituting or contained in the product(s) sold or
otherwise transferred pursuant to this Agreement is on the list of chemical
substances compiled and published by the Administrator of the Environmental
Protection Administration pursuant to the Toxic Substance Control Act (PL
94-469).
314
<PAGE>
12.3) Radiation Control for Health and Safety Act.
Supplier warrants that goods to be furnished under this order will meet
all requirements established under standards issued pursuant to authority
contained in the Radiation Control for Health and Safety Act of 1968.
Supplier further agrees to indemnify and hold harmless Contractor for all
damages assessed against Contractor as a result of Supplier's failure to
comply with the laws, regulations and standards issued thereunder and for
the failure of the items furnished under this Agreement to so comply.
12.4) Occupational, Health and Safety-Radiation Control.
Supplier agrees to comply with the provisions of the Occupational
Safety and Health Act of 1970 and the standards and regulations issued
thereunder and certifies that all items furnished pursuant to this
Agreement will conform to and comply with said standards and regulations.
12.5) Intentionally Deleted.
12.6) Intentionally Deleted.
12.7) Equal Employment and Minority Suppliers.
Unless exempt, the Equal Opportunity Clause required by Executive Order
11246, as amended, Section 503 of the Rehabilitation Act of 1973, as
amended, and the Vietnam Era Veterans Readjustment Assistance Act of 1974,
as amended (38 U.S.C. 2012), and any rules, orders, or regulations issued
thereunder, are incorporated by Reference, and Supplier shall be bound by
and shall comply with them as if the same were fully set forth naming
Supplier as "contractor".
12.8) Small Business Concern Utilization.
The Supplier agrees to accomplish the maximum amount of subcontracting
to small business concerns that the Supplier finds to be consistent with
the efficient performance of this Agreement.
315
<PAGE>
13) Assignment.
Supplier shall not assign this Agreement in whole or in part, nor any
interest herein nor any payment due or to become due hereunder, to any Person,
without the prior written consent of Contractor, which consent shall not be
unreasonably withheld or delayed. Consent may be withheld if any assignee
proposed is not in the opinion of Contractor reasonably able to fulfill the
terms and obligations of this Agreement. Nothing in this paragraph 13 shall be
construed to prevent Supplier as a consolidator from contracting with his
suppliers and subcontractors.
14) Arbitration.
14.1) In General.
Claims, disputes or other matters in question between the parties to
this Agreement shall first be subject to mediation before arbitration. A
demand for mediation shall be made within a reasonable time after the
dispute or claim has arisen.
14.2) Mediation.
Any mediation shall be held in accordance with the Construction
Industry Mediation Rules of the American Arbitration Association currently
in effect, unless the parties mutually agree otherwise. The mediation shall
take place at a mutually convenient location in Illinois. Demand for
mediation shall be filed in writing with the other party to this Agreement
and with the American Arbitration Association. In no event shall the demand
for mediation be made after the date when institution of legal or equitable
proceedings based upon such claim, dispute or other matter in question
would be barred by the applicable statute of limitations.
316
<PAGE>
14.3) Arbitration.
Any dispute or difference arising out of, or in connection with, this
Agreement which cannot be amicably settled between the parties by mediation
shall be finally settled under the Rules of Construction Arbitration of the
American Arbitration Association. The arbitration shall take place at a
mutually convenient location in Illinois. The resulting arbitral decision
shall be final and binding on the parties. Judgment upon any award rendered
by the arbitrators may be entered in any court having jurisdiction thereof.
The prevailing party in any arbitration shall be entitled to recover from
the other party all reasonable attorneys' fees, expenses and other costs
incurred in asserting or defending any claim arising under or related to
this Agreement.
15) General Provisions.
15.1) Severability of Provisions.
15.1.1) In the event that any provision of this Agreement, or the
application thereof, is held by any court of competent jurisdiction to
be illegal or unenforceable, the parties shall attempt in good faith to
agree upon an equitable adjustment to this Agreement in order to
overcome to the extent possible the effect of such illegality or
unenforceability.
15.1.2) The provisions of this Agreement are intended to be performed in
accordance with, and only to the extent permitted by, all applicable
requirements of law.
15.1.3) If any provision of any of the Agreement or the application thereof
to any Persons or circumstance shall, for any reason and to any extent,
be invalid or unenforceable, neither the remainder of the Agreement nor
the application of such provision to other Person or circumstances or
other instruments referred to in the Agreement shall be affected
thereby but, rather, the same shall be enforced to the greatest extent
permitted by law.
15.2) Entire Agreement.
This Agreement, including all schedules, exhibits, attachments, and
drawings referenced herein, represents the entire understanding between the
parties in relation to the subject matter hereof and supersedes any and all
previous agreements or arrangements between the parties in respect of the
Work (whether oral or written), including without limitation all letters of
intent and clarifications submitted in response to requests for proposals
or otherwise.
317
<PAGE>
15.3) Counterparts.
This Agreement may be executed in any number of counterparts, or by use
of counterpart or faxed counterpart signature pages, each of which shall be
an original, but all of which together shall constitute but one instrument.
15.4) Applicable Law.
This Agreement shall be governed by and construed according to the Laws
of the State of Illinois excluding any conflict of laws provisions which
would result in the application of the Laws of another jurisdiction to the
interpretation of this Agreement.
15.5) Successors and Assigns.
All of the terms of this Agreement shall apply to, be binding upon and
inure to the benefit of the parties hereto, their respective successors,
permitted assigns and all other Persons claiming by, through or under them.
15.6) No Waiver.
Any failure at any time by either party to enforce any provision of
this Agreement shall not constitute a waiver of such provision or prejudice
the right of either party to enforce such provision at any subsequent time.
15.7) No Third Party Beneficiary.
Except as otherwise provided elsewhere herein, this Agreement and all
rights hereunder are intended for the sole benefit of the parties hereto
and shall not imply or create any rights on the part of, or obligations to,
any other entity or individual not a party to this Agreement.
15.8) Publications.
Supplier and Contractor agree that no acknowledgment or other information
concerning this Agreement and the supplies or services provided hereunder will
be made public without the prior written agreement of the other party.
318
<PAGE>
IN WITNESS WHEREOF, we have hereunto set our hands as of this 31st day of
August, 1999.
General Contractor Supplier
Telesource International, Inc. P.W.S. International, Inc.
By: ____________________Signatory, By: ____________________ Signatory,
Printed: _________________ Printed: _________________
Its: ____________________ Title Its: ____________________ Title
319
<PAGE>
PAGE 27
Jpk:Comm:Doors SubK:Final November 24, 1999 17:17 PM
Schedule of Exhibits
Exhibit "A" Plans, Drawings, Specifications and Design Documents
Exhibit "B" Applicable Provisions of RFP for Department of State
Contract
Exhibit "C" Schedule of Applicable Federal Acquisition Regulations
Exhibit "D" Items Included In The Scope Of Work
Exhibit "E" [Intentionally Deleted]
Exhibit "F" [Intentionally Deleted]
Exhibit "G" Unit Price Breakdown
320
<PAGE>
Plans, Drawings, Specifications and Design Documents Exhibit "A"
The following engineering specifications and documents are incorporated
herein by reference and hereby become an integral part of this Agreement:
1. [The bidding documents provided to date to the Supplier in connection with
this agreement, which both parties acknowledge to be in their possession].
1.
321
<PAGE>
Department of State Request for Proposal Exhibit "B"
[The Department of State Request for Proposal is in the possession of both
parties and is incorporated herein by reference and hereby become an integral
part of this Agreement.]
322
<PAGE>
Exhibit "C"
Federal Acquisition Regulations
The provisions of the Federal Acquisition Regulations (FAR) listed below and any
other attached articles and provisions, if any, as applicable, and as in effect
on the date of this Agreement (except as required to be changed by statute), are
incorporated in this Agreement by reference with the same force and effect as
though herein set forth in full. All such clauses shall, with respect to the
rights, duties and obligations of Contractor and the Supplier hereunder, be
interpreted and construed in such manner as to recognize and give effect to the
contractual relationship between Contractor and the Supplier under this
agreement and the rights of the U.S. Government with respect thereto under the
prime contract from which the agreement is being funded. As used therein the
term "the Contractor" and equivalent terms shall mean the Subcontract and the
terms "the Government" and "the Contracting Officer" and equivalent terms shall
include the Contractor and the Contractor's authorized representative hereunder,
respectively, except under those clauses relating to the rights to audit or
examine the Supplier's financial records, and all other clauses noted with an
asterisk (*), in which case the terms "the Government" and "the Contracting
Officer" shall mean the U.S. Government and the Contracting Officer under the
prime contract, respectively. The word "contract" and like terms shall mean this
agreement.
52.202-01 Definitions
52.203-01 Officials Not to Benefit
52.203-03 Gratuities
52.203-05 Covenant Against Contingent Fees
52.212-08 Priorities, Allocations, and Allotments
52.215-01 Examination of Records by Comptroller General
52.215-02 Audit - Negotiation
52.215-22 Price Reduction for Defective Cost or Pricing Data
52.215-23 Price Reduction for Defective Cost or Pricing Data -
Modification
52.215-24 Supplier Cost or Pricing Data
52.215-25 Supplier Cost or Pricing Data - Modification
52.215-30 Waiver of Facilities Capital Cost of Money
52.216-07 Allowable Cost and Payment
323
<PAGE>
52.216-08 Fixed Fee
52.219-08 Utilization of Small Business Concerns and Small
Disadvantaged Business Concerns
52.219-13 Utilization of Women-Owned Small Businesses
52.220-01 Preference for Labor Surplus Area Concerns
52.220-03 Utilization of Labor Surplus Area Concerns
52.222-02 Payment for Overtime Premiums "overtime premium cost does
not exceed ZERO."
52.222-03 Convict Labor
52.222-26 Equal Opportunity
52.222-35 Affirmative Action for Special Disabled and Vietnam Era
Veterans
52.222-36 Affirmative Action for Handicapped Workers
52.227-01 Authorization and Consent - Alternate I
52.227-02 Notice and Assistance Regarding Patent and Copyright
Infringement
52.227-7013 Rights in Technical Data and Computer Software
52.227-7018 Restrictive Markings on Technical Data
52.227-7029 Identification of Technical Data
52.227-7030 Technical Data - Withholding of Payment
52.228-07 Insurance - Liability to Third Persons
52.230-3 Cost Accounting Standards
52.230-4 Administration of Cost Accounting Standards
52.231-7000 Supplemental Cost Principles
52.232-09 Limitation on Withholding of Payments
52.232-17 Interest
52.232-20 Limitation of Cost
52.232-23 Assignment of Claims
52.242-01 Notice of Intent to Disallow Costs
52.242-7000 Submission of Commercial Freight Bills to the General
Services Administration for Audit
324
<PAGE>
52.243-2 Changes - Cost Reimbursement - Alternate V
52.243-7001 Pricing of Adjustments
52.244-02 Subcontracts under Cost-Reimbursement and Letter Contracts
52.245-05 Government Property (Cost Reimbursement, Time-and-
Material, or Labor-Hour Contracts)
52.247-01 Commercial Bill of Lading Notations
52.249-06 Termination (Cost Reimbursement)
52.249-14 Excusable Delays
52.251-7000 Ordering from Government Supply Sources
325
<PAGE>
Items Included In The Scope Of Work Exhibit "D"
The Work shall include the supply, required testing, and delivery to Contractor
of the following items:
[See Exhibit "G".]
326
<PAGE>
Unit Price Breakdown Exhibit "G"
The following supplier Quotes (in the possession of both parties) include unit
prices which comprise all direct and indirect costs, overhead, profit,
supervision, shop drawings, testing, and incidental costs. It is understood that
these unit prices represent the total cost to the Supplier for determining
progress payments, and shall be the basis of good faith negotiated additions or
deductions from the Contract Price at any time during the Work. The Quotes
include one or more unit price Alternate Options which may or may not be
exercised by the Contractor. In the event that the Quotes contradict each other,
the newest Quote shall govern.
2. Supplier Quote Dated October 17, 1998 and consisting of eleven pages.
3. Supplier Quote Dated August 4, 1998 and consisting of three pages.
4. Supplier Quote Dated July 31, 1998 and consisting of eleven pages.
5. Supplier Quote Dated July 17, 1998 and consisting of eleven pages.
6. Supplier Quote Dated July 8, 1998 and consisting of one page.
7. Developer Correspondence Dated August 4, 1999 (a null and void Purchase
Order) and August 7, 1999.
327
<PAGE>
- --------------------------------------------------------------------------------
TELESOURCE INT'L., INC. PURCHASE ORDER
- -------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
860 Parkview Boulevard
Lombard, Illinois 60148
(630) 620-4787
Fax: (630) 620-4753
Page One of Five
TO: P.O. NUMBER 3404 Change Order No.1
P.W.S. International, Inc. P.O. DATE October 12, 1999
340 Crompton Street
Charlotte, NC 28241
Attention: Mr. Fred Parker
Phone: 704-588-3013 Fax: 704-588-3017
------------------------------------------------
REQUISITIONED BY SHBC
Elias Deeb
SHIP BY November 18, 1999
SHIP VIA Ocean Freight
F.O.B. C & F Kuwait
SHBC P.O. USH/166-A/4/99
Ship To: American Embassy Kuwait, State of Kuwait TERMS Letter of Credit
Consigned To:
American Embassy Kuwait, State of Kuwait
Attn: FBO / H.P.
Contract No. S-FBOAD95COO65
Bayan, Kuwait
Notifying Party:
Sayed Hamid Behbehani & Sons C.O. W.L.L.
P.O. BOX 3065
Safat - 13031, Kuwait
Phone: (965) 245-4501/2/3
Fax: (965) 244-6820 or 242-6276
Attention: Mr. Elias Deeb
Shipping Marks: American Embassy Kuwait
State of Kuwait
Purchase order number must appear on all
forms relating to this order.
-
QTY UNIT DESCRIPTION PRICE AMOUNT
THIS CHANGE ORDER IS SUBJECT TO THE TERMS AND CONDITIONS
OF THE AGREEMENT DATED AUGUST 31, 1999 WHICH IS MADE A
NECESSARY AND INTEGRAL PART OF THIS CHANGE ORDER AND
WHICH IS MODIFIED AS NECESSARY TO ENCOMPASS THIS CHANGE
ORDER
L.S. L.S. Supply of Steel Doors &
Frames as per the Section $ 36,778.00 $ 36,778.00
# 08110 and approved
Drawings and Schedules
L.S. L.S. Supply of Wood Doors as
per Section # 08211 and $104,538.00 $104,538.00
approved Drawings and
Schedules
L.S. L.S. Supply of Aluminum
Entrances & Windows as per $738,387.00 $738,387.00
Section #08410 and approved
Drawings and Schedules
Schedules S (doors and
windows to be Factory Glazed)
1 No. Supply of Overhead Coiling
Doors, Section #08331 $5,666.00 $5,666.00
Door Type 45, 2500mm x 2670mm
328
<PAGE>
TELESOURCE INT'L., INC. PURCHASE ORDER
860 Parkview Boulevard
Lombard, Illinois 60148
(630) 705-4020
Fax: (630) 705-4025
Page Two of Five
TO: P.O. NUMBER 3404 Change Order No. 1
P.W.S. International, Inc. P.O. DATE October 12, 1999
340 Crompton Street
Charlotte, NC 28241
Attention: Mr. Fred Parker
Phone: 704-588-3013 Fax: 704-588-3017
REQUISITIONED BY SHBC
Elias Deeb
SHIP BY November 18, 1999
SHIP VIA Ocean Freight
F.O.B. C & F Kuwait
SHBC P.O. USH/166-A/4/99
Ship To: American Embassy Kuwait, State of Kuwait TERMS Letter of Credit
Consigned To:
American Embassy Kuwait, State of Kuwait
Attn: FBO / H.P.
Contract No. S-FBOAD95COO65
Bayan, Kuwait
Notifying Party:
Sayed Hamid Behbehani & Sons C.O. W.L.L.
P.O. BOX 3065
Safat - 13031, Kuwait
Phone: (965) 245-4501/2/3
Fax: (965) 244-6820 or 242-6276
Attention: Mr. Elias Deeb
Shipping Marks: American Embassy Kuwait
State of Kuwait
Purchase order number must appear on
<TABLE>
<CAPTION>
all forms relating to this order.
QTY UNIT DESCRIPTION PRICE AMOUNT
<S> <C> <C> <C> <C> <C>
3 No. Roof Hatches as per Section #07720, MS-50 3'0 x 2'6 and L.S. $2,818.00
L.S. L.S. Finish Hardware as per Section #08410 & #08710 and $84,056.00 $84,056.00
approved Hardware Schedules
Ref: PWS Int'l Quotation dated Oct 17-98 (copy attached)
L.S. L.S. C/S Model A4115 4" deep extruded aluminum louvers with $2,865.00
Kynar 500 finish color Yorktown. Louvers to have blank off
panels and screens as indicated.
2 EA 980mm dia. round louvers with blank off panel
1 EA 410 x 2025mm louver with blank off panel
2 EA 590mm dia. round louvers with bird screen
(Ref: Your fax dated 13 Sept-99)
L.S. L.S. 2 EA Bilco D-50 Hatches 2m x 2m Aluminum Hatch $6,818.00
12" Curb Zinc Hardware
(Ref: Your fax dated 4 Oct-99)
</TABLE>
- -------------------------------------------------------------------------------
329
<PAGE>
TELESOURCE INT'L., INC. PURCHASE ORDER
860 Parkview Boulevard
Lombard, Illinois 60148
(630) 620-4787
Fax: (630) 620-4753
Page Three of Five
TO: P.O. NUMBER 3404 Change Order No. 1
P.W.S. International, Inc. P.O. DATE October 12, 1999
340 Crompton Street
Charlotte, NC 28241
Attention: Mr. Fred Parker
Phone: 704-588-3013 Fax: 704-588-3017
REQUISITIONED BY SHBC
Elias Deeb
SHIP BY November 18, 1999
SHIP VIA Ocean Freight
F.O.B. C & F Kuwait
SHBC P.O. USH/166-A/4/99
Ship To: American Embassy Kuwait, State of Kuwait TERMS Letter of Credit
Consigned To:
American Embassy Kuwait, State of Kuwait
Attn: FBO / H.P.
Contract No. S-FBOAD95COO65
Bayan, Kuwait
Notifying Party:
Sayed Hamid Behbehani & Sons C.O. W.L.L.
P.O. BOX 3065
Safat - 13031, Kuwait
Phone: (965) 245-4501/2/3
Fax: (965) 244-6820 or 242-6276
Attention: Mr. Elias Deeb
Shipping Marks: American Embassy Kuwait
State of Kuwait Purchase order number must
appear on all forms relating to this
order.
<TABLE>
<CAPTION>
QTY UNIT DESCRIPTION PRICE AMOUNT
<S> <C> <C> <C> <C> <C>
L.S. L.S. Architectual Pottery $3,165.00
3 EA KP-19B Classic Greek 33" x 26" 3 EA KP-6A
Classic Greek 24" x 26" 3 EA KP-4C Classic Greek
16" x 20" (Ref: Your fax dated 5 Sept-99)
L.S. L.S. 4 EA Windermire Benches Style 4503 $3,455.00
(Ref: Your fax dated 5 Sept-99)
L.S. L.S. Furnish and Install specified Glass in all the exterior $160,344.00
Windows and Doors to have 5/16" clear heat
strengthened Lamintated Glass with .060 PVB Vinyl Inner
Layer as per attached Specifications (3 pages)
C & F Kuwait Subtotal $1,148,890.00
Total $1,148,890.00
</TABLE>
- --------------------------------------------------------------------------------
330
<PAGE>
TELESOURCE INT'L., INC. PURCHASE ORDER
860 Parkview Boulevard
Lombard, Illinois 60148
(630) 620-4787
Fax: (630) 620-4753
Page Four of Five
TO: P.O. NUMBER 3404 Change Order No. 1
P.W.S. International, Inc. P.O. DATE October 12, 1999
340 Crompton Street
Charlotte, NC 28241
Attention: Mr. Fred Parker
Phone: 704-588-3013 Fax: 704-588-3017
REQUISITIONED BY SHBC
Elias Deeb
SHIP BY November 18, 1999
SHIP VIA Ocean Freight
F.O.B. C & F Kuwait
SHBC P.O. USH/166-A/4/99
Ship To: American Embassy Kuwait, State of Kuwait TERMS Letter of Credit
Consigned To:
American Embassy Kuwait, State of Kuwait
Attn: FBO / H.P.
Contract No. S-FBOAD95COO65
Bayan, Kuwait
Notifying Party:
Sayed Hamid Behbehani & Sons C.O. W.L.L.
P.O. BOX 3065
Safat - 13031, Kuwait
Phone: (965) 245-4501/2/3
Fax: (965) 244-6820 or 242-6276
Attention: Mr. Elias Deeb
Shipping Marks: American Embassy Kuwait
State of Kuwait
Purchase order number must appear on
all forms relating to this order.
<TABLE>
<CAPTION>
QTY UNIT DESCRIPTION PRICE AMOUNT
<S> <C> <C> <C> <C> <C>
Terms of Payment
By L/C in favor of P.W.S. International Inc.,
P.O. Box 410081, Charlotte N.C. 28241, USA, to
cover 95% of Value of P.O. against submission of
Shipping Documents. 5% Payable via Wire Transfer
within 30 Days of receipt of the Materials on
Site and their inspection. Notes Fabrication of
Wooden Doors & Steel Doors and Frame, Overhead
Coiling Door, Aluminum Windows and Roof Hatches
can be commenced. PWS has to resolve FBO's
comments for Aluminum Doors and Hardware and
provide us the approved Submittals before
fabrication and procuments. Hardware Samples to
be provied to US Government for final acceptance
and complete set of specialized tools and
maintance instructions to be provived as per
Section # 08710-1.6. Glazing to be provided as
per Section #08800 and approved samples and
drawings.
</TABLE>
- ------------------------------------------------------------------------------
331
<PAGE>
TELESOURCE INT'L., INC. PURCHASE ORDER
860 Parkview Boulevard
Lombard, Illinois 60148
(630) 620-4787
Fax: (630) 620-4753
Page Five of Five
TO: NUMBER 3404 Change Order No. 1
P.W.S. International, Inc. P.O. DATE October 12, 1999
340 Crompton Street
Charlotte, NC 28241
Attention: Mr. Fred Parker
Phone: 704-588-3013 Fax: 704-588-3017
REQUISITIONED BY SHBC
Elias Deeb
SHIP BY November 18, 1999
SHIP VIA Ocean Freight
F.O.B. C & F Kuwait
SHBC P.O. USH/166-A/4/99
Ship To: American Embassy Kuwait, State of Kuwait TERMS Letter of Credit
Consigned To:
American Embassy Kuwait, State of Kuwait
Attn: FBO / H.P.
Contract No. S-FBOAD95COO65
Bayan, Kuwait
Notifying Party:
Sayed Hamid Behbehani & Sons C.O. W.L.L.
P.O. BOX 3065
Safat - 13031, Kuwait
Phone: (965) 245-4501/2/3
Fax: (965) 244-6820 or 242-6276
Attention: Mr. Elias Deeb
Shipping Marks: American Embassy Kuwait
State of Kuwait
Purchase order number must appear on
all forms relating to this order.
<TABLE>
<CAPTION>
QTY UNIT DESCRIPTION PRICE AMOUNT
<S> <C> <C> <C> <C> <C>
List of Documents:
3 Sets of Original Invoices
One Original Certificate of Origin
3 Original sets of Packing List
3 Original sets of On-Board Bill of Lading
The shipping documents shall be consigned to:12
American Embassy Kuwait State of Kuwait
Attn: FBO/H.P.
The 
