AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 29, 1999
REGISTRATION NO. ______________
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
YAK COMMUNICATIONS (USA), INC.
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
FLORIDA 7385
(STATE OR OTHER JURISDICTION OF INCORPORATION (PRIMARY STANDARD INDUSTRIAL
OR ORGANIZATION) CLASSIFICATION CODE NUMBER)
98-0203422
(I.R.S. EMPLOYER
IDENTIFICATION NO.)
55 TOWN CENTRE COURT, SUITE 506
TORONTO, ONTARIO M1P 4X4
CANADA
(416) 296-7111
(ADDRESS AND TELEPHONE NUMBER OF PRINCIPAL
EXECUTIVE OFFICES AND PRINCIPAL PLACE OF BUSINESS)
-------------------------
CHARLES ZWEBNER
PRESIDENT & CHIEF EXECUTIVE OFFICER
55 TOWN CENTRE COURT, SUITE 506
TORONTO, ONTARIO M1P 4X4
CANADA
(416) 296-7111
(NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
-------------------------
COPIES TO:
DENNIS J. OLLE, ESQ.
ADORNO & ZEDER, P.A.
2601 SOUTH BAYSHORE DRIVE
MIAMI, FLORIDA 33133
(305) 860-7044
-------------------------
APPROXIMATE DATE OF PROPOSED SALES TO THE PUBLIC: AS SOON AS
PRACTICABLE AFTER THE REGISTRATION STATEMENT BECOMES EFFECTIVE.
IF ANY OF THE SECURITIES BEING REGISTERED ON THIS FORM ARE BEING
OFFERED ON A DELAYED OR CONTINUOUS BASIS PURSUANT TO RULE 415 UNDER THE
SECURITIES ACT, CHECK THE FOLLOWING BOX. [X]
IF THIS FORM IS FILED TO REGISTER ADDITIONAL SECURITIES FOR AN OFFERING
PURSUANT TO RULE 462(B) UNDER THE SECURITIES ACT, CHECK THE FOLLOWING BOX AND
LIST THE SECURITIES ACT REGISTRATION STATEMENT NUMBER OF THE EARLIER EFFECTIVE
REGISTRATION STATEMENT FOR THE SAME OFFERING. [ ]
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IF THIS FORM IS A POST-EFFECTIVE AMENDMENT FILED PURSUANT TO RULE
462(C) UNDER THE SECURITIES ACT, CHECK THE FOLLOWING BOX AND LIST THE SECURITIES
ACT REGISTRATION STATEMENT NUMBER OF THE EARLIER REGISTRATION STATEMENT FOR THE
SAME OFFERING. [ ]
IF THIS FORM IS A POST-EFFECTIVE AMENDMENT FILED PURSUANT TO RULE
462(D) UNDER THE SECURITIES ACT, CHECK THE FOLLOWING BOX AND LIST THE SECURITIES
ACT REGISTRATION STATEMENT NUMBER OF THE EARLIER REGISTRATION STATEMENT FOR THE
SAME OFFERING. [ ]
IF DELIVERY OF THE PROSPECTUS IS EXPECTED TO BE MADE PURSUANT TO RULE
434, PLEASE CHECK THE FOLLOWING BOX. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- ------------------------------------- ---------------- -------------------------- --------------------------- -------------------
TITLE OF EACH CLASS OF SECURITIES AMOUNT TO BE PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TO BE REGISTERED REGISTERED OFFERING PRICE PER SHARE AGGREGATE OFFERING PRICE REGISTRATION FEE
- ------------------------------------- ---------------- -------------------------- --------------------------- -------------------
<S> <C> <C> <C> <C>
COMMON STOCK, NO PAR VALUE, 940,000 $1.00 $940,000 $261.32*
ISSUABLE UPON EXERCISE OF THE
WARRANTS.
- ------------------------------------- ---------------- -------------------------- --------------------------- -------------------
</TABLE>
* BASED ON THE LAST SALE PRICE OF THE COMMON STOCK, WHICH OCCURRED IN A PRIVATE
TRANSACTION ON AUGUST 20, 1999. AT THE FILING OF THIS REGISTRATION STATEMENT
THERE IS NO PUBLIC MARKET FOR THE COMMON STOCK. WE HAVE DETERMINED THE PRICE OF
THE COMMON STOCK CONSISTENT WITH THE INTENT OF RULE 457 (C) UNDER THE SECURITIES
ACT OF 1933 TO CALCULATE THE REGISTRATION FEE.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THE 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.
PROSPECTUS (SUBJECT TO COMPLETION) DATED SEPTEMBER 29, 1999
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THE INFORMATION IN THIS PRELIMINARY PROSPECTUS IS NOT COMPLETE AND MAY BE
CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PRELIMINARY
PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN
OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT
PERMITTED.
YAK COMMUNICATIONS (USA), INC.
940,000 SHARES OF COMMON STOCK UNDERLYING THE WARRANTS
We have prepared this prospectus to allow selling stockholders to sell
up to 940,000 shares of our common stock which the selling stockholders may
acquire on exercise of warrants. We are registering these shares by filing a
registration statement with the Securities and Exchange Commission using a
"shelf" registration process. This process allows the selling stockholders to
sell their shares of common stock over a period of time and in varying amounts.
We expect that the selling stockholders will sell their shares of common stock
from time to time as described under "Plan of Distribution." We will receive the
proceeds from the selling stockholders' exercise of the warrants, if any. The
selling stockholders are under no obligation to exercise the warrants.
THE SECURITIES AND EXCHANGE COMMISSION AND STATE REGULATORS HAVE NOT APPROVED OR
DISAPPROVED THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR
COMPLETE. IT IS A CRIME TO MAKE ANY REPRESENTATION TO THE CONTRARY.
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TABLE OF CONTENTS
PAGE
PROSPECTUS SUMMARY............................................................1
RISK FACTORS..................................................................3
USE OF PROCEEDS...............................................................8
MANAGEMENT'S PLAN OF OPERATIONS...............................................9
IMPACT OF THE YEAR 2000 ISSUE.................................................9
OUR COMPANY..................................................................11
FORWARD-LOOKING STATEMENTS...................................................19
MANAGEMENT...................................................................21
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS...............................23
PRINCIPAL SHAREHOLDERS.......................................................24
SELLING SHAREHOLDER..........................................................25
PLAN OF DISTRIBUTION.........................................................25
DESCRIPTION OF SECURITIES....................................................27
LEGAL MATTERS................................................................29
EXPERTS......................................................................29
WHERE YOU CAN FIND ADDITIONAL INFORMATION....................................29
AUDITED FINANCIAL STATEMENTS................................................F-1
INVESTMENT IN SMALL BUSINESSES INVOLVES A HIGH DEGREE OF RISK, AND INVESTORS
SHOULD NOT INVEST ANY FUNDS IN THIS OFFERING UNLESS THEY CAN AFFORD TO LOSE
THEIR ENTIRE INVESTMENT. SEE "RISK FACTORS" HEREIN FOR CERTAIN SUBSTANTIAL RISKS
TO INVESTORS. IN MAKING AN INVESTMENT DECISION INVESTORS MUST RELY ON THEIR OWN
EXAMINATION OF THE ISSUER AND THE TERMS OF THE OFFERING, INCLUDING THE MERITS
AND RISKS INVOLVED. WE ARE A DEVELOPMENT STAGE COMPANY.
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PROSPECTUS SUMMARY
YAK COMMUNICATIONS (USA), INC.
We were incorporated under the laws of the State of Florida in December
1998 to develop and offer international long distance discount services to
medium and small-sized businesses and residential customers with an initial
emphasis on targeting those ethnic markets that make a significant amount of
international long distance calls. We began our operations in July 1999.
International long distance traffic is generally transmitted through an
international gateway switching facility. International gateway switches are
digital computerized routing facilities that receive calls, route calls through
transmission lines to their destination, and record information about the
source, destination and duration of calls. We currently operate an international
gateway switch in Toronto, and plan to put into service an international gateway
switch in New York by October 1, 1999.
We rely on resale arrangements to secure low-cost transmission of calls
that are routed through our gateway switching facility. Resale arrangements
typically involve the wholesale purchase and sale of transmission and
termination services between long distance providers on a variable, per minute
basis. The resale of capacity, which was first permitted in the North American
market in the 1980s, enabled the emergence of new international long distance
providers. International long distance calls may be routed through a
facilities-based carrier with excess capacity, or through multiple long distance
resellers between the originating long distance provider and the
facilities-based carrier that ultimately terminates the traffic. Resale
arrangements set per minute prices for different routes.
We currently offer a dial-around service (also known as "casual
calling"). This allows the customer to dial around his existing long distance
carrier on any call by entering a few digits prior to making the call, without
switching long distance carriers. We will also offer the customer the ability to
automatically switch long distance calls from his existing long distance carrier
to our long distance service, known as "1+ billing".
We market our long distance services primarily to small businesses and
ethnic residential customers who we expect might regularly make international
calls. We intend to use print media, radio and direct mail to develop brand
recognition and generate new customers. We expect that print media advertising
in ethnic newspapers and on selected radio programs, combined with direct mail
into primarily ethnic neighborhoods, will allow us to reach ethnic customers
that make international calls.
We intend to provide our customers with internet telephony as the
associated technology emerges. This is expected to allow PC-to-Phone, PC-to-PC,
and Phone-to-Phone internet calling. We expect that the cost to the customer
will be a flat monthly fee which would allow most customers to make
international calls at a fraction of their current costs.
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Our offices are located at 55 Town Centre Court, Suite 506, Toronto,
Ontario, Canada. Our telephone number is (416) 296-7111. Our facsimile number is
(416) 279-1372. Our world-wide web address is www.yakcom.com. Information
contained in our web site is not part of this prospectus.
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RISK FACTORS
INVESTING IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK AND SHOULD BE
REGARDED AS SPECULATIVE. AS A RESULT, THE PURCHASE OF SHARES SHOULD BE
CONSIDERED ONLY BY PERSONS WHO CAN AFFORD A LOSS OF THEIR ENTIRE INVESTMENT. IN
ADDITION TO THE OTHER INFORMATION INCLUDED IN THIS PROSPECTUS, PROSPECTIVE
PURCHASERS SHOULD CAREFULLY CONSIDER THE FOLLOWING.
WE ARE A START UP COMPANY WITH AN ABSENCE OF OPERATING HISTORY
From our incorporation in December 1998 through June 1999, we have
focused on formulating our plans and developing our facilities to provide long
distance services. We commenced providing telephone calling services in July
1999 in Toronto; accordingly, we have no material operating history upon which
you can evaluate our business and prospects. An investment in our Company is
subject to all of the risks involved in a newly established business venture.
You should consider the problems, delays, expenses and difficulties encountered
by companies at this early stage of operations, many of which may be beyond our
control, including marketing and service introduction, competition, market
acceptance of our services, and unanticipated problems and additional costs
relating to the development of our services.
Our success will depend on our ability to provide long distance
telephone calls at a discount from the prices offered by the larger, established
carriers, and to successfully market our discounted long distance time. The
prospects for our success must be considered in light of the risks, expenses and
difficulties often encountered in the development of a new startup business.
Accordingly, AN INVESTMENT IN OUR COMMON STOCK IS A HIGH-RISK SPECULATIVE
INVESTMENT SUITABLE ONLY FOR PERSONS HAVING NO NEED FOR LIQUIDITY IN THEIR
INVESTMENT AND WHO HAVE ADEQUATE FINANCIAL RESOURCES TO WITHSTAND A TOTAL LOSS
OF THEIR INVESTMENT.
WE HAVE HAD LIMITED REVENUES AND WE ANTICIPATE FUTURE LOSSES
To date, we have had limited operating revenues. We will continue to
incur costs in excess of our operating revenues in connection with the
development of our business and it is uncertain when, if ever, we will achieve
sufficient revenues to offset these operating costs.
WE HAVE WORKING CAPITAL REQUIREMENTS AND WE MAY NEED ADDITIONAL FINANCING
Our working capital requirements in connection with the expansion of
our business will be material. We anticipate that we will need additional
financing to carry out our intended activities. There can be no assurance that
any such financing will be available, or if available, will be on terms
acceptable to us. Any inability to raise sufficient working capital in the
future when needed would have a material adverse effect on our operations.
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WE ARE SUBJECT TO VARIOUS REGULATORY MATTERS
We believe that we currently comply with all existing laws and
regulations applicable to the operations of our business; however, the
subsequent adoption or modification of state and local laws and regulations
imposing controls and other restrictions on the long distance communications
industry may materially and adversely affect the marketability of our services,
which would likely have a negative effect on our financial condition and
operations. We have made, and will continue to make, expenditures to comply with
such laws and regulations; however, changes in laws and regulations may give
rise to additional compliance costs or additional burdens to obtaining
applicable regulatory approvals that could have a material adverse effect on the
Company.
WE OPERATE IN A HIGHLY COMPETITIVE INDUSTRY THAT IS SENSITIVE
TO TELECOMMUNICATION AND TECHNOLOGICAL TRENDS
There are currently several small companies, as well as some larger
companies that have greater resources than we have, and each of these other
companies provide similar long distance communications services. Additionally,
there is nothing to prevent the largest of the companies involved in the
telecommunications industry from entering the "casual calling" market. These
larger, established telecommunications companies not only have greater resources
than we do, they also have significantly greater experience and name recognition
than we do. Some of these larger existing and potential competitors have the
potential marketing advantage of being able to offer multiple services and
products to our current or prospective customers. One or more of these
competitors could also improve their current services and products or develop
new products which may compete more effectively with us. In addition, new
technologies may arise which could lower or eliminate the demand for our
services. No assurances can be given that we will be able to compete
successfully against current and future competitors, and any failure to do so
would have a material and adverse effect on our business. Many of our existing
and potential competitors may be able to respond more quickly to new or emerging
advancements in the industry and to devote greater resources to the development,
promotion and sale of their products and services. In addition, current and
potential competitors may make strategic acquisitions or establish cooperative
relationships among themselves or with third parties that could increase their
ability to reach our targeted market.
WE ARE DEPENDENT ON KEY PERSONNEL AND TECHNICAL STAFF
We depend greatly on the services of our chief executive officer,
Charles Zwebner, and on the members of our technical staff, to implement and
execute our strategy. The loss of any of these individuals could have a material
adverse effect on our operations. In addition, we will have to hire additional
experienced and qualified personnel as we expand our operations. The anticipated
growth of our business is expected to put a strain on management's time and our
operational resources. The failure to hire and train additional personnel to
support our anticipated growth would adversely affect our chances of achieving
such growth.
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OUR INDUSTRY IS CHARACTERIZED BY A HIGH RISK
OF OBSOLESCENCE AND RAPID ADVANCES
The telecommunications industry is characterized by rapidly changing
technology, frequent new service and product introductions, and significant and
rapid reductions in the price of technology. New technology in other calling
methods could render the "casual calling" concept obsolete. These technologies
include, among others, personal computer telephony and internet voice
communication. Shifts in technology, consumer demands and government regulations
could hinder our strategy and growth plans.
WE DEPEND ON KEY SUPPLIERS OF TECHNOLOGY
AND TRANSMISSION SERVICES
The success of our business will depend in part on our ability to
obtain and maintain switching equipment that meets our requirements, and cost
effective access to transmission services. While there are many different switch
supporters, currently we have only one switch, and as a result we are dependent
upon the supplier of that switch for timely replacement parts should any be
needed in the future.
Substantially all of the telephone calls made by our customers through
our switch are connected through large long-distance carriers that have
significant transmission facilities. These carriers provide us with transmission
capacity through a variety of resale arrangements. Our ability to maintain and
expand our business is dependent, in part, upon continuing to maintain
satisfactory relationships with these carriers. Typically, these carriers do not
enter into long-term contracts with resellers of their services, and they are
not restricted from competing against us. To the extent that any of these
carriers raise their rates, change their pricing structure or reduce the amount
of capacity they will make available to us, our financial condition or results
of operations may be adversely affected. While there are many suppliers of these
transmission services, there can be no assurance that we will maintain
contractual arrangements with these carriers that allows us to become or remain
profitable. Also, we face the risk that there may be a disruption in the service
or the quality of service provided by these carriers, causing a disruption in
the services we provide to our customers.
WE DEPEND ON THIRD PARTIES FOR BILLING AND COLLECTION
In Canada, we are dependent on Bell Canada for our billing and
collection. Pursuant to our Billing and Collection Services Agreement with Bell
Canada, we must provide accurate billing records to Bell Canada and in turn Bell
Canada is responsible for collecting from consumers and paying us. See "Our
Company -- Billing Agreements."
Also, we are dependent on Stentor Canadian Network Management, an
unincorporated association made up of the provincial local phone companies
("Stentor"). We engage the services of Stentor for the delivery and handling of
billing records to Bell Canada (or other provincial telephone companies).
Pursuant to a Service Agreement between us and Stentor, we will deliver
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billable records to Stentor, and Stentor will transmit our call records to Bell
Canada in accordance with transmitting procedures among the provincial local
phone companies for billing and collection. Therefore, we are dependent on a
third party for the routing of our billing records, and for our billing and
collections.
WE DEPEND ON ONE MAJOR CUSTOMER FOR OUR WHOLESALE SERVICES PROGRAM
Currently, we are dependent upon a customer, which is controlled by an
affiliate of the Company (see "Certain Transactions"), for our long distance
wholesale reselling program, which currently provides us with a significant
volume of minutes. This customer pays us on a weekly basis.
THERE IS A RISK OF NETWORK FAILURE
Our success is largely dependent on our ability to deliver
competitively priced international and domestic long distance telephone
services. Our operations are dependent on our ability to successfully expand our
network and integrate new and emerging technologies and equipment, which may
increase the risk of system failure and cause strain upon our network. Our
operations also are dependent on protection of our hardware and other equipment
from damage due to power loss, telecommunications failures or similar
occurrences. Significant or prolonged telephone network failures, or
difficulties for customers in completing long distance telephone calls, could
damage our reputation and result in the loss of customers, and consequently have
a material adverse effect on our financial position or business prospects.
THERE IS A POTENTIAL FOR FRAUD IN OUR INDUSTRY
The potential for fraud has always been prevalent in the
telecommunications industry. Telephone carriers and resellers are subject to the
schemes of people who use the carriers' and the resellers' systems without
having the cost for the calls attributed to that user. Currently we have several
levels of control in place to prevent fraud. We believe that our operations are
not susceptible to widespread fraud, however, there is always a possibility of
individuals who attempt to steal services from telecommunications systems, who
can adversely affect our operations.
THERE IS NO PUBLIC MARKET FOR OUR COMMON STOCK
There is presently no public market for our common stock. There is no
assurance that a trading market will develop or be sustained. Accordingly,
investors may have to hold their securities indefinitely and may have difficulty
in selling such securities if an active trading market does not develop.
WE HAVE NEVER PAID ANY DIVIDENDS, NOR DO WE ANTICIPATE DOING SO
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We expect that we will retain all available earnings generated by our
operations for the development and growth of our business. Accordingly, we do
not anticipate paying any cash dividends on our common stock.
CONTROL BY MANAGEMENT
Our current executive officers and directors own approximately 39% of
our common stock. Together with the shares owned by their non-household family
members, they own approximately 54% of our common stock, giving our executive
officers, directors, and their non-household family members voting control over
the Company. Since the common stock does not have cumulative voting rights, if
they choose to act as a group they will be able to determine and direct our
affairs and policies. See "Principal Shareholders".
WE HAVE NO ASSURANCE THAT A PUBLIC MARKET FOR
OUR COMMON STOCK WILL BE CREATED OR MAINTAINED
Prior to this offering, there has been no public market for the shares
offered, and none is anticipated to develop in the near future. Initially, we
intend to have our common stock listed on the NASD Bulletin Board. In the event
a regular public trading market does not develop, or is not sustained, any
investment in our common stock would be highly illiquid. Accordingly, an
investor in our common stock may not be able to sell the shares readily, if at
all. Consequently, if as a result of some change in circumstances arising from
an event not now contemplated, an investor wishes to sell their shares owned,
the investor may find he or she has only a limited or no ability to sell the
shares.
THERE ARE SIGNIFICANT CONSEQUENCES ASSOCIATED WITH OUR
STOCK TRADING ON THE NASD BULLETIN BOARD SERVICE RATHER
THAN A NATIONAL EXCHANGE
The effects of not being able to list our common stock on a national
exchange include: (i) limited release of the market prices of our common stock;
(ii) limited news coverage of the Company; (iii) limited interest by investors
in our common stock; (iv) increased difficulty in selling our common stock due
to "blue sky" restrictions; and (v) limited ability to issue additional common
stock to secure additional financing.
TRADING ACTIVITY (IF ANY) MAY BE REDUCED IF
"PENNY STOCK" RULES APPLY
Broker-dealer practices in connection with transactions in "penny
stocks" (also referred to as "designated securities") are regulated by certain
penny stock rules adopted by the Securities and Exchange Commission. Penny
stocks generally are equity securities with a price of less than $5.00 (other
than securities registered on certain national securities exchanges or quoted on
the NASDAQ system). The penny stock rules require a broker-dealer, prior to a
transaction in a penny stock not
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otherwise exempt from the rules, to deliver a standardized risk disclosure
document that provides information about penny stocks and the nature and level
of risks in the penny stock market. The broker-dealer also must provide the
customer with current bid and offer quotations for the penny stock, the
compensation of the broker-dealer and its salesperson in the transaction, and
monthly account statements showing the market value of each penny stock held in
the customer's account. In addition, the broker-dealer must make a special
written determination that the penny stock is a suitable investment for the
purchaser and receive the purchaser's written agreement to the transaction.
These requirements may have the effect of reducing the level of trading
activity, if any, in the secondary market for a security that becomes subject to
the penny stock rules. If our common stock becomes subject to the penny stock
rules, investors in this offering may find it more difficult to sell their
shares.
WE FACE POSSIBLE SERVICE INTERRUPTION ASSOCIATED WITH THE YEAR 2000
We believe our current call system is Year 2000 compliant. In the event
that our call connection system or the call processing facilities of Bell Canada
or other regional phone transmission systems are not Y2K complaint, significant
disruption in our services could result, which would have a material adverse
effect on our operations. See "Impact of the Year 2000 Issue."
USE OF PROCEEDS
We will not receive any proceeds from the sale of the common stock offered
hereby by the selling shareholder. We are registering this common stock under a
contractual agreement to register the shares of common stock to be issued upon
the exercise of the Warrants.
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MANAGEMENT'S PLAN OF OPERATIONS
For the next twelve months, we plan to expand our discount long
distance calling services by expanding our marketing efforts and adding capital
equipment which will give us greater capacity and, we expect, reduce our costs.
As of June 30, 1999, we have acquired property and equipment with a
cost of $610,000. We have $108,000 in outstanding capital lease obligations in
connection with this equipment. Since June 30, 1999, we have made commitments
for additions to capital assets totaling $150,000. Of these additions, $75,000
will be used to upgrade the switching facility in Toronto, and $75,000 will be
used for a new switching facility in New York City. The new switching facility
will enable us to directly route international calls through additional
U.S.-based carriers, which we expect will result in lower rates to us for
selected calling routes. These additions are to be financed under a capital
lease of $100,000 with a deposit made from operating cash flow.
Since inception, we have relied upon equity and debt financing to fund
our development and operations which began in July 1999. Operating revenues are
currently less than the current cost of operations. We expect that the current
level of growth in revenues will enable us to achieve "break-even" operations,
on a cash flow basis, by January 2000. Thereafter, we expect that we will be
seeking additional equity funds to finance further growth.
As we make sales to consumers we may draw upon our available credit
facility of $435,000. We believe that, based upon current projections, the cash
generated from the sale of common stock and the proceeds of the loan, in
addition to funds available under the credit facility, will be adequate to fund
our operations and meet our obligations for approximately the next six months.
However, in order to expand our operations beyond the next six months,
additional capital will be required. The amounts required will be based upon our
ability to consistently generate revenues in excess of our operating expenses.
We have completed the research and development necessary for us to
commence operating our international gateway switching system and our sale of
capacity through our system. We do not have any current plans to undertake any
additional material research and development, nor do we expect there to be a
significant increase in our number of employees. See "Our Company -- Employees."
IMPACT OF THE YEAR 2000 ISSUE
The Year 2000 Issues ("Y2K") is the result of computer programs being
written using two digits rather than four to define the applicable year. Any of
our suppliers and customers' computer programs that have date-sensitive software
may recognize a date using "00" as the year 1900 rather than the year 2000. This
could result in system failures or miscalculations causing the disruption of
operations, including, among other things, a temporary inability to process
transactions, send
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invoices, or engage in similar, normal business activities. We believe that Y2K
is a significant issue which could have a material impact on our operations.
All of our switching equipment has been purchased during 1999 with supplier
representations that it is Y2K compliant. All further new hardware and software
will be purchased only if we receive representations that they are Y2K
compliant. There are no planned expenditures required to make the our systems
Y2K compliant.
We are also reliant on third parties' compliance with the Year 2000 issue;
in particular, our long distance suppliers who provide trunking, connection and
network services to over 200 countries worldwide, and Stentor and Bell Canada
for billing and collections. Due to the interdependence of the services
provided, we risk business interruption if any one of these systems is not Y2K
compliant, or electrical power is interrupted. We have been advised by our
suppliers that they have implemented Year 2000 readiness programs and the
related products and services are "service ready." "Service ready" means that,
to the best of their knowledge, products or services, if required, will be able
to accurately process voice and data information; provided that all products and
services which interconnect with, or which are used in combination with, such
product and service, properly exchange data (provided, however, that no
unauthorized modifications or additions have been made to any such products). In
addition, we are relying upon the representations of the suppliers of our
equipment and software that their telecommunications systems and equipment are
Y2K compliant.
The risks posed by the Year 2000 issue are uncertain and the potential
negative impact is not fully known. While we are confident of our Y2K compliance
and do not anticipate any business interruptions, there can be no assurance that
the switching facility or any of our customers or vendors' products upon which
it relies will not cause interruption in our operations. In such event, we would
experience a loss in revenues as a result of the delays involved while waiting
for others to reactivate their systems. We intend to create a contingency plan
to reduce the risk of business interruption and loss of revenues in the event
the switching facility is unable to operate in the Year 2000.
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OUR COMPANY
Yak Communications (USA), Inc., was incorporated in Florida on December
24th, 1998. Our objective is to provide international long distance discount
services to medium and small-sized businesses and residential customers with an
initial emphasis on targeting those ethnic markets that make a significant
amount of international long distance calls.
Internationally switched long distance services are provided through
switching and transmission facilities that automatically route calls to circuits
based upon a predetermined set of routing criteria. The call typically
originates on a local exchange carrier's network and is routed on that network
to the caller's long distance carrier. The long distance provider picks up the
call at its international gateway switch and sends it directly or through one or
more other long distance providers to a corresponding gateway switch operated in
the country of destination. Once the traffic reaches the country of destination,
it is then routed to the party being called through that country's domestic
telephone network. International long distance providers can generally be
categorized by their ownership and use of switches and transmission facilities.
The largest U.S. carriers, such as AT&T, MCI and Sprint, primarily utilize owned
switches and transmission facilities. Only such very large carriers have
transmission facilities that cover the over 200 countries to which most
international calls are made. Mid-size carriers both own and operate their own
switches and facilities, and also rely on resale agreements with other long
distance carriers to terminate their traffic. We purchase our long distance call
capacity from both the large and mid-sized carriers.
We began providing wholesale long distance services for businesses and
discount long distance services primarily for residential users in July 1999. We
are able to provide long distance telephone services through our own gateway
switches that allow us direct access to carrier networks, and the ability to buy
time on those networks at deep discounts. We market and resell that access to
our customers in the form of discounted long distance phone calls.
We intend to capitalize on the increasing demand for high quality
international telecommunication services resulting from the globalization of the
world economies, the worldwide trend towards telecommunication deregulation, and
the growth of international voice and data traffic.
We currently offer a dial-around service (also known as "casual calling").
This allows the consumer to dial around his existing long distance carrier on
any call by entering a few digits prior to making the call, without switching
long distance carriers. We will also offer the customer the ability to
automatically switch all of his calls from his existing long distance carrier to
our long distance service, known as "1+ billing."
We utilize our own "state of the art" Harris IXP digital international
gateway switches that have access to several carrier networks. Our switches
receive the calls made by our customers and route them to the appropriate
carrier from whom we purchase calling time. Our use of carriers is based on the
location to which a call is made: we purchase different call routes from
different carriers. Our acquisition of the carrier time is at a substantial
discount that varies based on the carrier and the
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<PAGE>
location to which the call is made. We resell the time to the callers at a
discount from the cost the customer would have to pay the carrier directly. Our
billing and collection for these calls is done by Bell Canada, and is included
as a part of the customer's regular phone bill.
THE CANADIAN MARKETPLACE AND COMPETITION
Meaningful competition in long distance telephone services in Canada has
been in effect since 1987. After hundreds of new companies entered the
marketplace, there was a "shakeout" which has left three very large providers of
long distance services (Bell Canada, Sprint and AT&T). These three carriers
collectively dominate the Canadian long distance calling market. We believe that
Bell Canada alone has well over one-half of this long distance market.
We believe that the consumer demand for our products and services -- high
quality, international telephone calls and data transmission at substantially
discounted prices -- is strong. We expect to fulfill this consumer demand with
our package of services, creative and aggressive marketing, advanced
technological equipment, and our carrier and alternate supplier relationships.
The highly competitive and rapidly changing international
telecommunications market has created a significant opportunity for carriers
that can offer high quality, low cost international long distance service.
Deregulation, privatization, the expansion of the resale market and other trends
influencing the international telecommunications market are driving decreased
termination costs, a proliferation of routing options, and increased
competition. Successful companies among both the emerging and established
international long distance companies will need to aggregate enough traffic to
lower costs of both facilities-based or resale opportunities, invest in
facilities and switches, and remain flexible enough to locate and route traffic
through the most advantageous routes.
We believe that a number of trends in the international telecommunications
market will continue to drive growth in international traffic, including:
o continuing deregulation and privatization of telecommunications markets;
o pressure to reduce international outbound long distance rates paid by end
users driven by increased competition in newly deregulated global markets;
o the dramatic increase in the availability of telephones and the number of
access lines in service around the world;
o the increasing globalization of commerce, trade and travel;
o The proliferation of communications devices such as faxes, cellular
telephones, pagers and data communications devices; and
o increasing demand for data transmission services.
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STRATEGY
Our operations began through our wholly-owned subsidiary, Yak
Communications (Canada) Inc., which was also established to provide
international long distance discount services primarily using dial-around
access. Our focus will be penetration into the ethnic markets of Toronto and
then Montreal, and thereafter Vancouver. On July 1, 1999 we launched our dial
around service in Toronto, and we expect to launch in Montreal on September 1,
1999.
Other long distance discount services are currently provided by North
America long distance carriers, domestic flat rate calling service providers,
prepaid card service providers, rebillers, aggregators, and resellers of centrex
and local line services. We believe that although there are over 100 such
companies in Canada, including small start-up dial-around providers, currently
there is no significant provider (over $10 million in revenues in Canada per
year) of a dial-around service. We believe that we can provide a quality
call-around service offering attractive discounts for long distance calls, and
match it with aggressive and creative marketing.
With full deregulation of the monopoly of Teleglobe Canada (the official
provider of all inbound and outbound international calls to and from Canada) by
the Canadian Radio-Television and Telecommunications Commission on October 1,
1998, it has become possible to effectively compete in the international
discount telephone services market in Canada. We intend to take advantage of the
opportunities offered by a deregulated telecommunications market to route our
calls using the least cost route over different and multiple carrier networks
that make use of digital transmission technologies over existing carrier
networks.
DESCRIPTION OF COMPANY'S PRODUCTS AND SERVICES
In general, both residential and business consumers have become
increasingly unwilling to switch long distance carriers. Many consumers have had
a significant amount of sales call pitches from sales persons promising lower
rates, and some have become victims of well-publicized "slamming": the
unauthorized changing of a customer's long distance carrier. We believe that
this has resulted in consumer resistance to change to new carriers or
long-distance services that are unrecognized and not trusted by the consumer. We
believe that it is for these reasons that Bell Canada, which historically has
been the most expensive provider of long distance telephone services for
Canadians, is still the dominant player in the Canadian international long
distance telephone industry.
However, with a casual calling alternative, our customers can dial the
10-XXX number to access our switch for routing of calls at a discounted price.
Our customer does not need to change carriers. Furthermore, because of our
billing and collection arrangements with Bell Canada, our customer will continue
to receive only one invoice from Bell Canada which would include the customer's
local line monthly rental and service costs provided by Bell Canada and the long
distance calls routed over our switch. The calls routed over our switch are
billed to the customer at our advertised rates, which
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could be as much as a 75% savings over the rates they would be billed if they
used Bell Canada's standard rates.
If the customer wishes to be on a 1 + program, which would mean that he
does not need to dial the 10-XXX number each time he makes a call, the customer
can sign up with our 1 + program. This essentially gives us the authorization to
move the customer from his current long distance provider to our switch. The
customer would then receive our lower rates each time he makes a call. Bell
Canada would still do the billing and collection.
We rely on resale arrangements to secure low cost transmission of switched
calls. Resale arrangements typically involve the wholesale purchase and sale of
transmission and termination services between two long distance providers on a
variable, per minute basis. The resale of capacity, which was first permitted in
the North American market in the 1980s, enabled the emergence of new
international long distance providers that rely at least in part on capacity
acquired on a wholesale basis from other long distance providers. International
long distance calls may be routed through a facilities based carrier with excess
capacity, or through multiple long distance resellers. Resale arrangements set
per minute prices for different routes, which may be guaranteed for a set time
period or subject to fluctuation following notice.
SALES & MARKETING ACTIVITIES
In Canada, as in many countries throughout the world, ethnic minorities
comprise a substantial number of displaced or otherwise separated families. In
Canada's larger cities, immigrants make up a significant portion of the local
ethnic communities. These immigrants usually have family in their home
countries.
We will be marketing our services primarily to ethnic markets in Canada.
These target groups account for a substantial portion of all international
calls. We will be advertising in ethnic newspapers and magazines, through direct
mail and flyers to local neighborhoods, on local ethnic radio stations and TV
channels, and by way of billboards in the appropriate ethnic neighborhoods.
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We have created marketing paraphernalia such as tee shirts, coffee mugs,
pens, keychains, caps, stickers and magnets that will be distributed on an
ongoing basis to create brand awareness. We also intend to create a Yak
membership club which will provide customers with additional discounts and some
giveaways. It is also our intention to develop this club over the internet and
use it as a base for solicitation of our intended Voice over IP platform. We
intend to utilize our own web-based home page to further this effort; this will
also allow for links to other products and services and should generate
alternate revenues, including advertising revenues.
WHOLESALE TRAFFIC RESALE
In addition to our dial around and 1 + billing programs, and because of our
volume purchasing power from the multiple carriers and alternate long distance
suppliers, we are able to resell calling routes at favorable rates to small and
medium resellers who are unable to obtain as favorable rates. These smaller
resellers often do not have the expertise and financial resources necessary to
set up their own switching system that ties into multiple carrier networks, or
they do not have the volume of telephone traffic, which in some cases may be
country specific, that allows them to command such favorable rates. As a result
we will sell, on a wholesale basis, long distance calling time to them, albeit
at a smaller markup than sales of long distance time to our retail customers.
We are currently supplying long distance traffic on a wholesale basis to
First Debit Corp., which is a prepaid telephone card issuer and market supplier.
They also pay us a small per minute least-cost route processing fee. See
"Certain Relationships and Related Transactions", below.
We believe the wholesale market is a potentially profitable business, and
also has the additional advantage of allowing us to increase our traffic volumes
with our carrier suppliers, and hence achieve even greater volume purchasing
discounts. However, we intend our primary focus will remain on the dial around
and 1+billing programs, where the profit margins are more favorable. On an
ongoing basis we will continue to evaluate the optimum balance between the
wholesale and retail markets.
VOICE OVER IP
We intend to provide our customers with internet telephony as the
associated technology emerges. This is expected to allow PC-to-Phone, PC-to-PC,
and Phone-to-Phone internet calling. We expect that the cost to the customer
will be a flat monthly fee which would allow most customers to make
international calls at a fraction of their current costs.
Whereas traditional telephone service is provided over the Public Switched
Telephone Network (PSTN), Internet Telephony uses Internet Protocol (IP) to
transmit voice data over the world-wide-web infrastructure. Although several
software applications and hardware solutions are currently on the market, the
poor quality of the call prevents service from gaining widespread acceptance.
New compression technology is emerging that is increasing the quality of the
calls. When the quality of such lower cost routing through the "internet
highway" is acceptable to the consumer, and increased
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bandwidth is made available to allow such calls to be made on mass, we intend to
resell this technology to our customers.
EMPLOYEES
As of August 31, 1999, we have five full time employees and three part time
employees. All of the part-time employees are being paid for their services on
an hourly basis. We consider our relations with our employees to be excellent,
and none of our employees are covered by a collective bargaining agreement. We
expect to hire up to an additional three full time employees within the next six
months in the customer service, accounting, and administration departments.
TECHNICAL TEAM
We have engaged a technical team who provide technical solutions regarding
our switching, network engineering, billing, and toll fraud control.
The technical team currently has four members, including Richard Sablon,
whose responsibilities include customer service and data engineering, and
Jacquie Capote, whose responsibilities include switch and network engineering.
See "Management." We believe that our technical support team is equipped to
design, install and maintain our switching systems and meet our foreseeable
technology requirements.
HARRIS IXP SWITCH
We have purchased and installed a Harris IXP switch. The IXP switch is the
most recent communication platform developed by Harris, and represents a
significant progression over older communication platform architectures, in
which components were assigned a single dedicated function. The older,
inflexible architecture approach required customers to plan for change well in
advance and even simple changes could require significant effort and result in
down time and loss of revenue. The IXP was inspired by the "plug-and-play"
router and hub technology that underlies the internet. All card and spares
associated with each shelf are exactly the same, making expansion and
replacement simple and convenient. The Harris IXP switch supports call control,
networking, and internet access. Because the base hardware on which the IXP
processes its functions does not have slots dedicated to only specific sources,
nor does it require specific vendors' products to be used, it is a true plug-in
switch allowing multi-vendor products and support, and gives us the flexibility
to add and update processes by using a range of add-on components. The switch's
architecture allows us to scale up as we grow.
With the IXP switch, all domestic and international signaling protocols are
fully integrated, meaning it can support many standard-based protocols on
digital and analog lines and trunks, and can
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mix and match protocols. We believe that this is important in an environment
that is subject to rapid change, with varying technologies and differing
signaling protocols.
BILLING AGREEMENTS
We have an agreement for an initial term of two years with Bell Canada for
the billing and collection of telephone long distance calling charges made by
our customers on the Bell local line network. We believe that under Canadian
regulations, Bell Canada must continue to offer us these billing and collection
services. The billing and collection agreement covers all long distance calls
made through our dial around switching long distance service and routing system.
We track all such calls made, record information about the source, destination,
and duration of the call, rate the call, and provide Bell Canada with this data
electronically. The Bell billing cycle is several times a month and includes
these charges to the customer on the Bell invoice termed as "other carrier"
charges. Bell Canada then collects these amounts. Under the terms of the Billing
& Collection Agreement, Bell Canada is obligated to pay us within 75 days of the
invoices being generated and sent to the customer (subject to offsets for
non-collectible accounts).
In addition, we have an agreement with Stentor Canadian Network Management
("Stentor") which is an unincorporated association made up of the provincial
local phone companies in Canada. This agreement allows for the handling,
transporting and delivery of our billing records generated by our switching and
billing system to Bell Canada for invoicing and collection. In conjunction with
the Stentor agreement, we have developed software and implemented hardware that
allows for electronic encrypted signaling and online transmission of the
billable records between our system and Stentor's which will allow them to
process the billable records. We believe that this online transmission process
significantly minimizes delays and errors in the billing.
GOVERNMENTAL REGULATION
We are registered with the Canadian Radio-and-Telecommunication Commission
(CRTC) as a reseller of telecommunication services in Canada, which is a
requirement under Canadian law in order to provide resale services in Canada.
To-date, and for the past five years, this has been the only requirement under
Canadian law in order to be allowed to resale telecommunication services. As of
January 1, 1999, new regulation requires resellers to apply for an international
telecommunications license. Once an applicant's license information is received
by the CRTC, it is placed on the public record and if no adverse comments are
received, a license is issued in 21 days. We applied for a Class B international
telecommunications license and have received this license from the CRTC. We
intend to apply during 1999 for a Class A international license that will allow
us to lease transmission lines and private line capacity to the USA for the
anticipated switch that we intend to install in New York as part of our growth
plans. We believe that we will receive a Class A license upon application.
We have registered with the United States Federal Communication Commission
for a Section 214 Telecommunication License, which would grant us full
international common carrier status. Presently, we are not providing any resale
of long distance traffic in the United States. However, in
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the future when we anticipate providing such resale in the United States, we
expect to file the necessary tariffs containing rates, terms and conditions
prior to offering U.S.-based international telecommunication service.
REAL ESTATE
CORPORATE OFFICES
We lease approximately 1,000 square feet of office space at 55 Town Centre
Court, #506, Toronto, Ontario, for our corporate and customer service
operations. This lease continues to December 31, 2001, at approximately $1,800
per month.
SWITCH LOCATION
We currently lease space at 151 Front Street, Toronto, Ontario to house our
IXP communication switch. This location is in a building which houses many other
carriers. This provides us with the advantage of ease of access to other
carriers. The switch is installed in a room that is environmentally modified,
cooled and designed for switching equipment. It also has full battery backup for
a full 24 hours in case of power failure.
LITIGATION
We are not involved in any lawsuits or other pending legal proceedings.
Neither our Company nor any of its affiliates has ever been the subject of
governmental or regulatory investigation.
FORWARD-LOOKING STATEMENTS
This prospectus contains statements, including statements of management's
belief or expectation, which may be forward-looking. Such statements are subject
to known and unknown risks and uncertainties that could cause actual future
results and developments to differ materially from those currently projected.
Such risks and uncertainties include, among others, the following:
o access to adequate debt or equity capital to meet our operating and
financial needs;
o our ability to respond to growing competition in our markets for discount
long distance services;
o our ability to expand into new markets and to effectively manage our
growth, including our addition of a gateway switch in and services from New
York;
o customer acceptance and effectiveness of us as a discount long distance
provider and our ability to assimilate new technology and to adapt to
technological change in the telecommunications industry;
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o the risk that our assessment of the Year 2000 issue may be incorrect
because it is based upon management's beliefs, which were derived from
numerous assumptions regarding future events, third-party remediation
plans, the accuracy of testing, and other factors;
o changes in, or failure to comply with, governmental regulation, including
telecommunications regulations;
o our reliance on our key personnel and the availability of qualified
personnel;
o general economic conditions in our markets;
o the risk that our analyses of these risks could be incorrect and that the
strategies developed to address them could be unsuccessful; and
o various other factors discussed in this prospectus.
We will not update the forward-looking information to reflect actual
results or changes in the factors affecting the forward-looking information.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth information regarding our directors and
executive officers:
<TABLE>
<CAPTION>
- ---------------------------- ---------------------------- ---------------------------------------------------
NAME AGE POSITION
- ---------------------------- ---------------------------- ---------------------------------------------------
<S> <C> <C>
Charles Zwebner 40 President, CEO and Director
- ---------------------------- ---------------------------- ---------------------------------------------------
Vincent Genova 33 Vice President Sales and Director
- ---------------------------- ---------------------------- ---------------------------------------------------
Mitchell Shore 40 Vice President of Design, Product Marketing and
Advertising
- ---------------------------- ---------------------------- ---------------------------------------------------
Murray Ruben 40 Vice President of Finance
- ---------------------------- ---------------------------- ---------------------------------------------------
Bernard Gropper 37 Secretary and Director
- ---------------------------- ---------------------------- ---------------------------------------------------
Anthony Heller 47 Director
- ---------------------------- ---------------------------- ---------------------------------------------------
</TABLE>
CHARLES ZWEBNER. Mr. Zwebner is the founder of the Company, and has
served as its President, Chief Executive Officer, and Chairman of its Board of
Directors since its inception in December 1998. Prior to organizing the Company,
he served as the President of Cardcaller Canada Inc. (1992-1998) and was a
member of its Board of Directors. Mr. Zwebner founded Cardcaller Canada in 1992,
which developed the first Canadian fixed amount prepaid, multilingual telephone
calling card. In June 1997, the shareholders, including Mr. Zwebner, of CardCall
International ("CCI"), the parent of CardCaller Canada, sold all of their shares
in CCI to a U.S. corporation for approximately $28 million in stock of the
buyer. Mr. Zwebner continued as President and a director of CardCaller Canada
until his resignation in August 1998. Prior to Mr. Zwebner's resignation, the
new owner of CCI disposed of substantially all of the assets of the company, and
thereafter in October 1998, put CardCaller Canada into bankruptcy in Canada. Mr.
Zwebner holds a B.A. in Computer Science and Business Administration from York
University.
VINCENT GENOVA. Mr. Genova has served as our Vice President of Sales
and a Director since January 1999. Since August 1990, he has served as the
General Manager of Cash Money Chequing Inc., a chain of check cashing stores in
Toronto, Canada. Since December 1998, Mr. Genova has also served as the owner
and president of First Debit Corp (FDC) which
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issues and distributes pre-paid calling cards. FDC owns and maintains their own
switching and carrier interconnection.
MITCHEL ANDREW SHORE. Mr. Shore has served as our Vice President
Design, Product Marketing and Advertising since January 1999. Since 1984, Mr.
Shore has operated Mitchel Shore Creative Services, Inc., which has provided
marketing and advertising services for an array of small, medium and large
companies, including London Radio, TV Ontario, AES, BIC Shavers, Bata Shoes,
Friedberg Mercantile, and Shell Canada. Mitchel Shore holds an Honours B.A. from
York University (1977) and an M.A. from University of Western Ontario (1981)
specializing in Marketing and Advertising.
MURRAY RUBEN. Mr. Ruben has served as our Vice President of Finance
since January 1999. Since November 1996, Mr. Ruben has been providing corporate
finance consulting services. From February 1996 to November 1996 he served as
vice president of individual client services for Levesque Securities Inc. From
August 1984 to February 1996, Mr. Ruben served in a variety of positions for the
Bank of Montreal, ultimately serving as Manager of Private Client Services. Mr.
Ruben is a member of the Investors Dealers Association and the Canadian
Securities Institute. Mr. Ruben received a B.A. in Finance from Dawson College
in 1983.
BERNARD GROPPER. Mr. Gropper has served as a Director of the Company
since December 1998. Since 1987, he has been an attorney in private practice;
from 1995 to the present as a senior partner in the law firm of Gropper,
Greenwood in Toronto, Canada. Mr. Gropper specializes in Canadian business law.
Mr. Gropper received a B. Comm. from McGill University in 1983, and a LL.B in
1986 and an LL.M. in 1992 from York University.
ANTHONY HELLER. Mr. Heller has served as a Director of the Company
since December 1998. He has served as the President of Plazacorp Investments
Limited (a real estate development company based in Toronto, Canada) since 1994.
Since 1994, Plazacorp has completed over $100 million worth of real estate
developments principally in Canada. Mr. Heller has also been involved in venture
capital financings and has consulted to both privately held and publicly traded
companies in which he has made investments.
RICHARD SABLON. Since December 1998, we have employed Mr. Sablon as an
engineer whose focus is on our customer service and data engineering. From 1991
to 1998, Mr. Sablon owned Dominator Technologies, Inc., which manufactured and
operated pre-paid telephone calling card switching equipment. Mr. Sablon is a
member of the Institute of Electronic Engineers and the U.S. Telecard
Association. Mr. Sablon received an A.S. degree in Computer Sciences from
Miami-Dade Community College in 1982.
JACQUIE CAPOTE. Since December 1998, we have employed Mrs. Capote as an
engineer whose focus is on our systems design, planning, maintenance, and
hardware and software integration. From 1993 until 1998, she worked for AT&T
Canada (formerly ITS prior to its acquisition), most recently as a supervisor
and systems administrator. Mrs. Capote received a B.S.
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in Computer Programming from Siena College in 1992, and holds certification from
Harris Corp. (1994) for its 20-20 Switch, and from Centennial College (1996) as
a Telecommunications Specialist.
All of our Directors hold office until our next annual meeting of
shareholders, and until their successors are elected and qualified. Officers
hold office until the first meeting of directors following the annual meeting of
shareholders and until their successors are elected and qualified, subject to
earlier removal by the Board of Directors.
* * * *
EXECUTIVE COMPENSATION
On July 1, 1999, our Canadian subsidiary entered into an employment
agreement with Charles Zwebner, our President and Chief Executive Officer, which
provides him an annual salary of $100,000 for serving as our President and CEO.
The term of this agreement is for five years, expiring on December 31, 2003. The
agreement provides for an annual salary of $100,000, with annual increases as
determined by our Board of Directors.
STOCK OPTION PLAN
In June 1999, we established a stock option plan for key employees
which covers 3.2 million shares of our common stock. Of this amount, options for
1.2 million shares, with an exercise price of $1.00 per share, were granted to
Charles Zwebner. Mr. Zwebner's options are fully vested. 100,000 shares, with an
exercise price of $1.00 per share, were granted to Robin Clarke. Ms. Clarke's
options may be exercised over a five-year period, in exerciseable amounts
increasing by 20,000 shares per year. We have created a committee composed of
two outside directors to administer the stock option plan.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Our Canadian subsidiary has entered into an agreement with a
corporation controlled by Anthony Heller, a shareholder and director of the
Company, to provide cash advances or arrange for third-party financing of up to
$435,000 to our Canadian subsidiary, based upon available accounts receivable
from Bell Canada. The cash advances will bear interest at a rate of 12%, which
will be waived if the credit is not in default. Mr. Heller's corporation has the
right to arrange for receivable financing from a commercial lender which would
replace its receivable financing to us. If substitute receivable financing is
arranged, we do not have to accept it as a substitute for the existing financing
if the interest rate exceeds the rate published as the "prime rate" for various
chartered Canadian banks plus 1.5% per year. If our accounts receivable from
Bell Canada exceed $435,000, Mr. Heller's corporation will subordinate its
position, if necessary, to allow us to secure additional receivable financing.
This agreement expires on March 15, 2006.
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We supply, on a wholesale basis, "least cost" routed long distance
telephone traffic, through our switch, to First Debit Corporation, a Canadian
corporation ("First Debit"). First Debit is controlled by Vincent Genova, who is
one of our directors and shareholders. The service may be terminated by either
party at will. We believe the consideration we receive from First Debit for our
wholesale switching services is as favorable as what we would expect to receive
from an unrelated entity purchasing similar wholesale switching services from
us.
PRINCIPAL SHAREHOLDERS
The following table sets forth the beneficial ownership of shares of
our common stock by (i) each person who is known to us to be the beneficial
owner of more than 5% of our common stock; (ii) each director and named
executive officer (defined above) individually; and (iii) all directors and
executive officers as a group. Beneficial ownership of common stock has been
determined for this purpose in accordance with Rules 13d-3 and 13d-5 of the
Securities and Exchange Commission, under the Securities Exchange Act of 1934,
as amended, which provide, among other things, that a person is deemed to be the
beneficial owner of common stock if such person, directly or indirectly, has or
shares voting power or investment power with respect to the common stock or has
the right to acquire such ownership within sixty days after _______, 1999.
PRINCIPAL SHAREHOLDER SHARES BENEFICIALLY OWNED PERCENT OF CLASS (%)
- ---------------------------- --------------------------- ----------------------
Charles Zwebner 3,182,000 16.5
Anthony Heller 1,591,000 8.3
Vincent Genova 1,591,000 8.3
Mitchell Shore 1,008,000 5.3
Murray Ruben 136,000 *
Bernard Gropper 100,000 *
Michael Zwebner (1) 1,266,000 6.6
Joseph Genova (2) 1,591,000 8.3
All Directors and Executive 7,608,000 39.5
Officers as a Group ========= ====
(6 persons)
- ---------------------
(1) Mr. Michael Zwebner is the brother of Charles Zwebner.
(2) Mr. Joseph Genova is the brother of Vincent Genova.
* Less than 1%
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SELLING SHAREHOLDER
All of the shares of common stock offered for sale pursuant to this
prospectus are being offered by the selling shareholder.
We issued the Warrants to the selling shareholder in August 1999, in
connection with a one-year loan in the principal amount of $100,000. Pursuant to
the loan, we issued a note in the principal amount of $100,000 and the Warrants
to purchase 940,000 shares of common stock to the selling shareholder. The note
bears interest at the rate of 10% per annum and all principal and accrued
interest under the note are due on August 15, 2000. The Warrants are exercisable
at an exercise price of $1.00 at any time until such time as our common stock is
traded on the OTC Bulletin Board (the "OTC"), at which time the exercise price
shall be an amount equal to the average closing bid price of our common stock on
the OTC for the five trading days immediately preceding the exercise of the
Warrants. For additional information concerning the Warrants, please see
"Description of Securities -- Warrants."
Information with respect to the shares of common stock beneficially
owned by the selling shareholder follows.
<TABLE>
<CAPTION>
- ------------------------------ ---------------------------- --------------------------- ----------------------------
Shares of Common Stock Shares Offered for Sale Shares to be Owned After
Owned Prior to Offering Hereby the Offering (1)
Selling Shareholder Number Percent
- ------------------------------ ---------------------------- --------------------------- ----------------------------
<S> <C> <C> <C> <C>
Firmvest Capital Corp. 940,000 (2) 940,000 (2) -- --
3625 Dufferin Street No. 130
Toronto, Canada M3K122
- ------------------------------ ---------------------------- --------------------------- ----------------------------
</TABLE>
(1) Assumes sale of all shares offered hereby.
(2) Consists of shares of common stock subject to exercise of Warrants
assuming the full exercise. Excludes additional shares of common stock
which may be issued upon adjustment of the Warrants.
PLAN OF DISTRIBUTION
The shares of common stock offered hereby may be sold from time to time
by the selling shareholder. The selling shareholder will act independently of us
in making decisions with respect to the timing, manner and size of each sale.
Each such sale may be made at prices and on terms then prevailing or at prices
related to the then market price, or in negotiated transactions. The shares may
be sold by one or more of the following methods:
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<PAGE>
(a) a block trade in which a broker-dealer engaged by the selling
shareholder will attempt to sell the shares as agent but may
position and resell a portion of the block as principal to
facilitate the transaction;
(b) purchases by the broker-dealer as principal and resale by such
broker-dealer for its account pursuant hereto;
(c) ordinary brokerage transactions and transactions in which the
broker-dealer solicits purchasers;
(d) privately negotiated transactions;
(e) in accordance with Rule 144 promulgated under the Securities
Act of 1933, as amended, rather than pursuant to this
prospectus;
(f) a combination of any such methods of sale; or
(g) any other method permitted pursuant to applicable law.
To our knowledge, the selling shareholder has not, as of the
date hereof, entered into any agreements with a broker-dealer for the sale of
the shares through a block trade, in a special offering or in a secondary
distribution of a purchase by a broker-dealer. In affecting sales,
broker-dealers engaged by the selling shareholder may arrange for other
broker-dealers to participate. Broker-dealers will receive commissions or
discounts from the selling shareholder in amounts to be negotiated.
In offering the shares, the selling shareholder and any
broker-dealers who execute sales for the selling shareholder may be deemed to be
"underwriters" within the meaning of the Securities Act of 1933, as amended, in
connection with such sales, and any profits realized by the selling shareholder
and the compensation of such broker-dealer may be deemed to be underwriting
discounts and/or commissions.
Rule 10b-6 under the Securities Exchange Act of 1934, as
amended, prohibits participants in a distribution from bidding for or purchasing
for an account in which the participant has a beneficial interest, any
securities that are the subject of the distribution. Rule 10b-7 under the
Exchange Act governs bids and purchases made to stabilize the price of a
security in connection with a distribution of the security.
This offering will terminate on the earlier of (a) the date on which
the selling shareholder's shares may be resold pursuant to Rule 144 under the
Securities Act, or (b) the date on which all shares offered hereby have been
sold by the selling shareholder. There can be no assurance that the selling
shareholder will sell any or all of the shares offered hereby.
25
<PAGE>
DESCRIPTION OF SECURITIES
COMMON STOCK
We are authorized to issue 100,000,000 shares of common stock, no par
value. There are 19,250,000 of shares of our common stock currently issued and
outstanding. The holders of the common stock are entitled to one vote for each
share held, and have the sole right and power to vote on all matters on which a
vote of stockholders is taken. Voting rights are non-cumulative. The holders of
shares of our common stock are entitled to receive dividends when, as and if
declared by the Board of Directors, out of funds legally available therefore and
to share pro rata in any distribution to stockholders. Upon liquidation,
dissolution, or winding up of the Company, the holders of our common stock are
entitled to receive our net assets in proportion to the respective number of
shares held by them after our payment of liabilities and liquidation preference
on any preferred stock which may be outstanding. The holders of our common stock
do not have any preemptive right to subscribe for or purchase any shares of any
class of stock. The outstanding shares of our common stock and the shares
offered hereby will not be subject to further call or redemption and will be
fully paid and non-assessable.
WARRANTS
Our Warrants, the underlying shares of which are being registered under
the prospectus, were issued in connection with a one-year term loan. Warrants to
purchase 940,000 shares of common stock were issued in August 1999. The Warrants
are exercisable at an exercise price of $1.00 per share at any time until such
time as our common stock is traded on the OTC Bulletin Board, at which time the
exercise price shall be an amount equal to the average closing bid price of our
common stock on the OTC Bulletin Board for the five trading days immediately
preceding the exercise of the Warrants.
The exercise price and number of shares of our common stock purchasable
upon the exercise of the Warrants are subject to adjustment upon the occurrence
of certain events, including stock dividends, stock splits, combinations and
reclassification of the common stock, or by our issuance of shares of our common
stock or other securities convertible into common stock at a price below the
fair market value of our common stock.
The Warrants do not confer upon their holders any voting, dividend or
other rights as shareholders of the Company.
PREFERRED STOCK
Within the limits and restrictions contained in our Articles of
Incorporation, the Board of Directors has the authority, without further action
by the stockholders, to issue up to 1,000,000
26
<PAGE>
shares of preferred stock, no par value per share (the "Preferred Stock"), in
one or more series, and to fix, as to any such series, the dividend rate,
redemption prices, preferences on liquidation or dissolution, sinking fund
terms, if any, conversion rights, voting rights and any other preference or
special rights and qualifications. There are presently authorized 500,000 shares
of Series A Convertible Preferred Stock (as described below), of which we have
issued 247,000 shares to 1231912 Ontario Inc., a Canadian corporation, of which
197,000 are currently outstanding.
Shares of Preferred Stock issued by the Company could be utilized,
under certain circumstances, to make an attempt to gain control of the Company
more difficult or time consuming. For example, shares of Preferred Stock could
be issued with certain rights which might have the effect of diluting the
percentage of our common stock owned by a significant stockholder, or issued to
purchasers who might side with management in opposing a takeover bid, which our
Board of Directors determines is not in the best interests of the Company and
its shareholders. A takeover transaction frequently affords shareholders the
opportunity to sell their shares at a premium over current market prices. Our
Board of Directors has not authorized any series of Preferred Stock other than
the Series A Convertible Preferred Stock.
SERIES A CONVERTIBLE PREFERRED STOCK
The holders of the Series A Convertible Preferred Stock will earn an
annual dividend of 4%. The Series A Preferred Stock is non-voting and
non-participating. The Series A Preferred Stock has a liquidation preference of
$1.00 per share.
The Company has the right to redeem, in whole or in part, upon 30 days'
written notice, the Series A Preferred Stock at a redemption price of $1.00 per
share plus all accumulated dividends thereon.
STOCK TRANSFER AGENT
The stock transfer agent for our common stock is Nevada Transfer and
Trust Company.
STOCKHOLDER REPORTS
We furnish our stockholders with annual reports containing audited
financial statements and may furnish our stockholders with quarterly or
semi-annual reports containing unaudited financial information.
DIVIDEND POLICY
We have not paid any dividends on our Common Stock and we intend to
retain all earnings for use in our operations and to finance the development and
the expansion of our business. We do not anticipate paying any dividends on the
Common Stock in the foreseeable future. The payment of dividends is within the
discretion of our Board of Directors. Any future decision with respect to
27
<PAGE>
dividends will depend on future earnings, future capital needs and our operating
and financial condition, among other factors.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be
passed upon for the Company by Adorno & Zeder, P.A., 2601 S. Bayshore Drive,
Suite 1600, Miami, Florida 33133.
EXPERTS
Our audited, consolidated financial statements as of June 30, 1999, and
for the period from inception (December 24, 1998) to June 30, 1999, included in
this prospectus have been included in reliance on the report of Edward Isaacs &
Company, LLP, independent auditors, as set forth in their report appearing
elsewhere herein, and have been included upon our reliance on their report,
given on their authority as experts in auditing and accounting.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We have filed with the SEC a registration statement on Form SB-2 (the
"Registration Statement") under the Securities Act of 1933, as amended, with
respect to the shares of common stock being offered in this prospectus. This
prospectus, which is a part of the Registration Statement, does not contain all
of the information included in the registration statement. Certain information
is omitted and you should refer to the Registration Statement and its exhibits.
For further information about us and the common stock being offered by this
prospectus, you may read the materials we have filed with the SEC without charge
at the Public Reference Section of the SEC at Room 1024, Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549 and at the regional offices of the
SEC located at Northwestern Atrium Center, Suite 1400, 500 West Madison Street,
Chicago, Illinois 60661-2511 or Seven World Trade Center, New York, New York
10048. You can also obtain copies of these materials at prescribed rates from
the Public Reference Section of the SEC in Washington, D.C. 20549. Any
statements contained in the prospectus concerning the provisions of documents
are necessarily summaries of such documents, and each statement is qualified in
its entirely by the document filed by us as an exhibit to this Registration
Statement with the SEC. Please call the SEC at 1-800-SEC-0330 for further
information on the operation of the public reference rooms.
28
<PAGE>
Our SEC filings and the registration statement can also be reviewed by
accessing the SEC's internet site at http://www.sec.gov, which contains reports,
proxy and information statements and other information regarding registrants
that are filed electronically with the SEC.
29
<PAGE>
AUDITED FINANCIAL STATEMENTS
F-1
<PAGE>
YAK COMMUNICATIONS (USA), INC. AND SUBSIDIARY
(A DEVELOPMENTAL STAGE COMPANY)
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD DECEMBER 24, 1998
(INCEPTION) TO JUNE 30, 1999
<PAGE>
TABLE OF CONTENTS
PAGE
CONSOLIDATED FINANCIAL STATEMENTS:
Independent Auditors' Report 1
Consolidated Balance Sheet - June 30, 1999 2
Consolidated Statement of Operations and Accumulated Deficit
for the Period December 24, 1998 (Inception) to June 30, 1999 3
Consolidated Statement of Cash Flows
for the Period December 24, 1998 (Inception) to June 30, 1999 4
Notes to Consolidated Financial Statements 5-9
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Yak Communications (USA), Inc. and Subsidiary
New York, New York
We have audited the accompanying consolidated balance sheet of Yak
Communications (USA), Inc. and subsidiary (a developmental stage company) as of
June 30, 1999, and the related consolidated statements of operations and
accumulated deficit, and cash flows for the period December 24, 1998 (inception)
to June 30, 1999. These consolidated financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Yak
Communications (USA), Inc. and subsidiary as of June 30, 1999, and the
consolidated results of their operations and cash flows for the period then
ended, in conformity with generally accepted accounting principles.
EDWARD ISAACS & COMPANY LLP
New York, New York
August 15, 1999
- 1 -
<PAGE>
YAK COMMUNICATIONS (USA), INC. AND SUBSIDIARY
(A DEVELOPMENTAL STAGE COMPANY)
CONSOLIDATED BALANCE SHEET
JUNE 30, 1999
<TABLE>
<CAPTION>
ASSETS
CURRENT ASSETS:
<S> <C>
Cash $ 42,279
Other receivables 53,758
---------
TOTAL CURRENT ASSETS 96,037
---------
OTHER ASSETS:
Deposits with long distance carriers 84,688
Security deposits 19,132
---------
TOTAL OTHER ASSETS 103,820
---------
PROPERTY AND EQUIPMENT 609,965
---------
$ 809,822
=========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 110,830
Current maturities of long-term debt 72,903
---------
TOTAL CURRENT LIABILITIES 183,733
---------
LONG-TERM DEBT 35,507
---------
SHAREHOLDERS' EQUITY:
Series A Convertible Preferred shares - 500,000 shares authorized,
par value $1.00 per share; issued and outstanding - 197,000 shares 197,000
Common shares - 100,000,000 shares authorized, par value
$0.01 per share; issued and outstanding - 19,200,000 shares 192,000
Additional paid-in capital 338,510
Unearned services (10,000)
Other comprehensive income - translation adjustment 18,396
Deficit accumulated during the development stage (145,324)
---------
TOTAL SHAREHOLDERS' EQUITY 590,582
---------
$ 809,822
=========
</TABLE>
See notes to consolidated financial statements.
- 2 -
<PAGE>
YAK COMMUNICATIONS (USA), INC. AND SUBSIDIARY
(A DEVELOPMENTAL STAGE COMPANY)
CONSOLIDATED STATEMENT OF OPERATIONS AND ACCUMULATED DEFICIT
FOR THE PERIOD DECEMBER 24, 1998 (INCEPTION) TO JUNE 30, 1999
<TABLE>
<CAPTION>
COSTS AND EXPENSES:
<S> <C>
Cost of communications services:
Switch line costs $ 11,871
Switch maintenance 1,554
Switch occupancy costs 17,020
Consulting fees 20,655
Management fee 35,594
Advertising and promotion 9,728
Insurance 234
Office rent 9,249
Office 6,305
Professional fees 10,744
Telephone 4,795
Travel 8,033
Bank charges and interest, net 5,006
Loss on foreign exchange 4,536
------------
TOTAL COSTS AND EXPENSES 145,324
------------
NET LOSS - TRANSFERRED TO DEFICIT ACCUMULATED
DURING THE DEVELOPMENT STAGE $ (145,324)
============
BASIC AND DILUTED LOSS PER SHARE $ (0.01)
============
WEIGHTED AVERAGE NUMBER OF SHARES 18,940,641
============
</TABLE>
See notes to consolidated financial statements.
- 3 -
<PAGE>
YAK COMMUNICATIONS (USA), INC. AND SUBSIDIARY
(A DEVELOPMENTAL STAGE COMPANY)
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE PERIOD DECEMBER 24, 1998 (INCEPTION) TO JUNE 30, 1999
<TABLE>
<CAPTION>
OPERATING ACTIVITIES:
<S> <C>
Net loss $(145,324)
Adjustments to reconcile net loss to net cash used in operating activities:
Increase (decrease) in cash attributable to changes in assets and liabilities:
Other receivables (53,758)
Accounts payable 37,594
----------
NET CASH USED IN OPERATING ACTIVITIES (161,488)
----------
INVESTING ACTIVITIES:
Purchase of property and equipment (557,495)
Deposits with long distance carriers (84,688)
Security deposits (19,132)
----------
NET CASH USED IN INVESTING ACTIVITIES (661,315)
----------
FINANCING ACTIVITIES:
Proceeds from long-term debt 133,655
Repayment of long-term debt (25,245)
Proceeds from issuance of common and preferred stock 775,000
Offering costs (41,260)
----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 842,150
----------
EFFECT OF EXCHANGE RATE CHANGES ON CASH 22,932
----------
NET INCREASE IN CASH 42,279
CASH at beginning of period -
----------
CASH at end of period $ 42,279
==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid $ 5,434
==========
NON-CASH TRANSACTIONS:
Payable for acquisition of equipment and offering costs $ 73,236
==========
Issuance of common stock for services $ 10,000
==========
Redemption of Series A Preferred Stock in satisfaction of payable
for common stock $ 50,000
==========
</TABLE>
See notes to consolidated financial statements.
- 4 -
<PAGE>
YAK COMMUNICATIONS (USA), INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD DECEMBER 24, 1998 (INCEPTION) TO JUNE 30, 1999
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BASIS OF PRESENTATION:
The consolidated financial statements include the accounts of Yak
Communications (USA), Inc., which was incorporated on December 24, 1998
in the state of Florida, and its wholly-owned Canadian subsidiary Yak
Communications (Canada), Inc. (collectively hereinafter referred to as
the "Company"). These statements reflect the transactions of Canada
from the date it commenced activities on October 15, 1999. The Company
is a switch based reseller specializing in offering dial-around
services to consumers. In July 1999, the Company began offering its
services to consumers.
The Company is in the development stage and its efforts through June
30, 1999 have been principally devoted to organizational activities,
raising capital and developing facilities to provide long distance
services. The Company is dependent upon its ability to obtain
additional sources of financing to fund its working capital
requirements for continuing development and operations. The Company is
considering several financing alternatives, including equity financing
to fund such requirements. While the Company has in the past, been able
to maintain access to adequate external financing sources on acceptable
terms, no assurance can be given that such access will continue.
USE OF ESTIMATES:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
COMPUTATION OF LOSS PER SHARE:
Basic loss per share is computed by dividing the loss attributable to
common shareholders by the weighted average number of common shares
outstanding for the period. Diluted loss per share is computed giving
effect to all dilutive potential common shares that were outstanding
during the period. Dilutive potential common shares consist of
incremental common shares issuable upon exercise of convertible
preferred stock and stock options. Computation of diluted earnings per
share is not reflected, because including potential common shares will
result in an anti-dilutive per share amount due to the loss in the
period.
FOREIGN CURRENCY TRANSLATION AND FOREIGN ASSETS:
In accordance with the provisions of Statement of Financial Accounting
Standards, No. 52, "Foreign Currency Translation," assets and
liabilities of the Company's foreign subsidiary were translated into
United States dollars at their year-end exchange rates. For the foreign
entity which utilizes its local currency as its functional currency,
resulting translation gains and losses are included in other
comprehensive income. Gains or losses resulting from foreign exchange
transactions are reflected in earnings.
Foreign exchange losses of approximately $4,536 are reflected in
earnings for the period ended June 30, 1999.
Significant foreign assets of the Company are as follows:
Deposits with long distance carriers $ 84,688
Property and equipment, at cost $ 609,965
- 5 -
<PAGE>
YAK COMMUNICATIONS (USA), INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD DECEMBER 24, 1998 (INCEPTION) TO JUNE 30, 1999
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
PROPERTY AND EQUIPMENT:
Depreciation of property and equipment is to be provided for by the
straight-line method over their estimated useful lives. Maintenance,
repairs and minor renewals are charged to income as incurred, whereas
the cost of significant improvements is capitalized.
No depreciation has been recorded in 1999 as operations have not yet
commenced.
ADVERTISING EXPENSE:
Advertising costs are expensed as incurred.
STOCK OPTION PLAN:
The Company accounted for stock options issued to employees in
accordance with SFAS No. 123, Accounting for Stock-Based Compensation,
which permits entities to continue to apply the provisions of
Accounting Principles Board ("APB") Opinion No. 25 and provide pro
forma net income disclosures for employee stock option grants as if the
fair value based method, as defined in SFAS No. 123, has been applied.
The Company has elected to apply the provisions of APB Opinion No. 25
and provide the pro forma disclosures required by SFAS No. 123.
COMPREHENSIVE INCOME:
The Company reports and presents comprehensive income and its
components in accordance with SFAS No. 130, Reporting Comprehensive
Income. SFAS No. 130 requires only additional disclosures in the
financial statements; it does not affect the Company's financial
position or results of operations.
Other comprehensive income is comprised of the foreign translation
adjustment arising from the conversion from Canadian dollars to U.S.
dollars and is presented as a separate item in the shareholders equity
section. Comprehensive income consists of:
Net loss $ (145,324)
Foreign currency translation gain 18,396
------------
Comprehensive Income $ (126,928)
============
FAIR VALUE OF FINANCIAL INSTRUMENTS:
Statement of Financial Accounting Standards ("SFAS") No. 107,
Disclosures About Fair Value of Financial Instruments, requires
disclosure of the fair value of certain financial instruments for which
it is practicable to estimate fair value. For purpose of the disclosure
requirements, the fair value of a financial instrument is the amount at
which the instrument could be exchanged in a current transaction
between willing parties, other than in a forced sale or liquidation.
The carrying values of cash, receivables and accounts payable are
reasonable estimates of their fair value due to the short-term maturity
of underlying financial instruments. The carrying value of the
long-term debt is a reasonable estimate of its fair value based on
current rates for equipment obligations.
- 6 -
<PAGE>
YAK COMMUNICATIONS (USA), INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD DECEMBER 24, 1998 (INCEPTION) TO JUNE 30, 1999
2. PROPERTY AND EQUIPMENT
Property and equipment is stated at cost and consist of:
Telecom switching systems $ 408,574
Billing, administrative and customer
service systems 190,880
Furniture, fixtures and office equipment 10,511
----------
$ 609,965
==========
3. DEBT
CREDIT FACILITY:
The Company has entered into an agreement with a corporation (lender),
controlled by a shareholder and director of the Company, to provide
cash advances or third party loans up to $435,000 based upon available
accounts receivable. The cash advances bear interest at 12% and the
interest rate on any third party advances shall not exceed the bank's
prime rate plus 1-1/2%. The lender has agreed to waive any interest
calculated on its cash advances provided the credit is not in default.
As security for these advances, the Company has agreed to pledge its
accounts receivable and has provided a general security agreement over
all its assets. This agreement expires March 15, 2006. As at June 30,
1999, there were no advances under this agreement.
LONG-TERM DEBT:
Long-term debt consists of the following:
Obligation under a capital lease $ 108,410
Less: Current maturities 72,903
----------
Long-term portion, maturing in fiscal 2001 $ 35,507
==========
4. CAPITAL STOCK
COMMON STOCK:
At inception, the Company issued 18,800,000 shares of common stock at
$.01 per share. 1,008,000 of these shares were issued in consideration
for $10,000 in future marketing services to be rendered.
Pursuant to a private placement offering in March 1999, the Company
issued 400,000 shares of common stock in April 1999. The total proceeds
for the private offering were $400,000. Total costs associated with the
offering were $57,490.
SERIES A CONVERTIBLE PREFERRED STOCK:
In January 1999, the Company issued 247,000 shares of Series A
Convertible Preferred Stock at $1.00 per share. These shares are
convertible at the holders option into Common Stock at a conversion
rate of one share of common stock for each share of Series A Preferred
Stock. The holders of Series A Preferred Stock are entitled to receive
an annual cash dividend of 4% per share. The Company may redeem the
Series A Preferred Stock at a redemption price of $1.00 per share.
As of June 30, 1999, 50,000 shares of Series A Preferred Stock were
redeemed for $50,000 and the payment was applied to the shareholder's
purchase of common stock.
- 7 -
<PAGE>
YAK COMMUNICATIONS (USA), INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD DECEMBER 24, 1998 (INCEPTION) TO JUNE 30, 1999
5. INCOME TAXES
As of June 30, 1999, there was a net operating loss ("NOL") of
$145,324, that may be applied against earnings of future years, not
later than 2006. The deferred tax benefit of $64,000 applicable to the
NOL has been offset by a valuation allowance.
6. COMMITMENTS
LEASES:
The Company leases space for its office under an operating lease
through July 1, 2000 at an annual rent of approximately $22,000. Rent
expense was $9,249 for 1999.
The Company leases equipment under capital leases which expire through
2001.
Future minimum lease payments under capital leases (including a capital
lease entered into subsequent to the balance sheet date) are as
follows:
2000 $ 139,738
2001 95,571
------------
Total minimum payments 235,309
Less: Amounts representing interest 19,624
------------
$ 215,685
============
EMPLOYMENT AGREEMENT:
Effective July 1, 1999, the Company executed a five year employment
agreement with its chief executive which provides for annual
compensation of $100,000 in the initial year and is subject to review
annually thereafter.
7. STOCK OPTION PLAN
Effective June 30, 1999, the Company adopted a Stock Option Plan (the
Plan) which permits the issuance of stock options to selected employees
and directors. The Company reserved 3,200,000 shares of common stock
for grant. Options granted may be either nonqualified or incentive
stock options and will expire not later than 20 years from the date of
grant (10 years for incentive options).
On June 30, 1999, nonqualified options for 1,200,000 shares were
granted and are exercisable at $1.00 per share through December 31,
2003. As the grant date of the options was the last day in the fiscal
period, the pro forma disclosures required by SFAS No. 123 have not
been presented as the effect on reported net loss in immaterial.
8. ECONOMIC DEPENDENCE
The Company is economically dependent upon Bell Canada to provide
billing and collection services to its customers under a renewable
agreement which expires in August 2000. The Company is also dependent
upon a renewable agreement with Stentor (an association of Canadian
Provincial telephone companies) to provide billing, transport and
handling services to its member companies which expires in June 2000.
- 8 -
<PAGE>
YAK COMMUNICATIONS (USA), INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD DECEMBER 24, 1998 (INCEPTION) TO JUNE 30, 1999
9. YEAR 2000 ISSUE
The Year 2000 issue arises because many computerized systems use two
digits rather than four to identify a year. Data-sensitive systems may
recognize the Year 2000 as 1900 or some other date, resulting in errors
when information using Year 2000 dates is processed. In addition,
similar problems may arise in some systems which use certain dates in
1999 to represent something other than a date. The effects of the Year
2000 issue may be experienced before, on, or after January 1, 2000 and
if not addressed, the impact on operations and financial reporting may
range from minor errors to significant systems failure that could
affect an entity's ability to conduct normal business operations.
Although the Company has addressed its internal Year 2000 readiness, it
is not possible to be certain that all aspects of the Year 2000 issue
affecting the Company, including those related to the efforts of
customers, suppliers, or other third parties, will be fully resolved.
10. SUBSEQUENT EVENTS
On August 1, 1999, the Company added approximately $150,000 to its
telephone switching systems. These additions were funded by working
capital and a capital lease obligation of $107,000.
On August 15, 1999, the Company received a $100,000 loan which bears
interest at 10% per annum. Principal and interest are due in one year.
As consideration for the loan the Company issued warrants for the right
to purchase 940,000 common shares for a two year term. Each warrant is
exercisable at the average closing price per share for the previous
five trading days or if the stock does not trade on a National
Securities Exchange, $1.00 per share.
On August 24, 1999, the Company issued 50,000 shares of common stock
for $50,000.
- 9 -
<PAGE>
PART TWO
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Florida Business Corporation Act (the "Corporation Act") permits
the indemnification of directors, employees, officers and agents of Florida
corporations. The Company's Articles of Incorporation (the "Articles") and
Bylaws provide that the Company shall indemnify its directors and officers to
the fullest extent permitted by the Corporation Act.
The provisions of the Corporation Act that authorize indemnification do
not eliminate the duty of care of a director, and in appropriate circumstances
equitable remedies such as injunctive or other forms of non-monetary relief will
remain available under Florida law. In addition, each director will continue to
be subject to liability for (i) violations of criminal laws, unless the director
had reasonable cause to believe his conduct was lawful or had no reasonable
cause to believe his conduct was unlawful, (ii) deriving an improper personal
benefit from a transaction, (iii) voting for or assenting to an unlawful
distribution and (iv) willful misconduct or conscious disregard for the best
interests of the Company in a proceeding by or in the right of a shareholder.
The statute does not affect a director's responsibilities under any other law,
such as the Federal securities laws.
The effect of the foregoing is to require the Company to indemnify the
officers and directors of the Company for any claim arising against such persons
in their official capacities if such person acted in good faith and in a manner
that 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 not
reasonable cause to believe his conduct was unlawful.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers or persons controlling the
Company pursuant to the foregoing provisions, the Company has been informed that
in the opinion of the Securities and Exchange Commission, such indemnification
is against public policy as expressed in the act and is therefore unenforceable.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The estimated expenses payable by the Company in connection with the
distribution of the securities being registered are as follows:
SEC Registration and Filing Fee.......................................$261.32
Legal Fees and Expenses*...........................................$25,000.00
Accounting Fees and Expenses*......................................$20,000.00
Financial Printing*.................................................$1,000.00
Transfer Agent Fees*................................................$1,000.00
Blue Sky Fees and Expenses*.........................................$1,000.00
Miscellaneous*..................................................... $500.00
---------
TOTAL...........................................$48,761.32
* Estimated
None of the foregoing expenses are being paid by the selling
securityholders.
II-1
<PAGE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
Upon incorporation, on December 24, 1998, the Company issued an
aggregate of 18,800,000 shares of "founders" Common Stock to the following 24
individuals, all of whom are officers, directors, founders or entities for
founders of the Company:
SUBSCRIBER NUMBER OF SHARES
---------- ----------------
Charles Zwebner 3,182,000
Vince Genova 1,591,000
Joseph Genova 1,591,000
Anthony Heller 1,512,000
Michael Zwebner 1,266,000
Mitchell Shore 1,008,000
Minko Holdings Limited 850,000
David Brothman 840,000
David Heller 840,000
Lipmann Heller 840,000
Evelyn E. Gestetner 840,000
Overseas Development Corporation 750,000
The Ralquina Group Holdings Limited 625,000
Calidon International Corporation Inc. 600,000
McGovern & McCowan Investment Corporation 600,000
Balforita Investment Corporation 600,000
Ben Distaulo 336,000
Sarah Wertheimer 250,000
Evelyn Jacobs 168,000
Murray Ruben 136,000
Richard Sablon 100,000
Jacquie Capote 100,000
Bernard Gropper 100,000
Mario Perez 75,000
The foregoing transaction was a transaction not involving a public offering and
was exempt from the registration provisions of the Securities Act of 1933, as
amended (the "Act"), pursuant to Section 4(2) thereof. Because the individuals
and entities had access to all information pertaining to the Company, the
issuance was exempt from the registration requirements of the Act, pursuant to
Section 4(2) of the Act. The issuances under 4(2) to officers, directors,
employees or legal counsel were to persons familiar with the operations of the
Company. Other issuances under 4(2) were to advisors. The Company believed that
these advisors were sufficiently sophisticated to qualify for the exemption
because they are in the business of advising corporations on marketing, finance
or public relations, as the case may be, and are familiar with the business of
the Company.
The Company sold 450,000 shares of Common Stock at $1.00 per share
pursuant to a Confidential Private Offering Memorandum dated March 19, 1998, in
which the Company offered
II-2
<PAGE>
a minimum of $250,000 (250,000 shares of Common Stock) and a maximum of
$1,000,000 (1,000,000 shares of Common Stock) of the Company at $1.00 per share
(the "Offering"). The 450,000 shares of Common Stock were sold to the investors
below. The offering resulted in receipt by the Company of $450,000.
SUBSCRIBER NUMBER OF SHARES
---------- ----------------
GZNT Corporation 50,000
Evelyn Jacobs 2,500
Calidon International Corporation Inc. 250,000
David Heller 25,000
Evelyn E. Gestetner 35,000
David Brothman 12,500
Apropo Developments Limited 75,000
This Offering was exempt from registration under the Securities Act in reliance
upon Rule 504 of Regulation D as a transaction by an issuer not involving a
public offering. The recipients of securities in the Offering represented their
intention to acquire the securities for investment only and not with a view to
or sale in connection with any distribution. All recipients either received
adequate information about the Company or had access, through employment or
other relationships, to such information.
ITEM 27. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
EXHIBIT NO. DESCRIPTION OF DOCUMENT
3.1 Articles of Incorporation of the Company as filed on December
24, 1998, with the Secretary of State of the State of Florida.
3.2 Articles of Amendment to the Articles of Incorporation of the
Company, increasing the number of authorized common stock from
50 million shares to 100 million shares, as filed on June 4,
1999, with the Secretary of State of the State of Florida.
3.3 Articles of Amendment to the Articles of Incorporation of the
Company, designating Series A Convertible Preferred Stock, as
filed on July 27, 1999, with the Secretary of State of the
State of Florida.
3.4 Bylaws of the Company.
4 Warrant Agreement, dated August 15, 1999, between the Company
and Firmvest Capital Corp.
5.1 Opinion of Adorno & Zeder, P.A. re: legality
10.1 1999 Stock Option Plan.
II-3
<PAGE>
10.2 Promissory Note, dated August 15, 1999, from the Company to
Firmvest Capital Corp.
10.3 Credit Facility, dated June 14, 1999, between the Company and
1054311 Ontario Limited.
10.4 Billing and Collection Services Agreement, dated August 26,
1998, between the Company and Bell Canada.
10.5 Service Agreement, dated June 16, 1999, between Bell Canada,
BC TEL, Island Telecom Inc., MTS Communications Inc., Maritime
Tel & Tel Limited, NBTel Inc., NewTel Communications Inc.,
Saskatchewan Telecommunications, TELUS Communications Inc.
(collectively referred to as "Stentor") and the Company.
10.6 Non-Qualified Stock Option Plan, dated June 30, 1999, from the
Company to Charles Zwebner.
10.7 Employment Agreement between Yak Communications (USA), Inc.,
Yak Communications (Canada), Inc. and Charles Zwebner, dated
July 1, 1999.
21 Subsidiaries
23.1 Consent of Edward Isaacs & Company, LLP.
23.2 Consent of Adorno & Zeder, P.A.
24 Power of Attorney
27 Financial Data Schedule
ITEM 28. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by
section 10(a)(3) of the Securities Act of
1933;
(ii) To reflect in the prospectus any facts or
events arising after the effective date of
the registration statement (or the most
recent post-effective amendment thereof)
which, individually or in the aggregate,
represent a fundamental change in the
information set forth in the registration
statement;
II-4
<PAGE>
(iii) To include any material information with
respect to the plan of distribution not
previously disclosed in the registration
statement or any material change to such
information in the registration statement;
Provided, however, that paragraphs (1)(i) and (1)(ii) do not apply if the
registration statement is on Form S-3 or Form S-8, and the information required
to be included in a post-effective amendment by those paragraphs is contained in
periodic reports filed by the registrant pursuant to Section 13 or section 15(d)
of the Securities Exchange Act of 1934 that are incorporated by reference in the
registration statement.
(2) That, for the purpose 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.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Securities Act") may be permitted to directors,
officers and controlling persons of the registrant pursuant to the foregoing
provisions, or otherwise, the Registrant has been advised that in the opinion of
the Securities and Exchange Commission (the "Commission") such indemnification
is against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer, or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned Registrant also undertakes that it will:
(1) For determining any liability under the Securities Act,
treat the information omitted from the form of prospectus filed as a part of
this registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Registrant under Rule 424(b)(1), or (4) or 497(h)
under the Securities Act as part of this registration statement as of the time
the Commission declared it effective.
(2) For determining any liability under the Securities Act,
treat each post-effective amendment that contains a form of prospectus as a new
registration statement for the securities offered in the registration statement,
and that offering of the securities at that time as the initial bona fide
offering of those securities.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as
amended, the registrant certifies that it has reasonable grounds to believe that
it meets all of the requirements for filing on Form SB-2 and authorized this
registration statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in Toronto, Ontario, on September 27, 1999.
YAK COMMUNICATIONS (USA), INC.
By:/S/ CHARLES ZWEBNER
-------------------------------------
Charles Zwebner
Chairman, Chief Executive Officer
Principal Financial and Accounting
Officer
Pursuant to the requirements of the Securities Act of 1933, this Form
SB-2 registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/S/ CHARLES ZWEBNER Chairman of the Board, Chief Executive September 27, 1999
- ------------------------------------ Officer, President and Director
Charles Zwebner (Principal Financial Officer and
Principal Accounting Officer)
/S/ ANTHONY HELLER Director September 27, 1999
- ------------------------------------
Anthony Heller
/S/ BERNARD GROPPER Secretary, Director September 27, 1999
- ------------------------------------
Bernard Gropper
/S/ VINCENT GENOVA Director September 27, 1999
- ------------------------------------
Vincent Genova
</TABLE>
II-6
<PAGE>
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION OF DOCUMENT
3.1 Articles of Incorporation of the Company as filed on December
24, 1998, with the Secretary of State of the State of Florida.
3.2 Articles of Amendment to the Articles of Incorporation of the
Company, increasing the number of authorized common stock from
50 million shares to 100 million shares, as filed on June 4,
1999, with the Secretary of State of the State of Florida.
3.3 Articles of Amendment to the Articles of Incorporation of the
Company, designating Series A Convertible Preferred Stock, as
filed on July 27, 1999, with the Secretary of State of the
State of Florida.
3.4 Bylaws of the Company.
4 Warrant Agreement, dated August 15, 1999, between the Company
and Firmvest Capital Corp.
5.1 Opinion of Adorno & Zeder, P.A. re: legality
10.1 1999 Stock Option Plan.
10.2 Promissory Note, dated August 15, 1999, from the Company to
Firmvest Capital Corp.
10.3 Credit Facility, dated June 14, 1999, between the Company and
1054311 Ontario Limited.
10.4 Billing and Collection Services Agreement, dated August 26,
1998, between the Company and Bell Canada.
10.5 Service Agreement, dated June 16, 1999, between Bell Canada,
BC TEL, Island Telecom Inc., MTS Communications Inc., Maritime
Tel & Tel Limited, NBTel Inc., NewTel Communications Inc.,
Saskatchewan Telecommunications, TELUS Communications Inc.
(collectively referred to as "Stentor") and the Company.
10.6 Non-Qualified Stock Option Plan, dated June 30, 1999, from the
Company to Charles Zwebner.
10.7 Employment Agreement between Yak Communications (USA), Inc.,
Yak Communications (Canada), Inc. and Charles Zwebner, dated
July 1, 1999.
21 Subsidiaries
23.1 Consent of Edward Isaacs & Company, LLP.
23.2 Consent of Adorno & Zeder, P.A. (see Exhibit 5)
<PAGE>
24 Power of Attorney.
27 Financial Data Schedule.
EXHIBIT 3.1
ARTICLES OF INCORPORATION
OF
YAK COMMUNICATIONS (USA), INC.
The undersigned incorporator for purposes of forming a
corporation under the Florida Business Corporation Act, hereby adopts the
following Articles of Incorporation:
FIRST: The name of the Corporation is Yak Communications (USA), Inc.
(the "Corporation").
SECOND: The street address of the initial principal office and
mailing address of the Corporation is 121 Westgate, Toronto,
Ontario M3H1P5, Canada.
THIRD: The Corporation is authorized to issue Fifty (50) Million
shares of Common Stock, having no par value per share, and One
Million shares of Preferred Stock, having no par value per
share.
The Preferred Stock may be issued from time to time in series,
with such designations, preferences, conversion rights,
cumulative, relative, participating, optional or other rights,
qualifications, limitations or restrictions thereof as shall
be stated and expressed in the resolution or resolutions
providing for the issuance of such Preferred Stock, adopted by
the Board of Directors pursuant to the authority granted in
these Articles.
FOURTH: The street address of the initial registered office of the
Corporation is 2601 South Bayshore Drive, Suite 1600, Miami,
Florida 33133, and the registered agent at that address is A Z
Registered Agent Corporation.
FIFTH: The name and address of the Incorporator of the Corporation
is A Z Registered Agent Corporation, 2601 South Bayshore
Drive, Suite 1600, Miami, Florida 33133.
SIXTH: The Corporation is organized for the purpose of transacting
any and all lawful activities or business for which
corporations may be formed under Chapter 607 of the Florida
Statutes.
<PAGE>
SEVENTH: The Corporation shall have one director initially and the
number of directors may be increased or diminished from time
to time as provided in the Bylaws but shall never be less than
one. The name and address of the initial director of the
Corporation is Charles Zwebner, 121 Westgate, Toronto, Ontario
M3H1P5, Canada.
EIGHT: The Corporation expressly elects not to be governed by
Section 607.0901 of the Florida Business Corporation Act,
as amended from time to time, relating to affiliated
transactions.
NINTH: The Corporation expressly elects not to be governed by
Section 607.0902 of the Florida Business Corporation Act,
as amended from time to time, relating to control share
acquisitions.
TENTH: The corporate existence of the Corporation shall commence
upon the filing of these Articles of Incorporation.
IN WITNESS WHEREOF, the undersigned Incorporator has executed these
Articles of Incorporation this 22nd day of December, 1998.
A Z REGISTERED AGENT CORPORATION,
Incorporator
By:/S/JUSTIN T. WILSON
--------------------
Justin T. Wilson,
Secretary and Treasurer
-2-
<PAGE>
ACCEPTANCE OF APPOINTMENT
OF
REGISTERED AGENT
I hereby accept the appointment as Registered Agent contained in the
foregoing Articles of Incorporation and state that I am familiar with and accept
the obligations of Section 607.0505 of the Florida Business Corporation Act.
A Z REGISTERED AGENT CORPORATION,
Registered Agent
By:/S/JUSTIN T. WILSON
------------------------------
Justin T. Wilson,
Secretary and Treasurer
-3-
EXHIBIT 3.2
ARTICLES OF AMENDMENT
TO THE
ARTICLES OF INCORPORATION
OF
YAK COMMUNICATIONS (USA), INC.
The undersigned, being the sole director of YAK Communications (USA),
Inc., a corporation organized and existing under and by virtue of the Florida
Business Corporation Act (the "Corporation"), does hereby certify:
1. The name of the Corporation is YAK Communications (USA), Inc.
2. The Corporation does not yet have shareholders.
3. The following provision of the Articles of Incorporation of
the Corporation be and it hereby is amended in the following
particulars:
The first paragraph of Article THIRD of the Articles
of Incorporation of the Corporation be and it hereby
is amended to read in its entirety as follows:
"The Corporation is authorized to issue One Hundred Million
(100,000,000) shares of Common Stock, having no par value per
share, and One Million shares of Preferred Stock, having no
par value per share.
4. The foregoing amendment was adopted by consent of the sole
director of the Corporation on December 24, 1998.
IN WITNESS WHEREOF, the undersigned sole director of the Corporation
has executed these Articles of Amendment this 24th day of December, 1998.
/S/CHARLES ZWEBNER
------------------------------
Charles Zwebner, Sole Director
<PAGE>
ARTICLES OF AMENDMENT
TO
THE ARTICLES OF INCORPORATION
OF
YAK COMMUNICATIONS (USA), INC.
The undersigned, constituting all of the directors of YAK
Communications (USA), Inc., a corporation organized and existing under and by
virtue of the Florida Business Corporation Act (the "Corporation"), do hereby
certify:
1. The name of the Corporation is YAK Communications (USA), Inc.
2. Pursuant to the provisions set forth in Article THIRD of the
Articles of Incorporation of the Corporation, as amended (the
"Articles"), the attached Exhibit to the Articles, entitled
"Statement of Designations, Powers, Preferences and Rights of
Series A Convertible Preferred Stock", was duly adopted by
unanimous written consent of the Board of Directors on January
15, 1999, in the manner prescribed by the Florida Business
Corporation Act, and did not require Shareholder action.
IN WITNESS WHEREOF, the Corporation has caused these Articles of
Amendment to the Articles of Incorporation to be executed this 15th day of
January, 1999.
/S/CHARLES ZWEBNER
-------------------------
Charles Zwebner, Director
/S/BERNARD GROPPER
------------------------
Bernie Gropper, Director
/S/ANTHONY HELLER
------------------------
Anthony Heller, Director
/S/VINCENT GENOVA
----------------------
Vince Genova, Director
EXHIBIT 3.3
YAK COMMUNICATIONS (USA), INC.
STATEMENT OF DESIGNATIONS,
POWERS, PREFERENCES AND RIGHTS OF
SERIES A CONVERTIBLE PREFERRED STOCK
There is hereby established a series of 500,000 shares of Preferred
Stock, no par value per share, designated as Series A Convertible Preferred
Stock (the "Series A Preferred Stock") with the following properties:
A. RANK. The Series A Preferred Stock shall rank senior to (a)
the Company's Common Stock, no par value per share (the
"Common Stock"), and (b) any class or series of capital stock
of the Company hereafter created (unless, with the consent of
the holders of a majority of the outstanding shares of Series
A Preferred Stock, such class or series of capital stock
specifically, by its terms, ranks senior to or pari passu with
the Series A Preferred Stock (collectively, the "Junior
Securities")).
B. DIVIDENDS. (I) The holders of Series A Convertible Preferred
Stock shall be entitled to receive an annual cash dividend of
four percent (4%) per share (the "Dividend") out of the assets
of the Company that are by law available for the payment of
dividends when and as declared by the Board of Directors of
the Company.
(II) No distributions shall be made with respect to
any Junior Securities unless all unpaid dividends with respect
to the Series A Preferred Stock shall have been paid in full.
C. VOTING RIGHTS. The holder(s) of Series A Preferred Stock shall
not be entitled to vote upon any matter relating to the
business or affairs of the Company or for any other purposes
except as otherwise required by law.
D. REDEMPTION. (I) The Company shall have the right to redeem, in
whole or in part, the Series A Preferred Stock at a redemption
price of $1.00 per share plus all accumulated dividends
thereon (collectively, the "Redemption Price").
(II) Notice of any redemption, specifying the time
and place of redemption, shall be mailed or caused to be
mailed by the Company, addressed to each holder of record of
Series A Preferred Stock to be redeemed at his last address as
the same appears on the books of the Company, at least thirty
(30) days' prior to the date designated for redemption.
Notwithstanding that any certificate for shares of Series A
Preferred Stock so called for redemption shall not have been
surrendered for cancellation, the shares of Series A Preferred
Stock represented thereby shall no
<PAGE>
longer be deemed outstanding after the close of business on
the date called for redemption, and the holder of such
certificate or certificates shall have with respect to such
shares of Series A Preferred Stock no rights in or with
respect to the Company except the right to receive the
redemption price thereof, without interest, upon the surrender
of such certificate or certificates, and after the date
designated for redemption such shares of Series A Preferred
Stock shall not be transferable on the books of the Company.
(III) In the event that prior to the Company sending
notice of redemption as set forth in sub-section (II), above,
the Company merges with, is acquired by, or otherwise enters
into a transaction with another company which is a reporting
company under the Securities Exchange Act of 1934, as amended,
in such a manner than the holders of Common Stock of the
Company become stockholders of such public reporting company,
then the Series A Preferred Stock shall automatically convert
into Common Stock immediately prior to the closing of such
transaction which Common Stock shall be treated identically
with all of the Company's other Common Stock in the
transaction. The conversion rate shall be the rate in effect
as of the end of the quarter last ended before the date of
execution of the definitive agreement binding the Company to
such transaction, or $1.00, whichever is greater.
(IV) If the Company shall at any time pay a dividend
on its Common Stock in Common Stock, subdivide its outstanding
shares of Common Stock into a larger number of shares or
combine its outstanding shares of Common Stock into a smaller
number of shares by reclassification or otherwise, the
conversion rate in effect immediately prior thereto shall be
adjusted so that each share of Series A Preferred Stock shall
thereafter be convertible into the number of shares of Common
Stock that the holder of a share of Series A Preferred Stock
would have been entitled to receive after the happening of any
of the events described above had such share of Series A
Preferred Stock been converted immediately prior to the
happening of such event. An adjustment made pursuant to this
paragraph shall become effective retroactively to the record
date in the case of a dividend and shall become effective on
the effective date in the case of a subdivision or
combination.
If the Company shall distribute to all holders of
shares of Common Stock any assets (other than any dividend
payable solely in cash out of retained earnings), any rights
to subscribe or any evidence of indebtedness or other
securities of the Company (other than Common Stock), then in
each case the conversion rate of the Series A Preferred Stock
shall be adjusted to take into account the fair market value
(as determined in a resolution adopted by the Board of
Directors of the Company, which shall be conclusive evidence
of such fair market value) of the portion of the assets or
evidence of indebtedness or securities so distributed or of
such subscription rights
2
<PAGE>
applicable to one share of Common Stock. Such adjustment shall
become effective retroactively immediately after the record
date with respect to such distribution.
In case of any capital reorganization or any
reclassification of the capital stock of the Company or in
case of the consolidation or merger of the Company with
another corporation (other than a merger not involving any
reclassification, conversion, or exchange of Common Stock to
which the Company is the surviving corporation), or in case of
any sale or conveyance of all or substantially all of the
assets of the Company, each share of Series A Preferred Stock
shall thereafter be convertible into the number of shares of
stock (of any class or classes) or other securities or assets
receivable upon such capital reorganization, reclassification,
consolidation, merger, sale or conveyance, as the case may be,
as a holder of the number of shares of Common Stock into which
such share of Series A Preferred Stock was convertible
immediately prior to such capital reorganization,
reclassification, consolidation, merger, sale or conveyance is
entitled; and, in any case, appropriate adjustment (as
determined by the Board of Directors of the Company) shall be
made in the application of the provisions herein set forth
with respect to rights and interests thereafter of the holder
of the Series A Preferred Stock, to the end that the
provisions set forth herein (including the specified changes
in and other adjustments of the conversion rate) shall
thereafter be applicable, as near as reasonably practical, in
relation to any share of stock or other securities or other
property thereafter deliverable upon the conversion of the
Series A Preferred Stock.
If the Company shall at any time sell for cash any
equity or convertible debt securities (other than upon
exercise of (i) employee options or (ii) non-employee options
or warrants granted prior to the closing date of the initial
issuance of Series A Preferred Stock) at a price per share or
conversion price per share, respectively, which is less than
the price per Common Share upon conversion as adjusted for any
prior change in the conversion rate under this sub-section
(IV) or under Section B(II), above, then the conversion rate
shall be adjusted as follows: the "price per Common Share" as
used above shall initially be $1.00 and shall be adjusted from
time to time upon each adjustment of the conversion rate under
this sub-section (IV).
Whenever the conversion rate is adjusted as herein
provided, the Company shall forthwith send a written notice of
the new conversion rate to each record holder of the Series A
Preferred Stock and shall file with any transfer agent or
agents for the Series A Preferred Stock appointed as the Board
of Directors may have determined a certificate signed by the
Chairman, President or one of the Vice Presidents of the
Company and by its Treasurer, Secretary or an Assistant
Secretary or Assistant Treasurer, stating the adjusted
conversion rate determined as provided above and in reasonable
detail the facts requiring such adjustment. Such transfer
agent(s) shall be under no duty to make any inquiry or
investigation as to the statements contained in
3
<PAGE>
any such certificate or as to the manner in which any
computation was made, but may accept such certificate as
conclusive evidence of the statements therein contained, and
each transfer agent shall be fully protected with respect to
any and all acts done or action taken or suffered by it in
reliance thereon. No transfer agent in its capacity as
transfer agent shall be deemed to have any knowledge with
respect to any change of capital structure of the Company
unless and until it receives a notice thereof pursuant to the
provisions of this paragraph and in default of any such notice
each transfer agent may conclusively assume that there has
been no such change.
The Company shall at all times reserve and keep
available, out of its authorized and unissued shares of Common
Stock, or other stock or securities deliverable upon
conversion pursuant to this section, solely for the purpose of
effecting the conversion of the Series A Preferred Stock, such
number of shares as shall from time to time be sufficient to
effect the conversion of all shares of Series A Preferred
Stock from time to time outstanding. The Company shall from
time to time, in accordance with the laws of Florida, increase
the authorized amount of its Common Stock if at any time the
number of shares of Common Stock remaining unissued shall not
be sufficient to permit the conversion of all the then
outstanding Series A Preferred Stock.
The Company will pay any and all issue and other
taxes that may be payable in respect of any issue or delivery
of shares of Common Stock on conversion of Series A Preferred
Stock pursuant hereto. The Company shall not, however, be
required to pay any tax which may be due in respect of any
transfer involved in the issue and delivery of Common Stock in
a name other than that in which the Series A Preferred Stock
so converted was registered, and no such issue or delivery
shall be made unless and until the person requesting such
issue has paid to the Company the amount of any such tax, or
has established, to the satisfaction of the Company, that such
tax has been paid.
E. CONVERSION RIGHTS. The shares of Series A Preferred Stock
shall be convertible, at the option of the holders thereof,
upon ten days' written notice to the Company at any time at
the office of any duly appointed transfer agent for the Series
A Preferred Stock and at such other office or offices, if any,
as the Board of Directors of the Company may determine, into
fully paid and non-assessable shares of Common Stock at a
conversion rate of one share of Common Stock for each share of
Series A Preferred Stock tendered by the holder for
conversion, provided, however, that in the case of redemption
of any shares of Series A Preferred Stock, such right of
conversion shall cease and terminate, as to the shares called
for redemption, at the close of business on the day prior to
the date fixed for redemption.
4
<PAGE>
Before any holder of Series A Preferred Stock shall
be entitled to convert the Series A Preferred Stock into
Common Stock, he shall surrender the certificate or
certificates for such Series A Preferred Stock, at any office
hereinabove mentioned, which certificate or certificates shall
be duly endorsed to the Company or in blank or accompanied by
proper instruments of transfer of the Company or in blank,
unless the Company shall waive such requirement, and shall
give notice to the Company at any of said offices that he
elects so to convert said Series A Preferred Stock, and shall
state in writing therein the name or names in which he wishes
the certificate or certificates for Common Stock to be issued.
The Company, will, as soon as practicable after such
surrender of certificates for Series A Preferred Stock
accompanied by the written notice and the statement above
prescribed, issue and deliver at the office of any transfer
agent appointed as aforesaid, or at such other office or
offices, if any, to the person for whose account such Series A
Preferred Stock was so surrendered or to his nominee or
nominees, certificates for the number of shares of Common
Stock to which he shall be entitled. Subject to the following
provisions of this paragraph, such conversion shall be deemed
to have been made as of the date of such surrender of the
Series A Preferred Stock to be converted and the rights of the
converting holder of the shares of the Series A Preferred
Stock as such holder shall cease and the person or persons in
whose name or names the certificates for shares of Common
Stock upon conversion of such Series A Preferred Stock are to
be issued shall be treated for all purposes as the record
holder or holders of such Common Stock at the close of
business on such date. The Company shall not be required to
convert, and no surrender of Series A Preferred Stock shall be
effective for the purpose, while the stock transfer books of
the Company are closed for any purpose, but the surrender of
Series A Preferred Stock for conversion during any period
while such books are so closed shall become effective for
conversion immediately upon the reopening of such books, as if
the conversion had been made on the date such Series A
Preferred Stock was surrendered, and at the conversion rate in
effect at the date of such surrender. In the event of any
liquidation, dissolution or winding up of the affairs of the
Company, all conversion rights of the holders of Series A
Preferred Stock shall terminate on the date fixed by
resolution of the Board of Directors of the Company, which
date shall not be later than 10 days nor earlier than 20 days
prior to such liquidation, dissolution or winding up.
F. LIQUIDATION RIGHTS. In the event of any liquidation,
dissolution or winding up of the Company, whether voluntary or
involuntary, before any distribution or payment shall be made
to the holder of any Common Stock or of any stock ranking
junior to the Series A Preferred Stock in respect to
distribution of assets, the holders of the Series A Preferred
Stock shall be entitled to receive $1.00 per share plus the
amount per share of any dividends which were outstanding,
unpaid, and accrued as of the date of the liquidation payment
to the holders of the Series A Preferred Stock.
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In the event the assets of the Company available for
distribution to the holders of shares of the Series A
Preferred Stock upon dissolution, liquidation or winding up of
the Company shall be insufficient to pay in full all amounts
to which such holders are entitled pursuant to the immediately
preceding paragraph, no such distribution shall be made on
account of any shares of any other class or series of capital
stock of the Company ranking on a parity with or junior to the
shares of the Series A Preferred Stock, except that a
proportionate distributive amount shall be paid on account of
the shares of the Preferred A Stock and any other class of
shares ranking pari passu with the Series A Preferred Stock,
ratably, in proportion to the full distribution, liquidation
or winding up.
G. STATUS OF CONVERTED SHARES. Any shares of the Series A
Preferred Stock that shall have been converted shall after
such conversion have the status of authorized but unissued
shares of Preferred Stock, without designation as to series
until such shares are once more designated as part of a
particular series by the Board of Directors.
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EXHIBIT "A"
BYLAWS
OF
YAK COMMUNICATIONS (USA), INC.
EXHIBIT 3.4
BYLAWS
OF
YAK COMMUNICATIONS (USA), INC.,
A FLORIDA CORPORATION
ARTICLE I.
NAME AND OFFICES
Section A. NAME. The name of the Corporation is YAK
COMMUNICATIONS (USA), INC., a Florida corporation.
Section B. PRINCIPAL OFFICE AND ADDITIONAL OFFICES. The
location of the registered office of the corporation shall be as stated in the
Articles of Incorporation, which location may be changed from time to time by
the board of directors. The corporation may also have offices or branches at
such other places, both within and without the State of Florida, as the board of
directors may from time to time determine or as the business of the corporation
may require.
ARTICLE II.
MEETINGS OF SHAREHOLDERS
Section A. PLACE OF MEETINGS. All meetings of the shareholders
shall be held at the registered office of the corporation, or at such other
place (within or without the State of Florida) as shall be designated from time
to time by the board of directors and stated in the notice of the meeting.
Section B. ANNUAL MEETING. Annual meetings of shareholders
shall be held on the first Tuesday of the fifth month of each fiscal year of the
corporation if not a legal holiday in the state in which the meeting shall be
held, and if a legal holiday, then on the next secular day following, at such
time as determined by the board of directors, or at such other date and time as
shall be designated from time to time by the board of directors and stated in
the notice of the meeting. At the annual meeting, the shareholders shall elect a
board of directors and transact such other business as may properly be brought
before the meeting. If the annual meeting is not held on the date designated
therefor, the board of directors shall cause the meeting to be held as soon
thereafter as convenient.
Section C. SPECIAL MEETINGS. Special meetings of the
shareholders, for any purpose or purposes, unless otherwise prescribed by
statute or by the Articles of Incorporation, may be called by the chairman of
the board or president, and shall be called by the chairman of the board or
president at the request in writing of a majority of the board of directors or
at the request in writing of the holders of not less than ten percent (10%) of
all the shares entitled to vote at a meeting. Such request shall state the
purpose or purposes of the proposed meeting.
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Section D. LIST OF SHAREHOLDERS. The officer or agent who has
charge of the stock transfer book for shares of the corporation shall make and
certify a complete list of the shareholders entitled to vote at a shareholders'
meeting, or any adjournment thereof. The list shall be compiled at least ten
(10) days before each meeting of shareholders if there are greater than six
shareholders of the Corporation. The list shall be arranged in alphabetical
order with each class and series and show the address of each shareholder and
the number of shares registered in the name of each shareholder. The list shall
also be produced and kept at the time and place of the meeting during the whole
time thereof, and may be inspected by any shareholder who is present. See
"Fixing of Record Date", Article VI, Section E, for the method of determining
which shareholders are entitled to vote.
Section E. NOTICE OF MEETINGS. Except as may be provided by
statute, written notice of an annual or special meeting of shareholders stating
the place, date and hour of the meeting and the purpose or purposes for which
the meeting is called, shall be delivered, either personally or by first-class
mail, not less than ten (10) nor more than sixty (60) days before the date of
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 F. QUORUM. The holders of a majority of the stock
issued and outstanding and entitled to vote thereat, present in person or
represented by proxy, shall constitute a quorum at all meetings of the
shareholders for the transaction of business except as otherwise expressly
required by statute or by the Articles of Incorporation. All shareholders
present in person or represented by proxy at such meeting may continue to do
business until adjournment, notwithstanding the withdrawal of enough
shareholders to leave less than a quorum. If, however, such quorum shall not be
initially present at any meeting of shareholders, a majority of the shareholders
entitled to vote thereat shall nevertheless have power to adjourn the meeting
from time to time and to another place, without notice other than announcement
at the meeting, until a quorum shall be present or represented. At such
adjourned meeting, at which a quorum shall be present or represented, any
business may be transacted which might have been transacted at the meeting as
originally notified. If after the adjournment a new record date is fixed for the
adjourned meeting, a notice of the adjourned meeting shall be given to each
shareholder of record entitled to vote at the meeting.
Section G. SUPER MAJORITY. When an action other than the
election of directors is to be taken by vote of the shareholders, it shall be
authorized by the affirmative vote of a majority of the shares represented at
the meeting and entitled to vote on the subject matter, unless a greater
plurality is required by express requirement of the statutes or of the Articles
of Incorporation, in which case such express provision shall govern and control
the decision of such question. "Shares represented at the meeting" shall be
determined as of the time the existence of the quorum is determined. Except as
otherwise expressly required by the Articles of Incorporation, directors shall
be elected by a plurality of the votes cast at an election.
Section H. VOTING OF SHARES AND PROXIES. Each shareholder
shall at every meeting of the shareholders be entitled to one (1) vote in person
or by proxy for each share of the capital stock having voting power held by such
shareholder except as otherwise expressly required in the
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Articles of Incorporation. A vote may be cast either orally or in writing. Each
proxy shall be in writing and signed by the shareholder or his authorized agent
or representative. A proxy is not valid after the expiration of eleven (11)
months after its date unless the person executing it specifies therein the
length of time for which it is to continue in force. Unless prohibited by law, a
proxy otherwise validly granted by telegram shall be deemed to have been signed
by the granting shareholder. All questions regarding the qualification of
voters, the validity of proxies and the acceptance or rejection of votes shall
be decided by the presiding officer of the meeting.
Section I. WAIVER OF NOTICE. Attendance of a person at a
meeting of shareholders in person or by proxy constitutes a waiver of notice of
the meeting except where the shareholder attends a meeting for the express
purpose of objecting at the beginning of the meeting to the transaction of any
business because the meeting was not lawfully called or convened.
Section J. WRITTEN CONSENT WITHOUT A MEETING. Unless otherwise
provided by the Articles of Incorporation, any action required to be taken at
any annual or special meeting of the shareholders, or any other action which may
be taken at any annual or special meeting of the 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 holders of
outstanding stock having not less than the minimum number of votes that would be
necessary to authorize such action at a meeting at which all shares entitled to
vote thereon were present and voted. Within 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,
consolidation, or sale of assets for which dissenters rights are provided for by
statute, the notice shall contain a clear statement of the rights of
shareholders dissenting therefrom to be paid the fair value of their shares upon
compliance with further provisions of such statute regarding the rights of
dissenting shareholders.
ARTICLE III.
DIRECTORS
Section A. GENERAL POWERS. The business and affairs of the
corporation shall be managed by or under the direction of its board of
directors, unless otherwise provided by the Articles of Incorporation. The board
may exercise all such powers of the corporation and do all such lawful acts and
things as are not by statute or by the Articles of Incorporation or by these
Bylaws directed or required to be exercised or done by the shareholders.
Section B. NUMBER, ELECTION AND TERM OF OFFICE. The number of
directors constituting the whole board shall be four (4). The number of
directors shall be determined from time to time by resolution of the board of
directors. In the absence of an express determination by the board, the number
of directors, until changed by the board, shall be that number of directors
elected at the most recently held annual meeting of shareholders or, if no such
meeting has been held, the number elected by the incorporator in the initially
filed Articles of Incorporation. Directors are elected at the first annual
shareholders' meeting and at each annual meeting thereafter. Each Director shall
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hold office until the next annual meeting of shareholders or until his successor
is elected. Directors need not be shareholders or officers of the corporation.
Section C. VACANCIES AND REMOVAL. Vacancies and newly created
directorships resulting from any increase in the authorized number of directors
may be filled by the affirmative vote of a majority of the directors then in
office, though less than a quorum, or by a sole remaining director, or by the
shareholders, and the directors so chosen shall hold office until the next
annual election of directors by the shareholders and until their successors are
duly elected and qualified or until their resignation or removal. Any director
may be removed, with or without cause, by the shareholders at a meeting of the
shareholders called expressly for that purpose unless otherwise provided in the
Articles of Incorporation.
Section D. ANNUAL MEETING. The first board of directors shall
hold office until the first annual meeting of shareholders. Thereafter, the
first meeting of each newly elected board of directors shall be held promptly
following the annual meeting of shareholders on the date thereof. No notice of
such meeting shall be necessary to the newly elected directors in order to
legally constitute the meeting, provided a quorum shall be present. In the event
such meeting is not so held, the meeting may be held at such time and place as
shall be specified in a notice given as hereinafter provided for special
meetings of the board of directors. Any notice of the annual meeting need not
specify the business to be transacted or the purpose of the meeting.
Section E. PLACE OF MEETINGS. Meetings of the board of
directors shall be held at the principal office of the Corporation or at such
other place, within or without the State of Florida, as the board of directors
may from time to time determine or as shall be specified in the notice of any
such meeting. Unless otherwise restricted by the Articles of Incorporation,
members of the board of directors, or any committee designated by the board, may
participate in a meeting of the board or committee by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and participation in a meeting
pursuant to this section shall constitute presence in person at such meeting.
Section F. SPECIAL MEETINGS. Special meetings of the board may
be called by the chairman of the board or president on four (4) days' notice to
each director by mail or twenty-four (24) hours' notice either personally, by
telephone or by telegram; special meetings shall be called by the chairman of
the board or president in like manner and on like notice on the written request
of two
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(2) directors. The notice need not specify the business to be transacted or the
purpose of the special meeting. The notice shall specify the place of the
special meeting.
Section G. QUORUM. At all meetings of the board, a majority in
the number of directors fixed pursuant to Article III, Section B of these Bylaws
shall constitute a quorum for the transaction of business. At all meetings of a
committee of the board a majority of the directors then members of the committee
in office shall constitute a quorum for the transaction of business. The act of
a majority of the members present at any meeting at which there is a quorum
shall be the act of the board of directors or the committee, unless the vote of
a larger number is specifically required by statute, by the Articles of
Incorporation, or by these Bylaws. If a quorum shall not be present at any
meeting of the board of directors or a committee, the members present thereat
may adjourn the meeting from time to time and to another place without notice
other than announcement at the meeting, until a quorum shall be present.
Section H. WRITTEN CONSENT WITHOUT A MEETING. Unless otherwise
provided by the Articles of Incorporation, any action required or permitted to
be taken at any meeting of the board of directors or of any committee thereof
may be taken without a meeting, if, before or after the action, all members of
the board or committee consent thereto in writing. The written consents shall be
filed with the minutes of proceedings of the board or committee. Such consents
shall have the same effect as a vote of the board or committee for all purposes.
Section I. EXECUTIVE AND OTHER COMMITTEES. A majority of the
full board of directors may, by resolution, designate one (1) or more
committees, each committee to consist of one (1) or more of the directors of the
corporation. The board may designate one (1) or more directors as alternate
members of any committee, who may replace any absent or disqualified member at
any meeting of the committee. Any such committee, to the extent provided in the
resolution of the board, shall have and may exercise the powers of the board of
directors in the management of the business and affairs of the corporation;
provided, however, such a committee shall not have the power or authority to:
1. Approve or recommend to shareholders actions or proposals
required by statute to be approved by the shareholders.
2. Designate candidates for the office of director for
purposes of proxy solicitation or otherwise.
3. Fill vacancies on the board of directors or any committee
thereof.
4. Amend the Bylaws of the corporation.
5. Authorize or approve the reacquisition of shares unless
pursuant to a general formula or method specified by the board of directors.
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6. 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 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, and 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 Florida Department of
State pursuant to the Florida General Corporation Act.
Such committee or committees shall have such name or names as
may be determined from time to time by resolution adopted by the board of
directors. A committee, and each member thereof, shall serve at the pleasure of
the board. Each committee shall keep regular minutes of its meetings and report
the same to the board of directors when required.
Section J. COMPENSATION. The board of directors shall have
authority to fix the compensation, including fees and reimbursement of expenses
of directors, for services to the Corporation in any capacity.
Section K. RESIGNATIONS. A director may resign by written
notice to the corporation. The resignation is effective upon its receipt by the
corporation or a subsequent time as set forth in the notice of resignation.
Section L. WAIVER OF NOTICE. Attendance of a director at a
special meeting con stitutes a waiver of notice of the meeting except where a
director attends a meeting for the express purpose of objecting to the
transaction of any business because the meeting is not lawfully called or
convened. Directors may also sign a waiver of notice before or after a special
meeting.
ARTICLE IV.
NOTICES
Section A. METHOD OF NOTICE. Whenever, under the provisions of
the statutes or of the Articles of Incorporation or of these Bylaws, written
notice is required to be given to any director, committee member or shareholder,
such notice may be given in writing by mail (registered, certified or other
first class mail) addressed to such director, shareholder or committee member at
his address as it appears on the records of the corporation, with postage
thereon prepaid. Such notice shall be deemed to be given at the time when the
same shall be deposited in a post office or official depository under the
exclusive care and custody of the United States postal service.
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Section B. WAIVER OF NOTICE. Whenever any notice is required
to be given under the provision of the statutes or of the Articles of
Incorporation or of these Bylaws, a waiver thereof in writing, signed by the
person or persons entitled to said notice, whether before or after the time
stated therein, shall be deemed equivalent thereto. Neither the business to be
transacted at, nor the purpose of, any regular or special meeting of the
shareholders, directors or a committee, need be specified in any written waiver
of notice.
ARTICLE V.
OFFICERS
Section A. NUMBER AND QUALIFICATION. The officers of the
corporation shall be chosen by the board of directors at its first meeting after
each annual meeting of shareholders. There shall be a president, a secretary and
a treasurer. The board of directors may also create and fill the offices of
chairman of the board and vice-chairman of the board, and may choose one or more
vice-presidents, one or more assistant secretaries and assistant treasurers. Any
number of offices may be held by the same person, but the board by resolution
may require that at least two persons shall be officers for purposes of
compliance with Article VI, Section A, hereof. The board of directors may from
time to time appoint such other officers and agents as it shall deem necessary
who shall hold their offices for such terms and shall exercise such powers and
perform such duties as shall be determined from time to time by the board.
Section B. COMPENSATION. The salaries of all officers of the
corporation shall be fixed by the board of directors.
Section C. REMOVAL, VACANCIES AND RESIGNATIONS. The officers
of the corporation shall hold office at the pleasure of the board of directors.
Any officer elected or appointed by the board of directors may be removed at any
time by the board of directors with or without cause whenever, in its judgment,
the best interests of the corporation will be served thereby. Any vacancy
occurring in any office of the corporation by death, resignation, removal or
otherwise shall be filled by the board of directors. An officer may resign by
written notice to the corporation. The resignation is effective upon its receipt
by the corporation or at a subsequent time specified in the notice of
resignation.
Section D. THE PRESIDENT. Unless otherwise provided by
resolution of the board of directors, the president shall be the chief executive
officer of the corporation, shall preside at all meetings of the shareholders
and the board of directors (if he shall be a member of the board), shall have
general and active management of the business and affairs of the corporation and
shall see that all orders and resolutions of the board of directors are carried
into effect. The president shall execute on behalf of the corporation, and may
affix or cause the seal to be affixed to, all instruments requiring such
execution except to the extent the signing and execution thereof shall be
expressly delegated by the board of directors to some other officer or agent of
the corporation.
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Section E. VICE-PRESIDENTS. The vice-presidents shall act
under the direction of the president and in the absence or disability of the
president shall perform the duties and exercise the powers of the president.
They shall perform such other duties and have such other powers as the president
or the board of directors may from time to time prescribe. The board of
directors may designate one or more executive vice-presidents or may otherwise
specify the order of seniority of the vice-presidents. The duties and powers of
the president shall descend to the vice-presidents in such specified order of
seniority.
Section F. THE SECRETARY. The secretary shall act under the
direction of the president. Subject to the direction of the president, the
secretary shall attend all meetings of the board of directors and all meetings
of the shareholders and record the proceedings. The secretary shall perform like
duties for the standing committees when required; shall give, or cause to be
given, notice of all meetings of the shareholders and special meetings of the
board of directors; and shall perform such other duties as may be prescribed by
the president or the board of directors. The secretary shall keep in safe
custody the seal of the corporation and, when authorized by the president or the
board of directors, cause it to be affixed to any instrument requiring it. The
secretary shall be responsible for maintaining the stock transfer book and
minute book of the corporation and shall be responsible for their updating.
Section G. ASSISTANT SECRETARIES. The assistant secretaries
shall act under the direction of the president. In the order of their seniority
in office, unless otherwise determined by the president or the board of
directors, they shall, in the absence of disability of the secretary, perform
the duties and exercise the powers of the secretary. They shall perform such
other duties and have such other powers as the president or the board of
directors may from time to time prescribe.
Section H. THE TREASURER. The treasurer shall act under the
direction of the president. Subject to the direction of the president, the
treasurer shall have custody of the corporate funds and securities and shall
keep full and accurate accounts of receipts and disbursements in books belonging
to the corporation and shall deposit all moneys and other valuable effects in
the name and to the credit of the corporation in such depositories as may be
designated by the board of directors. The treasurer shall disburse the funds of
the corporation as may be ordered by the president or the board of directors,
taking proper vouchers for such disbursements, and shall render to the president
and the board of directors, at its regular meetings, or when the board of
directors so requires, an account of all his transactions as treasurer and of
the financial condition of the corporation. The treasurer may affix or cause to
be affixed the seal of the corporation to documents so requiring the seal.
Section I. ASSISTANT TREASURERS. The assistant treasurers in
the order of their seniority of office, unless otherwise determined by the
president or the board of directors shall, in the absence or disability of the
treasurer, perform the duties and exercise the powers of the treasurer. They
shall perform such other duties and have such other powers as the president or
the board of directors may from time to time prescribe.
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Section J. DELEGATION OF DUTIES. Whenever an officer is absent
or whenever for any reason the board of directors may deem it desirable, the
board of directors may delegate the powers and duties of an officer to any other
officer or officers or to any director or directors.
Section K. ADDITIONAL POWERS. To the extent the powers and
duties of the several officers are not provided from time to time by resolution
or other directive of the board of directors or by the president (with respect
to other officers), the officers shall have all powers and shall discharge the
duties customarily and usually held and performed by like officers of the
corporations similar in organization and business purposes to this corporation.
ARTICLE VI.
CERTIFICATES OF STOCK
AND SHAREHOLDERS OF RECORD
Section A. CERTIFICATES REPRESENTING SHARES. The shares of
stock of the corporation shall be represented by certificates signed by, or in
the name of the corporation by, the president or a vice-president and by the
secretary or an assistant secretary of the corporation. Each holder of stock in
the corporation shall be entitled to have such a certificate certifying the
number of shares owned by him in the corporation.
Section B. TRANSFER AGENTS. Any of or all the signatures on
the certificate may be a facsimile if the certificate is countersigned by a
transfer agent or registered by a registrar other than the corporation itself or
its employee. In case any officer who has signed or whose facsimile signature
has been placed upon a 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 issue. The seal of the
corporation or a facsimile thereof may, but need not, be affixed to the
certificates of stock.
Section C. LOST, DESTROYED OR MUTILATED CERTIFICATES. The
board of directors may direct a new certificate for shares to be issued in place
of any certificate theretofore issued by the corporation alleged to have been
lost or destroyed, upon the making of an affidavit of that fact by the person
claiming the certificate of stock to be lost or destroyed. When authorizing such
issue of a new certificate, the board of directors may, in its discretion and as
a condition precedent to the issuance thereof, require the owner of such lost or
destroyed certificate, or his legal representative, to give the corporation a
bond in such sum as it may direct as indemnity against any claim that may be
made against the corporation with respect to the certificate alleged to have
been lost or destroyed.
Section D. TRANSFER OF SHARES. Upon surrender to the
corporation or the transfer agent of the corporation of a certificate for shares
duly endorsed or accompanied by proper evidence of succession, assignment or
authority to transfer, it shall be the duty of the corporation to issue a new
certificate to the person entitled thereto, cancel the old certificate and
record the transaction upon its stock transfer book for shares of the
corporation.
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Section E. FIXING OF RECORD DATE. In order that the
corporation may determine the shareholders entitled to notice of, or to vote at,
any meeting of shareholders or any adjournment thereof, or to express consent
to, or to dissent from, a proposal without a meeting, or entitled to receive
payment of any dividend or other distribution or allotment of any rights, or for
the purpose of any other action, the board of directors may fix, in advance, a
date as a record date, which shall not be more than sixty (60) nor less than ten
(10) days before the date of such meeting, nor more than sixty (60) days prior
to any other action. The stock transfer books of the corporation shall not be
closed.
If no record date is fixed:
1. The record date for determining the shareholders of record
entitled to notice of, or to vote at, a meeting of shareholders shall be at the
close of business on the day on which notice is given, or, if no notice is
given, at the close of business on the day next preceding the day on which the
meeting is held; and
2. the record date for determining shareholders for any other
purpose shall be at the close of business on the day on which the board of
directors adopts the resolution relating thereto.
A determination of shareholders of record entitled to notice
or to vote at a meeting of shareholders shall apply to any adjournment of the
meeting; provided, however, that the board of directors may fix a new record
date for the adjourned meeting.
Section F. EXCLUSIVE OWNERSHIP OF SHARES. The corporation
shall be entitled to recognize the exclusive right of a person registered upon
its stock transfer book for shares of the corporation as the owner of shares for
all purposes, including voting and dividends, and shall not be bound to
recognize any equitable or other claim to interest in such share or shares on
the part of any other person, whether or not it shall have express or other
notice thereof, except as otherwise provided by the laws of Florida.
Section G. LIMITATION ON TRANSFER OF SHARES. If the holders of
a majority or more of the shares of Common or Preferred Stock shall enter into
an agreement restricting or limiting the sale, transfer, assignment, pledge, or
hypothecation of the shares of the corporation, and the corporation shall become
a party to such agreement, the officers and directors of the corporation shall
observe and carry out all of the terms and provisions of such agreement and
refuse to recognize any sale, transfer, assignment, pledge or hypothecation of
any or all of the shares covered by such agreement, unless it shall conform with
the provisions and terms of such agreement, provided that a copy of such
agreement shall be filed with the secretary of the corporation and be kept
available at the principal office of the corporation, and provided further, that
notice of such agreement be set forth conspicuously on the face or back of each
stock certificate.
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ARTICLE VII.
INDEMNIFICATION
The corporation shall indemnify, or advance expenses to, to
the fullest extent authorized or permitted by the Florida General Corporation
Act, any person made, or threatened to be made, a party to any action, suit or
proceeding by reason of the fact that he (i) is or was a director of the
corporation; (ii) is or was serving at the request of the corporation as a
director of another corporation; (iii) is or was an officer of the corporation,
provided that he is or was at the time a director of the corporation; or (iv) is
or was serving at the request of the corporation as an officer of another
corporation, provided that he is or was at the time a director of the
corporation or a director of such other corporation, serving at the request of
the corporation. Unless otherwise expressly prohibited by the Florida General
Corporation Act, and except as otherwise provided in the foregoing sentence, the
Board of Directors of the corporation shall have the sole and exclusive
discretion, on such terms and conditions as it shall determine, to indemnify, or
advance expenses to, any person made, or threatened to be made, a party to any
action, suit, or proceeding by reason of the fact that he is or was an officer,
employee or agent of the corporation, or is or was serving at the request of the
corporation as an officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise. No person falling within
the purview of the foregoing sentence may apply for indemnification or
advancement of expenses to any court of competent jurisdiction.
ARTICLE VIII.
GENERAL PROVISIONS
Section A. CHECKS, DRAFTS AND BANK ACCOUNTS. All checks,
drafts or demands for money and notes of the corporation shall be signed by such
officer or officers or such other person or persons as the board of directors
may from time to time designate. All funds of the corporation not otherwise
employed shall be deposited from time to time to the credit of the corporation
in such banks, trust companies or other depositories as the board of directors
may from time to time designate.
Section B. FISCAL YEAR. The fiscal year of the corporation
shall be fixed from time to time by resolution of the board of directors, but
shall end on December 31st of each year if not otherwise fixed by the board.
Section C. CORPORATE SEAL. The board of directors may adopt a
corporate seal for the corporation. The corporate seal shall have inscribed
thereon the name of the corporation and the words "Corporate Seal, Florida." The
seal may be used by causing it or a facsimile thereof to be impressed or affixed
or reproduced or otherwise.
Section D. CORPORATE MINUTES AND STOCK TRANSFER BOOK. The
corporation shall keep within or without the State of Florida books and records
of account and minutes of the proceedings
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<PAGE>
of its shareholders, board of directors and executive committee, if any. The
corporation shall keep at its registered office or at the office of its transfer
agent within or without the State of Florida a stock transfer book for shares of
the corporation containing the names and addresses of all shareholders, the
number, class and series of shares held by each and the dates when they
respectively became holders of record thereof. Any of such stock transfer book,
books, records or minutes may be in written form or in any other form capable of
being converted into written form within a reasonable time.
Section E. BYLAW GOVERNANCE NOT EXCLUSIVE. These Bylaws shall
govern the internal affairs of the corporation, but only to the extent they are
consistent with law and the Articles of Incorporation. Nothing contained in the
Bylaws shall, however, prevent the imposition by contract of greater voting,
notice or other requirements than those set forth in these Bylaws.
Section F. SHAREHOLDERS' AGREEMENT. Should the shareholders of
the corporation at any time enter into a Shareholders' Agreement following the
adoption of the Bylaws then, to the extent that the terms of the Shareholders'
Agreement as thereafter amended, is inconsistent with the Bylaws or the Articles
of Incorporation the terms of the Shareholders' Agreement shall govern the
internal affairs of the corporation.
ARTICLE IX.
AMENDMENTS
BYLAWS. The Bylaws may be amended or repealed, or new Bylaws
may be adopted, by action of either the shareholders or the board of directors.
The shareholders may from time to time specify particular provisions of the
Bylaws which shall not be altered or repealed by the board of directors.
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EXHIBIT 4
THESE SECURITIES AND THE SECURITIES ISSUABLE UPON EXERCISE OF THESE SECURITIES
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"), AND THEY MAY NOT BE OFFERED, SOLD, PLEDGED, HYPOTHECATED, ASSIGNED OR
TRANSFERRED EXCEPT (I) PURSUANT TO A REGISTRATION STATEMENT UNDER THE ACT WHICH
HAS BECOME EFFECTIVE AND IS CURRENT WITH RESPECT TO THESE SECURITIES, OR (II)
PURSUANT TO A SPECIFIC EXEMPTION FROM REGISTRATION UNDER THE ACT BUT ONLY UPON A
HOLDER HEREOF FIRST HAVING OBTAINED THE WRITTEN OPINION OF COUNSEL TO THE
COMPANY, OR OTHER COUNSEL REASONABLY ACCEPTABLE TO THE COMPANY, THAT THE
PROPOSED DISPOSITION IS CONSISTENT WITH ALL APPLICABLE PROVISIONS OF THE ACT AS
WELL AS ANY APPLICABLE "BLUE SKY" OR SIMILAR STATE SECURITIES LAW.
AUGUST 15, 1999
YAK COMMUNICATIONS (USA), INC.
COMMON STOCK PURCHASE WARRANT
For 940,000 Shares
For good and valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, YAK COMMUNICATIONS (USA), INC., a Florida
corporation (the "Company"), hereby grants to FIRMVEST CAPITAL CORP., a Canadian
corporation, the right to purchase Nine Hundred Forty Thousand (940,000) shares
of Common Stock of the Company, at the exercise price equal to the Purchase
Price (defined below). Each Warrant may be exercised from the date hereof until
August 15, 2001. The Shares and the Warrants are sometimes referred to herein as
the "Securities."
Each Warrant is exercisable at the Purchase Price (defined below),
payable in cash or by certified or official bank check in New York Clearing
House funds. Upon surrender of this Warrant, with the annexed Subscription Form
duly executed, together with payment of the Purchase Price (as hereinafter
defined) for the Shares purchased at the offices of the Company, the registered
holder of this Warrant (the "Holder") shall be entitled to receive a certificate
or certificates for the Shares so purchased.
1. EXERCISE OF WARRANT.
The purchase rights represented by this Warrant are exercisable at the
option of the Holder, in whole or in part (but not as to fractional Shares
underlying this Warrant), during any period in which this Warrant may be
exercised as set forth above. In the case of the purchase of less than all
<PAGE>
the Shares purchasable under this Warrant, the Company shall cancel this Warrant
certificate upon the surrender hereof and shall execute and deliver a new
Warrant of like tenor for the balance of the Shares purchasable hereunder.
2. ISSUANCE OF CERTIFICATES.
Upon the exercise of this Warrant and payment in full for the Shares,
the issuance of certificates for Shares underlying this Warrant shall be made
forthwith (and in any event within five business days thereafter) without charge
to the Holder, including, without limitation, any tax which may be payable in
respect of the issuance thereof, and such certificates shall (subject to the
provisions of SECTION 3 hereof) be issued in the name of, or in such names as
may be directed by, the Holder; PROVIDED, HOWEVER, that the Company shall not be
required to pay any tax which may be payable in respect of any transfer involved
in the issuance and delivery of any such certificates in a name other than that
of the Holder, and the Company shall not be required to issue or deliver such
certificates unless or until the person or persons requesting the issuance
thereof shall have paid to the Company the amount of such tax, if any, or shall
have established to the satisfaction of the Company that such tax, if any, has
been paid. The certificates representing the Shares underlying this Warrant
shall be executed on behalf of the Company by the manual or facsimile signature
of the present or any future President or Vice President and Secretary or
Assistant Secretary of the Company.
3. RESTRICTION ON TRANSFER.
Neither this Warrant nor any Share issuable upon exercise hereof has
been registered under Act, and none of such securities may be offered, sold,
pledged, hypothecated, assigned or transferred except (i) pursuant to a
registration statement under the Act which has become effective and is current
with respect to such securities, or, (ii) pursuant to a specific exemption from
registration under the Act but only upon a Holder hereof first having obtained
the written opinion of counsel to the Company, or other counsel reasonably
acceptable to the Company, that the proposed disposition is consistent with all
applicable provisions of the Act as well as any applicable "Blue Sky" or similar
state securities law. Upon exercise, in part or in whole, of this Warrant, each
certificate issued representing the Shares shall bear a legend to the foregoing
effect.
4. REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED
4.1 THE COMPANY'S REGISTRATION. As soon as practicable, the
Company shall prepare and file with the Securities and Exchange Commission (the
"Commission"), a registration statement and such other documents, including a
prospectus, as may be necessary in the opinion of counsel for the Company and
counsel for the holders of the Securities and of any other securities of the
Company with registration rights similar to those granted in this Section 4
(collectively, the "Registration Rights Holders"), in order to comply with the
provisions of the Act, so as to permit a public offering and sale of the Shares
(the "Registration Rights Securities") until such time as the Shares may be sold
pursuant to Rule 144 as promulgated under the Securities Act of 1933, as
amended. The costs and expenses associated with the preparation, filing and
prosecution of such registration statement(s) shall be borne by the Company.
2
<PAGE>
4.2 COVENANTS WITH RESPECT TO REGISTRATION. In connection with
any registration under Section 4.1 hereof, the Company covenants and agrees as
follows:
(a) The Company shall pay all costs (excluding fees
and expenses of Registration Rights Holder(s)' counsel and any underwriting or
selling commissions or other charges of any broker-dealer acting on behalf of
Registration Rights Holder(s)), fees and expenses in connection with all
registration statements filed pursuant to Section 4.1 hereof including, without
limitation, the Company's legal and accounting fees, printing expenses and blue
sky fees and expenses.
(b) The Company will take all necessary action which
may be required in qualifying
or registering the securities included in a registration statement for offering
and sale under the securities or blue sky laws of such states as reasonably are
requested by the Registration Rights Holder(s), provided that the Company shall
not be obligated to qualify as a foreign corporation to do business under the
laws of any such jurisdiction.
(c) The Company shall indemnify the Registration
Rights Holder(s), each of their directors and officers and each person, if any,
who controls such Registration Rights Holder(s) within the meaning of Section 15
of the Securities Act or Section 20(a) of the Securities Exchange Act of 1934
(the "Exchange Act"), against all loss, claim, damage, expense or liability
(including all expenses reasonably incurred in investigating, preparing or
defending against any claim whatsoever) to which any of them may become subject
under the Act, the Exchange Act or any other statute, common law or otherwise,
arising out of or based upon any untrue statement or alleged untrue statement of
a material fact contained in such registration statement executed by the Company
or based upon written information furnished by the Company filed in any
jurisdiction in order to qualify the Registration Rights Securities under the
securities laws thereof or filed with the Commission, any state securities
commission or agency, the National Association of Securities Dealers, Inc., The
Nasdaq Stock Market or any securities exchange, or the omission or alleged
omission therefrom of a material fact required to be stated therein or necessary
to make the statements contained therein not misleading, unless such statement
or omission was made in reliance upon information furnished to the Company by
the Registration Rights Holder(s) for use in such registration statement, any
amendment or supplement thereto or any application, as the case may be. If any
action is brought against the Registration Rights Holder(s) or any controlling
person of the Registration Rights Holder(s) in respect of which indemnity may be
sought against the Company pursuant to this Section 4.2(c), the Registration
Rights Holder(s) or such controlling person shall, within thirty (30) days after
the receipt of a summons or complaint, notify the Company in writing of the
institution of such action and the Company shall assume the defense of such
action, including the employment and payment of reasonable fees and expenses of
counsel (which counsel shall be reasonably satisfactory to the Registration
Rights Holder(s) or such controlling person), but the failure to give such
notice shall not affect such indemnified person's right to indemnification
hereunder except to the extent that the Company's defense of such action was
materially adversely affected thereby. The Registration Rights Holder(s) or such
controlling person shall have the right to employ its or their own counsel in
any such case, but the fees and expenses of such counsel shall be at the expense
of the Registration Rights Holder(s) or such controlling person unless the
employment of such counsel shall have been authorized in writing by the Company
in connection
3
<PAGE>
with the defense of such action, or the Company shall not have employed counsel
to have charge of the defense of such action or such indemnified party or
parties shall have reasonably concluded that there may be defenses available to
it or them which are different from or additional to those available to the
Company (in which case the Company shall not have the right to direct the
defense of such action on behalf of the indemnified party or parties), in any of
which events the fees and expenses of not more than one additional firm of
attorneys for all of the Registration Rights Holder(s) and/or such controlling
person shall be borne by the Company. Except as expressly provided in the
previous sentence, in the event that the Company shall have assumed the defense
of any such action or claim, the Company shall not thereafter be liable to the
Registration Rights Holder(s) or such controlling person in investigating,
preparing or defending any such action or claim. The Company agrees to notify
promptly the Registration Rights Holder(s) of the commencement of any litigation
or proceedings against the Company or any of its officers, directors or
controlling persons in connection with the resale of any of the Registration
Rights Securities in connection with such registration statement. The Company
further agrees that upon demand by an indemnified person, at any time or from
time to time, it will promptly reimburse such indemnified person for any loss,
claim, damage, liability, cost or expense actually and reasonably paid by the
indemnified person as to which the Company has indemnified such person pursuant
hereto. Notwithstanding the foregoing provisions of this Section 4.2(c), any
such payment or reimbursement by the Company of fees, expenses or disbursements
incurred by an indemnified person in any proceeding in which a final judgment by
a court of competent jurisdiction (after all appeals or the expiration of time
to appeal) is entered against any Registration Rights Holder or such indemnified
person as a direct result of any Registration Rights Holder or such person's
negligence, gross negligence or willful misfeasance will be promptly repaid to
the Company.
(d) The Registration Rights Holder(s), and their
successors and assigns, shall severally, and not jointly, indemnify the Company,
its officers and directors and each person, if any, who controls the Company
within the meaning of Section 15 of the Securities Act or Section 20(a) of the
Exchange Act, against all loss, claim, damage, expense or liability (including
all expenses reasonably incurred in investigating, preparing or defending
against any claim whatsoever) to which they may become subject under the Act,
the Exchange Act or any other statute, common law or otherwise, arising from
information furnished by or on behalf of such Registration Rights Holder(s), or
their successors or assigns, for use in such registration statement. The
Registration Rights Holder(s) further agree(s) that upon demand by an
indemnified person, at any time or from time to time, they will promptly
reimburse such indemnified person for any loss, claim, damage, liability, cost
or expense actually and reasonably paid by the indemnified person as to which
the Registration Rights Holder(s) have indemnified such person pursuant hereto.
Notwithstanding the foregoing provisions of this Section 4.2(d), any such
payment or reimbursement by the Registration Rights Holder(s) of fees, expenses
or disbursements incurred by an indemnified person in any proceeding in which a
final judgment by a court of competent jurisdiction (after all appeals or the
expiration of time to appeal) is entered against the Company or such indemnified
person as a direct result of the Company or such person's negligence, gross
negligence or willful misfeasance will be promptly repaid to the Registration
Rights Holder(s).
(e) Nothing contained in this Agreement shall be
construed as requiring the Registration Rights Holder(s) to convert, exchange or
exercise any securities convertible,
4
<PAGE>
exchangeable or exercisable for Common Stock prior to the initial filing of any
registration statement or the effectiveness thereof.
5. PURCHASE PRICE. The term "Purchase Price" herein shall mean a per
share exercise price equal to the average closing per share price of the
Company's Common Stock for the previous five trading days as traded on a
national securities exchange, NASDAQ or the OTC Bulletin Board; provided,
however, if no such market exists for these purposes then the per share exercise
price shall be $1.00 per share.
6. MERGER OR CONSOLIDATION.
In case of any consolidation of the Company with, or merger of the
Company with, or merger of the Company into, another corporation (other than a
consolidation or merger which does not result in any reclassification or change
of the outstanding common stock of the Company), the corporation formed by such
consolidation or merger shall execute and deliver to the Holder a supplemental
warrant agreement providing that the Holder shall have the right thereafter
(until the expiration of such Warrant) to receive, upon exercise of this
Warrant, the kind and amount of shares of stock and other securities and
property receivable upon such consolidation or merger by a holder of the number
of shares of Common Stock of the Company for which its Warrant might have been
exercised immediately prior to such consolidation, merger, sale or transfer. The
above provisions of this SECTION 6 shall apply to successive consolidations or
mergers.
7. EXCHANGE AND REPLACEMENT OF WARRANT.
This Warrant is exchangeable without expense, upon the surrender hereof
by the registered Holder at the principal executive office of the Company for a
new Warrant of like tenor and date representing in the aggregate the right to
purchase the same number of Shares as are purchasable hereunder in such
denominations as shall be designated by the Holder hereof at the time of such
surrender.
Upon receipt by the Company of evidence reasonably satisfactory to it
of the loss, theft, destruction or mutilation of this Warrant, and, in the case
of loss, theft or destruction, of indemnity or security reasonably satisfactory
to it, and reimbursement to the Company of all reasonable expenses incidental
thereto, and upon surrender and cancellation of this Warrant, if mutilated, the
Company will make and deliver a new Warrant of like tenor, in lieu of this
Warrant.
8. ELIMINATION OF FRACTIONAL INTERESTS.
The Company shall not be required to issue certificates representing
fractions of Shares on the exercise of this Warrant, nor shall it be required to
issue scrip or pay cash in lieu of fractional interests, it being the intent of
the parties that all fractional interests shall be eliminated.
5
<PAGE>
9. RESERVATION OF SECURITIES.
The Company shall at all times reserve and keep available out of its
authorized Common Stock, solely for the purpose of issuance upon the exercise of
this Warrant, such number of Shares as shall be issuable upon the exercise
hereof. The Company covenants and agrees that, upon exercise of this Warrant and
payment of the Purchase Price therefor, all Shares issuable upon such exercise
shall be duly and validly issued, fully paid and nonassessable.
10. NOTICES TO WARRANT HOLDERS.
Nothing contained in this Warrant shall be construed as conferring upon
the Holder hereof the right to vote or to consent or to receive notice as a
stockholder in respect of any meetings of stockholders for the election of
directors or any other matter, or as having any rights whatsoever as a
stockholder of the Company.
11. NOTICES.
All notices, requests, consents and other communications required or
permitted hereunder shall be in writing and shall be delivered personally,
telegraphed or sent by certified, registered, or express mail, postage prepaid,
and shall be deemed given when so delivered personally, telegraphed or, if
mailed, five days after the date of deposit in the United States mails, as
follows:
(a) If to the Company, to:
Yak Communications (USA), Inc.
55 Towne Centre Court
Suite 506
Toronto, Ontario M1P 4X4
CANADA
Attn: Charles Zwebner
(b) If to the Holder, to the address of such Holder as shown
on the books of the Company.
12. SUCCESSORS.
All the covenants, agreements, representations and warranties contained
in this Warrant shall bind the parties hereto and their respective heirs,
executors, administrators, distributees, successors and assigns.
13. HEADINGS.
The headings in this Warrant are inserted for purposes of convenience
only and shall have no substantive effect.
6
<PAGE>
14. LAW GOVERNING.
This Warrant shall be construed and enforced in accordance with, and
governed by, the laws of the State of Florida, without giving effect to
conflicts of law, rules or principles.
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed in
its corporate name by a duly authorized officer on the date first above written.
YAK COMMUNICATIONS (USA), INC.
By:/S/CHARLES ZWEBNER
---------------------------------
Charles Zwebner, Chairman and CEO
7
<PAGE>
SUBSCRIPTION FORM
(To be Executed by the Registered Holder
in order to Exercise the Warrant)
The undersigned hereby irrevocably elects to exercise the right to
purchase ______________ Shares represented by this Warrant in accordance to the
conditions hereof and herewith makes payment of the Purchase Price of such
Shares in full.
_______________________________
By: ___________________________
Name:
Address:
8
EXHIBIT 5.1
FORM OF OPINION
[ADORNO & ZEDER, P.A. LETTERHEAD]
September 22, 1999
Yak Communications (USA), Inc.
55 Town Centre Court
Suite 506
Toronto, Ontario M1P 4X4
Canada
Re: REGISTRATION STATEMENT ON FORM SB-2
YAK COMMUNICATIONS (USA), INC. (THE "COMPANY")
Gentlemen:
This opinion is submitted pursuant to the applicable rules of the
Securities and Exchange Commission with respect to 940,000 shares of Common
Stock, no par value per share, issuable upon exercise of warrants (the "Selling
Shareholder Shares"), being registered by the Company on behalf of the selling
shareholder listed in the Registration Statement (the "Selling Shareholder").
In connection therewith, we have examined and relied upon original,
certified, conformed, photostat or other copies of (i) the Articles of
Incorporation, as amended, and Bylaws of the Company; (ii) resolutions of the
Board of Directors of the Company authorizing the offering and the issuance of
the Selling Shareholder Shares and related matters; (iii) the Registration
Statement and the exhibits thereto; and (iv) such other documents and
instruments as we have deemed necessary for the expression of the opinion herein
contained. In all such examinations, we have assumed the authenticity of
original documents, the genuineness of all signatures on original documents, and
the conformity to originals or certified documents of all copies submitted to us
as conformed, photostat or other copies. In passing upon certain corporate
records and documents of the Company, we have necessarily assumed the
correctness and completeness of the statements made or included therein by the
Company, and we express no opinion thereon. We have also conducted various
meetings, discussions and conversations with the officers, directors and
employees of the Company regarding the offer and sale of the Selling Shareholder
Shares. Nothing has come to our attention in the representation of the Company
or the Selling Shareholder that would make it unreasonable to assume that the
foregoing documents will be utilized in the manner intended as set forth in
those documents. However, we have not independently verified any of the facts or
representation contained in such documents.
<PAGE>
As to the various questions of fact material to this opinion, we have
relied, to the extent we deemed reasonably appropriate, upon representations or
certificates of officers or directors of the Company and upon documents, records
and instruments furnished to us by the Company, without independently checking
or verifying the accuracy of such documents, records and instruments.
In rendering this Opinion, we have assumed that: (i) each other party
that has executed or will execute a document, instrument or agreement to which
the Company or the Selling Shareholder is a party duly and validly executed and
delivered each document, instrument or agreement to which such party is a
signatory and that such party's obligations set forth therein are its legal,
valid and binding obligations, enforceable in accordance with their respective
terms; (ii) each person executing any document, instrument or agreement on
behalf of any such party is duly authorized to do so; and (iii) each natural
person executing any instrument, document or agreement referred to herein is
legally competent to do so.
We are members of the Bar of the State of Florida and do not purport to
be conversant with the laws of jurisdictions other than Florida and the United
States of America. Accordingly, we do not express any opinion as to the effect
on the transactions described herein of the laws of any state or jurisdiction
other than the federal laws of the United States of America and the laws of the
State of Florida.
Based upon the foregoing, we are of the opinion that the Selling
Shareholder Shares, when sold, will be legally issued, fully paid and
non-assessable.
The opinions expressed herein have been carefully considered and
reflect what we regard as the likely manner in which the Selling Shareholder
Shares will be issued based upon the statutory provisions, regulations
promulgated thereunder, and interpretations thereof by the Securities and
Exchange Commission ("SEC") and the courts having jurisdiction over such matters
as of the date of this opinion. However, a number of questions raised by the
matters on which we have not expressed an opinion herein have not been
definitely answered by statute, regulations, SEC interpretations or court
decisions. We assume no obligation to revise or supplement this opinion letter
should applicable law be changed by legislative, judicial or administrative
action or otherwise.
Except as set forth herein, we have made no independent attempts to
verify the facts or representations or assumptions made herein except to the
extent we deem reasonable under ABA Formal Opinion 335 and in connection with
our position as counsel to the issuer. Reference to "us" or "our" is limited to
a reference to the lawyer who signs this opinion letter or any lawyer of this
firm who has been active in preparing the relevant documents. Any inaccuracy in
any fact or representation by the Company or the Selling Shareholder, or any
amendment to any documents or any material cited herein, or any changes in the
affairs of the Company or Selling Shareholder after the date of this opinion
letter may effect all or part of this opinion letter.
Except as expressly set forth below, this opinion may not be filed with
or furnished to any other person or any governmental agency, and may not be
quoted in whole or in part or otherwise referred to in any context, without, in
each instance, our prior written consent, and without in each
<PAGE>
instance, the exercise of due diligence on the part of the Company and the
Selling Shareholder to verify that there are no material errors or omissions of
fact and no changes in the facts or in the text of material provided to us.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to use our name under the caption "Experts and Legal
Counsel" in the prospectus comprising part of the Registration Statement.
Very truly yours,
ADORNO & ZEDER, P.A.
EXHIBIT 10.1
YAK COMMUNICATIONS (USA), INC.
1999 STOCK OPTION PLAN
(EFFECTIVE JUNE 30, 1999)
1. DEFINITIONS: Wherever used herein, the following terms shall have
the following meanings:
(a) "Plan" shall mean this Stock Option Plan.
(b) "Corporation" or "Company" shall mean Yak Communications
(USA), Inc., a Florida corporation, or any successor thereof.
(c) "Committee" shall mean the administrative stock option
committee designated by the Board of Directors of the Corporation, or,
if none is designated, the Board of Directors itself.
(d) "Participant" shall mean any individual designated by the
Committee under Paragraph 4 hereof for participation in the Plan.
(e) "Non-Employee Director" shall mean a director who is not
an officer of the Company (as defined in Rule 16b-1(f) under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), or
any subsequently amended definition therein) or of any subsidiary, is
not otherwise currently employed by the Company or any subsidiary, and
is not otherwise excluded from being a non-employee director under Rule
16b-3 under the Exchange Act.
(f) "Nonqualified Option" shall mean an option to purchase
Common Stock of the Corporation which meets the requirements set forth
in the Plan but does not meet the definition of an incentive stock
option set forth in Section 422 of the Internal Revenue Code of 1986,
as amended (the "Code").
(g) "Incentive Option" shall mean an option to purchase Common
Stock of the Corporation which meets the requirements set forth in the
Plan and also meets the definition of incentive stock option set forth
in Section 422 of the Code and which is granted to an individual
subject to having personal income taxed under the Code.
(h) "Reload Option" shall mean an option granted to a
Participant equal to the number of shares of already owned Common Stock
delivered by the Participant to pay for exercise of an option, as more
fully described in Section 8, below.
2. ADMINISTRATION: The Plan shall be administered by the Committee
which, if the Company is a reporting company under the Exchange Act, shall
consist solely of at least two Non- Employee Directors. Subject to the
provisions of the Plan, the Committee is authorized to interpret the Plan, to
promulgate, amend and rescind rules and regulations relating to the Plan and to
make all
<PAGE>
other determinations necessary or advisable for its administration.
Interpretation and construction of any provision of the Plan by the Committee
shall be final and conclusive. The foregoing provisions of this Section 2 to the
contrary notwithstanding, the Board of Directors may also exercise any power
given to the Committee under the Plan.
3. MAXIMUM NUMBER OF SHARES SUBJECT TO PLAN: The Committee may from
time to time provide for the option and sale of up to but not exceeding an
aggregate of 3,200,000 shares of Common Stock, no par value per share, of the
Corporation which may consist in whole or in part of the authorized and unissued
or reacquired Common Stock of the Corporation. The Committee and the Board of
Directors may issue Nonqualified Options and Incentive Options, as well as both
of such options. Shares covered by canceled or expired options under the Plan
shall again be available for option and sale. Shares which are issued upon
exercise of options or which are withheld in payment of income tax withholding
shall again be available for reservation for the issuance of options but only to
the extent Reload Options are granted in such transaction.
In the event that the outstanding Common Stock of the
Corporation shall be increased by a stock dividend or changed into or exchanged
for a different number or kind of shares of stock or other securities of the
Corporation or of another corporation, whether by reason of merger,
consolidation, recapitalization, reclassification, split-up, combination of
shares or otherwise, the number, price and kind of shares available for option
and the shares subject to any option shall be appropriately and equitably
adjusted in such manner as the Committee or the Board of Directors shall, in its
discretion, determine. The Committee or the Board of Directors shall have the
power under such conditions to accelerate the exercisability of any outstanding
options.
4. PARTICIPANTS: The Committee or the Board of Directors shall
determine and designate from time to time, in its discretion, those directors
and key management employees of the Corporation (or of any subsidiary in which
the Corporation owns more than 50% of the total combined voting power of all
classes of stock) to whom options are to be granted and who thereby become
Participants under the Plan. The term "key management employees" shall be
construed to include any and all key personnel (whether or not officers of the
Corporation) who may be so designated by the Committee for participation in the
Plan.
5. ALLOTMENT OF SHARES: The Committee or the Board of Directors shall
determine and fix the number of shares of stock to be offered to each
Participant; provided, that no Incentive Option may be granted under the Plan to
any one Participant which would result in his being able to exercise, for the
first time in any calendar year, an aggregate fair market value, determined as
of the date the option is granted, of underlying stock, which amount of
underlying stock includes all incentive stock options granted to that
Participant under any incentive stock option plan maintained by the Corporation,
exceeding $100,000.
6. OPTION PRICE: The option price per share for options granted under
the Plan shall be determined by the Committee or the Board of Directors, as the
case may be, but shall not be less than: (i) with respect to an Incentive
Option, the fair market value of the stock on the date on which such
-2-
<PAGE>
option is granted; provided, that with respect to an Incentive Option grant to
an employee who at the time of the grant owns (after applying the attribution
rules of Section 424 of the Code) more than 10% of the total combined voting
stock of the Corporation or of any parent or subsidiary, the option price shall
not be less than 110% of the fair market value of the stock subject to the
Incentive Option on the date such option is granted; and (ii) with respect to a
Nonqualified Option, such percent of the fair market value of the stock on the
date on which such option is granted as shall be determined from time to time by
the Committee or the Board of Directors, as the case may be. Fair market value
of a share shall be determined by the Committee or the Board of Directors, as
the case may be, and shall mean, if the stock is publicly traded, the most
recent quoted selling price of the Corporation's stock on such date or if there
are no sales, the closing bid and asked prices of the Corporation's stock on
such date, or if there are no sales or reported bid and asked prices of the
Corporation's Common Stock on such date, on the next following day on which
there are sales or quoted prices.
7. GRANTING AND EXERCISE OF OPTION: The granting of options hereunder
shall be effected in accordance with determinations made by the Committee or the
Board of Directors, as the case may be, pursuant to the provisions of the Plan,
by execution of instruments in writing in form approved by the Committee.
At the time the option is granted, the Committee or the Board
of Directors, as the case may be, shall determine the date or dates upon which
the option may be exercised. Except as provided in Paragraphs 10 and 11, options
may be exercised only while the Participant is an employee or director, as the
case may be, of the Corporation or a subsidiary.
Each option granted hereunder shall expire not more than 20
years from the date of the granting thereof (10 years for Incentive Options);
provided, that with respect to an Incentive Option grant to an employee who at
the time of the grant owns (after applying the attribution rules of Section 424
of the Code) more than 10% of the total combined voting stock of all classes of
stock of the Corporation or of any parent or subsidiary, such option shall
expire not more than five years after the date of granting thereof.
8. PAYMENT OF OPTION PRICE:
(a) At the time of the exercise in whole or in part of any
option granted hereunder, payment in full in cash or, with the consent of the
Committee or the Board of Directors, in Common Stock of the Corporation, shall
be made by the Participant for all shares so purchased. No Participant shall
have any of the rights of a shareholder of the Corporation under any such option
until the actual issuance thereunder of shares to said Participant. The
Committee or the Board of Directors may, in its discretion, authorize the
Corporation to lend funds to a grantee in order to enable him to exercise his
options. The terms of the loan shall be in the discretion of the Committee.
(b) Whenever a Participant holding any option outstanding
under this Plan (including Reload Options previously granted under this Section
8) exercises the option and makes payment of the exercise price pursuant to this
Section 8, in whole or in part, by tendering Common
-3-
<PAGE>
Stock previously held by the Participant, then the Corporation shall, in the
sole discretion of the Board of Directors or the Committee, grant to the
Participant a Reload Option for the number of shares of Common Stock that is
equal to the number of shares tendered by the Participant on payment of the
exercise price of the option being exercised.
(c) Subject to Section 6, above, the Reload Option exercise
price per share shall be an amount equal to the fair market value per share of
the Corporation's Common Stock, determined under Section 6, above, as of the
date of receipt by the Corporation of the notice by the Participant to exercise
the option.
(d) Subject to Section 6, above, the exercise period of the
Reload Option shall expire, and the Reload Option shall no longer be
exercisable, on the later to occur of (i) the expiration date of the originally
surrendered option or (ii) one year from the date of grant of the Reload Option.
(e) Any Reload Option granted under this Section 8 shall vest
immediately upon grant under Section 8 (b), above.
(f) All other terms of the Reload Options granted hereunder
shall be identical to the terms and conditions of the original option, the
exercise of which gave rise to the grant of the Reload Option.
9. NONTRANSFERABILITY OF OPTION: No option granted under the Plan to a
Participant shall be transferable by him otherwise than by will or the laws of
descent and distribution, and such option shall be exercisable during the
lifetime of the Participant only by the Participant or by his guardian or legal
representative in the event of disability. For purposes of this Paragraph 9,
"disability" shall mean mental or physical inability to carry out the option
holder's duties as an employee or director of the Corporation, as determined by
the Committee or the Board of Directors in its sole discretion. The Board of
Directors or the Committee may in its discretion waive the provisions of this
Section 9 to the extent permitted by the Code or the regulations promulgated
under Section 16(b) of the Exchange Act.
10. DEATH OF PARTICIPANT: With regard to Incentive Options, in the
event that the employment of the Participant by the Corporation, or a subsidiary
thereof, is terminated by the death of the Participant, or in the event of the
death of the Participant within three months of the termination of his
employment, his option, to the extent that is exercisable by the Participant at
the date of his death, may be exercised within 12 months after the date of his
death, but in no event subsequent to the expiration date of the option, by the
legal representative of the Participant or the person or persons to whom the
rights of the Participant shall pass by will or by the laws of descent and
distribution.
11. RETIREMENT OF PARTICIPANT: With respect to Incentive Options,
unless the Committee or the Board of Directors shall otherwise decide at the
time of his termination or in the terms of the grant, or the Code shall
otherwise permit for Incentive Options, in the event that a Participant shall
-4-
<PAGE>
cease to be employed by the Corporation without having fully exercised any
option, such Participant shall have the right for a period of three months
following the date of such cessation of employment, but in no event subsequent
to the expiration date of the option, to exercise that portion of the option, if
any, which is exercisable by him at the date of the termination of his
employment. Any options not exercisable on such date of cessation of employment
shall be extinguished unless the Committee or the Board of Directors shall
otherwise decide at the time of such termination, or the grant of the option
shall have otherwise provided.
12. CONTINUANCE OF EMPLOYMENT: The Committee or the Board of Directors
may require that any Participant under the Plan to whom an option shall be
granted shall agree in writing as a condition of the granting of such option to
remain in the employ of the Corporation or a subsidiary for a period of two
years from the date of the granting of such option, or for such other period as
shall be fixed by the Committee or the Board of Directors.
Nothing contained in the Plan or in any option granted
pursuant to the Plan, nor any action taken by the Committee hereunder shall
confer upon any Participant any right with respect to continuation of employment
by the Corporation or a subsidiary nor interfere in any way with the right of
the Corporation or a subsidiary to terminate his employment at any time.
13. SECURITIES ACT OF 1933: Unless a registration statement covering
the stock offered pursuant to the Plan is in effect under the Securities Act of
1933, as amended, all stock purchased upon the exercise of an option granted
hereunder shall be acquired for investment and not with a view to or for sale in
connection with any distribution thereof and each notice of the exercise of such
option shall be accompanied by a representation in writing signed by the
Participant or any other person exercising an option granted hereunder to the
effect in form satisfactory to the Committee. The Corporation may place a legend
upon any certificate representing shares purchased pursuant to exercise of an
option granted hereunder noting that the transfer of such shares may be
restricted under the Securities Act of 1933.
14. WITHHOLDING PAYMENTS:
(a) If upon the exercise of any option there shall be payable
by the Corporation any amount for income tax withholding, either the Participant
shall pay such amount to the Corporation in cash or the number of shares of
Common Stock delivered by the Corporation upon exercise of the Nonqualified
Option shall be appropriately reduced to reimburse the Corporation for payment.
The Committee or the Board of Directors shall have the authority to accept other
payment arrangements in its sole discretion.
(b) Whenever shares of Common Stock instead of cash are used
to pay income tax withholding under Section 14(a), above, the Board of Directors
or the Committee in its sole discretion may grant Reload Options for the number
of withheld shares in accordance with the provisions of Sections 8(c) to 8(f),
above, applicable as appropriate to this Section 14(b).
-5-
<PAGE>
15. BOARD APPROVAL: No option granted under the Plan shall be
exercisable unless and until the Plan shall have been approved by the Board of
Directors of the Corporation as permitted under the laws of Florida.
16. INTERPRETATION:
(a) This Plan shall be administered and interpreted so that
all Incentive Stock Options granted under this Plan will qualify as Incentive
Stock Options under Section 422 of the Code. If any provision of this Plan
should be held invalid for the granting of Incentive Stock Options or illegal
for any reason, such determination shall not affect the remaining provisions
hereof, and this Plan shall be construed and enforced as if such provision had
never been included in this Plan.
(b) With respect to persons subject to Section 16 of the
Exchange Act, transactions under this Plan are intended to comply with all
applicable conditions of Rule 16b-3 or its successors under the Exchange Act. To
the extent any term or provision of this Plan or any act or action by the
Committee or the Board of Directors fails to so comply, it shall be deemed null
and void and of no force or effect, to the extent deemed advisable by the
Committee or the Board of Directors. Moreover, in the event this Plan does not
include a term or provision required by Rule 16b-3 to be stated herein, such
term or provision (other than one relating to eligibility requirements, or the
price and amount of awards) shall be deemed automatically to be incorporated by
reference into this Plan insofar as participants subject to Section 16 of the
Exchange Act are concerned.
(c) This Plan shall be governed by the laws of the State of
Florida.
(d) Headings contained in this Plan are for convenience only
and shall in no manner be construed as part of this Plan or affect the meaning
or interpretation of any part of this Plan.
(e) Any reference to the masculine, feminine, or neuter gender
shall be a reference to such other gender as is appropriate.
17. DURATION AND TERMINATION OF PLAN: No options may be granted
hereunder after June 30, 2009. The Plan may be abandoned or terminated at any
time by the Board of directors of the Corporation except with respect to any
option outstanding under the Plan upon the effective date of such termination.
18. AMENDMENT: For the purpose of conforming to any changes in
applicable law or governmental regulations or for any other purpose which at the
time may be permitted by law, the Board of Directors of the Corporation, may,
from time to time, amend or revise the terms of this Plan, providing that no
such amendment or revision shall increase the maximum number of shares in the
aggregate which may be sold pursuant to Incentive Options granted under the
Plan, or change the minimum option prices set forth in Paragraph 6, or without
the consent of the holder thereof alter or impair any option previously granted
under the Plan.
-6-
EXHIBIT 10.2
PROMISSORY NOTE
$100,000.00 U.S. Miami, Florida
August 15, 1999
FOR VALUE RECEIVED, the undersigned, Yak Communications (USA), Inc., a
Florida corporation, having an address at 55 Town Centre Court, Suite 506,
Toronto, Ontario M1P 4X4 (hereinafter, the "Maker"), promises to pay to the
order of Firmvest Capital Corp., a Canadian corporation, its successors or
assigns (collectively hereinafter referred to as the "Holder") at 3625 Dufferin
Street, Suite 150, Toronto, Ontario M3K 1Z2 Canada, or such other place as the
Holder may from time to time designate in writing, the principal sum of ONE
HUNDRED THOUSAND DOLLARS ($100,000.00 U.S.) with interest thereon from August
15, 1999 at the rate of 10% per annum, payable in full after a term of one year
from the date hereof.
All payments made hereunder shall be applied first to accrued and
unpaid interest, and the balance, if any, to the principal amount outstanding.
If default be made in the payment of any of the sums or interest
mentioned herein, then the entire principal sum and accrued interest shall at
the option of the Holder hereof become at once due and collectible without
further notice, time being of the essence; and said principal sum and accrued
interest both shall bear interest from such time until paid at the lower of the
15% per annum or the highest rate allowable under the laws of the State of
Florida; provided, however, failure to exercise this option shall not constitute
a waiver of the right to exercise the same in the event of any subsequent
default.
Maker hereby waives presentment, protest, notice, notice of protest and
notice of dishonor and agrees to pay all costs, including a reasonable
attorneys' fee, whether suit be brought or not, if, after maturity of this Note
or default hereunder, counsel shall be employed to collect this Note, and the
Holder shall be entitled to recover from the Maker the reasonable costs and fees
associated therewith.
Maker may make prepayment(s) hereunder in whole or in part at any time
and from time to time without premium or penalty.
This Note is to be construed according to the laws of the State of
Florida.
YAK COMMUNICATIONS (USA), INC.,
a Florida corporation
By:/S/CHARLES ZWEBNER
--------------------------
Charles Zwebner, President
1054311 ONTARIO LIMITED
3845 Bathurst Street
Suite 202
Toronto, Ontario
M3H 2N2
Telephone: (416) 630-5555
Facsimile: (416) 630-4652
June 14, 1999
DELIVERED
Yak Communications (USA), Inc.
Yak Communications (Canada) Inc.
55 Town Centre Drive
Suite 506
Toronto, Ontario M1P 4X4
Attention: Charles Zwebner, President
Dear Sirs:
Re: Credit facility by 1054311 Ontario Limited to Yak Communications (USA),
Inc. and Yak Communications (Canada) Inc.
The purpose of this letter is to set out the following terms and conditions upon
which the Lender is prepared to offer you a revolving credit facility to provide
working capital for the Borrower:
Lender: At the Lender's option, either:
A. 1054311 Ontario Limited as agent for itself
and/or other participants, and/or its
assignees (collectively referred to herein
as the "Lender") subject to the terms and
conditions set forth herein; or
B. A third party (the "Third Party Lender")
which may include a financial institution or
other financier. If the Lender provides a
guarantee or indemnity to such Third Party
Lender in support of the facility provided
by it to the Borrower, then the terms of
such facility shall not exceed the amount
set forth below and be on terms which do not
present any risk to the Lender which is
greater than the risk represented if the
Lender makes advances to the Borrower on the
terms set forth herein. A credit facility
which may be provided to the Borrower by
such a Third Party Lender shall be referred
to as the "Third Party Facility".
<PAGE>
2
Borrower: Yak Communications (Canada) Inc. (the "Borrower").
Guarantor: Yak Communications (USA), Inc. (the "Guarantor"),
which owns all of the Borrower's issued and
outstanding capital stock.
Facility: A revolving facility to be advanced against the
Borrower's accounts receivables (referred to herein
as the "Accounts Receivables"), as more particularly
set out herein (the "Credit Facility").
Availment: Provided all conditions set forth herein have been
satisfied and no Event of Default (as hereinafter
defined) has occurred or is occurring, the Credit
Facility shall be made available to the Borrower
within 45 days from the date of acceptance of the
agreement formed by this letter (the "Credit
Agreement").
Amount: Subject to the terms and advance rates set out
herein, up to sum of $640,000 Cdn.
Term/Maturity: All advances under the Credit Facility together with
all interest, fees and other amounts which may be
owing by the Borrower to the Lender shall become due
and payable on the earlier of:
a. March 15, 2006; and
b. the occurrence of an Event of Default.
Interest Rate: Interest on the principal amount outstanding
under the Credit Facility and on any overdue
interest, and any other amounts payable by the
borrower hereunder shall be calculated and compounded
monthly commencing from the date of advances as well
after as before maturity, default and/or judgment at
the rate of 12% per annum; provided however, if:
A. No Event of Default has occurred, the lender
shall waive payment of all interest; and
B. If advances are made to the Borrower
pursuant to the Third Party Facility, then
the interest rate applicable shall be a
variable rate not to exceed the prime rate
of interest for commercial loans made in
Canada by a Canadian Schedule A chartered
bank as determined by the Lender plus 1.5%
per annum.
Set-Up Fee: The Borrower shall pay to the Lender a set-up
fee of $10,000 plus any and all applicable taxes,
including goods and services tax ("GST") upon the
execution of this Credit Agreement.
<PAGE>
3
Facility Fee: The Borrower shall pay to the Lender a facility
fee (the "Facility Fee") of $10,000 plus applicable
taxes, including GST, on each anniversary date of the
Credit Facility during which time any amounts
remaining owing by the Borrower to the Lender.
If advances to the Borrower are made pursuant to a
Third Party Facility and the Lender has provided its
support therefor, whether by way of guarantee,
indemnity or otherwise, then the Facility Fee shall
remain payable to the Lender as set forth above.
Advance Rates: Provided that no Event of Default has occurred
or is occurring and the Borrower and the Guarantor
are in compliance with the terms and conditions set
forth herein, upon receipt of a written request for
an advance by the Borrower in the form contemplated
hereby, the Lender shall advance (up to the maximum
amount of the Credit Facility) to the Borrower up to
100% of the net amount of each invoice (or other
evidence satisfactory to the Lender of the amounts
owed to the Borrower by its customers for services
rendered or provided) issued (an "Invoice") by the
Borrower to third party customer which are acceptable
to the Lender acting reasonably and which form part
of the Accounts Receivables less:
A. All amounts (the "Preferred Claims") which
rank in priority to the Lender's security
interest in and to all of the Guarantor's
Accounts Receivables, including without
restriction and among others, all amounts
due and owing for employee deductions, sales
tax, excise tax, overdue rents or taxes and
statutory preferred claims;
B. Any amounts which comprise Accounts
Receivables against which the Lender has
made prior advances to the Borrower and
which may be in dispute or in arrears;
C. Any discounts, deductions, contra accounts
or otherwise which may be deducted by from
an Invoice or Accounts Receivable by an
account debtor; and
D. Any other amounts or obligations which may
be owing to the Lender by the Borrower or
the Guarantor at the time that the Borrower
requests an advance under the Credit
Facility.
Security: As further and continuing collateral security for all
of the Borrower's indebtedness, liabilities to the
Lender, howsoever and wheresoever incurred (the
"Indebtedness"), including without limitation all
amounts payable in connection with the Credit
Facility (including all fees payable to the Lender
hereunder) as well as any and all obligations
<PAGE>
4
under any other agreements between the Borrower or
the Guarantor and the Lender, the Borrower shall
deliver or cause to be delivered the following (the
"Security"):
A. A general assignment of all of the
Borrower's accounts receivable which shall
constitute a first charge on the same
(subject to the terms hereof);
B. A general security agreement charging all of
the Borrower's present and after acquired
property, assets and undertaking subject
only to a prior ranking charge in respect of
the Borrower's present and after acquired
equipment in favour of a third party
financier and other assets save for the
Accounts Receivable;
C. Assignment of satisfactory insurance
policies by the Borrower with the Lender's
interest duly noted thereon;
D. Assignment to the Lender as soon as
practicable of term life insurance, to be
arranged, (provided that the Borrower and
Charles Zwebner shall demonstrate that they
have used their reasonable best efforts to
obtain such life insurance) in the amount of
not less than $750,000 on the life of
Charles Zwebner; and
E. A full liability guarantee and postponement
of claim from the Guarantor pursuant to
which it shall guarantee payment to the
Lender of all of the Indebtedness.
Conditions Precedent: The Lender's obligation to make advances under the
Credit Facility shall be subject to the following
conditions precedent, each of which may be waived by
the Lender in its sole and unfettered discretion:
A. For each advance under the Credit Facility,
the Borrower shall deliver to the Lender a
copy of the Invoice(s) in respect of which
such advance is being requested together
with a certificate in the form attached
hereto as Schedule "A." The Lender shall
make advances to the Borrower not more than
twice each month at specified dates to be
determined by the Borrower and the Lender;
B. Prior to making any advances to the
Borrower, the Borrower shall deliver to the
Lender a report of all collections received
by the Borrower for the month prior which
report shall include the name of the
customer, amount collected, particulars of
the Invoice against which payment was made
(including date,
<PAGE>
5
number and amount) and the number of days
such Invoice remained outstanding as well as
any other information which may reasonably
be required by the Lender;
C. Execution and delivery to the Lender of all
such agreements, acknowledgments,
undertakings and other documentation as may
be contemplated hereunder;
D. The Borrower and the Guarantor are in
compliance with all of their respective
indebtedness, liabilities and obligations to
the Lender or the Third Party Lender (as the
case may be) and all of its other material
creditors and lenders howsoever and
wheresoever incurred;
E. No Event of Default has occurred or is
occurring;
F. For each of the Borrower's account debtors,
the Borrower execute and deliver to the
Lender a letter in the form annexed hereto
as Schedule "B" which letter may only be
released by the Lender upon the occurrence
of an Event of Default. The Borrower and the
Guarantor confirm to the Lender that release
of such letter shall not constitute or be
deemed to constitute enforcement of any of
the Security held by the Lender; and
i. the Borrower shall be responsible for
all of the Lender's expenses with
regard to such Audit; and
ii. the Borrower shall be deemed to have
committed an Event of Default (as
hereinafter defined); and
G. Such other and further reasonable covenants
as the Lender may reasonably require and
request of the Borrower and the Guarantor
subsequent to the execution of this Credit
Agreement, including without limitation,
matters relating to capital expenditures,
executive and key man
compensation/remuneration and expense or
cost reduction or containment.
Other Credit Facility: If the Borrower obtains financing from a third party
lender (the `Conventional Lender") which does not
require the support of the Lender, whether by way of
guarantee, indemnity or otherwise, then subject to a
satisfactory review and determination by the Lender
of the advance rates offered by the Conventional
Lender, the security required by it, the terms and
conditions of the facility to be provided by it and
the impact on the Credit Facility, then:
<PAGE>
6
A. the Lender shall postpone its interest in
the Accounts Receivable to the Conventional
Lender only to the extent that the Lender
has not advanced any monies to the Borrower
in respect of same; and
B. the Lender shall make advances to the
Borrower in respect of approved Accounts
Receivable in excess of the amount advanced
by the Conventional Lender to the Borrower
against such Accounts Receivable.
For the sake of clarity, the amounts to be advanced
by the Lender in these circumstances shall only be
determined once the terms and conditions of the
transaction between the Conventional Lender and the
Borrower have been finalized.
Events of Default: All of the Indebtedness shall, at the Lender's
option, become due and payable and the Lender shall
be entitled to exercise its rights hereunder,
including enforcement of the Security upon the
occurrence of all or any of the following
(collectively, the "Events of Default");
A. The Borrower or the Guarantor defaults in
the payment or performance of any of their
indebtedness, liabilities to the Lender, the
Third Party Lender or the Conventional
Lender howsoever and wheresoever incurred;
B. There is a material adverse change in the
Borrower's or the Guarantor's business and
affairs as determined by the Lender acting
reasonably;
C. Any certificates, statements, reports or
other information provided by the Borrower
or the Guarantor to the Lender is materially
incorrect or misleading.
D. The Borrower or the Guarantor makes an
assignment in bankruptcy under the
BANKRUPTCY AND INSOLVENCY ACT (Canada) (the
"BIA") or such other applicable insolvency
legislation or a receiving order is made
against any one of them under the BIA or
such other applicable insolvency
legislation; or
E. If the Third Party Lender or the
Conventional Lender or other encumbrances
demands payment or is otherwise in a
position to enforce its rights against the
Borrower or the Guarantor./
Costs and Expenses: The Borrower and the Guarantor shall be jointly and
severally liable for all of the Lender's reasonable
third party legal, professional and
<PAGE>
7
other fees and expenses incurred by it in respect of
the Credit Facility and the transactions contemplated
hereby all of which shall form part of the
Indebtedness and shall be subject to the Security.
General: 1. The Credit Agreement and the agreements,
documents and matters contemplated hereby
supersedes all prior agreements,
arrangements and understandings related to
the subject matter hereof.
2. The Credit Agreement shall be governed by
the laws of Ontario and the laws of Canada
applicable therein.
3. The Credit Agreement shall enure to the
benefit of and shall be binding upon the
parties hereto and their respective heirs,
executors, administrators, successors and
assigns, as the case may be.
4. The parties hereby undertake and agree with
each other to execute and deliver such other
documents, papers, matters, waivers,
assignments and assurances that the other
party(ies) may reasonably require or request
in connection with the transactions herein
contemplated for the purposes of effectually
carrying out the transactions contained in
and contemplated by the Credit Agreement.
5. The Credit Agreement formed by this letter
may be executed in several counterparts,
each of which shall be deemed to be an
original and such counterparts together
shall constitute one and the same agreement
and notwithstanding the date of execution
shall be deemed to be executed on the date
hereof.
6. The provisions of the Credit Agreement are
intended to survive completion of the
transactions contemplated herein.
7. Failure or delay by the Lender in
exercising, including a single or partial
exercise of, any power or right hereunder
shall not operate as a waiver thereof or of
any other power or right or preclude any
other or future exercise of that or any
other power or right. A waiver of any power
or right hereunder shall be in writing,
shall be limited to the specific instance,
and shall not be deemed a waiver of such
power or right in the future or a waiver of
any other power or right.
<PAGE>
8
Please indicate your agreement with the terms and conditions set forth above by
executing in the space provided for below and returning duplicate counterpart(s)
of this letter to us as soon as possible.
Yours very truly,
1054311 ONTARIO LIMITED
/S/ANTHONY HELLER
- -------------------------
Anthony Heller, President
AGREEMENT
FOR VALUE RECEIVED, the receipt and sufficiency of which is acknowledged, the
undersigned agree with the terms and conditions set forth above.
Dated this 14th day of June, 1999.
YAK COMMUNICATIONS (CANADA) INC.
Per:
/S/CHARLES ZWEBNER
- --------------------------
Charles Zwebner, President
YAK COMMUNICATIONS (USA), INC.
Per:
/S/CHARLES ZWEBNER
- --------------------------
Charles Zwebner, President
<PAGE>
SCHEDULE "A"
REQUEST FOR ADVANCE
TO: 1054311 Ontario Limited (the "Lender")
Re: Facility letter (the "Credit Agreement") from the Lender to Yak
Communications (USA), Inc. and Yak Communications (Canada) Inc. (the
"Borrower") dated June 14, 1999
- --------------------------------------------------------------------------------
In accordance with the Facility Letter, we hereby request an advance in
connection with the invoice (the "Invoice") issued by the Borrower attached
hereto as follows:
Invoice Amount: $
-----------------
Less:
The Preferred Claims (as defined
in Credit Agreement) as at the date hereof: $
-----------------
Accounts Receivables against which
the Lender has made advances to the
Borrower and which may be in dispute
or in arrears as of the date hereof: $
-----------------
Discounts, deductions, contra accounts
or otherwise which may be deducted
by from the Invoice: $
-----------------
Amounts owing to Lender by Borrower
or Guarantor $
-----------------
NET ADVANCE TO BORROWER $
-----------------
CERTIFIED TRUE and correct this day of , 1999.
-------------- --------------
YAK COMMUNICATIONS (CANADA) INC.
Per:
- -----------------------------------
Charles Zwebner, President
<PAGE>
SCHEDULE "B"
[INSERT ON YAK LETTERHEAD]
[Insert Date]
To Account Debtor
Dear Accounts Payable Manager:
Re: Yak Communications (Canada) Inc. ("Yak")
We have retained the services of 1054311 Ontario Limited (the "Lender") to
provide funding to us by processing our accounts receivables. In that regard, we
wish to inform you, and irrevocably direct you to make all payments in respect
of invoices issued by or otherwise owing by you to Yak directly to:
1054311 Ontario Limited
3845 Bathurst Street
Suite 202
Toronto, Ontario
M3H 2N2
If you have any questions or require further information, please do not hesitate
to contact Yak at (416) 296-9111 or the Lender at (416) 630-5555 ext. 202.
This notice of assignment and the within instructions are irrevocable, shall
constitute your good and sufficient authority with regard to the matters set
forth above and shall remain in full force and effect until you are notified by
the Lender in writing to the contrary.
Yours very truly,
Yak Communications (Canada) Inc.
Per:
- ----------------------------------
Charles Zwebner, President
EXHIBIT 10.4
BILLING AND COLLECTION SERVICE AGREEMENT
This Agreement is made in duplicate this 26th day of August, 1998
between
Yak Communications Inc. (name)
3460 Bathurst Street (address)
Toronto, Ontario M6A 2C4 (city and province)
hereinafter referred to as "the Alternate Provider of Long Distance Service" or
"the APLDS,"
and Bell Canada,
1050 Beaver Hall Hill
Montreal, Quebec,
hereinafter referred to as "Bell".
Whereas Bell has agreed to provide billing and collection services to
Eligible Calls to Customers who maintain accounts with Bell, as defined within;
and
Whereas the APLDS wishes to utilize Bell's billings and collection
services;
Bell and APLDS in consideration of the mutual covenants and promises in
this Agreement therefore agree as follows:
ARTICLE 1 DEFINITIONS
1. In this Agreement, these terms will be defined as follows:
a) "Casual Calls" means calls placed on the APLDS's
network using the 10XXX dialing plan, placed from a
telephone for which Bell has an account but which is
not presubscribed to the APLDS for long distance
service.
b) "Collect Calls" means calls placed on the APLDS's
network for which the terminating Customer accepts to
be billed when the Customer is not an APLDS
subscriber.
c) "Third Party Call" means calls placed on the APLDS's
network which are billed to a third party telephone
number, where such third party is not an APLDs
subscriber but does not maintain an account with
Bell.
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d) "900 Service Calls" means calls placed to an APLDS
provided 900 number, from a telephone which maintains
an account with Bell but which is not presubscribed
to the APLDS.
e) "Customer" means an end use who purchases
communications serves from the APLDS and who
maintains an account with Bell.
f) "Bad Debt" means charges for Eligible Calls which
have been legitimately billed to Customers, but are
not paid by the Customers and which are not disputed
by the Customers as described in Bell's billing and
collection services procedures which are provided to
the APLDS from time to time. Bad Debt specifically
excludes charges incurred fraudulently.
g) "GST" means applicable Goods and Services Tax.
h) "PST" means applicable Provincial Sales Tax.
i) "Chargeback" means an account receivable which is
returned to the APLDS by Bell after it has been
included on a Customer's invoice.
j) "Eligible Calls" mens message toll service calls
placed on the APLDS's network as described in Article
2.1
k) "Recirculated" means held by the APLDS and
periodically investigated by the APLDS to determine
whether the Customer is a subscriber to the APLDS's
services.
l) "Rebilled" means provided to Bell for inclusion on a
Customer invoice subsequent to being previously
included on a Customer invoice by Bell.
Article 2 SCOPE OF THE AGREEMENT
2.1 Subject to Articles 2.2, 2.3 and 2.4, Bell will purchase from
the APLDS and the APLDS will sell, assign, transfer and set
over unto Bell all rights, title and interests in and to the
accounts receivable for Eligible Calls accruing to the APLDS.
Eligible Calls consist exclusively of:
a) Casual Calls other than casual calls to Long Distance
Directory Assistance (LDDA),
b) Collect Calls,
c) Third Party Calls,
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d) 900 Service Calls, provided that the 900 Service
program associated with such calls meets the then
current Program Content Guidelines specified in
Schedule "C" to the Advantage 900 Accounts Receivable
Management (ARM) Agreement approved from time to time
by the Canadian Radio- television and
Telecommunications Commission, and
e) Calls placed over the APLDS's network using the '1+
dialing plan, that appear to be Casual Calls,
provided that the calls have been Recirculated by the
APLDS for at least 14 days.
Bell will not purchase from the APLDS and the APLDS will not
sell, assign, transfer and set over unto Bell the accounts
receivable for any other types of calls.
2.2 Even for Eligible Calls, Bell will not purchase accounts
receivable if they contain the following types of charges, or
if such accounts receivable are purchased, Bell may return
them or charge them back to the APLDS and Bell shall be
entitled to recover the full amount of all payments made by
Bell to the APLDS for such accounts receivable, including
taxes, and to retain any charge applied by Bell pursuant to
Article 6 and 7 hereof.
a) For which there are invalid entries in the fields of
the associated call detail records provided by the
APLDS, as defined by the technical specification of
the services which are provide to the APLDS from time
to time by Bell,
b) For which the associated call detail records do not
pass edits for validity and consistency or the charge
cannot otherwise be billed to a Customer,
c) Associated with domestic and Canada-USA calls which
are more than 60 days old when first received by Bell
and Rebilled calls which are more than 120 days old
when received by Bell,
d) Associated with overseas calls which are more than
120 days old when first received by Bell and Rebilled
overseas calls which are more than 180 days old when
received by Bell,
e) Associated with calls charged to accounts outside of
Bell's operating territory, including accounts in
independent company territories,
f) Associated with calls charged to non-existent
accounts,
g) Associated with calls for which the charge has been
duplicated,
h) Associated with Third Party Calls or Collect Calls
where the charges for such calls have not been
validated by the APLDS by obtaining the concurrence
of the billed party at the time each such call was
made,
i) Associated with calls where the Customer denies
knowledge of the call, requests an adjustment due to
dialing error, or any other conditions as described
in the billing and collection services procedures
which are provided to the APLDS from time to time by
Bell,
j) Associated with fraudulent or suspected fraudulent
calls, and
k) Associated with calls that are Rebilled more than
once.
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2.3 Notwithstanding anything herein, Bell will not purchase and
the APLDS will not sell, assign, transfer or set over the
accounts receivable for 900 Service Calls associated with
programs that do not comply with the then current Program
Content Guidelines as specified in Schedule "C" to the
Advantage 900 Accounts Receivable Management (ARM) Agreement
approved from time to time by the Canadian Radio-television
and Telecommunications Commission. In the event that the APLDS
provides accounts receivable for 900 Service Calls associated
with programs that do not comply with the Program Content
Guidelines, Bell may return the accounts receivable to the
APLDS and recover the full amount of the charge including
taxes and retain any charges applied by Bell pursuant to
Article 6 and 7 hereof and, at its discretion, terminate the
billing of charges for 900 Service Calls under the Agreement,
subject to the procedures for termination specified in Article
12.
2.4 Title to the account receivable which Bell purchases and the
APLDS sells, assigns, transfers or sets over pursuant to this
Agreement will be deemed to have passed to Bell upon such
account receivable's successful completion of all Bell
pre-billing edits.
2.5 In the event an account receivable is charged back to the
APLDS, title to such account receivable shall be deemed to
have reverted to the APLDS upon the APLDS's receipt of the
Chargeback record applicable to such account receivable.
2.6 The APLDS will record all necessary billing details, as
defined by the technical specifications of the services which
are provided to the APLDS from time to time by Bell, for all
Eligible Calls by Customers, calculate the amounts owing
including taxes, and forward the billing records to Bell. Bell
will include the relevant charges in statements distributed to
Customers responsible for the payment of the Eligible Calls.
2.7 The provision of billing and collection services to the APLDS
does not preclude Bell from providing billing and collection
services or any other service to any other parties, including
any other alternative providers of long distance service.
Article 3 RIGHTS AND RESPONSIBILITIES OF BELL
3.1 Bell will make available to the APLDS the following billing
and collection services in accordance with the terms and
conditions contained herein, any applicable provisions of
Bell's Terms of Service and tariffs and the technical
specification of the services which are provided to the APLDS
from time to time by Bell:
a) Preparation and rendering of bills for charges
associated with Eligible Calls by Customers and which
charges have been purchased by Bell.
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b) Collection of payments for charges relating to
Eligible Calls made by Customers of the APLDS,
including appropriate taxes which will be remitted by
the APLDS to the appropriate governments as specified
in Article 5.
c) Answering of Customer questions regarding charges
billed by Bell for Eligible Calls provided by the
APLDS, excluding questions about the details of the
APLDS's services, rates, rate structures and similar
matters.
d) Application of credits and adjustments to Customer
accounts, in accordance with the billing and
collection services procedures which are provided by
Bell to the APLDS from time to time.
3.2 Customer billing records which do not pass edits for validity
and consistency will be returned to the APLDS unprocessed and
Bell will not purchase such accounts receivable from the
APLDS. The edits for validity and consistency are described in
the technical specifications of the services which are
provided to the APLDS from time to time by Bell.
3.3 Accounts receivable for which Bell does not collect payment
from the Customer may be returned to the APLDS as provided
for in Article 2, except as provided for in Article 3.4.
For these Chargebacks, Bell will return tot he APLDS such
call detail information as is provided for in the technical
specifications of the services which are provided to the
APLDS from time to time by Bell. For these Chargebacks,
Bell will recover from the APLDS the full amount of all
payment made by Bell to the APLDS for the accounts
receivable, including taxes, and will retain any charges
applied by Bell pursuant to Articles 6 and 7 hereof.
3.4 Account receivable which became Bad Debt will not be charged
back to the APLDS, except as otherwise provided for in
Articles 2.2, 2.3 and 3.2.
3.5 The parties hereto agree and the APLDS represents to Bell that
Bell will have full power and authority, at any time, to
notify any person who will be concerned with the assignment of
the accounts receivable or otherwise affected by it, of the
fact that said assignment has been made. Furthermore, the
APLDS, at Bell's request, will notify any person who will be
concerned with the assignment of the accounts receivable or
otherwise affected by it, of the fact that said assignment has
been made.
3.6 The parties hereto agree and the APLDS represents to Bell that
Bell will have full power and authority to register any and
all financing statements and other similar documentation under
any applicable legislation so as to protect and perfect its
interest in the accounts receivable. The APLDS agrees to
execute or obtain execution of all necessary consents required
to give effect to this Article 3.
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3.7 At any time during the continuance of this Agreement, Bell
will have the right to sell, assign, transfer and set over the
accounts receivable with all or any rights, title and
interests therein to any person, firm or corporation, and the
assignee thereof will acquire and possess all the powers,
rights and interests granted under this Agreement and will be
subject to any obligations to Bell hereunder.
3.8. For any call purchased as an account receivable by Bell and
subsequently charged back to the APLDS pursuant to Article
2.2i), 2.2j) and 2.2k) in accordance with the applicable
tariffs, Bell shall provide to the APLDS the Customer's name,
telephone number and billing address associated with such a
call.
3.9 All information provided to the APLDS pursuant to this
Agreement is provided in confidence for the exclusive use of
the APLDS. The APLDS is responsible for protecting the
confidentiality of this information and may not provide,
disclose or resell this information to any third party,
including, but without restricting the generality of the
foregoing, any agents, affiliates, co-venturers, etc.
3.10 All information provided to the APLDS pursuant to this
Agreement, including, but without restricting the generality
of the foregoing, the name, telephone number and billing
address of any Customer, may only be used for the purpose of
billing Eligible Calls. Without limiting the generality of the
foregoing, the APLDS may not use any information provided
pursuant to this Agreement for telemarketing purposes. For the
purposes of this Agreement, telemarketing shall include, but
not be restricted to, the promotion by the APLDS or by any
person or entity, of the APLDS or its services or products, or
of a third party or its services or products, by any means.
Notwithstanding the foregoing, the APLDS may disclose a
customer's name and address to an agent whom it has retained
in the collection of Eligible Calls of that customer, provided
the information is required for, and is to be used only for,
that purpose and the APLDS has implemented appropriate
safeguards to protect the privacy of customers.
Article 4. RIGHTS AND RESPONSIBILITIES OF THE APLDS
4.1 The APLDS will record all necessary billing details for all
Eligible Calls by Customers including calculation of all
amounts owing including taxes. The billing details will be
provided to Bell in accordance with the technical
specifications of the services which are provided to the a
from time to time by Bell. The APLDS is solely responsible for
the accuracy of the billing details provided to Bell.
4.2 The APLDS will only submit to Bell account receivable for
Eligible Calls, as described in Article 2. The APLDS agrees
that for any other accounts receivable which are submitted to
Bell, Bell may return or charge back the accounts receivable
to the APLDS. In such event, Bell will recover the full amount
of all payments made
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by Bell to the APLDS for the accounts receivable, including
taxes, from the APLDS in accordance with Article 6 hereof and
the APLDS will be required to pay the Bell charges as
described in Article 7.
4.3 The APLDS is responsible for calculation and remittance of
taxes, as described in Article 5.
4.4 The APLDS must provide for the use of Customers an inquiry
telephone number and must be accessible at the inquiry
telephone number to respond to Customer inquiries at not
charge to any user of such service. The APLDS must speak
directly to anyone who has contacted the APLDS via the inquiry
telephone number within 24 hours of receipt of any such
contact.
Article 5 TAXATION
5.1 Both parties acknowledge that federal and provincial sales or
other consumption taxes, including GST and PST, may apply to
the charges for calls provided by the APLDS. The APLDS will be
responsible for determining all of the taxes applicable to the
provision of its services and which must be levied on a
Customer.
5.2 The APLDS will calculate and provide to Bell the applicable
amounts of all taxes due on all charges forwarded to Bell for
billing purposes.
5.3 Bell will bill and collect the taxes provided by the APLDS, on
behalf of the APLDS, unless Bell identifies the Customer as
tax exempt (for either, or both, of GST and PST). If a
Customer is tax exempt, the appropriate tax, or taxes, will be
removed, other taxes will be recalculated by Bell, if
necessary, and the revised tax amounts will be billed. Bell
will report to the APLDS the amount of tax, or taxes, that
have been removed or adjusted.
5.4 The APLDS will be responsible for the remittance of the taxes
to the appropriate government authorities.
5.5 In any event, the APLDS will indemnify and hold Bell harmless
for any outstanding taxes which may subsequently be claimed
against Bell as purchaser oft he account receivable arising
from the APLDS's failure to promptly notify Bell of applicable
taxes or to remit all applicable taxes.
Article 6 PAYMENT FOR ACCOUNT RECEIVABLE
6.1 Bell will pay to the APLDS an amount equal to the full value
of each account receivable recorded less an accounts
receivable management discount, as detailed in the applicable
tariffs, to account for Bad Debt associated with the accounts
receivable
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purchased from the APLDS, and less all associated charges
specified in this Agreement to the APLDS including the full
amount of each account receivable returned or charged back to
the APLDS. The resulting amount will be paid to the APLDS
within forty-five (45) days of the last day of the calendar
month for which the account receivable was recorded by Bell,
or, in the event of that full payment is not made by this
time, interest will subsequently accrue on any outstanding
balance at the rate of 1% per month.
6.2 In the event that the accounts receivable management discount
plus the associated charges to the APLDS plus the full amount
of all accounts receivable returned and charged back to the
APLDS exceeds the full value of the accounts receivable
recorded during a calendar month, the APLDS will pay to Bell
the difference forty-five (45) days from the last day of that
monthly or thirty (30) days from the issuance of Bell of an
accounting showing such difference for the month, whichever
occurs later.
6.3 All monthly accounts will be deemed to have been accepted by
the APLDS if no written objection will have been made thereto
within one hundred and twenty (120) days from the date
specified on such account. Any agreed adjustments arising from
any such objection will be reflected in the next feasible
monthly settlement payment.
6.4 In the event that the APLDS submits a written objection to
Bell, Bell shall review the accounts in respect to which the
objection shall have been made and shall render its decision
regarding the objection to the APLDS within thirty (30) days.
Bell's decision shall be final.
6.5 In the event that Bell experiences Chargebacks from Customers
following the expiration or termination of this Agreement, the
APLDS agrees to pay Bell the full amount of the accounts
receivable charged back plus the associated charges forty-five
(45) days from the last day of the month during which the
Chargebacks occur.
Article 7 RATES AND CHARGES
7.1 In consideration of Bell providing billing and collection
services to the APLDS as described in this Agreement, Bell
will charge the APLDS and the APLDS will pay rates and charges
as detailed in the applicable tariffs.
Article 8 AUTHORIZATION
8.1 The APLDS expressly authorizes Bell to use the name of the
APLDS for the purpose of identifying the APLDS on whose behalf
the call is being billed in the collection of all accounts
receivable.
Article 9 ACCOUNTING TO THE APLDS
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9.1. Bell will provide reports to the APLDS, including an
accounting of the payment due to the APLDS for the accounts
receivable purchased by Bell. The reports will be provided
according to the technical specifications of the services
which are provided to the APLDS from time to time by Bell.
9.2 Any report provided to the APLDS will be deemed to be correct
unless the APLDS notifies Bell of any discrepancy therein,
within sixty (60) days from the date the report is issued by
Bell.
9.3 In the event that an error is made by Bell in the preparation
of any report, Bell's liability will be limited to correcting
the same and to modifying the report accordingly in the next
issue of the same.
9.4 The reports described in this article will be the only
documentation conclusive with respect to accounts receivable
and call volumes.
Article 10 LIMITATION OF LIABILITY
10.1 Bell' s liability shall be subject to the provisions
regarding liability in its Terms of Service. Without
restricting the generality of the foregoing, Bell will not
be responsible to the APLDS for direct, indirect, special,
incidental or consequential damage or loss in connection
with or arising out of the performance or non- performance
of the terms of this Agreement howsoever caused, including,
without limiting the foregoing, any business or economic
loss, notwithstanding that Bell had been advised or is
aware of the possibility thereof.
10.2 The provisions of this Article 10 will survive the expiration
or termination of this Agreement.
Article 11 TERM
11.1 This Agreement will be deemed to come into force on the 26th
day of August, 1998 and will be effective for an initial
period of two years from this date and will continue
afterwards for successive month-to-month periods under the
same terms and conditions unless and until terminated by
either party upon sixty (60) days' prior written notice to the
other party, or pursuant to the provisions of this Agreement
concerning termination.
Article 12 TERMINATION
12.1 Except as provided hereinafter, in the event that either party
will be in breach of any of the terms of this Agreement, or,
without restricting the generality of the foregoing, of any
laws applicable thereto, regulations or Bell tariffs, the
other party may, by
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notice to the party in default, require the remedy of said
breach or the performance of the obligations hereunder. If the
party so notified fails to remedy or perform within ten (10)
days of the receipt of such notice, the other party may,
without prejudice to all its rights and remedies, in respect
of breach of contract, subject to the terms of this Agreement
, terminate this Agreement as specified in Article 12.7 below.
12.2 When one party (the party in default) has received
notification from the other party (the party not in default)
pursuant to Article 12.1 of this Agreement and notwithstanding
that the party in default has remedied such breach or has
performed said obligation, in the event at any time thereafter
that such party in default is found by the party not in
default to have breached or to have failed to perform in
respect of the same provision(s) of this Agreement under which
notification was first provided pursuant to Article 12.1, the
party not in default will have the right as its sole
discretion to terminate this Agreement as specified in Article
12.7 below.
12.3 If in Bell's reasonable judgment, the provision of billing and
collection services under this Agreement give rise to an
unreasonable number of Customer complaints, Bell may terminate
this Agreement upon thirty (3) days prior written notice to
the APLDS.
12.4 In the event that the Chargebacks associated with the APLDS's
accounts receivable are at a level of 15% or more of the total
accounts receivable for two (2) consecutive months, or if the
Bad Debt associated with the APLDS's accounts receivable is at
a level of 10% or more of the total accounts receivable for
two (2) consecutive months, Bell may, at its sole discretion,
terminate this Agreement as specified in Article 12.7 below.
12.5 Subject to the terms of this Agreement, any termination of
this Agreement for breach of any of its terms will be without
prejudice to all rights and remedies available to the party
terminating this Agreement in respect of such breach.
12.6 Notwithstanding Article 12.7 below, if one of the parties
becomes insolvent or if insolvency or bankruptcy proceedings
of any kind are initiated against a party, if a party is
placed in receivership or if a party has to perform a transfer
of property in favor of its creditors or its property is
placed under sequestration or is subject to liquidation, the
other party may, upon notice, immediately terminate this
Agreement.
12.7 Prior to termination of this Agreement, the party terminating
the Agreement shall provide the other party with ten (10) days
prior written notice stating the reason for termination and
the scheduled termination date. Additionally, at least
twenty-four hours prior to termination, the party terminating
the Agreement shall advise the other party that termination is
imminent.
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12.8 If this Agreement is terminated by the APLDS prior to the end
of the contract term, a charge equal to the remaining balance
of monthly subscription fees shall apply for the contract
term.
12.9 Without restricting the generality of the foregoing , all
provisions of this Agreement regarding amounts payable to Bell
for services provided to the APLDS shall survive termination
of this Agreement.
Article 13 NON-WAIVER
13.1 The failure of either party, at any time, to require
performance by the other party of any provision, condition or
covenant hereof will, in no way, affect its right thereafter
to enforce the provision, condition or covenant, nor will the
waiver by either party of any breach of any provision,
condition or covenant hereof be taken or held binding upon the
party, unless in writing, and the waiver will not be taken or
held to be a waiver of any future breach of the same
provision, condition or covenant.
Article 14 ENTIRE AGREEMENT
14.1 This Agreement, together with all matters incorporated by
reference, constitutes the entire Agreement between the
parties with regard to matters dealing with under this
Agreement and there are no other conditions or warranties,
expressed, implied or statutory, applicable to the subject
matter hereof.
Article 15 ASSIGNMENT
15.1 Except as provided herein, neither party will assign or
transfer this Agreement, or any rights or privileges
hereunder, in whole or in part, without the written prior
approval of the other, provided however that nothing herein
will prevent Bell from assigning or transferring this
Agreement to a subsidiary or affiliate of Bell without the
consent of the other party.
15.2 This Agreement will be binding upon the respective successors
and permitted assigns of the parties hereto.
Article 16 GOVERNING LAW
16.1 The terms of this Agreement will be governed by the law of the
province where this Agreement is executed by the last signing
party. In the absence of any indication to that effect on this
Agreement, the law of the Province of Ontario will apply.
Article 17 REGULATORY APPROVAL
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17.1 This Agreement, including the rates, terms and conditions
specified herein and in the applicable tariffs, are subject to
all applicable regulatory approvals. Such rates, terms and
conditions may be modified from time to time in accordance
with and subject to the approval of the Canadian Radio,
Television and Telecommunications Commission.
Article 18 INTERPRETATION
18.1 The headings appearing in this Agreement have been inserted as
a matter of convenience and for reference only and, in no way,
define, limit or enlarge the scope or meaning of this
Agreement or of any provisions hereof.
18.2 Whenever a word importing the singular number only is used in
this Agreement, such word will include the plural and words
importing either gender or firms or corporations will include
the persons or other genders and firms or corporations where
applicable. Any reference to the term of this Agreement will,
unless the context otherwise requires, be deemed to include
any renewals hereof.
Article 19 SEVERABILITY
19.1 If any clause or clauses or part or parts of clauses in this
Agreement be illegal or unenforceable, it or they will be
considered separate and severable from the Agreement and the
remaining provisions of the Agreement will remain in full
force and effect and will be binding upon the parties hereto
as though the said clauses or part or parts of clauses had
never been included, provided, however, that in the events
that the removal of such clause or clauses renders this
Agreement ineffective in the assessment of Bell, Bell shall
have the right to terminate this Agreement as specified in
Article 12.7
Article 20 NOTICES
20.1 Any notice or other communication hereunder will be in written
form and will be sufficient if delivered personally, by
facsimile or by pre-paid registered mail to the address of the
APLDS as follows:
Yak Communications, Inc.
3460 Bathurst Street
Toronto, Ontario M6A 2C4
and to Bell at the following address:
Andy Zankowicz
Bell Canada - Carrier Services
2 Fieldway Road, Floor 11
Toronto, Ontario M8Z 3L2
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20.2 The date of receipt of such communication will be the first
business day following the date sent, if delivered personally
or by facsimile, or, if sent by pre-paid registered mail, will
be deemed to be the fifth business day after the same will
have been mailed, except in the event of a mail strike this
latter presumption will not apply.
20.3 Either party may change its address for notice under Article
20 without obtaining consent from the other party, provided,
however, that it notifies the other party in writing of its
new address.
Article 21 FORCE MAJEURE
21.1 Neither party will be held liable for any delay or failure in
performance of any party of this Agreement in the event of
force majeure or for any cause beyond the reasonable control
of the party concerned. In particular, and without limiting
the above, the parties will be excused from the performance of
their obligations under this Agreement where failure to comply
with any of the terms or conditions of this Agreement will be
caused by an act of God, strike, walk out, public enemy, war,
civil commotion, riot, judicial or government order, other
requirement of law, or any other cause or whatsoever nature or
kind beyond the reasonable control of either party.
Article 22 LANGUAGE
22.1 This agreement has been prepared and drawn up in the English
language at the express wish of the parties. Le present
contrat a ete prepare et redige en anglais a la demande
expresse des parties.
IN WITNESS WHEREOF the parties have executed this Agreement
This 26th day of August, 1998, in the City of Toronto
Province of Ontario by the APLDS Yak Communications (USA), Inc.
Witnessed by: ( Per /S/CHARLES ZWEBNER
)
______________________ ( Charles Zwebner
(Signature of Witness) )
( President
______________________ )
(Name of Witness) ( PLEASE PRINT OR TYPE NAME
) AND TITLE OF PERSON WHO
______________________ ( ACTUALLY SIGNS)
(Address)
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<PAGE>
This 28th day of August, 1999, in the city of Toronto
Province of Ontario by Bell Canada
Witnessed by: ( Per /S/B.R. DIXON Signature
) -------------
/S/DEBORAH KING ( B.R. Dixon Name
(Signature of Witness) )
( V.P. Carrier Services Title
Deborah King )
(Name of Witness) ( PLEASE PRINT OR TYPE NAME
) AND TITLE OF PERSON WHO
______________________ ( ACTUALLY SIGNS)
(Address)
Page 14
EXHIBIT 10.5
SERVICE AGREEMENT
THIS AGREEMENT made in duplicate and effective as of the 16th day of June, 1999.
BETWEEN:
BELL CANADA, BC TEL, ISLAND TELECOM INC., MTS COMMUNICATIONS INC., MARITIME TEL
& TEL LIMITED, NBTEL INC., NEWTEL COMMUNICATIONS INC., SASKATCHEWAN
TELECOMMUNICATIONS AND TELUS COMMUNICATIONS INC., an unincorporated group of
companies more fully described in Schedule B, individually referred to as a
"STENTOR CORPORATION" and collectively referred to as "STENTOR CANADIAN NETWORK
MANAGEMENT" or "STENTOR", having an office at 110 O'Connor Street, "Ottawa,
Ontario K1P 1H1
and
YAK COMMUNICATIONS CANADA INC., a corporation organized under the laws of
Canada, having its principal office at the City of Toronto, in the Province of
Ontario (hereinafter "Yak")
WHEREAS Yak has requested that Stentor provide certain handling and billing
correction services (the "Services") to it, as more fully described in Schedule
A
WHEREAS Stentor agrees to provide such Services
NOW THEREFORE the Parties hereto agree as follows:
1.0 INTERPRETATION AND SCOPE.
(a) "Agreement" means this written instrument herein together with the
following schedules (and any amendments made in writing by the parties
to such documents henceforth):
Schedule A: Services and Pricing
Schedule B: Stentor Corporations Description
(b) In the event of any conflict or inconsistency among the provisions of
the various parts of this Agreement, such conflict or inconsistency
shall be resolved by giving precedence to the Agreement Terms and
Conditions and then to the Schedules.
2.0 TERM AND TERMINATION OF AGREEMENT.
(a) Except as otherwise provided for herein, the term of this Agreement
shall be one year commencing on the effective date written at the top
of page one of this Agreement (the "Initial Term"). Thereafter, the
Agreement may renew for further terms of one year each (the
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"Renewal Terms") upon mutual agreement of Stentor and Yak, and subject
to earlier termination as provided for herein.
(b) This Agreement may be terminated for cause by either party by written
notice if the other party:
i) becomes bankrupt or insolvent;
ii) fails to make payment of any amount due pursuant to Article 4.0
and Schedule A;
iii) materially breaches the Agreement, subject to a thirty (30) day
cure period; or
iv) makes an assignment that contravenes the assignment provisions.
(c) Either party may, upon three (3) months prior written notice to the
other party, terminate this Agreement at any time and for any reason.
(d) In the event of a termination by Yak pursuant to Article 2.0(c), Yak
shall pay to Stentor early termination fees in the amount of two
thousand dollars ($2,000.00) per month for the balance of the term of
the Agreement, had the Agreement not been terminated.
(e) In the event of a termination by either party pursuant to Article 2.0
(b) or (c), Stentor shall be entitled to payment for the Services up to
the date of termination calculated on a pro-rata basis.
(f) Termination of this Agreement by Stentor shall not deprive Stentor of
any of its rights, remedies or actions against Yak in law or in equity.
3.0 SERVICES.
(a) Stentor shall provide Services to Yak in accordance with Schedule A.
(b) Stentor shall be responsible for the manner in which the said Services
are performed, for the method employed in doing the same and for all
acts and things done in the delivery of the Services outlined in
Schedule A.
4.0 PRICE AND TERMS OF PAYMENT.
(a) Yak shall Stentor the charges for the Services computed in accordance
with Schedule A.
(b) Yak shall be responsible for the payment of all taxes, levies and
duties imposed by a local, provincial, state or federal government or
government agency in connection with the provision of the Services to
Yak by Stentor pursuant to this Agreement. Where required by law, Yak
shall pay the relevant tax, levy or duty directly to Stentor. Yak's
liability shall not include taxes, levies and duties imposed directly
on Stentor in the nature of a property, capital or income tax.
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(c) Stentor shall invoice Yak monthly in advance for fees for Basic Service
as described in Schedule A. Stentor shall invoice Yak monthly in
arrears for fees for Optional Services, as described in Schedule A. All
invoices shall be due and payable within 30 days after the date of such
invoice ("the Invoice Due Date"). Any invoice that is not paid by the
Invoice Due Date shall be subject to a late payment charge 1.5% per
month compounded monthly (which is the equivalent to an annual rate of
19.56%), or the maximum permitted by law, whichever is lower.
5.0 CONFIDENTIAL INFORMATION
(a) DEFINITION. For the purposes of this section, "Confidential
Information" shall mean all oral, written or machine-readable data that
is identified as confidential and that is not known generally in the
trade or industry, and which pertains to a Party or their respective
operations, disclosed or acquired, whether directly or indirectly, in
connection with this Agreement.
(b) SCOPE. Without in any way limiting the scope of this Article 5.0,
Confidential Information includes any past, present or proposed
research, development or business activities, information disclosed at
any meetings and demonstrations between the Parties at any time,
products, schedules, procedures, policies, pricing, market analysis,
equipment, statistics, services, sales, projections and
corporate/business or financial information, actual and potential
accounts, customers, ideas, concepts, techniques, processes, devices,
compilations, research, development, manufacturing, purchasing, data
processing, engineering, marketing, drawings, models, photographs,
sketches, all written material including programs and subroutines
(whether in source or object code form) and updates and modifications
thereto, card decks, tapes, diskettes, listings, and other programming
and system documentation, manuals and copies thereof containing such
information.
(c) INTERPRETATION. For the purposes of this Article 5.0, "Informant" shall
mean a Party to this Agreement providing any Confidential Information
to the other Party to this Agreement and "Recipient" shall mean a Party
to this Agreement receiving any Confidential Information from the other
Party to this Agreement.
(d) CONFIDENTIAL INFORMATION IS A PROPRIETARY ASSET. Each Recipient
acknowledges that Confidential Information of an Informant is the
property of the Informant and is a valuable, special, unique and
proprietary asset of the Informant. No Recipient shall loan, sell,
assign, disclose, take, or cause to be used, disclosed or taken any
Confidential Information of the Informant to any third Party or remove
any of such Confidential Information from the offices or premises of
such Informant without express permission of the Informant.
(e) RETURN OR DESTRUCTION OF CONFIDENTIAL INFORMATION. Immediately upon
receipt of an Informant's request, the Recipient shall return, or
certify as destroyed, any and all tangible material concerning
Confidential Information, together with all copies to the Informant,
whether such material was made or compiled by the Recipient or
furnished by the Informant.
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(f) MAINTENANCE OF CONFIDENTIALITY. Each Recipient will take all reasonable
precautions, which in no event shall be less than the precautions used
by Recipient to maintain the secrecy of its own confidential
information, to maintain the secrecy of all Confidential Information
disclosed to it by the Informant.
(g) DISCLOSURE OF CONFIDENTIAL INFORMATION. Unless it has received the
prior written consent of the Informant, the Recipient will disclose
Confidential Information of the Informant only to those directors,
officers, employees, agents and professional advisors of the Recipient,
including any parent, subsidiaries or affiliates thereof, with a need
to know the Confidential Information, and warrants that all persons to
whom Confidential Information is disclosed in accordance with this
Article 5.0 will maintain the secrecy of such Confidential Information.
(h) EXCEPTION. The obligations set out in this Article 5.0, shall not apply
to any Confidential Information that:
i) at the time of disclosure is in the public domain;
ii) shall become generally known through no act of the Recipient
(but only after it is published or becomes part of the public
domain);
iii) was disclosed in good faith to the Recipient by a third Party
having legitimate possession and the right to make such
disclosure and who did not require the Recipient to hold it in
confidence;
iv) was in legitimate possession of the Recipient prior to its
disclosure under by the Informant and was not acquired by the
Recipient under an obligation of confidence;
v) is independently developed by the Recipient in the future
without use of the Confidential Information; or
vi) the Recipient is required by a judicial, administrative or
governmental body to disclose provided that prior to
disclosing any Confidential Information, Recipient promptly
notifies Informant and shall cooperate with Informant to
lawfully limit and/or obtain appropriate protective orders or
equivalent with respect to such portion of Confidential
Information as is the subject of any such required disclosure.
(i) MAINTENANCE OF DISCRETION. Subject to the terms of this Agreement, each
Party acknowledges that notwithstanding the execution of this
Agreement, the Informant maintains the sole and absolute discretion to
determine what, if any, of the Confidential Information it will release
to a Recipient.
(j) REPRESENTATION OR WARRANTY. Informant represents and warrants that it
has or will at the relevant time have the right to make the disclosures
required pursuant to the terms of this Agreement.
(k) TITLE TO CONFIDENTIAL INFORMATION. Ownership of and all right, title
and interest to any and all Confidential Information, copies and other
material shall at all times vest exclusively in the Informant. The
disclosure of Confidential Information shall not be construed as
granting to
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the Recipient any rights, by license or otherwise under any copyrights,
copyright applications, trade secrets, trademarks, or other
intellectual property rights in any country relating to any of the
Confidential Information which the Informant or an associated
corporation may now or hereafter own or to which it may hold licensing
rights.
(l) AVAILABILITY OF INJUNCTION. In the event of a breach or threatened
breach of this Article 5.0, the Parties agree that the harm suffered by
the injured Party would not be compensatable by monetary damages alone
and, accordingly, that the injured Party shall, in addition to their
available legal or equitable remedies, be entitled to apply for an
injunction or other such equitable remedy as against such breach or
threatened breach.
6.0 TITLE. All work products including documentation, reports, brochures
and manuals including, without limitation, any items deliverable under this
Agreement, if any, developed by Stentor pursuant to this Agreement, and all
copyright, patent and all other proprietary rights in such work products shall
be the property of Stentor and may be used or disclosed by Stentor to anyone in
its sole discretion. Furthermore, any and all designs, methods, processes,
formulae, data, specialized know-how, improvements, innovations, trade secrets
and specialized techniques that are made, prepared, developed, generated or
produced by Stentor, its employees, agents and subcontractors, in connection
with the performance of the Services under this Agreement vest in Stentor and
shall become the sole property of Stentor. Yak agrees to execute all documents
prepared at the expense of Stentor which are required to give effect to this
section.
7.0 EXCLUSION OF WARRANTY AND LIABILITY
(a) Stentor shall not be liable for mistakes or errors in the transmission
of billing messages received by Stentor, nor for the content of such
billing messages. Stentor does not guarantee error-free or
uninterrupted provision of the Services. Stentor will make every effort
to meet the terms of Schedule A but will not assume any financial
liability for the value of the records, real or implied, that Stentor
is transporting on behalf of Yak.
(b) Except in connection with a breach of the confidentiality obligations
contained herein, in no event shall either Party to this Agreement be
liable directly or indirectly to the other Party for any indirect,
special, consequential, incidental, or punitive damages, including loss
of profit or any other economic or business loss, arising out of a
breach of this Agreement even if such Party has been advised of the
possibility of same.
(c) STENTOR DISCLAIMS ANY AND ALL WARRANTIES, REPRESENTATIONS AND
CONDITIONS, EITHER EXPRESS OR IMPLIED, STATUTORY OR OTHERWISE,
INCLUDING BUT NOT LIMITED TO, THE IMPLIED WARRANTY OR FITNESS FOR A
PARTICULAR PURPOSE.
(d) The terms of this Article 7.0, including all disclaimers and
limitations in this Agreement, shall apply regardless of the nature of
the cause of action, demand or action including but not
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limited to breach of contract, negligence, tort or any other legal
theory and shall survive a fundamental breach or breaches and/or
failure of the essential purpose of this Agreement, or of any remedy
contained in this Agreement.
8.0 INDEMNIFICATION.
(a) Yak shall defend, indemnify and save harmless Stentor and/or the
Stentor Corporations, their Affiliates, Associates, and the directors,
officers and employees of Stentor and/or the Stentor Corporations and
their Affiliates and Associates from and against all liability,
damages, losses, claims, actions, judgments and costs, including legal
fees arising from damage to any property, and for injury to or death of
any person, including employees or agents of Stentor and/or Stentor
Corporations and any third parties, and for any third party claims made
against Stentor and/or Stentor Corporations, including but not limited
to those resulting from or arising out of:
i) Stentor's performance or non-performance pursuant to this
Agreement;
ii) willful, negligent, or wrongful act or omission of Yak,
including employees, agents and subcontractors of Yak,
pursuant to this Agreement;
iii) alleged infringement by Stentor and/or Stentor Corporations
of any third party intellectual property rights; or
iv) the improper disclosure of Confidential Information by Yak,
including employees, agents and subcontractors of Yak.
9.0 NOTICES. All notices and other communications that are required or may
be given in connection with this Agreement shall be in writing and
shall be deemed received when delivered by hand to, or when received
by, the other Party as evidenced by a certified mail receipt, or
courier receipt, at the following address, or such other address as
either Party shall specify in a notice to the other:
if to Yak:
Yak Communications Canada Inc.
55 Town Centre court
Suite 506
Toronto, Ontario M1P 4X4
ATTENTION: Charles Zwebner
if to Stentor:
Stentor Canadian Network Management
F-13, 110 O'Connor St.
Ottawa, Ontario K1P 1H1
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ATTENTION: Contract Management
10.0 ASSIGNMENT. Yak may not assign this Agreement without the prior written
consent of Stentor. Stentor and/or the Stentor Corporations may assign
this Agreement and/or any of its rights or obligations hereunder to one
or more parties, at any time, without the consent of Yak. Stentor shall
provide notice of such an assignment to Yak. Yak shall release Stentor
from any obligations under the Agreement, to the extent such
obligations have been assigned, as of the effective date of the
assignment.
11.0 FORCE MAJEURE. Stentor shall not be liable or deemed to be in default
for any delay or failure in performance under this Agreement or
interruption of service resulting directly or indirectly from Acts of
God, civil or military authority, acts of a public enemy, war, riot,
labour dispute, civil disturbance, fire, explosion, earthquake, flood,
or any other cause beyond the reasonable control of such party. It is
agreed that the time for performance by Stentor shall be extended by
the period of such uncontrollable circumstances.
12.0 SUBCONTRACTING. Stentor may subcontract some or all of the Services set
out in Schedule A without the prior written consent of Yak.
13.0 NO JOINT VENTURE. Nothing in this Agreement shall be construed as
establishing a partnership, joint venture, or employer-employee or
principal and agent relationship between the Yak and Stentor. Each
party hereto is independent and may not, at any time or in any manner
whatsoever, bind or oblige the other party except as may be expressly
provided in this Agreement.
14.0 SEVERABILITY. In the event any one or more of the provisions of this
Agreement shall for any reason be held to be invalid or unenforceable
the remaining provisions of this Agreement shall be unimpaired and the
invalid or unenforceable provision shall be replaced by a mutually
acceptable provision which, being valid and enforceable, comes closest
to the intention of the parties underlying the invalid or unenforceable
provision.
15.0 WAIVER. The failure of either Party to require the performance of any
term of this Agreement or the waiver by either Party of any default
under this Agreement shall not prevent a subsequent enforcement of such
term and shall not be deemed a waiver of any subsequent breach. All
waivers must be in writing, and signed by the Party against which the
waiver is to be enforced.
16.0 SURVIVAL. The provisions of this Agreement which, by their nature,
extend beyond the Term of this Agreement shall survive any termination
or expiration, including but not limited to Article 5.0, 6.0 and 7.0
and 8.0.
17.0 SUCCESSORS AND PERMITTED ASSIGNS. This Agreement shall enure to the
benefit of and be binding on the respective successors and permitted
assigns of each of the parties hereto.
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18.0 APPLICABLE LAW. This Agreement shall be governed in accordance with the
laws of the Province of Ontario, except its choice of law rules, and
the hereto agree to submit to the exclusive jurisdiction of the courts
hereof.
19.0 ENTIRE AGREEMENT. This Agreement together with Schedule A attached
hereto, constitutes the entire agreement between the parties in respect of the
matters dealt with herein. The terms as stated in this Agreement will not
replace or modify any terms stated in Billing and Collection Agreements between
Yak and any Incumbent Local Exchange Carrier (ILEC). All previous agreements,
understandings, and representations, whether written or oral between the parties
have been superseded by this Agreement unless herein expressly specified or
allowed. This Agreement may not be modified, changed, altered or amended, except
by an express written agreement signed by both parties hereto.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
as of the day and year first above written in duplicate.
BELL CANADA, BC TEL, ISLAND TELECOM, INC.
MTS COMMUNICATIONS INC., MARITIME TEL
& TEL LIMITED, NBTEL INC., NEWTEL
COMMUNICATIONS INC., SASKATCHEWAN
TELECOMMUNICATIONS AND TELUS
COMMUNICATIONS INC. YAK COMMUNICATIONS CANADA INC.
Per:/S/MIKE NORRIS Per/S/CHARLES ZWEBNER
--------------------------------- --------------------------------
Signed as the duly authorized
representative of the above-mentioned
companies, and not in a personal
capacity.
Name: Charles Zwebner Name: Charles Zwebner
Title:Section Manager - Settlements Cost Title: President
Methods
Date: July 27, 1999 Date: July 30, 1999
8
EXHIBIT 10.6
YAK COMMUNICATIONS (USA), INC.
NON-QUALIFIED STOCK OPTION AGREEMENT
THIS NON-QUALIFIED STOCK OPTION AGREEMENT (the "Option Agreement") is
made as of June 30, 1999, between YAK Communications (USA), Inc. a Florida
corporation (the "Company") and Charles Zwebner (the "Grantee"). The Company
desires, by affording Grantee an opportunity to purchase 1,200,000 shares of the
Company's per share no par value common stock (the "Common Stock"), to carry out
the purposes of the Company's Stock Option Plan dated June 30, 1999 (the
"Plan"). In consideration of the mutual covenants herein set forth, the parties
agree as follows:
1. GRANT OF OPTION.
(a) The Company grants to the Grantee the right (the "Option")
to purchase an aggregate of 1,200,000 shares of the Common Stock on the terms
and conditions herein set forth, all of which shares under the Option are fully
vested and shall become immediately exercisable by the Grantee hereunder.
(b) All terms and conditions of the Plan, a copy of which is
attached hereto, are incorporated herein by reference.
2. PURCHASE PRICE. The purchase price of each share of the Common Stock
covered by this Option shall be $1.00 per share.
3. TERM OF OPTION. The term of the Option shall be four years from
January 1, 2000, subject to earlier termination as provided in paragraph 6
hereof.
4. NONTRANSFERABILITY. The Option shall not be transferable otherwise
than by will or the laws of descent and distribution or pursuant to a qualified
domestic relations order as defined by the Internal Revenue Code or Title I of
the Employee Retirement Income Security Act, or the rules thereunder. More
particularly (but without limiting the generality of the foregoing), the Option
may not be assigned, transferred (except as provided above), pledged, or
hypothecated in any way, shall not be assignable by operation of law, and shall
not be subject to execution, attachment, or similar process. Any attempted
assignment, transfer, pledge, hypothecation, or other disposition of the Option
contrary to the provisions hereof, and the levy of any execution, attachment, or
similar process upon the Option shall be without effect.
<PAGE>
5. EMPLOYMENT.
(a) In consideration of the granting of the Option and
regardless of whether or not the Option shall be exercised, the Grantee will,
during his employment, devote time, energy and skill to the service of the
Company.
(b) Nothing in this Option Agreement shall confer upon the
Grantee any right to or claim for employment or a directorship with the Company
or any of its subsidiaries.
6. TERMINATION OF OPTION.
(a) The unexercised portion of this Option shall automatically
and without notice terminate and become null and void at the time of the
earliest to occur of the following:
(i) three months after the date on which the Grantee's
employment is terminated for any reason other than by reason
of (A) Cause (which, for purposes hereof, shall mean the
termination of the Grantee's employment by reason of the
Grantee's willful misconduct or gross negligence), (B) a
mental or physical disability as determined by a medical
doctor satisfactory to the Committee, or (C) death;
(ii) immediately upon the termination of the Grantee's
employment for Cause;
(iii) six months after the date on which the Grantee's
employment is terminated by reason of a mental or physical
disability as determined by a medical doctor satisfactory to
the Committee;
(iv) (A) twelve months after the date of termination of
the Grantee's employment by reason of death of the Grantee, or
(B) three months after the date on which the Grantee shall die
if such death shall occur during the 6-month period specified
in Subsection 6(a)(iii) hereof.
(b) Any termination of the Option by reason of cessation of
employment shall be without prejudice to any rights or remedies which the
Company or any of its subsidiaries may have against the holder of the Option
under this Option Agreement or otherwise.
(c) For purposes of this Agreement, the Grantee's employment
relationship with the Company will be deemed to have terminated on the 91st day
of any unauthorized leave of absence unless the Grantee is guaranteed, by
contract or statute, re-employment with the Company or a subsidiary corporation.
7. NON-QUALIFICATION OF OPTION. The Option is not an "incentive stock
option" as defined in the Internal Revenue Code of 1986, as amended (the
"Internal Revenue Code").
<PAGE>
The federal income tax consequences which result from exercise of the Option
have been fully explained to and understood by Grantee.
8. METHOD OF EXERCISING OPTION.
(a) Subject to the terms and conditions of this Agreement, the
Option may be exercised by written notice actually transmitted and received by
the Company at its headquarters office. Such notice shall state that the Grantee
elects to purchase shares under the Option and the number of shares for which
the Option is being exercised, and it shall be signed by the person so
exercising the Option. Such notice shall be accompanied by payment of the full
purchase price of the shares (i) in cash, (ii) by certified or cashier's check,
or (iii) by tender of shares of Common Stock (including shares acquired pursuant
to a partial and simultaneous exercise of the Option) with a Fair Market Value
(as defined in the Plan) equal to the full purchase price of the shares being
acquired.
(b) If the Option is exercised by a person other than the
Grantee, payment shall be accompanied by appropriate proof of the authority of
such person to exercise the Option.
(c) The Company shall cause a certificate or certificates
representing the shares purchased under the Option to be issued as soon as
practicable after receipt of the notice of exercise and full payment. The
certificate or certificates for such shares shall be registered in the name of
the person exercising the Option. All share certificates shall be delivered to
or upon the written order of the person exercising the Option.
(d) All shares purchased through the exercise of the Option
shall be fully paid and nonassessable.
9. REGISTRATION. If in the opinion of the Company any shares covered by
the Option as to which Grantee gives valid notice of exercise may not be issued
to Grantee without registration under the Securities Act of 1933, as amended
(the "1933 Act") or an exemption therefrom, the Company may so notify Grantee
and return to him any consideration tendered to exercise this Option until such
time as the shares are registered under the 1933 Act or in the opinion of the
Company an exemption from such registration is applicable. Grantee represents
and warrants to the Company as a condition of the granting of the Option, and
for the continued validity thereof, that Grantee (and his estate, heirs or
legatees, as the case may be) will not sell or offer for sale any shares of
stock obtained hereunder in the absence of an effective registration statement
as to such stock under the 1933 Act, unless the Company shall have received an
opinion of counsel satisfactory to it that such registration is not required,
and that no stock will be sold or offered for sale in violation of any
applicable state securities laws. Grantee agrees that the Company may legend any
shares issued on exercise of the Option to reflect this provision.
10. GENERAL. The Company shall at all times during the term of
the Option reserve and keep available a number of shares of Common Stock as will
be sufficient to satisfy the requirements of this Agreement, shall pay all
original issue and transfer taxes with respect to the issue and transfer of
shares pursuant hereto and all other fees and expenses necessarily incurred by
the
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Company in connection therewith, and will from time to time use its best efforts
to comply with all laws and regulations which, in the opinion of counsel for the
Company, shall be applicable thereto.
YAK COMMUNICATIONS (USA), INC.
BY:/S/ANTHONY HELLER
-----------------
ANTHONY HELLER
DATE:JUNE 30, 1999
BY:/S/BERNARD GROPPER
-----------------
BERNARD GROPPER
DATE:JUNE 30, 1999
/S/CHARLES ZWEBNER
- ------------------------
CHARLES ZWEBNER, GRANTEE
DATE:JUNE 30, 1999
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EXHIBIT 10.7
EMPLOYMENT AGREEMENT
THIS AGREEMENT made the 1st day of July, 1999
BETWEEN:
YAK COMMUNICATIONS (USA), INC.,
a corporation incorporated and existing under
the laws of the State of Florida
(the "Employer")
- and -
YAK COMMUNICATIONS (CANADA) INC.,
a corporation incorporated and existing under
the laws of the Province of Ontario
("YAK Canada")
- and -
CHARLES ZWEBNER,
an individual residing in Toronto, Canada
(the "Employee")
WHEREAS the YAK Canada is a wholly owned subsidiary of the Employer;
AND WHEREAS the Employee is now employed by the Employer as the President
thereof;
AND WHEREAS the Employer, YAK Canada and the Employee have agreed to enter this
agreement in respect of the employment of the Employee by the Employer, on the
terms and subject to the conditions set out herein;
NOW THEREFORE in consideration of the covenants and agreements herein contained
the parties hereto agree as follows:
<PAGE>
ARTICLE 1 - EMPLOYMENT
1.01 EMPLOYMENT. Subject to the terms and conditions hereof, the Employee shall
be employed by the Employer in the office of PRESIDENT, and shall perform such
duties and exercise such powers related to such office as set forth in Schedule
"A" hereto, or as otherwise specified by the board of directors of the Employer.
1.02 TERM OF EMPLOYMENT. This Agreement shall commence on the date hereof, and
shall continue in effect until June 30, 2004, or until terminated in accordance
with the provisions of this Agreement.
ARTICLE 2 - REMUNERATION
2.01 SALARY. YAK Canada shall pay the Employee a gross base salary in Canadian
Dollars which is the Canadian Dollar equivalent of $100,000.00 USD per year (the
"Base Salary"), payable bi-weekly. The Employer's board of directors shall
review this Base Salary for the fiscal year 2000 and each year thereafter.
2.02 BONUS. The Employee shall be entitled to a bonus (payable by YAK Canada) as
determined by the board of directors of the Employer and/or any compensation
committee thereof; which bonus shall relate to, inter alia, (a) the growth in
the Employer's earnings, (b) progress made by the Employer in penetrating the
Canadian and other long distance telephone markets, and (c) the growth of
shareholder value in the Employer.
2.03 HEALTH PLAN. The Employee will be entitled to receive benefits from YAK
Canada in accordance with the Employer's standard benefits package, as amended
from time to time, including extended health care, dental, long term disability
and life insurance benefits. Long term disability benefits are intended to
replace and substitute for all compensation and remuneration provided herein and
otherwise payable to the Employee.
2.04 VACATION. The Employee shall be entitled to four weeks vacation per
calendar year for the term of this Agreement, except that this entitlement shall
be pro rata for 1999 and, in the event of non-renewal of this agreement, for
2004. The Employee's vacation shall be taken at a time or times acceptable to
the Employer having regard to its operations.
2.05 WITHHOLDING. All taxable amounts set forth in this Agreement are subject to
applicable Canadian withholding or source deductions.
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2.06 EXPENSES. YAK Canada and/or the Employer shall reimburse the Employee for
reasonable out of pocket expenses incurred by the Employee in performing his
duties under this Agreement, upon submission of a record of such expenses in a
form satisfactory to the Employer and/or YAK Canada.
ARTICLE 3 - EMPLOYEE'S COVENANTS
3.01 SERVICE. The Employee shall devote the whole of his time, attention and
ability to the business of the Employer and shall well and faithfully serve the
Employer and shall use his best efforts to promote the interests of the
Employer.
3.02 DUTIES AND RESPONSIBILITIES. The Employee shall duly and diligently perform
all the duties assigned to him while in the employ of the Employer, and shall
truly and faithfully account for and deliver to the Employer all money,
securities and things of value belonging to the Employer which the Employee may
from time to time receive for, from or on account of the Employer.
3.03 NON-DISCLOSURE. The Employee shall not (either during the continuance of
his employment with the Employer or at any time thereafter) disclose any
information relating to the private or confidential affairs or secrets of the
Employer or any affiliate or client of the Employer, to any person other than
for the Employer's purposes and shall not (either during the continuance of his
employment with the Employer or at any time thereafter) use for his own purposes
or for any purposes other than those of the Employer any such information or
secrets he may acquire in relation to the business of the Employer.
3.04 NON-COMPETITION. The Employee shall not,
(a) at any time, during which he has any working relationship with the
Employer, whether as an employee, consultant or otherwise including the
period of his employment hereunder, or
(b) for a period of one year after he has ceased to have a working
relationship with the Employer;
3
<PAGE>
either individually or in partnership or jointly or in conjunction with any
person or persons, firm, association, syndicate, company or corporation, as
principal, agent, trustee, shareholder, employee or consultant, or in any manner
whatsoever, whether directly or indirectly, carry on or be engaged in or
concerned with or interested in, or advise, lend money to guarantee the debts or
obligations of, or permit his name or any part thereof to be used or employed by
or associated with, any person or persons, firm, association, syndicate, company
or corporation engaged in or concerned with or interested in any business
substantially similar and competing to any part of:
(a) the business carried on by the Employer at the date hereof;
(b) any other business carried on by the Employer at the time of the
termination of the Employee's employment hereunder; or
(c) any other business which the Employer has formulated plans to commence
carrying on;
provided that nothing herein shall restrict or prevent the Employee from owning
as a passive investor less than five percent (5%) of any class of securities of
any competitor of the Employer that are listed for trading on a recognized stock
exchange.
3.05 NON-SOLICITATION. The Employee shall not at any time during the period of
his employment hereunder or within the period of twelve (12) months following
the termination of his employment hereunder, directly or indirectly, approach
for the purpose of obtaining business or solicit any "Customer" or any employee
of the Employer. As used in this section "Customer" shall extend only to those
persons, firms, corporation or other entities:
(a) who are customers of the Corporation at the date hereof and have, after
the date hereof, continued to be customers of the Corporation at any
time within the twelve (12) months immediately preceding the time of
such solicitation; or
(b) who the Employee knew or ought reasonably to have known were customers
of the Corporation.
ARTICLE 4 - TERMINATION OF EMPLOYMENT
4.01 TERMINATION BY EMPLOYER FOR CAUSE. The Employer may terminate this
Agreement at any time for cause without notice and without payment of any
compensation by way of anticipated earnings, damages or other relief of any kind
whatsoever
4
<PAGE>
4.02 TERMINATION BY EMPLOYEE. The Employee may terminate his employment
hereunder upon at least 30 days prior written notice given by the Employee to
the Employer. The Employer, at its sole discretion, may elect to accept the 30
days notice or to reduce or eliminate the notice period. The Employee's
employment shall terminate on the day elected by the Employer.
4.03 TERMINATION BY EMPLOYEE AFTER A CHANGE OF CONTROL. In the event that the
Employee terminates his employment with the Employer pursuant to Section 4.02
hereof within six (6) months after a date on which there has been either:
(a) a transfer or issue of any voting securities of the Employer which
resulted in a change in the effective control of the Employer; or
(b) a sale by the Employer of all or substantially all of the Employer's
assets;
then the Employer shall pay to the Employee an amount equal to one and one-half
times the Base Salary plus a pro rated bonus, based upon the portion of the
fiscal year that is passed, and based upon an annualization of revenue and
operating income to the time of termination.
4.04 TERMINATION BY EMPLOYER. If the Employee is terminated by the Employer for
other than cause prior, the Employer shall pay to the Employee an amount equal
to one and one-half times the Base Salary plus a pro rated bonus, based upon the
portion of the fiscal year that is passed, and based upon an annualization of
revenue and operating income to the time of dismissal.
4.05 FULL AND FINAL RELEASE. The Employee's acceptance of termination pay made
pursuant to Sections 4.03 or 4.04 shall constitute a full and final release of
all claims against the Employer and its affiliates.
4.06 FAIR AND REASONABLE. The parties confirm that the provisions contained in
Sections 4.03 and 4.04 are fair and reasonable and that all such payments shall
be in full satisfaction of all claims which the Employee may otherwise have at
law against the Employer or its affiliates including, without limitation, under
the EMPLOYMENT STANDARDS ACT (Ontario), or in equity by virtue of such
termination of employment.
ARTICLE 5 - GENERAL
5.01 SECTIONS AND HEADINGS. The division of this Agreement into Articles and
Sections and the insertion of headings are for the convenience of reference only
and shall not affect the construction or interpretation of this Agreement.
5
<PAGE>
5.02 NUMBER. In this Agreement words importing the singular number only shall
include the plural and vice versa and words importing the masculine gender shall
include the feminine and neuter genders and vice versa and words importing
persons shall include individuals, partnerships, associations, trusts,
unincorporated organizations and corporations and vice versa.
5.03 BENEFIT OF AGREEMENT. This Agreement shall enure to the benefit of and be
binding upon the heirs, executors, administrators and legal personal
representatives of the Employee, and the successors and permitted assigns of the
Employer and YAK Canada.
5.04 ENTIRE AGREEMENT. This Agreement constitutes the entire agreement between
the parties with respect to the subject matter hereof and cancels and supersedes
any prior understandings and agreements between the parties hereto with respect
thereto. There are no representations, warranties, forms, conditions,
undertakings or collateral agreements, express, implied or statutory between the
parties other than as expressly set forth in this Agreement.
5.05 SEVERABILITY. If any provision of this Agreement is determined to be
invalid or unenforceable in whole or in part, such invalidity or
unenforceability shall attach only to such provision or part thereof and the
remaining part of such provision and all other provisions hereof shall continue
in full force and effect.
5.06 NOTICES. Any demand, notice or other communication (hereinafter in this
Section referred to as a "Communication") to be given in connection with this
Agreement shall be given in writing and may be given by personal delivery or by
registered mail addressed to the recipient as follows:
To the Employee: Mr. Charles Zwebner
121 Westgate Blvd.
Toronto, Ontario
M3H 1P5
To the Employer and
to YAK Canada: 55 Town Centre Court
Suite 506
Toronto, Ontario
M1P 4X4
or such other address or individual as may be designated by notice by either
party to the other. Any communication given by personal delivery shall be
conclusively deemed to have been given on the day of actual delivery thereof
and, if made or given by registered mail, on the third day, other than a
Saturday, Sunday or statutory holiday in Ontario, following the deposit thereof
in the mail
6
<PAGE>
5.07 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the Province of Ontario and the laws of Canada
applicable therein.
IN WITNESS WHEREOF the parties have executed this Agreement on the date first
set forth above.
SIGNED, SEALED AND DELIVERED )
in the presence of: )
)
)
/s/ [ILLEGIBLE] ) /s/CHARLES ZWEBNER
- ----------------------------------- ) -------------------------------
Witness ) CHARLES ZWEBNER
YAK COMMUNICATIONS (CANADA) INC.
Per: /s/CHARLES ZWEBNER
------------------------------
Charles Zwebner, Director
I have authority to bind the Corporation
YAK COMMUNICATIONS (USA), INC.
Per: /s/BERNARD GROPPER
------------------------------
Bernard Gropper, Director
Per: /s/ANTHONY HELLER
------------------------------
Anthony Heller, Director
We have authority to bind the Corporation
7
EXHIBIT 21
EXHIBIT 21 - SUBSIDIARIES OF THE REGISTRANT
Yak Communications (Canada), Inc.
EXHIBIT 23.1
Edward Isaacs & Company Letterhead
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation of our audit of the consolidated financial
statements and financial statement schedule of Yak Communications (USA), Inc.,
as of June 30, 1999, which report is included in this Registration Statement on
Form SB-2.
/S/EDWARD ISAACS & COMPANY, LLP
- -------------------------------
EDWARD ISAACS & COMPANY, LLP
New York, NY
September 27, 1999
EXHIBIT 24
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints
Charles Zwebner his attorney-in-fact, with the power of substitution, for him in
any and all capacities, to sign any amendments to this registration statement,
and to file the same with exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, hereby ratifying and
confirming all that said attorney-in-fact or his substitute or substitutes may
do or cause to be done by virtue hereof.
Dated: September 22, 1999 /S/BERNARD GROPPER
------------------
Bernard Gropper
Dated: September 22, 1999 /S/ANTHONY HELLER
------------------
Anthony Heller
Dated: September 22, 1999 VINCENT GENOVA
------------------
Vincent Genova
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
financial statements of YAK Communications (USA), Inc. and subsidiary included
in the Company's Form SB-2 for the period ended June 30, 1999, and is qualified
in its entirety reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-END> JUN-30-1999
<CASH> 42,279
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 96,037
<PP&E> 609,965
<DEPRECIATION> 0
<TOTAL-ASSETS> 809,822
<CURRENT-LIABILITIES> 183,733
<BONDS> 0
0
197,000
<COMMON> 192,000
<OTHER-SE> 201,582
<TOTAL-LIABILITY-AND-EQUITY> 809,822
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 137,135
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,189
<INCOME-PRETAX> (145,324)
<INCOME-TAX> 0
<INCOME-CONTINUING> (145,324)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (145,324)
<EPS-BASIC> (0.01)
<EPS-DILUTED> (0.01)
</TABLE>
