<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 10, 1999
REGISTRATION NO. 333-88065
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
AMENDMENT NO. 1 TO FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
---------------------
CALLNOW.COM, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<CAPTION>
DELAWARE 4813 87-0360333
<S> <C> <C>
(State or other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
50 BROAD STREET
NEW YORK, NEW YORK 10004-2307
(212) 686-2000
(Address, including zip code, and telephone number,
including area code, of Registrant's principal executive offices)
CHRISTIAN BARDENHEUER
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
50 BROAD STREET
NEW YORK, NEW YORK 10004-2307
(212) 686-2000
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
With copies to:
<TABLE>
<CAPTION>
<S> <C>
NEIL P. PARENT, ESQ. STEPHEN J. GULOTTA, JR., ESQ.
STAIRS DILLENBECK FINLEY & MERLE SQUADRON, ELLENOFF, PLESENT & SHEINFELD, LLP
330 MADISON AVENUE, SUITE 2900 551 FIFTH AVENUE
NEW YORK, NEW YORK 10017-1005 NEW YORK, NEW YORK 10176-0001
(212) 697-2700 (212) 661-6500
</TABLE>
---------------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [ ]
---------------------
CALCULATION OF REGISTRATION FEE
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TITLE OF EACH CLASS PROPOSED MAXIMUM PROPOSED MAXIMUM
OF SECURITIES TO BE AMOUNT TO OFFERING PRICE AGGREGATE AMOUNT OF
REGISTERED BE REGISTERED PER SHARE OFFERING PRICE (1) REGISTRATION FEE
---------- ------------- --------- ------------------ ----------------
<S> <C> <C> <C> <C>
Common Stock (2) .......................... 5,284,297 $ 8.00 $42,274,376 $ 12,470.94
Representatives' Warrants ................. 400,000 .0001 $ 40 (3)
Common Stock Underlying
The Representatives' Warrants (4) ......... 400,000 $ 9.60 $ 3,840,000 $ 1,132.80
Totals .................................... $46,114,416 $ 13,603.74(5)
</TABLE>
- --------------------------------------------------------------------------------
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457.
(2) Includes 624,734 shares of Common Stock subject to the Underwriters'
over-allotment option and 659,563 shares of Common Stock owned by existing
stockholders.
(3) No fee due pursuant to Rule 457(g).
(4) Pursuant to Rule 416, this Registration Statement also covers such
additional shares of Common Stock as may be issued as a result of the
anti-dilution provisions of the Representatives' Warrants.
(5) Previously paid.
---------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
THE INFORMATION IN THIS 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 PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED.
- --------------------------------------------------------------------------------
<PAGE>
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL
THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN
ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED.
---------------------------------
SUBJECT TO COMPLETION--NOVEMBER 10, 1999
PROSPECTUS
- --------------------------------------------------------------------------------
4,164,891 SHARES
[CALLNOW.COM, INC. LOGO]
COMMON STOCK
---------------------------------
o CallNOW.com is offering 4,000,000 shares and some of our existing
stockholders are offering 114,891 shares. We will not receive any
of the proceeds from the sale of the shares by these
stockholders.
o The selling stockholders are also registering an additional
494,672 shares which are subject to a 180 day lock-up agreement.
o We anticipate that the public offering price will be between
$6.00 and $8.00 per share.
o Our common stock has been traded in the National Quotation
Bureau, LLC's Pink Sheets. The last reported bid price for our
common stock in the Pink Sheets on November 5, 1999 was $2.125.
o Our trading symbol in the National Quotation Bureau, LLC's Pink
Sheets is CALN.
THIS INVESTMENT INVOLVES RISK. SEE "RISK FACTORS" BEGINNING ON PAGE 9.
<TABLE>
<CAPTION>
PER SHARE TOTAL
----------- ----------
<S> <C> <C>
Public offering price ........................ $ $
Underwriting discount & commissions .......... $ $
Proceeds, before expenses, to us ............. $ $
Proceeds to selling stockholders ............. $ $
</TABLE>
---------------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
---------------------------------
The underwriters may purchase up to 624,734 additional shares from us at the
public offering price, less underwriting discount and commissions, to cover
over-allotments.
KAUFMAN BROS., L.P. JOHN G. KINNARD AND COMPANY,
INCORPORATED
<PAGE>
[Picture of CallNOW.com home page.]
FORWARD-LOOKING STATEMENTS
This prospectus includes forward-looking statements based largely on our
current expectations and projections about future events and financial trends
affecting the financial condition of our business. The words "believe," "may,"
"will," "estimate," "continue," "anticipate," "intend," "expect" and similar
expressions identify these forward-looking statements. These forward-looking
statements are subject to a number of risks, uncertainties and assumptions,
including those described below under the caption "Risk Factors." In light of
these risks and uncertainties, the forward-looking events and circumstances
discussed in this prospectus may not occur and actual results could differ
materially from those anticipated in the forward-looking statements. We
undertake no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise,
except as required by law.
<PAGE>
PROSPECTUS SUMMARY
This summary sets forth the material highlights of the information
contained elsewhere in this prospectus. It does not contain all the information
that you should consider before investing in us, and you should read the entire
prospectus carefully.
OUR BUSINESS
We offer our customers a variety of telecommunications services
through our e-commerce Web site (www.callnow.com) and any touch tone telephone.
Our services are provided globally and currently consist of international long
distance, national long distance, and a free global online telephone directory,
which currently generates over 1.6 million page impressions (page views) and
over 400,000 user sessions (unique visitors) per month. Our customers currently
consist primarily of individuals and small businesses, 80% of whom are located
outside of the U.S.
Our Web site is a communications portal with a look and feel that is
tailored to local markets, currently with a choice of four languages in
approximately approximately 200 countries. Our Web site is driven by our
software that enables our customers in real time to:
o Survey global telephone rates;
o Sign up online for international and national long distance telephone
service;
o Have their credit cards automatically validated and pre-authorized;
o Activate their accounts;
o Review the details of each of their calls from the date of inception of
their account;
o Review current account information, including cumulative amounts,
through the last call made; and
o Review monthly invoices.
We offer international and national long distance telephone service
through call re-origination or "call-back" service, which we refer to on our
Web site as "ReturnCall." Our customer typically dials a unique U.S. telephone
number to our switch, allows the telephone to ring once, hangs up and then
receives a return call from our switch providing U.S. dial-tone. Alternatively,
a customer connected to the Internet can initiate a ReturnCall through our
switch to any telephone providing them with U.S. dial-tone. We refer to this
service on our Web site as "Internet Trigger." Generally, ReturnCall offers our
customers significant savings on international and national long distance
calls. Approximately 67 countries have stated that call re-origination services
are prohibited in their country. For a more detailed discussion and potential
impact on our business, see "Risk Factors--Risks Related to the
Telecommunications Business--If We Are Not Permitted By Local Laws To Offer
ReturnCall, Our Business Could Be Adversely Affected."
We launched our telecommunications services using the Internet in
September 1998. In September and October 1999, we billed an aggregate of
approximately 2,450 customers for using our service. For the fiscal year ended
December 31, 1998, we had revenues of $2.3 million and a loss of $0.6 million.
Through a contract with Equinox International LLC, a U.S.
telecommunications wholesale provider, we will offer an online calling card and
fax services over the Internet, commencing in February 2000. With the proceeds
of this offering, we plan to add direct dial service in Europe, Japan and
Australia and to continue to tailor our Web site to the approximately 200 local
markets we serve, including expanding the choice of languages available on our
Web site. In addition, we intend to add paging, a global online directory for
renting cellular phones, and other services designed to make our Web site a
single source solution for all of our customers' telecommunications needs.
3
<PAGE>
OUR MARKET OPPORTUNITY
We are benefiting from four converging trends:
o Explosive growth in access to and use of the Internet worldwide,
particularly outside the U.S.;
o Deregulation of the telecommunications industry in overseas markets;
o Growing consumer awareness in these markets of low-cost alternatives
to the high-cost of their national telephone company services; and
o Increasing transmission capacity of carriers globally.
We believe that the convergence of these trends has created a significant
opportunity for us to offer our one-stop shop for telecommunications services
in an e-commerce platform.
OUR STRATEGY
Our goal is to establish ourselves as a leading Web portal providing
access to international and national telecommunications services. Our strategy
is to drive traffic to our CallNOW.com Web site and to develop the CallNOW.com
brand through traditional marketing and advertising and through Internet
related promotion and advertising. We are developing a network of affiliates to
promote and drive traffic to our site. Our affiliates are compensated monthly
with a percentage of revenue derived from customers that have signed up for our
services from their sites. Our affiliate network currently includes:
o Major global search engines, which are accessed in many languages;
o Country and language specific search engines aimed at country
nationals and others who use non-English language sites;
o Web sites of telecommunications resellers who are looking for
interactive enhancements to their static sites; and
o Web-based e-commerce retailers and other Web sites, including those
that want to add an interactive service for telecommunications.
We have contracted with Be Free, Inc., a provider of services that enables its
customers to generate, place and manage hyperlink promotions for their products
and services, to manage the administration of our affiliate programs.
We are targeting those countries with substantial amounts of international
and national long distance traffic and that also account for the deepest
non-U.S. Internet penetration. For example, in June, we entered into contracts
with Lycos-Bertelsmann GmbH, a Pan European joint venture between Lycos Inc.
and Bertelsmann GmbH, and with Lycos Japan, a joint venture between Lycos Inc.,
Sumitomo Corporation and Internet Initiative Japan. In both Europe and Japan,
these Lycos joint ventures will periodically place banners, promotional
buttons, text links and other hyperlinks from their home pages to our Web site.
Additionally, they will place promotional items on their search results pages.
In return, we are obligated to make guaranteed minimum payments to these Lycos
joint ventures in the next 18 months. In addition, we are obligated to pay
these Lycos joint ventures a commission, based on recurring monthly revenue
derived from each customer they deliver to us, which is offset against the
guaranteed payments. These contracts are non-exclusive.
Telecommunications services are typically recurring monthly purchases.
Accordingly, we expect our subscribers and others to visit our Web site
frequently to review their call detail reports and monthly invoices and to use
our free global online telephone directory and the other telecommunications
services we will offer. This will provide us with the opportunity to cross sell
other products and services and sell targeted advertising that will reach our
subscribers while they navigate our Web site.
4
<PAGE>
We currently provide our customers international and national long
distance telecommunications services through our own switch. We have contracted
with Exodus Communications, Inc., a leader in complex Internet hosting and
services, to provide facilities, bandwidth, and managed services for our switch
and servers in their secure facility on a 24 hour, 7 day a week basis. We
expect to be operational at Exodus commencing in February 2000. This will allow
us to focus our resources on the execution of our strategy to become a leading
Internet portal for the telecommunications market.
Our principal executive offices are located at 50 Broad Street, New York,
New York 10004, and our telephone number is (212) 686-2000.
5
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Shares offered by us ................................. 4,000,000 Shares
Shares offered by selling stockholders ............... 164,891 Shares
Total shares outstanding after this offering ......... 10,314,666 Shares (1) (2)
Use of proceeds ...................................... For working capital, including advertising and
promotion, repayment of convertible
debentures, repayment of accrued liabilities
owed to senior management, retroactive
salary increases and upgrading our computer
hardware and software. We will not receive
any proceeds from the shares sold by the
selling stockholders. You should read "Use of
Proceeds" for an expanded discussion of our
intentions with respect to the proceeds of this
offering.
Proposed Nasdaq National Market System
Symbol (3) .......................................... CALN
</TABLE>
- ----------
(1) Based on shares outstanding as of the date of this prospectus. Excludes:
o 282,825 shares of common stock issuable upon exercise of options at
exercise prices ranging from $.01 to $2.75 per share, which options
include an anti-dilution provision which will result in the
additional issuance of options to purchase 200,000 shares of common
stock at the offering price;
o 2,200,000 shares of common stock reserved for future issuance under a
stock option plan which our Board of Directors has adopted, subject
to stockholder approval, of which options to purchase 969,400 shares
of common stock at exercise prices of $2.75 per share have been
granted (such granted options are subject to an increase in exercise
price if our compensation committee determines that such increase is
necessary based on third party determinations of fair market value);
o 400,000 shares of common stock issuable upon exercise of the
Representatives' Warrants at an assumed exercise price of $8.40 per
share; and
o a maximum of 181,232 shares of common stock issuable upon conversion
of $1,276,300 in principal amount of convertible debentures
outstanding as of the date of this prospectus at an effective
conversion price of $7.06
For a description of the convertible debentures, see "Description of
Securities--Convertible Debentures." For information regarding options
granted prior to this offering, see "Management--Employment and Consulting
Agreements," "Related Party Transactions" and "Notes to Consolidated
Financial Statements."
(2) Includes 494,672 shares which are being registered in connection with this
offering and are subject to a 180 day lock-up agreement.
(3) We filed an application for our shares to be included for quotation on the
Nasdaq National Market System under the symbol "CALN". However, we cannot
assure you that we will be successful in our efforts to list our shares on
the Nasdaq National Market System and may only trade on the OTC Bulletin
Board or in the National Quotation Bureau, LLC's Pink Sheets. For
6
<PAGE>
discussion of the effects of the failure to have our shares listed on the
Nasdaq National Market System, see "Risk Factors--Risks Related To This
Offering--The Absence Of An Active Trading Market For The Common Stock
Could Make It Difficult For Investors To Resell Their Shares At Or Above
The Public Offering Price" and "--Failure To Satisfy Listing Standards For
Nasdaq Could Subject Us To The "Penny Stock" Rules And Severely Limit The
Liquidity Of Our Common Stock."
-------------------------
Except as otherwise noted or unless the context otherwise requires:
o all information in this prospectus assumes no exercise of the
underwriters' over-allotment option; and
o all references to "we" or "us" refer to CallNOW.com, Inc. and its
wholly-owned subsidiary, AXICOM Communications Group, Inc.
7
<PAGE>
SUMMARY FINANCIAL DATA
The following tables present summary financial data derived from our
financial statements included elsewhere in this prospectus. The balance sheet
data for September 30, 1999, and the statement of operations data for the
nine-month periods ended September 30, 1999 and 1998, have not been audited by
independent auditors, but in the opinion of our management, all adjustments
(consisting of normal recurring accruals) necessary for a fair presentation
have been included. For additional information, you should refer to
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our financial statements and related notes thereto.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------------
1998 PRO
1995 1996 1997 1998 FORMA(1)
--------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
STATEMENT OF
OPERATIONS DATA:
Total revenues ......... $ 453,273 $1,674,955 $5,010,027 $2,295,202 $2,295,202
Loss from
operations ............ (253,087) (929,640) (858,771) (550,942) (714,942)
Interest expense ....... -- 1,154 58,568 90,436 90,436
Net loss ............... (253,087) (930,794) (917,339) (641,378) (805,378)
Net loss per share ..... (0.08) (0.24) (0.24) (0.17) (0.21)
Common shares .......... 3,055,525 3,875,000 3,875,000 3,875,000 3,875,000
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
---------------------------------------------
(UNAUDITED)
1999 PRO
1998 1999 FORMA(1)
------------- --------------- ---------------
<S> <C> <C> <C>
STATEMENT OF
OPERATIONS DATA:
Total revenues ......... $1,794,595 $ 738,353 $ 738,353
Loss from
operations ............ (369,378) (1,787,533) (1,917,533)
Interest expense ....... 59,500 453,609 453,609
Net loss ............... (428,878) (2,241,142) (2,371,142)
Net loss per share ..... (0.11) (0.47) (0.50)
Common shares .......... 3,875,000 4,768,160 4,768,160
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999
--------------------------------
(UNAUDITED)
ACTUAL PRO FORMA(1)(2)
------------- ----------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash ......................................... $ 846,680 $13,105,280
Current assets ............................... 909,001 13,167,601
Current liabilities .......................... 1,547,035 394,132
Working capital (deficit) .................... (638,034) 12,773,469
Other assets ................................. 1,791,508 11,900,259
Total assets ................................. 2,700,509 25,067,860
Long-term debt and other liabilities ......... 1,318,497 340,000
Stockholders' equity (deficit) ............... (165,023) 24,333,728
</TABLE>
- ----------
(1) Adjusted to reflect an increase in executive compensation. The increase
will be retroactive to January 1, 1999 assuming the successful completion
of this offering. The pro forma presentation reflects the increase in
executive compensation as if it had been in effect since the beginning of
the period presented.
(2) Adjusted for the sale of the common stock offered hereby and application
of the estimated net proceeds therefrom.
8
<PAGE>
RISK FACTORS
This offering involves a high degree of risk. You should carefully
consider the following risk factors, in addition to the other information in
this prospectus, before purchasing shares of our common stock. Each of these
risk factors could adversely affect our business, operating results and
financial condition and the price of our common stock.
RISKS RELATED TO ESTABLISHMENT OF OUR BUSINESS
OUR REVENUES HAVE FALLEN, WE HAVE NEVER BEEN PROFITABLE AND WE EXPECT OUR
LOSSES TO CONTINUE FOR THE FORESEEABLE FUTURE
In the process of implementing our Internet strategy in September 1998, we
substantially abandoned our wholesale business which generated approximately
$2.5 million in revenue in the preceding fiscal year. As a result, our revenues
have fallen from approximately $5.0 million in 1997 to approximately $2.3
million in 1998, and from approximately $1.8 million in the first nine months
of 1998 to approximately $0.7 million in the first nine months of 1999. While
we believe that the Internet strategy we have implemented and plan to finance
with the proceeds of this offering will result in a growth in revenues, we have
not yet experienced any significant increase.
We have recorded a substantial net loss for each fiscal period since our
inception and expect to continue to incur substantial net losses for the
foreseeable future. We incurred net losses of approximately $0.6 million in
1998 and approximately $0.9 million in 1997, approximately $2.2 million in the
first nine months of 1999 and approximately $0.4 million in the first nine
months of 1998. Furthermore, if the implementation of our Internet strategy is
successful and we achieve the growth we anticipate in our business, we expect
our cost of sales and operating expenses to increase significantly, especially
in the areas of sales, marketing and brand promotion. We will, therefore, need
to generate significant revenues to achieve profitability. For additional
information on our revenues and losses, see "Selected Financial Data" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
WE HAVE INCURRED OPERATING LOSSES AND ARE OPERATING WITH A WORKING CAPITAL
DEFICIENCY AND THERE IS SUBSTANTIAL DOUBT ABOUT OUR ABILITY TO CONTINUE AS A
GOING CONCERN
We have incurred substantial losses to date and we are operating with a
working capital deficiency. Our independent accountants' report on our
financial statements for the years ended December 31, 1998 and 1997 contains an
explanatory paragraph indicating that there is substantial doubt about our
ability to continue as a going concern. We anticipate that operating losses
will continue for the foreseeable future. With the proceeds of this offering,
we believe that we will be able to meet our obligations for at least the next
12 months. However, after such time, we cannot assure you that we will be able
to continue as a going concern. If we are not able to continue as a going
concern, you may lose all, or a significant portion of, your investment in us.
For a further discussion of our financial condition, see "Management's
Discussion and Analysis of Results of Operations and Financial Condition" and
"Notes to Consolidated Financial Statements."
WE CANNOT PREDICT OUR FUTURE CAPITAL NEEDS AND WE MAY NOT BE ABLE TO SECURE
ADDITIONAL FINANCING
We must continue to enhance and expand our services and our Internet
infrastructure in order to respond to competitive pressures and to meet our
customers' increasing demands for service quality, availability and competitive
pricing. We believe that, based upon our present business plan, our existing
cash resources, the cash resources provided by the proceeds of this offering,
and the expected cash flow from operating activities will be sufficient to meet
our currently anticipated working capital and capital expenditure requirements
for at least the next 12 months. If our growth exceeds current expectations or
we expedite or expand our growth plan, or if our cash flow from operations is
insufficient to meet our working capital and capital expenditure requirements,
we will need to raise additional capital from equity or debt sources. We cannot
assure you that we will be able to raise such capital on favorable terms or at
all. If we are able to obtain such capital, as and when necessary, the
9
<PAGE>
terms of such financing may contain restrictive covenants that might affect our
common stock, such as limitations or prohibitions on payment of dividends or, in
the case of a debt financing, reduced earnings due to interest expenses. Any
further issuance of equity securities would likely have a dilutive effect on the
holders of our common stock.
WE MAY NOT BE ABLE TO SUSTAIN OR SUCCESSFULLY MANAGE OUR GROWTH, AND THERE ARE
CONTINUED RISKS ASSOCIATED WITH OUR ABILITY TO MANAGE OUR GROWTH
Our expansion into new businesses has placed, and may continue to place, a
strain on our management, administrative, operational, financial and technical
resources and increased demands on our systems and controls. A failure to
effectively provide customer and technical support services will adversely
affect our ability to maintain our existing customer base and attract new
customers. Expected increases in our telecommunications customer base and
Internet subscriber base will produce increased demands on our sales, marketing
and administrative resources, our engineering and technical resources, and our
customer and technical support resources, as well as on our switching and
routing capabilities and network infrastructure. As of November 8, 1999, we had
19 employees. We will need to hire additional sales and marketing, technical,
administrative and management personnel. In addition, we will need to hire or
retrain managerial and support personnel for the new services we intend to
offer. Although we have hired additional personnel and upgraded certain of our
systems, we cannot assure you that our administrative, operating and financial
control systems, infrastructure, personnel and facilities will be adequate to
support our future operations or maintain and effectively adapt to future
growth.
BECAUSE WE HAVE A LIMITED OPERATING HISTORY, EVALUATING OUR BUSINESS AND
DECISIONS RELATING TO US ARE DIFFICULT
We have a very limited operating history in offering our services through
the Internet upon which an investor may evaluate us with respect to our current
business and our prospects. Our business model is evolving and an investor must
consider the substantial and sometimes unforeseeable expenses frequently
encountered by early stage companies, companies that are in the midst of
significant business changes and companies that are in new and rapidly evolving
markets, such as the retail marketing of telephone services and online commerce.
Similarly, our management has only a limited operating history in this rapidly
evolving industry on which to base important business decisions. This lack of
information will make these management decisions very difficult and the outcome
of the decisions uncertain. For a discussion of our operating history, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business--Our History."
WE MAY NOT BE ABLE TO GROW OUR CUSTOMER BASE AND GENERATE SALES IF WE ARE
UNABLE TO POSITION THE CALLNOW.COM BRAND
We believe that we must position the CallNOW.com name as a leading brand
and maintain our reputation as a provider of low-cost telephone services to
under-served markets. Promoting and positioning the brand will depend largely
on the success of our marketing efforts and our ability to provide access to
high quality products and customer service. We cannot assure you that we will
be successful in this regard. Building the CallNOW.com brand will require
substantial marketing expenditures. Our sales and marketing expenses were
approximately $0.4 million in both 1998 and in the first nine months of 1999.
We cannot assure you that our brand promotion activities will result in
increased revenues or that any such revenues will offset our marketing
expenditures. For a further discussion on our historical marketing
expenditures, see "Management's Discussion and Analysis of Financial Condition
and Results of Operations." For a discussion on our future brand promotion
activities, see "Business--Business Strategy" and "--Sales and Marketing."
10
<PAGE>
WE MAY NOT BE ABLE TO GROW OUR CUSTOMER BASE AND GENERATE SALES IF WE ARE
UNABLE TO BROADEN OUR SERVICES
Through the date of this prospectus, our consumer service offerings have
consisted almost solely of ReturnCall services. With the proceeds of this
offering, we plan to offer a limited number of other services to individual
consumers and small businesses. For a further discussion of future services we
intend to offer, see "Business--Future and Planned Services." In order to grow
our customer base and generate sales, we must broaden our offerings to include
other telephone services and related services. We cannot assure you that we
will be able to do so. We provide actual telephone service through our own
switch using our proprietary software. In the future, we may also provide
services by others under the CallNOW.com brand or through our affiliate
network. Accordingly, we will need to establish relationships with increasing
numbers of third parties to provide our customers access to those services
through our Web site. Our experience in providing ReturnCall services may not
be effective in purchasing and marketing other telephone services. We cannot
assure you that we will be able to establish the third-party relationships
necessary to broaden our service offerings as we plan. Moreover, the commercial
availability of some of the services that we hope to offer is dependent on
technological advances. We cannot assure you when or even that such advances
will occur, that we will be able to develop profitably a sufficient selection
of telephone services or other services or that any of our services will
achieve market acceptance.
THE E-COMMERCE INDUSTRY IS RAPIDLY CHANGING AND WE MUST ADAPT TO NEW
TECHNOLOGIES TO REMAIN COMPETITIVE
The e-commerce industry is characterized by:
o rapid technological changes;
o frequent emergence of new industry standards and practices; and
o continual changes in user and customer requirements and preferences.
Failure to adapt to the evolving technologies, industry standards and user
requirements and preferences on an ongoing basis could have a material adverse
effect on our ability to attract customers to, and make sales through, our Web
site. We cannot assure you that we will be successful in this regard.
OUR FAILURE TO DEVELOP AND MAINTAIN RELATIONSHIPS WITH MASTER AFFILIATES AND
OTHER STRATEGIC WEB SITES COULD ADVERSELY AFFECT OUR ABILITY TO ATTRACT
CUSTOMERS
We believe that in order to attract significant traffic and thereby grow
our customer base we will need to establish and maintain relationships with
master affiliates, Internet portals (which are Web sites that offer a broad
array of resources and services on the Internet to attract traffic to their
sites, such as e-mail, discussion forums, search engines and online shopping
malls) and other high-traffic Web sites that will carry links to our Web site.
We will also need to establish and maintain relationships with content providers
that will provide their Web sites with content that appeals to consumers who
also have an interest in our services. Competition exists for these types of
relationships and we likely will have to pay significant fees to establish and
maintain these relationships. We cannot assure you that we will be able to enter
into or maintain appropriate relationships on terms favorable to us, or that,
even if we do, we will attract significant traffic to grow our customer base or
generate sales.
FAILURE TO IMPLEMENT ONGOING IMPROVEMENTS TO OUR WEB SITE WILL IMPAIR OUR
ABILITY TO ATTRACT CONSUMERS WHICH WILL ADVERSELY AFFECT OUR BUSINESS
Our ability to attract consumers and sell them our services over the
Internet will depend on our ability to design and maintain a state-of-the-art
Web site. We cannot assure you that our Web site will be successful in
attracting customers. Our Web site could contain errors that are discovered in
the future. We may be required to modify our Web site to correct these errors.
We cannot assure you that we will be able to do so or that we will be able to
implement the ongoing improvements that we believe are required for the
continued success of a Web site. Moreover, we cannot estimate the related costs
with any certainty.
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RISKS RELATED TO THE TELECOMMUNICATIONS BUSINESS
CHANGES IN THE INTERNATIONAL TELECOMMUNICATIONS INDUSTRY COULD ADVERSELY AFFECT
OUR BUSINESS
We have generated, and plan to continue to generate, a substantial
majority of our revenues by providing international telecommunications services
to our customers on an individual consumer basis. The international nature of
our operations will involve risks, such as changes in U.S. and foreign
government regulations and telecommunications standards, dependence on foreign
firms, tariffs, taxes and other trade barriers, the potential for
nationalization and economic downturns and political instability in foreign
countries. In addition, our business could be adversely affected by a reversal
in the current trend toward deregulation of telecommunications carriers. We
will be increasingly subject to these risks to the extent that we proceed with
the planned expansion of our international operations.
THE INTERNATIONAL MARKETS IN WHICH WE OPERATE ARE UNCERTAIN AND COULD ADVERSELY
AFFECT OUR BUSINESS
Many of the overseas markets in which we currently market
telecommunications services are undergoing dramatic changes as a result of
privatization and deregulation. For example, the European Union has mandated
competitive markets for the European telecommunications industry and the
various European countries are at different stages of opening their
telecommunications markets. As a result of privatization and deregulation, a
new competitive environment is emerging in which major European telephone
companies, media companies and utilities are entering the telecommunications
market and forming new alliances which are radically changing the landscape for
domestic and international telephone services. Open markets for
telecommunications services are expected to evolve in other parts of the world
as well. While we are focused on exploiting the imbalances that may be brought
about by the often fragmented nature of deregulation, we are entering new and
often unknown markets and, therefore, are unable to predict how such
deregulating markets will evolve. We cannot assure you that changes in the
marketplace and new strategic alliances among companies with greater resources
and experience than ours will not adversely affect our ability to continue to
offer and sell ReturnCall services and other services we intend to offer or our
efforts to increase our overseas telecommunications customer base.
A DETERIORATION IN OUR RELATIONSHIPS WITH CARRIERS AND OTHER THIRD PARTY
TELECOMMUNICATIONS COMPANIES COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR
BUSINESS
We depend on other carriers and third party telecommunications companies,
including foreign government-owned telephone authorities, for many of our key
functions and services, including local switching of long distance telephone
traffic and national and international network connectivity of telephone
traffic to and from our switch.
We do not have our own network, but resell lines on other carriers'
networks. We generally do not have long-term contracts with carriers and
pricing and access to their lines and networks can change suddenly and
frequently. We may be unable to extend or replace our existing contracts with
our carriers on terms comparable to our existing agreements. These carriers are
not restricted from competing against us. We are currently dependent primarily
upon Facilicom International LLC, which is our primary provider of leased
network capacity and data communications facilities. Under our contracts, our
suppliers provide telephone capacity, usually denominated in numbers of minutes
priced on an initial 30 seconds and then subsequent intervals of 6 seconds. The
reseller or the carrier may not be able to, or for competitive reasons may
refuse to, provide a sufficient amount of minutes of capacity. In such an
event, we may be required to route the traffic to another carrier providing
service at a less advantageous rate or with lesser quality and our profit
margins or network service quality may be reduced. A reduction of our service
quality could result in a loss of customers.
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We route approximately 10% of our international telephone calls using the
networks of third parties that operate or that may plan to operate in countries
in which local laws or regulations limit their ability to provide basic
international service in competition with state-owned or state-sanctioned
monopoly carriers. We have no control over the manner in which these companies
operate in these countries. Future regulatory, judicial, legislative or
political considerations may not permit these companies to offer their services
to residents of these countries. In addition, foreign telecommunications
regulators or third parties may raise issues regarding the compliance of these
companies with local laws or regulations. These regulatory, judicial,
legislative or political decisions could limit the ability of these companies
to route calls to or from our network. If these companies become unable to
provide the services which they presently provide to us or may provide in the
future due to their inability to obtain or retain the required governmental
approvals or for any other reason related to regulatory compliance, we may need
to obtain similar services from other carriers for higher prices or we may not
be able to provide our services at all.
IF WE ARE NOT PERMITTED BY LOCAL LAWS TO OFFER RETURNCALL, OUR BUSINESS COULD
BE ADVERSELY AFFECTED
We are authorized by the Federal Communications Commission to offer a
ReturnCall service throughout the world, subject to certain conditions. In some
countries the use of ReturnCall is restricted or prohibited. In the U.S., the
FCC has determined that ReturnCall service using uncompleted call signaling
does not violate U.S. or international law, but has held that U.S. companies
providing such services must comply with the laws of the countries in which
they operate as a condition of such companies' Section 214 Switched Voice
Authorization. By using uncompleted call signaling the customer dials a number
to connect to our switch in the U.S., waits a predetermined number of rings,
and hangs up without the switch answering. Our switch then returns the call
and, upon completion, gives the customer a U.S. dial tone.
The FCC reserves the right to condition, modify or revoke any Section 214
Authorizations and impose fines for violations of the Communications Act or the
FCC's regulations, rules or policies promulgated thereunder, or for violations
of the clear and explicit telecommunications laws of other countries that are
unable to enforce their laws against U.S. carriers. FCC policy provides that
foreign governments that satisfy certain conditions may request FCC assistance
in enforcing their laws against U.S. carriers. To date, 67 countries have
stated that call re-origination services are prohibited in their country
(Algeria, Bahamas, Bahrain, Belarus, Bolivia, Brunei Darussalam, Burkina Faso,
Burundi, Cambodia, China, Colombia, Cook Islands, Costa Rica, Croatia, Cyprus,
Djibouti, Ecuador, Egypt, Eritrea, Fiji, Gambia, Ghana, Greece, Honduras,
Hungary, India, Indonesia, Kazakhstan, Kenya, Republic of Korea, Kuwait,
Kyrgyzstan, Latvia, Lebanon, Malaysia, Mali, Morocco, Netherland Antilles,
Nicaragua, Niger, Oman, Pakistan, Panama, Papua New Guinea, Peru, Philippines,
Poland, Portugal, Qatar, Saudi Arabia, Seychelles, South Africa, South Korea,
Spain, Syria, Tanzania, Thailand, Turkey, Uganda, United Arab Emirates,
Uruguay, Venezuela, Vietnam, Western Samoa, Yemen, Zambia and Zimbabwe), 35 of
which have formally submitted information to the FCC stating that certain
ReturnCall services violate their laws. Except for the Philippines and Saudi
Arabia, the FCC has stated that it has not determined whether these submissions
by foreign governments to the FCC are sufficient evidence of illegality for
purposes of the FCC taking enforcement action against U.S. carriers. To date,
the FCC has only ordered carriers to cease providing ReturnCall services to the
Philippines and Saudi Arabia.
Future FCC enforcement action could include an order to cease providing
call re-origination services to any country ultimately found to have provided
sufficient information to the FCC, the imposition of one or more restrictions
on us, monetary fines or, ultimately, the revocation of our Section 214
Switched Voice Authorization. The telecommunications industry in general and
our business in particular, depends on the regulation of telecommunications
services by the FCC and foreign regulators. We cannot give any assurances that
our ReturnCall services, as presently configured, will continue to be regulated
throughout the world in the same manner as they are today. The actions of
various foreign regulators and the FCC, with respect to call re-origination
services, could materially adversely effect our business, financial condition
and results of operations.
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WE MAY NOT BE ABLE TO OBTAIN TELECOMMUNICATIONS AUTHORIZATIONS ABROAD WHICH
COULD ADVERSELY AFFECT OUR BUSINESS
As we expand our service offerings in foreign markets, we or the carriers
we use may need to obtain telecommunications authorizations abroad, including
regulatory authority in Australia or a Special Type II Telecommunications
License in Japan. Our failure (or the failure of our carriers) to obtain
telecommunications authority in these and other jurisdictions could materially
adversely affect our business, financial condition, operating results and
future prospects.
FAILURE TO QUALIFY TO DO BUSINESS IN FOREIGN COUNTRIES OR TO COMPLY WITH
FOREIGN LAWS COULD ADVERSELY AFFECT OUR BUSINESS
As we expand into additional foreign countries, such countries may assert
that we are required to qualify to do business in the particular foreign
country, that we are otherwise subject to regulation, or that we are prohibited
from conducting our business in that country. Our failure to qualify as a
foreign corporation in a jurisdiction in which we are required to do so or to
comply with foreign laws and regulations could materially adversely affect our
business, financial condition, operating results and future prospects,
including by subjecting us to taxes and penalties or may affect our ability to
enforce contracts in such jurisdictions.
WE DEPEND ON OUR INDEPENDENT AFFILIATES AND THE FAILURE OF OUR AFFILIATES TO
EFFECTIVELY MARKET OUR SERVICES COULD ADVERSELY AFFECT OUR BUSINESS
We are dependent upon our network of independent affiliates, particularly
for the sales of our international long distance telecommunications services in
key foreign markets. The risks inherent in our dependence upon our affiliates
include:
o our inability to require each affiliate to devote sufficient efforts
to selling our services because each affiliate is an independent
contractor as opposed to an employee; o we may not be able to attract
affiliates that can effectively market our services;
o our arrangements with the affiliates are non-exclusive and they may
also offer the services of our competitors; and
o we are not able to monitor affiliates' compliance with regulatory or
other legal requirements in their respective countries.
The failure of our affiliates to effectively market our services could
materially adversely affect our business, financial condition or results of
operations.
THE DEVELOPMENT OF INTERNET TELEPHONY MAY ADVERSELY AFFECT OUR BUSINESS
Many companies are now offering Internet telephony, a service that allows
for phone-to-phone, computer-to-computer, and computer-to-phone calling over the
Internet, enabling users to benefit from substantially reduced long distance
rates. Internet telephony could prove to be a viable alternative to, and to be
extremely competitive with, our services. If the Internet telephony market
develops or develops more rapidly than we expect, then our future revenues may
decrease unless we are able to offer such services from third parties. We cannot
assure you that we will be able to do so.
RAPID TECHNOLOGICAL CHANGE AND FREQUENT NEW PRODUCT INTRODUCTIONS IN OUR
MARKETS COULD RENDER OUR SERVICES OBSOLETE
The markets for our services experience rapid technological change,
frequent new product introductions and evolving industry standards. In addition
to competing services developing through technological change, such as Internet
telephony, operation of our Web site and our Internet sales platform can be
affected by rapid technological change. For example, during the past several
years, operators of Web sites have been forced to use more sophisticated
equipment with greater bandwidth and reliability. Rapid technological change and
new product introduction could render one or more of our products or services
obsolete or place us at a competitive disadvantage. Accordingly, we believe that
our success depends upon our ability to anticipate changes in consumer
preferences, develop and
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market services that use new technologies and enhance and expand our existing
services to keep pace with competing services. We might not be able to do so.
Fundamental changes in the technologies for telecommunications, Internet
access and content, and Internet telephony services expose us to substantial
risks. If there are advancements in the delivery of telephony services, we will
need to develop new technology, modify our existing technology to accommodate
these developments, or acquire the service capability from others. Our pursuit
of these advances may require substantial time and expense. We cannot provide
any assurance that we will succeed in adapting our businesses to alternate
access devices or other technological developments.
THE MARKETS IN WHICH WE OPERATE ARE HIGHLY COMPETITIVE AND WE MAY BE UNABLE TO
COMPETE SUCCESSFULLY AGAINST NEW ENTRANTS AND ESTABLISHED COMPANIES WITH
GREATER RESOURCES
The markets in which we operate are extremely competitive and can be
significantly influenced by the marketing and pricing decisions of the larger
industry participants. There are no substantial barriers to entry in either the
Internet, e-commerce or any of the telecommunications markets in which we
compete. We expect competition in these markets to intensify in the future.
Competition for customers in the telecommunication markets in which we
compete is primarily on the basis of price and, to a lesser extent, on the
basis of the type and quality of service offered. Increased competition could
force us to reduce our prices and profit margins.
Telephone authorities, newly-privatized former government-owned telephone
authorities and other home country competitors are positioned to pressure us
directly in their home countries by influencing regulatory authorities to
outlaw the provision of ReturnCall services or by blocking access to our
ReturnCall services or other services we intend to offer. We cannot assure you
that such behavior will not cause a material adverse effect on our business,
financial condition or results of operations. With the increasing privatization
and deregulation of international telecommunications in foreign countries,
telephone authorities may increasingly become free to compete more effectively
with us at competitive rates. Deregulation in foreign countries also could
result in competition from other service providers with large, established
customer bases and close ties to governmental authorities in their home
countries, and in decreased prices for direct-dial international calls such
that customers are no longer willing to use our international ReturnCall
services. The ability of a deregulated telephone authority or other home
country service provider to compete on the basis of greater size and resources,
pricing flexibility and long-standing relationships with customers in its own
country could have a material adverse effect on our business, financial
condition or results of operations.
In addition, the FCC recently adopted rules granting greater flexibility
for U.S. carriers when they negotiate agreements with foreign telephone
authorities for terminating international calls. Agreements negotiated under
the new rules may reduce the costs and price of international direct-dial
services and reduce or eliminate the disparity between inbound and outbound
rates upon which the profitability of ReturnCall services depends.
OUR CURRENT FAVORABLE RATES AND TARIFFS ARE DEPENDENT ON OUR ABILITY TO
MAINTAIN SUFFICIENT DOMESTIC AND INTERNATIONAL TRAFFIC
Our current favorable rates and tarriffs from our service providers are
dependent on our ability to maintain sufficient domestic and international
traffic. In the event that we are unable to maintain the volume of domestic and
international long-distance traffic necessary to obtain favorable rates and
tariffs, we could face significant pricing pressure and be forced to increase
our rates or discontinue service in some of our markets.
FLUCTUATIONS OF CURRENCY EXCHANGE RATES COULD DIMINISH OR ELIMINATE OUR PRICING
ADVANTAGE OVER OTHER SERVICE PROVIDERS
Significant pricing pressure would result if currency exchange rates
fluctuate such that local services, denominated in local currency, are less
expensive compared to our services which are
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denominated in U.S. dollars. We are aware that our ability to market our
long-distance resale services depends upon the existence of spreads between the
rates offered by us and those offered by the international carriers with whom we
compete as well as those from whom we obtain service. A decrease in such spreads
or price competition in our markets could have a material adverse effect on our
business, financial condition or results of operations.
RISKS RELATED TO THE INTERNET AND E-COMMERCE ASPECTS OF OUR
BUSINESS
OUR GROWTH IS DEPENDENT UPON THE CONTINUED ACCEPTANCE AND GROWTH OF E-COMMERCE
AND IF SUCH GROWTH DOES NOT CONTINUE, OUR BUSINESS COULD BE ADVERSELY AFFECTED
Our ability to generate sales of our services through our Web site depends
on continued growth in the use of the Internet and in the acceptance and volume
of e-commerce transactions. We cannot assure you that the number of Internet
users will continue to grow or that e-commerce will become more widespread or
that our sales will grow at a comparable rate. If the development of the
Internet as a commercial medium does not continue on its current course, or if
alternate systems supplant all or part of the currently anticipated
functionality of the Internet and we are not able to react in a cost-effective
and timely manner, then such changes could have a material adverse effect on
our business, financial condition or results of operations. Although we intend
to support emerging standards in the market for e-commerce, we cannot assure
you that industry standards will emerge or if they become established, that we
will be able to conform to these new standards in a timely fashion and maintain
a competitive position in the market. As is typical in the case of a new and
rapidly evolving industry, demand and market acceptance for recently introduced
services are subject to a high level of uncertainty. The Internet may not prove
to be a viable commercial marketplace for a number of reasons, including:
o lack of acceptable security technologies; o lack of access and ease
of use;
o congestion of traffic;
o inconsistent quality of service and lack of availability of
cost-effective, high-speed service;
o potentially inadequate development of the necessary infrastructure;
o governmental regulation; and
o uncertainty regarding intellectual property ownership.
The markets for Internet connectivity, telephony and content services and
related software products are relatively new and current and future competitors
are likely to introduce competing Internet connectivity and/or online services
and products. Therefore, it is difficult to predict either the rates at which
the markets will grow (if at all) or at which new or increased competition will
result in market saturation, or the direction of development of the Internet
and online services. If demand for Internet services and e-commerce fails to
grow, grows more slowly than anticipated, or becomes saturated with
competitors, our business, financial condition or results of operations could
be materially adversely affected.
WE MAY LOSE CUSTOMERS AND REVENUE OPPORTUNITIES IF WE ARE NOT ABLE TO MAINTAIN
AN EFFECTIVE WEB ADDRESS
We currently hold the domain name "CallNOW.com" as well as other related
names. We may not be able to prevent third parties from acquiring Web addresses
that are similar to ours. If that should occur, we could lose customers and
revenue opportunities to those third parties.
Domain names generally are regulated by Internet regulatory bodies and
their designees. The regulation of domain names in the U.S. and in foreign
countries is subject to change. As a result, we may not acquire or maintain the
"CallNOW.com" domain name in all of the countries in which we may conduct
business in the future. Furthermore, the relationship between regulations
governing such addresses and laws protecting trademarks is not clear. The loss
of our domain name could have a material adverse effect on our business.
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FAILURE OR INADEQUATE PERFORMANCE OF OUR TECHNOLOGY SYSTEMS MAY INTERRUPT OUR
OPERATIONS AND RESULT IN THE LOSS OF CUSTOMERS AND REVENUE OPPORTUNITIES
Our ability to grow our customer base and generate sales of our services
over the Internet will depend on the efficient and uninterrupted operation of
our Web-related technology systems that are required to accommodate a high
volume of traffic. We cannot assure you that our Web site infrastructure will
be able to accommodate the volume of traffic that could develop or that upgrade
requirements will not have an adverse impact on our business. Although we
intend to implement security measures, our systems will be vulnerable to
physical damage or interruption from human error, natural disasters,
telecommunication failures, break-ins, sabotage, attempts by unauthorized
computer users, commonly referred to as "hackers", computer viruses,
intentional acts of vandalism and similar events. We have redundant systems but
have not yet adopted a formal disaster recovery plan. Therefore, any system
failure, including network, software or hardware failure, that causes an
interruption in our service or a decrease in responsiveness of our Web site
could cause us to lose customers and revenue opportunities and could harm our
reputation and brand.
SECURITY CONCERNS COULD HINDER E-COMMERCE AND MAY REQUIRE SIGNIFICANT
EXPENDITURES WHICH COULD ADVERSELY AFFECT OUR BUSINESS
Security and authentication concerns with respect to transmission over the
Internet of confidential information, such as credit card numbers, and attempts
by hackers to penetrate online security systems are significant barriers to
e-commerce over the Internet. We cannot assure you that consumers will not
limit their use of the Internet to purchase services or products because of
security concerns. We rely on encryption and authentication technology licensed
from third parties to provide the security and authentication necessary to
effect secure transmission of confidential information, such as customer credit
card numbers. We cannot assure you that advances in computer capabilities, new
discoveries in the field of cryptography or other events or developments will
not result in a compromise or breach of the security measures that we use to
protect customer transaction data. In addition, we may be required to make
significant expenditures to protect against the threat of security breaches or
to alleviate problems caused by such breaches.
WE ARE DEPENDENT ON INTERNET SERVICE PROVIDERS TO PROVIDE OUR CUSTOMERS WITH
ACCESS TO OUR WEB SITE
We depend on Internet service providers to provide our customers with
dial-up service and Internet access to our Web site. Many of these Internet
service providers operate outside the U.S. over older telephone lines and
switches. If a significant number of the networks operated by these companies
suffer capacity or operational problems or failure, fail to serve new accounts,
or are unable to expand to satisfy our customer demand, customers will be
unable to access our Web site and our business could be materially adversely
affected.
INFORMATION DISPLAYED ON OUR WEB SITE MAY SUBJECT US TO LITIGATION AND THE
RELATED COSTS
We may be subject to claims for defamation, libel, copyright or trademark
infringement or for other causes of action relating to information published on
our Web site. We could also be subject to claims based upon the content that is
accessible from our Web site through links to other Web sites. We do not have
insurance to protect against such claims. Defending against any such claims
could be costly and divert the attention of management from the operation of our
business.
LEGAL UNCERTAINTIES COULD ADD ADDITIONAL COSTS TO E-COMMERCE AND MAY DECREASE
USE OF THE INTERNET
Our operations are not currently subject to direct regulation by any
governmental agency in the U.S. other than the FCC, beyond the regulations
applicable to businesses generally.
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A number of legislative and regulatory proposals under consideration by
federal, state, local and foreign governmental agencies may lead to laws or
regulations concerning various aspects of the Internet, including:
o on-line content;
o user privacy;
o taxation;
o access charges; and
o jurisdiction.
The adoption of new laws, or the unfavorable application of existing laws, may
decrease the use of the Internet, which would decrease the demand for our
services, increase our cost of doing business or otherwise have an adverse
effect on our business and growth strategy. In addition, the applicability to
the Internet of existing laws is uncertain, including the following:
Online Content and User Privacy. Although there are very few laws and
regulations directly applicable to the protection of consumers in an online
environment, it is possible that legislation will be enacted in this area and
could cover such topics as permissible online content and user privacy,
including the collection, use, retention and transmission of personal
information provided by an online user. Furthermore, the growth and demand for
e-commerce could result in more stringent consumer protection laws that impose
additional compliance burdens on Internet companies. Such consumer protection
laws could result in substantial compliance costs and interfere with the
conduct and growth of our business.
Taxation. The tax treatment of the Internet and e-commerce is currently
unsettled. A number of proposals have been made that could impose taxes on the
sale of goods and services and certain other Internet activities. Recently, the
Internet Tax Information Act was signed into law placing a three-year
moratorium on new state and local taxes on e-commerce. This moratorium is
expected to end on October 21, 2001. We cannot assure you that future laws
imposing taxes or other regulations would not substantially impair the growth
of our business and our financial condition.
Access Charges. The FCC recently characterized dial-up Internet traffic
bound for Internet service providers as jurisdictionally mixed but largely
interstate in nature. However, the FCC has made it clear that its position does
not affect its long-standing rule that Internet and other information services
are exempt from interstate access charges, that it does not change the manner in
which consumers obtain and pay for access to the Internet nor does it transform
the nature of traffic routed through Internet service providers. Certain local
telephone carriers claim that the increasing popularity of the Internet has
burdened the existing telecommunications infrastructure and that many areas with
high Internet use are experiencing interruptions in telephone service. These
carriers have petitioned the FCC to impose access fees on Internet service
providers, but not consumers. If these access fees are imposed on the Internet
service providers, the cost of communicating on the Internet could increase,
which could decrease demand for our services and increase our cost of doing
business.
Jurisdiction. Because our e-commerce services will be available over the
Internet in multiple states, and, as a result, we expect to sell to numerous
consumers resident in such states, such jurisdictions may claim in the future
that we are required to qualify to do business as a foreign corporation or
obtain other qualifications there. Our failure in the future to qualify as a
foreign corporation in a jurisdiction where we are required to do so could
subject us to taxes and penalties for the failure to so qualify and limit our
ability to conduct litigation there.
OTHER RISKS RELATED TO OUR BUSINESS GENERALLY
THE LOSS OF OUR SENIOR MANAGEMENT WOULD ADVERSELY AFFECT OUR BUSINESS
Our success is dependent to a significant extent on the efforts of members
of senior management, including Christian Bardenheuer, our Chairman and Chief
Executive Officer, Warner Johnson, Jr., our President, and Christopher R.
Seelbach, our Chief Operating Officer and
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Acting Chief Financial Officer. Our ability to retain well-qualified senior
management and other key personnel is crucial to our operations. The loss of
any member of our senior management could have a material adverse effect upon
us. We maintain key-man life insurance on Messrs. Bardenheuer and Johnson in
the amount of $250,000 each. We currently do not have employment agreements
with Messrs. Bardenheuer and Johnson. Our relationships with Messrs.
Bardenheuer and Johnson can be terminated at any time. For a description of the
terms of Christopher R. Seelbach's consulting agreement, see
"Management--Employment and Consulting Arrangements."
IF ANY OF OUR CUSTOMERS ACCOUNTS FOR A HIGH PERCENTAGE OF OUR REVENUE, THE LOSS
OF THAT CUSTOMER COULD HARM OUR BUSINESS
For the nine-month period ended September 30, 1999, no customer accounted
for more than approximately 15% of our revenue. Historically, New Media
Corporation and Phone Systems Network S.A. accounted for aproximately 25% and
approximately 17%, respectively, of our revenue in 1998 and approximately 49%
and approximately 12%, respectively, of our revenue in 1997. All of this
revenue was derived from wholesale services. As we focus on our new Internet
strategy, we expect to do significantly less business with Phone Systems. We
have done no business with New Media Corporation and since April 1999. However,
if the concentration of business of any one customer reoccurs, the loss of that
customer could adversely affect our business.
FAILURE TO PROTECT OUR INTELLECTUAL PROPERTY COULD ADVERSELY AFFECT OUR BRAND
AND OUR BUSINESS
We intend to rely on a combination of patent and copyright law, trade
secret protection, confidentiality and license agreements with our employees,
strategic partners and others to protect our rights to our intellectual
property. Although we have filed a U.S. patent application and an international
Patent Cooperation Treaty patent application on our proprietary software. In
November 1999, the U.S. Patent and Trademark Office initially rejected our
application. We plan to present arguments in support of the patentability of
our software. We have not yet applied for registration of our service marks in
the U.S. or abroad. Effective trademark, copyright and trade secret protection
may not be available in every country in which we offer our services. Despite
our efforts, we cannot assure you that our rights will be enforceable even if
our patent is granted, and we may be unable to deter misappropriation of our
intellectual property. Misappropriation could have a material adverse effect on
our brand and our business by causing us to lose customers and revenue
opportunities. In addition, pursuing persons who might misappropriate our
intellectual property could be costly and divert the attention of management
from the operation of our business. See "Business--Our Intellectual Property"
for a more detailed description of our intellectual property.
CLAIMS OF OUR INFRINGEMENT ON THE INTELLECTUAL PROPERTY RIGHTS OF OTHERS COULD
BE COSTLY AND DISRUPTIVE TO OUR BUSINESS OPERATIONS
Other parties may assert claims against us that we have violated a patent
or infringed a copyright, trademark or other proprietary right belonging to
them directly or through the use of software or technology that we license from
others. Defending against any such claim could be costly and divert the
attention of management from the operation of our business. In addition, the
inability to obtain or maintain the use of licenses or other technology could
adversely affect our business operations.
YEAR 2000 COMPLICATIONS COULD BE DISRUPTIVE TO OUR BUSINESS OPERATIONS
On January 1, 2000, many currently installed computer systems and software
products could fail or malfunction because they may not be able to distinguish
between 20th century dates and 21st century dates. We are subject to external
Year 2000-related failures or disruptions that might generally affect industry
and commerce, such as failures by long distance telephone carriers, local
exchange companies, Internet access providers and related service providers.
These failures or disruptions are especially critical to us as a seller of
telephone services. Notwithstanding our Year 2000 efforts, the failure of our
systems or those of any of our information technology service providers,
affiliates, outsourcing partners or suppliers, or the failure of the Internet
generally, to be Year 2000 ready could
19
<PAGE>
harm the operation of our systems or have unforeseen, material adverse
consequences to us. These consequences could include power supply interruptions
to our customers or the inability to bill our customers. For a description of
our Year 2000 readiness efforts, you should refer to "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Year 2000
Compliance."
RISKS RELATED TO THIS OFFERING
OUR EXISTING STOCKHOLDERS WILL EXERCISE SIGNIFICANT CONTROL AND COULD MAKE
DECISIONS THAT ADVERSELY AFFECT NEW INVESTORS
We expect that our founders will continue to exercise significant control
over our direction and management following the closing of this offering. In
addition, our directors and executive officers and their affiliates will, in
the aggregate, own approximately 23% of the outstanding shares upon the closing
of this offering. As a result of their share ownership, these stockholders will
have a significant influence on all matters requiring stockholder approval,
including the election of directors. This concentration of ownership could
delay or prevent another person from acquiring control or causing a change in
control of us, which may affect your ability to resell your shares at a
favorable price. For a list of our significant stockholders and their holdings,
see "Principal and Selling Stockholders."
OUR MANAGEMENT WILL HAVE BROAD DISCRETION IN THE USE OF PROCEEDS OF THIS
OFFERING AND IT MAY NOT EFFECTIVELY UTILIZE THOSE FUNDS
Our management will have broad discretion in how we use the net proceeds
of this offering. Investors will be relying on the judgment of our management
regarding the application of the net proceeds of this offering. For more
information, see "Use of Proceeds."
POTENTIAL ADVERSE EFFECT OF REPRESENTATIVES' WARRANTS AND CONVERTIBLE
DEBENTURES
At the closing of this offering, we will sell to the representatives of
the underwriters for nominal consideration warrants to purchase 400,000 shares
of our common stock. These warrants will be exercisable for a period of four
years commencing upon the first anniversary of this prospectus at an exercise
price equal to 120% of the initial public offering price per share of common
stock in this offering. For the term of these warrants, the holders will have,
at nominal cost, the opportunity to profit from a rise in the market price of
our common stock without assuming the risk of ownership, with a resulting
dilution in the interest of other security holders. As long as these warrants
remain unexercised, our ability to obtain additional capital might be adversely
affected. Moreover, the holders of these warrants may be expected to exercise
them at a time when we would, in all likelihood, be able to obtain any needed
capital through a new offering of our securities on terms more favorable than
those provided by the warrants.
Also, the Company has $1,276,300 in principal amount of convertible
debentures outstanding as of the date of this prospectus. One debenture, is
convertible at a conversion price equal to 90% of the average of the closing
bid prices of our common stock for the five trading days preceding the
conversion date, but in no event less than $7.06 per share. The other debenture
is convertible at a conversion price equal to 80% of the average of the closing
bid prices of our common stock for the five trading days preceding the
conversion date, but in no event less than $7.06 per share. In the event any
portion of either of the debentures is converted, investors in this offering
will experience further dilution.
INVESTORS WILL EXPERIENCE IMMEDIATE AND SUBSTANTIAL DILUTION AND MAY EXPERIENCE
FURTHER DILUTION
The offering price of the common stock in this offering will be
substantially higher than the net tangible book value per share of the common
stock immediately after this offering. Therefore, assuming a public offering
price of $7.00 per share, if you purchase shares of common stock in this
offering, you will incur immediate and substantial dilution of $4.64 per share
in the net tangible book value per share of common stock from the price you
paid. The exercise prices of all of our
20
<PAGE>
outstanding options are below the anticipated public offering price. To the
extent these options are exercised or debentures converted, you will experience
further dilution. See "Dilution" and "Management" for information regarding
outstanding stock options and additional stock options which may be granted.
THE ABSENCE OF AN ACTIVE TRADING MARKET FOR THE COMMON STOCK COULD MAKE IT
DIFFICULT FOR INVESTORS TO RESELL THEIR SHARES AT OR ABOVE THE PUBLIC OFFERING
PRICE
Before the offering, there was a limited trading market for our common
stock. Although we have applied to have our common stock approved for quotation
on the Nasdaq National Market System, we do not know whether our application
for quotation will be approved. If our application is not approved, we will
trade only on the OTC Bulletin Board or in the National Quotation Bureau, LLC's
Pink Sheets. If our application is approved, we do not know whether a liquid
trading market for our common stock will develop. Investors may not be able to
resell their shares at or above the public offering price. The public offering
price for our common stock will be determined through negotiations among us,
the selling stockholders and the representatives of the underwriters. The
public offering price may be higher than the market price of the common stock
after the offering.
FAILURE TO SATISFY LISTING STANDARDS FOR NASDAQ COULD SUBJECT US TO THE "PENNY
STOCK" RULES AND SEVERELY LIMIT THE LIQUIDITY OF OUR COMMON STOCK
The trading of our common stock on Nasdaq National Market System will be
conditioned upon us meeting net tangible asset, market value and stock price
tests set forth by Nasdaq. For initial listing on Nasdaq National Market
System, we are required to have net tangible assets of at least $18,000,000, at
least 1.1 million shares owned by stockholders other than our affiliates having
a market value of at least $18,000,000, a minimum bid price of $5.00 per share,
a minimum of 400 stockholders and three market makers. To maintain eligibility
for trading on Nasdaq, we will be required to maintain net tangible assets in
excess of $4,000,000, at least 750,000 shares owned by stockholders other than
our affiliates having a market value of at least $5,000,000, a minimum bid
price of $1.00 per share, a minimum of 400 stockholders and at least two market
makers. Upon the receipt of the proceeds from this offering, we believe that we
will meet the net tangible assets, market value and minimum bid tests set forth
by Nasdaq. If we fail any of the tests, our common stock will not be eligible
for trading on Nasdaq. Also, if after the offering we fail any of the tests
required to maintain our listing, our common stock may be delisted from trading
on Nasdaq. The effects of not being eligible for trading or delisting include
the limited release of the market prices of our common stock and limited news
coverage of us. Ineligibility or delisting may also restrict investors'
interest in our common stock and materially adversely affect the trading market
and prices for our common stock and our ability to issue additional securities
or to secure additional financing. In addition, low price stocks are subject to
the additional risks of federal and state regulatory requirements and the
potential loss of effective trading markets. In particular, if our common stock
were not eligible or delisted from trading on Nasdaq and the trading price of
our common stock was less than $5.00 per share, our common stock could be
subject to Rule 15g-9 under the Securities Exchange Act of 1934, as amended,
which, among other things, requires that broker/dealers satisfy special sales
practice requirements, including making individualized written suitability
determinations and receiving purchasers' written consent, prior to any
transaction. If our common stock is deemed to be a penny stock under the
Securities Enforcement and Penny Stock Reform Act of 1990, this would require
additional disclosure in connection with trades in our common stock, including
the delivery of a disclosure schedule explaining the nature and risks of the
penny stock market. Such requirements could severely limit the liquidity of our
common stock and the ability of purchasers in this offering to sell their
securities in the secondary market.
OUR STOCK PRICE IS LIKELY TO BE VOLATILE AND IT MAY DECLINE WHICH COULD RESULT
IN SUBSTANTIAL LOSSES FOR OUR STOCKHOLDERS
The trading price of our common stock is likely to be volatile. The stock
market has experienced significant price and volume fluctuations, and the market
prices of technology company stocks,
21
<PAGE>
particularly those of Internet-related companies, have been highly volatile.
Since the completion of the Axicom-American Ostrich transaction, our stock has
been quoted at a high ask price of $8.25 per share and a low bid price of $0.03
per share. Our stock price experienced a significant decline when, recently,
our stock became ineligible for quotation on the OTC Bulletin Board and became
quoted in the National Quotation Bureau, LLC's Pink Sheets. For a discussion of
the reasons for this change, see "Business--Our History." As a result, you may
not be able to resell your shares at a price equal to or greater than the price
of this offering. In the past, following periods of volatility in the market
price of a company's securities, securities class action litigation has often
been instituted against the issuing company, resulting in substantial costs and
a diversion of management's attention from the operation of its business.
SHARES ELIGIBLE FOR FUTURE SALE BY OUR EXISTING STOCKHOLDERS MAY ADVERSELY
AFFECT OUR STOCK PRICE
The market price of our stock could drop due to the sales of a large
number of shares of our stock or the perception that such sales could occur.
These factors could also make it more difficult to raise funds through future
offerings of stock. After this offering, 10,314,666 shares of common stock will
be outstanding. Of these shares, 5,758,595 shares, including the 4,164,891
shares sold in this offering, will be freely tradable without restrictions
under the Securities Act of 1933, as amended, except for any shares purchased
by our "affiliates," as defined in Rule 144 under the Securities Act. In
addition, 494,672 shares of outstanding common stock are being registered in
the registration statement of which this prospectus is a part, but are subject
to a lock-up agreement as described below. The remaining 4,556,071 shares of
common stock are "restricted securities," as that term is defined in Rule 144
under the Securities Act, and in the future may only be sold pursuant to a
registration statement under the Securities Act, in compliance with the
exemption provisions of Rule 144 or pursuant to another exemption under the
Securities Act. We expect all of our officers and directors and stockholders to
enter into lock-up agreements pursuant to which they agree not to offer or sell
any shares of common stock for a period of 180 days after the date of this
prospectus without the prior written consent of Kaufman Bros., L.P. on behalf
of the underwriters. Upon expiration of this lock-up period, the shares owned
by these persons prior to completion of this offering may be sold into the
public market without registration under the Securities Act, provided such
sales are in compliance with the volume limitations and other applicable
restrictions of Rule 144 under the Securities Act. After the date of this
prospectus, we intend to file one or more registration statements under the
Securities Act to register all shares of common stock issuable upon the
exercise of outstanding stock options or options reserved for issuance under
our stock option plan which was adopted by our Board of Directors, subject to
stockholder approval. Those registration statements are expected to become
effective immediately upon filing, and subject to the vesting requirements and
exercise of the related options and the grant of stock awards (as well as the
terms of the lock-up agreements), shares covered by those registration
statements will be eligible for sale in the public markets, except for any
shares held by our affiliates. In addition, holders of our convertible
debentures have the right to demand registration of the shares of common stock
issuable to them upon conversion at any time from the date of this prospectus
to June 1, 2000. See "Shares Eligible for Future Sale" for more information.
22
<PAGE>
USE OF PROCEEDS
The net proceeds to us from the sale of our common stock sold in this
offering are estimated to be $24,920,000, assuming an offering price of $7.00
per share ($28,943,287 if the underwriters' over-allotment option is exercised
in full). We plan to use the net proceeds as follows:
o approximately $9.0 million for advertising and promotion, including $3.7
million for portal contracts which will provide advertising of our
services on a variety of Web sites for an extended period;
o approximately $1.4 million to upgrade our computer hardware and software;
o approximately $1.3 million to repay convertible debentures;
o approximately $0.5 million for trade payables;
o $200,000 will be paid to Smart Software, a company controlled by our Chief
Technical Officer, for the completion of documentation of the software we
acquired from Smart Software in July 1999;
o approximately $87,000 will be paid to Mr. Bardenheuer as a salary increase
retroactive to January 1, 1999;
o approximately $87,000 will be paid to Mr. Johnson as a salary increase
retroactive to January 1, 1999;
o $50,000 will be paid to Mr. Seelbach in payment of a finder's fee in
connection with a prior transaction and accrued and unpaid consulting
fees;
o approximately $30,800 will be paid to Mr. Bardenheuer for accrued and
unpaid salary;
o approximately $30,800 will be paid to Mr. Johnson for accrued and unpaid
salary; and
o the remaining approximately $12.2 million for working capital.
Pending such uses, the net proceeds will be invested in short-term, interest
bearing securities. See "Risk Factors--Risks Related To This
Offering--Management Will Have Broad Discretion In Use Of Proceeds And May Not
Effectively Utilize Those Funds," "Management--Employment and Consulting
Agreements," "Management--Executive Compensation" and "Related Party
Transactions" for more information concerning our use of the proceeds of this
offering.
23
<PAGE>
PRICE RANGE OF OUR COMMON STOCK
Although our common stock is traded in the National Quotation Bureau,
LLC's Pink Sheets under the symbol "CALN", such trading has been limited and
sporadic. The following table shows the high and low ask prices per share of
our common stock as reported in the National Quotation Bureau, LLC's Pink
Sheets (and prior to August 2, 1999, on the OTC Bulletin Board) for the periods
indicated:
<TABLE>
<CAPTION>
HIGH LOW
------------ -----------
<S> <C> <C>
Fiscal Year 1997(1)
First Quarter ..................................... $ 0.375 $ 0.375
Second Quarter .................................... 0.375 0.375
Third Quarter ..................................... 0.375 0.375
Fourth Quarter .................................... 0.375 0.375
Fiscal Year 1998(1)
First Quarter ..................................... $ 0.375 $ 0.375
Second Quarter .................................... 0.50 0.375
Third Quarter ..................................... 0.50 0.50
Fourth Quarter .................................... 0.50 0.50
Fiscal Year 1999(1)
First Quarter ..................................... $ 0.50 $ 0.50
Second Quarter(2) ................................. 8.25 0.50
Third Quarter ..................................... 4.6875 2.50
Fourth Quarter (through November 5, 1999) ......... 3.00 2.50
</TABLE>
- ----------
(1) Prior to April 6, 1999, the high and low ask prices per share reflect only
the operations of American Ostrich Corporation before the acquisition of
Axicom. Also, in April 1999, American Ostrich Corporation effected a
reverse stock split of 32,000 to 1 and the prices commencing in the Second
Quarter of 1999 reflect such split.
(2) The high and low bid prices per share of our common stock were $7.00 and
$0.03, respectively, for the second quarter of 1999, $2.75 and $1.125,
respectively, for the third quarter, and $2.75 and $1.75, respectively,
for the fourth quarter (through November 5, 1999).
On November 5, 1999, the last reported bid price of our common stock in
the National Quotations Bureau LLC's Pink Sheets was $2.125. As of November 5,
1999, there were approximately 224 stockholders of record of our common stock.
24
<PAGE>
DIVIDEND POLICY
We have not declared or paid any cash dividends on our common stock, and
we do not anticipate declaring or paying any cash dividends on our common stock
in the foreseeable future. We intend to retain any future earnings for use in
the operation of our business.
CAPITALIZATION
The following table sets forth the current portion of long-term debt and
other short-term debt obligations and our capitalization (1) as of September
30, 1999, and (2) pro forma, adjusted to reflect the sale of the common stock
offered hereby and the application of the estimated net proceeds as described
in "Use of Proceeds." This table should be read in conjunction with the
financial statements and related notes thereto included elsewhere in this
prospectus.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999
------------------------------
(UNAUDITED)
ACTUAL PRO FORMA
-------------- ---------------
<S> <C> <C>
Total current debt obligations (1) .................................... $ 52,695 $ 52,695
============ ============
Other long-term liabilities (1) ....................................... $ 1,318,497 $ 340,000
------------ ------------
Stockholders' equity:
Common stock, $.001 par value; 50,000,000 shares authorized; 6,314,666 shares
issued and outstanding; 10,314,666 shares issued and
outstanding, pro forma (2) ......................................... 6,315 10,315
Additional paid-in capital ........................................... 4,838,712 29,463,463
Retained earnings (accumulated deficit) .............................. (5,010,050) (5,140,050)
------------ ------------
Total stockholders' equity (deficit) ............................... (165,023) 24,333,728
------------ ------------
Total capitalization ............................................... $ 1,153,474 $ 24,673,728
============ ============
</TABLE>
- ----------
(1) See Notes 4 and 5 of Notes to Financial Statements for a description of
our debt obligations.
(2) Based on shares outstanding as of the date of this prospectus. Excludes:
o 282,825 shares of common stock issuable upon exercise of options at
exercise prices ranging from $.01 to $2.75 per share, which options
include an anti-dilution provision which will result in the
additional issuance of options to purchase 200,000 shares of common
stock at the offering price;
o 2,200,000 shares of common stock reserved for future issuance under a
stock option plan which our Board of Directors has adopted, subject
to stockholder approval, of which options to purchase 969,400 shares
of common stock at exercise prices of $2.75 per share have been
granted (such granted options are subject to an increase in exercise
price if our compensation committee determines that such increase is
necessary based on third party determinations of fair market value);
o 400,000 shares of common stock issuable upon exercise of the
Representatives' Warrants at an assumed exercise price of $8.40 per
share; and
o a maximum of 181,232 shares of common stock issuable upon conversion
of $1,276,300 in principal amount of convertible debentures
outstanding as of the date of this prospectus at an effective
conversion price of $7.06.
For a description of the convertible debentures, see "Description of
Securities--Convertible Debentures." For information regarding options
granted prior to this offering, see "Management--Employment and Consulting
Agreements," "Related Party Transactions" and "Notes to Consolidated
Financial Statements."
25
<PAGE>
DILUTION
Our net tangible book value (deficit) at September 30, 1999 was $(525,689),
or $(.08) per share. "Net tangible book value per share" represents our total
tangible assets less our total liabilities, divided by the number of shares of
common stock outstanding. After giving effect to the sale of the common stock
offered hereby at an assumed offering price of $7.00 per share and application
of net proceeds therefrom, our pro forma net tangible book value at September
30, 1999 would have been approximately $24,333,728, or $2.36 per share. This
represents an immediate increase in net tangible book value per share of $2.44
to existing stockholders and an immediate dilution of $4.64 per share to the
investors purchasing shares of our common stock at the assumed public offering
price. The following table illustrates this dilution in net tangible book value
to new investors:
<TABLE>
<S> <C> <C>
Assumed public offering price per share ............................. $ 7.00
Net tangible book value (deficit) per share before offering ......... $ (0.08)
Increase per share attributable to new investors .................... 2.44
-------
Pro forma net tangible book value per share after offering .......... 2.36
-------
Dilution to new investors ........................................... $ 4.64
=======
</TABLE>
The following table sets forth the number of shares of common stock
purchased from us, the effective cash contribution made and the average price
per share paid by existing stockholders and by purchasers of the common stock
offered hereby (assuming a public offering price of $7.00 per share):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
------------------------ ------------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
------------ --------- ------------- --------- ----------
<S> <C> <C> <C> <C> <C>
Existing Stockholders ......... 6,314,666 61.2% $ 4,933,963 15.0% $ 0.78
New Investors ................. 4,000,000 38.8% 28,000,000 85.0% $ 7.00
--------- ----- ----------- -----
Total ........................ 10,314,666 100.0% $32,933,963 100.0%
========== ===== =========== =====
</TABLE>
The foregoing excludes:
o 282,825 shares of common stock issuable upon exercise of options at
exercise prices ranging from $.01 to $2.75 per share, which options
include an anti-dilution provision which will result in the additional
issuance of options to purchase 200,000 shares of common stock at the
offering price;
o 2,200,000 shares of common stock reserved for future issuance under a
stock option plan which our Board of Directors has adopted, subject to
stockholder approval, of which options to purchase 969,400 shares of
common stock at exercise prices of $2.75 per share have been granted (such
granted options are subject to an increase in exercise price if our
compensation committee determines that such increase is necessary based on
third party determinations of fair market value);
o 400,000 shares of common stock issuable upon exercise of the
Representatives' Warrants at an assumed exercise price of $8.40 per share;
and
o a maximum of 181,232 shares of common stock issuable upon conversion of
$1,276,300 in principal amount of convertible debentures outstanding as of
the date of this prospectus at an effective conversion price of $7.06
For a description of the convertible debentures, see "Description of
Securities--Convertible Debentures." For information regarding options granted
prior to this offering, see "Management--Employment and Consulting Agreements,"
"Related Party Transactions" and "Notes to Consolidated Financial Statements."
26
<PAGE>
SELECTED FINANCIAL DATA
The following selected financial data as of and for the three-year period
ended December 31, 1998 are derived from our audited financial statements. The
selected financial data for the year ended December 31, 1995 and the nine-month
periods ended September 30, 1999 and 1998 are derived from our unaudited
financial statements. In the opinion of our management, our unaudited financial
statements contain all adjustments (consisting of only normal recurring
accruals) necessary for a fair presentation of our consolidated financial
condition and result of operations as of and for the periods presented.
Operating results for the nine months ended September 30, 1999 are not
necessarily indicative of the results that may be expected for the entire fiscal
year ending December 31, 1999. For additional information, you should refer to
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our financial statements and related notes contained elsewhere
in this prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------
1995 1996 1997 1998
--------------- ------------- --------------- ---------------
(UNAUDITED)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales .......................... $ 453,273 $1,674,955 $ 5,010,027 $ 2,295,202
Cost of sales ...................... 395,121 1,276,934 4,293,524 1,681,978
------------- ---------- ------------- -------------
Gross profit ....................... 58,152 398,021 716,503 613,224
------------- ---------- ------------- -------------
Operating expenses:
Administrative ................... 230,097 654,009 570,500 518,546
Sales and marketing .............. 77,688 475,432 807,989 438,430
Technical ........................ -- 178,652 143,134 101,330
Stock-based compensation ......... -- -- -- --
Depreciation and
amortization .................... 3,454 19,568 53,651 105,860
------------- ---------- ------------- -------------
Total operating expenses ......... 311,239 1,327,661 1,575,274 1,164,166
------------- ---------- ------------- -------------
Loss from operations ............... (253,087) (929,640) (858,771) (550,942)
Interest expense ................... -- (1,154) (58,568) (90,436)
------------- ---------- ------------- -------------
Net loss ........................... $ (253,087) $ (930,794) $ (917,339) $ (641,378)
============= ========== ============= =============
Net loss per share ................. $ (0.08) $ (0.24) $ (0.24) $ (0.17)
============= ========== ============= =============
Common shares ....................... 3,055,525 3,875,000 3,875,000 3,875,000
============= ========== ============= =============
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------
1995 1996 1997 1998
-------------- ---------- ------------- -------------
(UNAUDITED)
BALANCE SHEET DATA:
Cash ............................... $ 47,849 $ 71,260 $ 107,832 $ 7,565
Current assets ..................... 259,591 358,843 375,106 130,265
Current liabilities ................ 200,281 806,912 1,825,485 1,250,301
Working capital (deficit) .......... 59,310 (448,069) (1,450,379) (1,120,036)
Other assets ....................... 40,296 294,714 311,539 549,088
Total assets ....................... 299,887 653,557 686,645 679,353
Long-term debt and other
liabilities ...................... -- 227,433 147,756 1,357,026
Stockholders' equity (deficit) ..... 99,606 (380,788) (1,286,596) (1,927,974)
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, 1999
-------------------------------
1998 1999
--------------- ---------------
(UNAUDITED)
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales .......................... $ 1,794,595 $ 738,353
Cost of sales ...................... 1,374,153 547,361
------------- ------------
Gross profit ....................... 420,442 190,992
------------- ------------
Operating expenses:
Administrative ................... 312,081 799,889
Sales and marketing .............. 312,344 410,142
Technical ........................ 106,191 145,254
Stock-based compensation ......... -- 480,610
Depreciation and
amortization .................... 59,204 142,630
------------- ------------
Total operating expenses ......... 789,820 1,978,525
------------- ------------
Loss from operations ............... (369,378) (1,787,533)
Interest expense ................... 59,500 453,609
------------- ------------
Net loss ........................... $ (428,878) $ (2,241,142)
============= ============
Net loss per share ................. $ (0.11) $ (0.47)
============= ============
Common shares ....................... 3,875,000 4,768,160
============= ============
NINE MONTHS ENDED
SEPTEMBER 30, 1999
--------------------------------
1998 1999
-------------- ------------
(UNAUDITED)
BALANCE SHEET DATA:
Cash ............................... $ (9,537) $ 846,680
Current assets ..................... 106,583 909,001
Current liabilities ................ 2,112,720 1,547,035
Working capital (deficit) .......... (2,006,137) (638,034)
Other assets ....................... 343,358 1,791,508
Total assets ....................... 449,941 2,700,509
Long-term debt and other
liabilities ...................... 52,695 1,318,497
Stockholders' equity (deficit) ..... (2,562,891) (165,023)
</TABLE>
27
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the financial
statements and the notes to those statements included elsewhere in this
prospectus. The following discussion contains forward-looking statements that
reflect our plans, estimates and beliefs. Forward-looking statements include,
but are not limited to, statements concerning anticipated trends in revenue and
net income, projections concerning operations, and available cash flow. Our
actual results could differ materially from those discussed in these
forward-looking statements. Factors that could cause or contribute to such
differences include, but are not limited to, those discussed below and
elsewhere in this prospectus, particularly in "Risk Factors."
OVERVIEW
We began operations in 1995 as AXICOM Communications Group, Inc., an
international telephone service company. In mid-1997, we recognized the
opportunity of offering multiple telephone services using the Internet and
changed our strategy. We decreased the number of customers that we acquired and
billed through independent agents and reduced our wholesale business which had
accounted for approximately half our revenues, but which was not profitable. We
filed a patent for our proprietary Internet software in August 1998, and
implemented our new Internet strategy in September 1998. In April 1999, as a
result of a reorganization, Axicom became a subsidiary of CallNOW.com, Inc.
Today, CallNOW.com is a Web-based provider of telecommunications services
in approximately 125 countries. We believe that our technology provides us the
ability to deliver competitively priced dial tone to Web-based customers in
virtually all the countries of the world in a cost-effective manner. In
addition, we have a free global online telephone directory, which currently
generates over 1.6 million page impressions and over 400,000 user sessions per
month.
Revenue is generated primarily from international and national ReturnCall
services and is based on the minutes of customer use billed by us on completed
calls. Our ReturnCall revenue represents the majority of our revenue. Our
ReturnCall customer base of individuals and small businesses is diversified
geographically with about 58% of our customers located in Europe, 21% in North
America, 11% in Latin America and 10% in the rest of the world.
Since the implementation of our Web-based strategy in 1998, approximately
70% of our revenue has been collected through automatic charges to pre-approved
customer credit cards. This is increasing as more of our customers sign up
through our Web site. All Web-based customers are credit card customers.
We have recruited approximately 200 affiliates. Our affiliate program
includes many telecommunication related Web sites, international and national
search engines and general e-commerce sites. Under the terms of their
agreements, affiliates are responsible for marketing our services on their Web
sites and are compensated on a commission basis. We also have agents, though we
expect that the use of agents will be phased out over a period of time in favor
of affiliates.
Cost of revenue consists primarily of costs paid to carriers for the
origination and transmission of voice and data telecommunications services.
Currently, our telecommunications revenue is derived from services that are
accessed through the facilities of long distance carriers. Accordingly, the
vast majority of our cost of telecommunications services is variable, based on
the number of minutes of use, with transmission costs being our most
significant expense.
Sales and marketing expense represents commissions paid for sales by
affiliates and agents. In addition, we include in sales and marketing expense
the costs of bad debts, recruiting affiliates, advertising, and promotion of
the CallNOW.com brand.
Administrative expense primarily represents the cost of customer service,
executive and employee compensation, overall administrative costs, professional
fees, and other operating and corporate overhead.
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Technical costs include the costs associated with the operation and
maintenance of our switch, and costs related to the technical development of
our Web site and our global telephone directory Web site.
Depreciation expense includes depreciation of switching and network
equipment, software, computers, furniture, and fixtures. We provide for
depreciation using the straight line method of depreciation over the estimated
useful lives of the assets, which range from three to ten years.
Interest and debt discount expense includes interest expense on
indebtedness and non-cash financing expenses.
RESULTS OF OPERATIONS
The following tables present operating expenses as a percentage of
revenues:
<TABLE>
<CAPTION>
NINE MONTH PERIODS ENDED SEPTEMBER 30,
------------------------------------------------------
1998 % 1999 %
------------- -------- --------------- ---------
<S> <C> <C> <C> <C>
Net sales .............................. $1,794,595 100% $ 738,353 100%
Cost of sales .......................... 1,374,153 77% 547,361 74%
---------- --- ------------ ---
Gross profit ........................... 420,442 23% 190,992 26%
Operating expenses:
Administrative ........................ 312,081 17% 799,889 108%
Sales and marketing ................... 312,344 17% 410,142 56%
Technical ............................. 106,191 6% 145,254 20%
Stock-based finders' fees ............. -- -- 480,610 65%
Depreciation and amortization ......... 59,204 3% 142,630 19%
---------- --- ------------ ---
Total operating expenses ............ 789,820 44% 1,978,525 268%
---------- --- ------------ ---
Loss from operations ................... (369,378) -21% (1,787,533) -242%
Interest expense ....................... (59,500) -3% (453,609) -61%
---------- ---- ------------ ----
Net loss ............................... $ (428,878) -24% $ (2,241,142) -304%
========== === ============ ====
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------
1997 % 1998 %
------------- -------- ------------- --------
<S> <C> <C> <C> <C>
Net sales .............................. $5,010,027 100% $2,295,202 100%
Cost of sales .......................... 4,293,254 86% 1,681,978 73%
---------- --- ---------- ---
Gross profit ........................... 716,503 14% 613,224 27%
Operating expenses:
Administrative ........................ 570,500 11% 518,546 23%
Sales and marketing ................... 807,989 16% 438,430 19%
Technical ............................. 143,134 3% 101,330 4%
Stock-based finders' fees ............. -- -- -- --
Depreciation and amortization ......... 53,651 1% 105,860 5%
---------- --- ---------- ---
Total operating expenses ............ 1,575,274 31% 1,164,166 51%
---------- --- ---------- ---
Loss from operations ................... (858,771) -17% (550,942) -24%
Interest expense ....................... (58,568) -1% (90,436) -4%
---------- ---- ---------- ----
Net loss ............................... $ (917,339) -18% $ (641,378) -28%
========== === ========== ===
</TABLE>
29
<PAGE>
Nine Months Ended September 30, 1999 Compared to Nine Months Ended
September 30, 1998
Our Internet strategy gained momentum in the first three quarters of 1999.
The number of web customers signing up for our service increased to over 1,000
per month in September. The implementation of our Internet strategy has
resulted in planned decreases in revenue from our prior agent based business.
We have also incurred additional costs in consummating the Axicom-American
Ostrich transaction in April, raising additional capital, filing for this
offering and adding new employees as detailed below.
Revenue decreased $1,056,242, from $1,794,595 in the nine months ended
September 30, 1998 to $738,353 in the nine months ended September 30, 1999.
This decrease in revenue was due to our change in strategy as a result of which
our retail revenue declined from approximately $1,501,000 in the first nine
months of 1998 to approximately $418,000 in the first nine months of 1999.
Also, as part of the strategy change, our low margin wholesale revenue declined
from approximately $291,000 in the first nine months of 1998 to approximately
$33,000 in the first nine months of 1999. This decline in revenue was offset by
an increase in Internet revenue from approximately $2,000 in the first nine
months of 1998 to approximately $287,000 in the first nine months of 1999.
Our cost of revenue decreased $826,792, from $1,374,153 for the nine
months ended September 30, 1998 to $547,361 for the nine months ended September
30, 1999. The decrease in cost of revenue was due primarily to the decline in
revenue. As a percentage of revenue, these costs decreased from approximately
77% for the nine months ended September 30, 1998 and to approximately 74% for
the nine months ended September 30, 1999, respectively, reflecting a greater
percentage of higher price retail revenue and a lower volume of wholesale
revenue, offset in part by initial costs associated with implementing our
Internet Strategy.
Administrative expenses increased $487,808, from $312,081 for the nine
months ended September 30, 1998 to $799,889 for the nine months ended September
30, 1999. The increase in expenses in 1999 was due primarily to increases in
legal expenses (approximately $140,000), personnel expenses (approximately
$100,000), an accrual for potential litigation expenses (approximately
$100,000), accounting expenses (approximately $50,000), and consultants
(approximately $50,000) compared to this same period in 1998. Administrative
expenses increased as a percentage of revenues from approximately 17% for the
nine months ended September 30, 1998 to approximately 108% for the nine months
ended September 30, 1999. The increase as a percentage of revenues was due to
the significant decrease in sales volume from 1998 to 1999.
Sales and marketing expense increased $97,798, from $312,344 for the nine
months ended September 30, 1998 to $410,142 for the nine months ended September
30, 1999. The increase was due to costs incurred for additional business
development (approximately $32,000), and increased bad debt expense
(approximately $66,000) incurred from our previous agent business. Sales and
marketing expenses increased as a percentage of revenues from approximately 17%
for the nine months ended September 30, 1998 to approximately 56% for the nine
months ended September 30, 1999. The increase as a percentage of revenues was
due to the significant decrease in sales volume from 1998 to 1999.
Technical expenses increased $39,063, from $106,191 for the nine months
ended September 30, 1998, to $145,254 for the nine months ended September 30,
1999 primarily as a result of increased personnel costs. Technical expenses
increased as a percentage of revenues from approximately 6% for the nine months
ended September 30, 1998 to approximately 20% for the nine months ended
September 30, 1999. The increase as a percentage of revenues was due to the
significant decrease in sales volume from 1998 to 1999.
We issued warrants to purchase 485,465 shares of our common stock in 1999
as finder's fees in connection with the business combination with American
Ostrich Corporation. We took a charge of $480,610 in the nine months ended
September 30, 1999, representing the difference between the fair market value
of our stock at the time of the transaction ($1 per share) and the $.01
exercise price of the warrants.
30
<PAGE>
Depreciation and amortization expense increased $83,426, from $59,204 for
the nine months ended September 30, 1998 to $142,630 for the nine months ended
September 30, 1999. These costs increased primarily as a result of higher
amortization costs for our proprietary software.
Interest expense increased $394,109, from $59,500 for the nine months
ended September 30, 1998 to $453,609 for the nine months ended September 30,
1999. This increase is the result of the accounting treatment of debentures
issued with beneficial conversion features which enabled the holders to convert
at a discount to the market price of our common stock. The convertible
debentures issued in March 1999 resulted in an additional interest charge of
$128,000. The convertible debentures and warrants issued in June 1999 resulted
in an additional interest charge of $273,000. We had a reduction in interest
cost related to long term debt and trade debt of approximately $7,000
As a result of the foregoing, we had a net loss of $428,878 for the nine
months ended September 30, 1998 compared to a net loss of $2,241,142 for the
nine months ended September 30, 1999. We had a loss per share of $.11 for the
nine months September 30, 1998 compared to loss per share of $.47 for the nine
months ended September 30, 1999.
Fiscal Year Ended December 31, 1998 Compared to Fiscal Year Ended
December 31, 1997
Revenue decreased $2,714,825, from $5,010,027 for the fiscal year ended
December 31, 1997 to $2,295,202 for the fiscal year ended December 31, 1998.
This decrease in net revenue resulted from a shift in focus to our Internet
strategy and a corresponding de-emphasis of wholesale and some retail business.
In order to reposition ourselves as an e-commerce company, we ceased marketing
of wholesale contracts and phased out retail customers who did not pay by
credit cards; consequently, our revenue from retail also declined. As a result
of this change, retail revenue increased as a percentage of total revenue from
41% in 1997 to 57% in 1998 while wholesale traffic revenue decreased from 59%
in 1997 to 43% in 1998. Of the retail revenue, approximaely 2% was generated
from our Web-based traffic.
Our cost of revenue decreased $2,611,546, from $4,293,524 for the fiscal
year ended December 31, 1997 to $1,681,978 for the fiscal year ended December
31, 1998. As a percentage of revenue, these costs decreased from approximately
86% for 1997 to approximately 73% for 1998. The decrease in costs as a
percentage of revenue is attributable to the change in revenue mix from lower
margin wholesale activity to higher margin retail sales.
Administrative expense declined $51,954, from $570,500 for the fiscal year
ended December 31, 1997 to $518,546 for the fiscal year ended December 31,
1998. The decrease was primarily due to the successful settlement of a dispute
with a trade vendor resulting in a $40,016 reversal of a current payable from
our balance sheet. Other costs remained relatively constant. The increase in
administrative expense as a percent of total revenue from 11% in 1997 to 23% in
1998 was due to the decrease in revenue from 1997 to 1998.
Sales and marketing expense decreased $369,559, from $807,989 for the
fiscal year ended December 31, 1997 to $438,430 for the fiscal year ended
December 31, 1998. This decrease was attributable to a reduction of commission
expenses, from $300,327 in 1997 to $148,961 in 1998, as a consequence of our
lower revenue, and a significant reduction in bad debt expense from $197,109 in
1997 to $23,723 in 1998. As a result, and despite the significant decline in
revenue from 1997, the increase in sales and marketing expense as a percent of
total revenue increased to only 19% in 1998 from approximately 16% in 1997.
Our technical expenses decreased $41,804, from $143,134 for the fiscal
year ended December 31, 1997 to $101,330 for the fiscal year ended December 31,
1998. The lower costs in 1998 reflect a reduction in personnel because of the
decline in revenues in 1998, offset in part by expenses associated with our
efforts to complete the Internet software in 1998.
Depreciation and amortization expense increased $52,209, from $53,651 for
the fiscal year ended December 31, 1997 to $105,860 for the fiscal year ended
December 31, 1998. The increase is the result of significant investment during
1998, principally to acquire our Internet software.
31
<PAGE>
Interest expense increased $31,868, from $58,568 for the fiscal year ended
December 31, 1997 to $90,436 for the fiscal year ended December 31, 1998. The
increase was the result of financing costs arising from increasing balances
payable to trade creditors.
Our net loss was $917,339 for the fiscal year ended December 31, 1997
compared to a net loss of $641,378 for the fiscal year ended December 31, 1998.
The reduction in loss was a result of a decline in low margin wholesale
business, higher gross profit margins because of a higher mix of retail
business, a decrease in sales commissions, a decrease in bad debt expenses and
the favorable outcome of a disputed vendor billing.
LIQUIDITY AND CAPITAL RESOURCES
Our capital resources have been used to fund operating losses, debt
service and capital expenditures associated with development of our customer
base and the establishment and upgrade of our network infrastructure. We have
historically satisfied our capital requirements principally through extended
trade agreements with carriers and other suppliers. At September 30, 1999, we
had a working capital deficit of $638,034. We anticipate that the funds from
this offering will be sufficient to eliminate our working capital deficit and
satisfy our working capital needs at least for the next 12 months.
During the nine-month period ended September 30, 1999, we effected a
number of revisions to our capital structure. Such revisions included raising a
total of $979,000 in capital through the issuance of convertible debentures and
the subsequent conversion of all of those debentures into 972,247 shares of our
common stock. We also negotiated agreements with trade creditors that converted
approximately $1,279,300 of trade debt into 5% convertible debentures with
three-year maturities. In addition, during July 1999, we completed a private
placement of 545,454 shares of our common stock, raising an aggregate of
$1,500,000 and providing additional liquidity. In September 1999, we issued an
aggregate of 146,399 shares of our common stock in private placements for a
total of approximately $402,600. We also have outstanding loans in the original
aggregate principal amount of $300,000 of which approximately $43,000 is
outstanding as of November 1, 1999. These loans bear interest at a rate of 12%
and mature in January and March 2000.
To promote our Internet strategy, we currently anticipate aggregate
expenditures of approximately $9.0 million for advertising and promotion,
including $3.7 million for portal contracts which will provide advertising of
our services on a variety of Web sites for an extended period. We believe that
cash on hand, together with cash flow from our operating activities and cash
available from this offering, will be sufficient to fund our existing
operations at least for the next 12 months. We believe that our business will
require substantially less capital beyond the next 12 months. However, if our
growth exceeds current expectations or we expedite or expand our growth plan,
or if our cash flow from operations is insufficient to meet our working capital
and capital expenditure requirements, we will need to raise additional capital
from equity or debt sources. There can be no assurance that we will be able to
raise additional capital on acceptable terms or at all. If we are unable to
obtain such additional capital, we may have to curtail our expansion of
operations, growth and other strategic initiatives, which could adversely
affect our business, financial condition or results of operations and our
ability to compete. For a description of the risks related to financing our
growth, see "Risk Factors--Risks Related To Establishment Of Our Business--We
May Need Additional Capital To Finance Growth And Capital Requirements."
EFFECTS OF INFLATION
We do not believe that inflation has had a significant effect on our
operations to date.
SEASONALITY
Our business exhibits a degree of seasonality. Historically, our revenue
(as well as sales in the telecommunications industry in general) has decreased
slightly in July, August and December, which we attribute to vacations and
holidays in our European and Latin American markets and in the U.S.
32
<PAGE>
ACCOUNTING PRONOUNCEMENTS
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-1 ("SOP 98-1"), "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use," which provides
guidance on when costs incurred for internal-use software should be
capitalized. SOP 98-1 is effective for financial statements with fiscal years
beginning after December 15, 1998, although earlier application is encouraged.
We elected to adopt the guidance in this pronouncement effective for the year
December 31, 1998. In accordance with the guidance provided by SOP 98-1, we
capitalized internal and external costs to develop or obtain internal use
software during the application development stage. The costs of upgrades and
enhancements to internal-use software is also capitalized when it is probable
that such expenditures will result in additional functionality. Costs incurred
during the preliminary project stage are expensed as incurred, as are training
and maintenance costs.
In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-5 ("SOP 98-5"), "Reporting on the Costs of
Start-Up Activities," which requires costs of start-up activities and
organization costs to be expensed as incurred. SOP 98-5 is effective for
financial statements with fiscal years beginning after December 15, 1998,
although earlier application is encouraged. The adoption of SOP 98-5 is not
expected to have a material adverse effect on us.
YEAR 2000 COMPLIANCE
Year 2000 issues exist when computer systems and applications fail to
recognize date information correctly when the year changes to 2000. If those
computer programs are not corrected, many computer systems could fail or create
erroneous results. To date, we have experienced no year 2000 issues with any of
our internal systems or our services.
State of Readiness
We have completed an assessment of year 2000 compliance for our critical
operating and application systems, specifically our information systems,
analysis tools, and supporting operation system infrastructure. We consider a
product to be year 2000 compliant if the product's performance and
functionality are unaffected by the processing of dates before, during and
after the year 2000. As a result of our assessment, we have determined that
through normal recurring system upgrades, approximately 90% of our systems are
currently year 2000 compliant. We expect the remaining systems to be year 2000
compliant by the beginning of December.
The potential impact of the year 2000 issue will depend not only on our
internal year 2000 compliance, but also on the way in which the year 2000 is
addressed by vendors, service utilities, government and other external
entities. We are communicating with our key vendors to determine how they are
addressing the year 2000 issue and to evaluate any likely impact on our
business. However, the efforts of third parties are not within our control and
their failure to remedy year 2000 issues successfully could result in business
disruption, loss of revenue and increased operating cost.
Costs Associated with Year 2000 Compliance
Since year 2000 compliance with regard to our internal systems has been,
or will be, significantly achieved through normal system upgrades and not
through accelerated or dedicated efforts, the cost of becoming year 2000
compliant has not had and is not expected to have a material effect on our
financial position, operations or cash flow.
Risks Associated with Year 2000 Issues
While it is impossible to evaluate every aspect of year 2000 compliance,
we believe that either of two events would be our most likely year 2000 worst
case scenario. The first would be from one or more of our sole or limited
source suppliers to fail to be year 2000 compliant or to have its business
negatively impacted by year 2000 issues of others. The second would be delays
in receiving orders or payments on credit cards from customers due to year 2000
problems. At the present time, while it is not possible to determine whether
any of these events is likely to occur, or to quantify any potential
33
<PAGE>
negative impact they may have on our future results of operations and financial
condition, the impact of such events would likely be to lower our revenues and
increase our losses.
Additional Risks
Any failure by us to make our services year 2000 compliant could result in
a decrease in sales of our services, an increase in allocation of resources to
address year 2000 problems of our customers without additional revenue
corresponding to our dedication of resources, or an increase in litigation
costs relating to losses suffered by our customers due to year 2000 problems.
Failure of our internal systems could temporarily prevent us from providing our
services, issuing invoices, and developing services, and could require us to
devote significant resources to correcting these problems.
34
<PAGE>
BUSINESS
OUR HISTORY
We were incorporated in August 1994, and began operations in 1995 as
AXICOM Communications Group, Inc. In April 1999, all of the common stock of
Axicom was acquired by the American Ostrich Corporation, a non-reporting
company that was publicly traded on the OTC Bulletin Board under the symbol
"AOC". As a result of this transaction, Axicom stockholders became the majority
stockholders of American Ostrich Corporation, and American Ostrich Corporation
reincorporated in Delaware and changed its name to CallNOW.com, Inc.
In mid-1997, we recognized the opportunity of offering multiple telephone
services using the Internet and changed our strategy. We decreased the number
of customers that we acquire and bill through independent agents and abandoned
our "wholesale" business which had accounted for approximately half our
revenues, but which was not profitable. We filed a patent for our proprietary
Internet software in August 1998, and implemented our new Internet strategy in
September 1998.
We were required to file current financial information with the Securities
and Exchange Commission by August 1, 1999 in order to allow our common stock to
continue to be quoted on the OTC Bulletin Board. We did not make the required
filings by such date. As a result, market makers are not permitted to quote us
on the OTC Bulletin Board until our financial information has been filed and
the SEC has completed its review. As of August 2, 1999, quotations in the
shares of our common stock can only be made in the National Quotation Bureau,
LLC's Pink Sheets until we are able to complete our required filing. Once we
respond satisfactorily to all SEC comments to the registration statement of
which this prospectus is a part, we will satisfy the filing requirement.
OUR BUSINESS
We offer our customers a variety of telecommunications services through
our e-commerce Web site (www.callnow.com) and any touch tone telephone. Our
services are provided globally and currently consist of international long
distance, national long distance, and a free global online telephone directory,
which currently generates over 1.6 million page impressions (page views) and
over 400,000 user sessions (unique visitors) per month. Our customers currently
consist primarily of individuals and small businesses, 80% of whom are located
outside of the U.S.
Our Web site is a communications portal with a look and feel that is
tailored to local markets, currently with a choice of four languages in
approximately 200 countries. Our Web site is driven by our software that
enables our customers in real time to:
o Survey global telephone rates;
o Sign up online for international and national long distance telephone
service;
o Have their credit cards automatically validated and pre-authorized;
o Activate their accounts;
o Review the details of each of their calls from the date of inception
of their account;
o Review current account information, including cumulative amounts,
through the last call made; and
o Review monthly invoices.
We offer international and national long distance telephone service
through call re-origination or "call-back" service, which we refer to on our
Web site as "ReturnCall." Our customer typically dials a unique U.S. telephone
number to our switch, allows the telephone to ring once, hangs up and then
receives a return call from our switch providing U.S. dial-tone. Alternatively,
a customer connected to the Internet can initiate a ReturnCall through our
switch to any telephone providing them with U.S. dial-tone. We refer to this
service on our Web site as "Internet Trigger." Generally, ReturnCall offers
35
<PAGE>
our customers significant savings on international and national long distance
calls. Approximately 67 countries have stated that call re-origination services
are prohibited in their country. For a more detailed discussion and potential
impact on our business, see "Risk Factors--Risks Related To The
Telecommunications Business--If We Are Not Permitted By Local Laws To Offer
ReturnCall, Our Business Could Be Adversely Affected."
THE INTERNATIONAL TELECOMMUNICATIONS INDUSTRY
Historically, telephone service within individual countries has been
monopolized by large, typically government-owned telephone authorities. As a
result, international callers have had little choice but to use the services
provided, and pay the prices charged, by national telephone authorities.
Deregulation on a regional basis, together with decreases in the cost of
providing services and the introduction of more sophisticated enhanced
services, has made it possible for new entrants to compete with the telephone
authorities in providing alternative telecommunications services. The resulting
decrease in non-regulated rates has produced a resale market for long distance
telecommunications services permitting companies to obtain favorable
volume-based rates from third-party providers and to resell services at
competitive rates to other providers and users. These and other factors have
contributed to an increase in telecommunications usage and the growth of
enhanced telecommunications services in these markets. The combination of a
continually expanding global telecommunications market, demand for lower prices
and improved quality, and ongoing deregulation has created competitive
opportunities for new telecommunications companies in many countries.
The international long distance industry, which involves the transmission
of voice and data from the domestic telephone network of one country to
another, is undergoing a period of fundamental change that has resulted, and is
expected to continue to result, in significant growth in usage of international
telecommunications services. According to TeleGeography, an independent
research and publishing company, in 1997, the international long distance
industry accounted for $66 billion in revenues and 82 billion minutes of use.
That is an increase from $27 billion in revenues and 22 billion minutes of use
in 1988. TeleGeography has estimated that, by the year 2001 this market will
have expanded to $80 billion in revenues and 159 billion minutes of use.
TeleGeography's estimate is based on a faster traffic growth rate than
experienced in the last five years, assuming a faster network growth rate and
faster rates of price cutting, plus a significant component of new demand
created by international traffic generated from mobile phones.
We believe that growth of traffic originated in markets outside the United
States will continue to be higher than growth in traffic originated within the
United States due to recent deregulation in many foreign markets and increasing
access to competitive telecommunications facilities in emerging markets.
The competition spurred by privatization and deregulation has resulted in
a wider choice of products and services and lower prices. In recent years,
prices for long distance services have decreased substantially and are expected
to continue to decrease in most of the markets in which we currently compete.
We believe that the lower price environment and resulting revenue losses from
increased competition have been more than offset by cost decreases and the
increase in telecommunications usage. For example, based on the FCC data for
the period 1989 through 1996, per minute settlement payments by U.S.-based
carriers to foreign telephone authorities fell 38.6%, from $0.70 per minute to
$0.43 per minute. Over this same period, however, per minute international
billed revenue fell only 27.5%, from $1.02 in 1989 to $0.74 in 1996. We believe
that, as settlement rates and costs for leased capacity continue to decline,
international long distance will continue to provide high revenue and gross
profit per minute. For a discussion of the risk related to competition in our
industry, see "Risk Factors--Risks Related To The Telecommunications
Business--We May Face Increasing Competition."
We believe that the international telecommunications market will continue
to experience strong growth for the foreseeable future as a result of the
following developments and trends:
36
<PAGE>
Global economic development and increased access to telecommunications
services. The dramatic increase in the number of telephone lines around
the world, stimulated by economic growth and development, government
initiatives and technological advancements, is expected to lead to
increased demand for international telecommunications services in those
markets.
Liberalization of telecommunications markets. The continuing
liberalization and privatization of telecommunications markets has
provided, and continues to provide, opportunities for new carriers who
desire to penetrate those markets, thereby increasing competition and
resulting in a further decrease in prices for international long distance
services in many of the markets in which we currently compete.
Reduced rates stimulating higher traffic volumes. The reduction of
outbound international long distance rates resulting from increased
competition and technological advancements has made, and continues to
make, international calling available to a much larger customer base
thereby stimulating increased traffic volumes.
Increased capacity and quality. The increased availability of additional
higher-quality digital fiber optic cable has enabled international long
distance carriers to provide more services at a higher quality while
reducing costs.
Bandwidth needs. The demand for bandwidth-intensive data transmission
services, including Internet-based demand, has increased rapidly and is
expected to continue to increase in the future.
Internet telephony. Technology trends over the past decade have removed
the distinction between voice and data segments. In order to satisfy the
high demand for low-cost communication, software and hardware developers
began to develop technologies capable of allowing the Internet to be
utilized for voice communications. This is called Internet telephony. We
are evaluating Internet telephony for our customer base and intend to
integrate it into our services as appropriate.
Popularity and acceptance of technology. The proliferation of
communications devices, including cellular telephones and facsimile
machines, as well as the increased level of Internet usage, has led to a
general increase in the use of telecommunications services and stimulated
demand for faster transmission of data. The following chart from IDC, as
printed in TeleGeography 1998, shows the expected number of Internet users
in four geographical regions through the year 2002:
37
<PAGE>
REGIONAL INTERNET GROWTH
[GRAPHIC OMITTED]
INTERNET USERS (MILLIONS)
----------------------------------------
1997 2002
----------- ---------------
JAPAN......................... 4.9 22.1
ASIA-PACIFIC ................. 3.8 36.8
WESTERN EUROPE ............... 16.8 82.0
UNITED STATES ................ 38.7 135.8
BUSINESS STRATEGY
Our goal is to establish ourselves as a leading Web portal providing
access to international and national telecommunications services. We plan to:
Establish www.CallNOW.com as a Leading Telecommunications "Portal" on the
Internet. We believe that there is currently no global e-commerce brand for
telecommunications. A large portion of the proceeds of this offering will be
used to establish ourselves as a leading portal for telecommunications -- a
one-stop shop on the Web where Internet users can sign up for international
long distance, national long distance, calling cards, cellular rentals and
other services. We believe that our traditional business, ReturnCall, makes us
ideally suited to quickly service multiple markets because ReturnCall utilizes
touch tone telephone technology which is available in the markets we serve. We
plan to introduce country specific services in the approximately 200 countries
that we serve to reinforce our image as a local-based company. We will spend a
portion of the proceeds of this offering on country-specific branding of the
site. We are targeting countries with a large amount of international and
national long distance traffic and which also account for the deepest non-U.S.
Internet penetration.
38
<PAGE>
Focus on International Opportunities. We anticipate that approximately 80%
of our customers will continue to reside outside the U.S. In addition, we
expect that the majority of our new Web-based customers will be individuals and
small-sized companies with monthly international long distance bills between
$50 and $5,000. Because of the relatively small account size, these individuals
and corporations are generally not the primary targets of national carriers or
large resellers.
Leverage Multiple Distribution Channels. In order to reach the broadest
potential group of customers rapidly, we are executing a broadly based
affiliate program. This program will create local brand recognition through the
promotion by the affiliates targeted to their local subscribers and expand the
reach of our marketing efforts while offering other global e-commerce
organizations the opportunity of selling our telecommunications services in
local markets. We expect that this program will be particularly important in
geographic territories and market segments where populations of potential
customers are too diffuse to support traditional forms of advertising.
Create a "Sticky" Web Site for Cross Selling Products/Services and
Generating Incremental Advertising Revenues. Due to the nature of the services
available through our Web site, we believe customers will have reason to visit
our Web site frequently. This will provide us with the opportunity of cross
selling other products and services and enable us to sell targeted advertising
which will reach customers while they navigate our site. We expect advertising
to be approximately 10% of our revenue.
Expand Our Technology to New Applications. In order to expand our services
and the number of customers we can serve, we are expanding our technology to
new applications. Our Internet Trigger currently allows customers the ability
to originate a traditional telephone call from our Web site. Customers are
prompted to input their telephone number, the number they wish to call, click
on "submit," and our technology completes the call. In the future, we intend to
utilize our technology to allow customers who want to speak to customer service
agents to be automatically connected via a CallNOW.com button and to allow two
people in a chat session who want to speak to each other on a traditional
telephone to be connected through the ChatNOW.com button.
Develop Additional Services. We plan to expand the services we offer our
customers through our Web site to provide additional telecommunications
services. For example, in the next six to 18 months, we plan to offer direct
dial service in Europe, Japan and Australia for national and international long
distance through one or a number of networks. We intend to include Internet fax
within 90 days and paging within one year. As Internet telephony improves and
achieves greater acceptance, we may offer it through our site. We are also
developing Internet telephone services aimed at international corporate
customers.
Additionally, in the next three months, we plan to expand the global
online telephone directory services we currently offer to include more
countries and features, including language options. In the next six months, we
will provide customers who locate a number on the directory with the ability to
find out the cost to place a call to the number and, if desired, to place the
call immediately.
Utilize Strategic Acquisitions to Augment Portal Strategy. We intend to
use strategic acquisitions to augment our internally developed services in
order to achieve our goal of becoming a leading telecommunications "portal" on
the Internet. For example, in May 1999, we acquired Telephone Directories on
the Web, (www.teldir.com), an online assembly of international, national,
regional, and local telephone directories.
OUR TELECOMMUNICATIONS SERVICES
International Long Distance. We are a reseller of traditional and enhanced
telephone services routed through our own switch and licensed by the FCC. We
target a market consisting of customers who are primarily located outside the
United States. Our target market consists of individuals and smaller businesses
who historically have been considered by the international long distance
carriers and the large resellers to be too small a segment to cater to
cost-effectively, or whose access to low-cost services is restricted by
monopolistic national telephone companies. We are able to benefit from the
relatively low cost of international telephone service in the United States and
further from a
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differential in rates created by the present over-capacity of high speed voice
and data lines and networks around the world. Long distance carriers who own
the networks have long sold hundreds of millions of telephone "minutes"
annually to resellers. We purchase large blocks of the minutes, directly or
indirectly, from the carriers at prices discounted from U.S. rates and we are
able to pass along a significant portion of those discounts to our customers.
National Long Distance. In our markets, particularly Western Europe, our
customers are able to use ReturnCall to make calls within their country.
Following the experience in the U.S., many countries around the world are
starting to deregulate their long distance markets. We have identified these
countries and their key telecommunications providers. We are approaching these
providers to negotiate reseller agreements that will enable us to provide
direct dial service for national long distance locally through our Web site.
Free Global Online Telephone Directory. We recently acquired the assets of
Telephone Directories on the Web, an online assembly of international,
national, regional and local telephone directories, and provide it as a free
service on our Web site. Currently, we are generating over 1.6 million page
impressions per month. We believe that Telephone Directories on the Web will
draw many potential subscribers to our Web site. As a future service, we intend
to offer potential customers the opportunity to complete a call to any number
they have located. If potential customers attempt calls, we will then follow up
with an e-mail message encouraging them to sign up for our services.
OUR SOURCES OF REVENUE
Traditional Phone Calls. We expect that ReturnCall or direct dial service
for international and national long distance services will continue to provide
us with a substantial proportion of our revenues. Because we transmit customer
traffic through our proprietary software, we know the wholesale cost that we pay
and can control the retail prices we charge, subject to the competitive
pressures of the marketplace. In the international long distance business, we
have experienced a growth in retail gross margins which can be attributed to
wholesale prices declining faster than retail rates in markets where we provide
services. We provide our services over the Internet only to customers with major
international credit cards. Charges are pre-authorized based upon each customers
requested monthly limit which significantly reduces our exposure to fraud.
Other Telecommunications Services. We intend to offer other
telecommunications services on our Web site, including calling cards, paging,
Internet fax and an online directory for renting cellular phones. We intend to
negotiate wholesale, reseller or override agreements with various companies
offering these services. In addition, we plan on adding services to our global
online telephone directory, including the ability to dial any telephone number
accessed through the directory immediately.
Advertising. We expect to generate revenue through a variety of different
advertising and promotional opportunities. We intend to offer prospective
advertisers the opportunity to place customized ads on our Web site through
branding entire sections on our Web site, rotating and permanent placement of
buttons, logos and Web site links, integrated gateway ads and multimedia banner
ads. The data generated from customers' invoices and other sources will enable
us to sell targeted advertising space at a higher cost per thousand hits
because of the detailed information we have about our customers. We will also
sell traditional Web-based advertising through banners and advertising displays
on our Web site to companies seeking to reach customers meeting the profile of
our subscribers.
KEY FEATURES OF OUR SERVICE
Prior to implementing our Internet strategy, we sold our services largely
through local agents. These agents were primarily individuals and small
businesses which signed up customers for our services, and in many cases,
maintained accounts and collected bills. This system had many inefficiencies
and risks, including lack of a universal brand identity, high agent
commissions, lagging cash flows and the risks of collecting from the agents.
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By selling our services through the Internet, we bill our customers
directly against credit cards, thus avoiding lagging cash flow and collection
risks. We are able to establish universal brand identity and are able to
operate at a much lower cost while reaching a significantly wider universe of
potential customers. Traffic is driven to our Web site by our affiliates and we
typically pay them a commission based on referrals -after we have been paid by
our customer.
Most importantly, however, the Internet platform and our proprietary
software enable us to offer an array of fully-automated, real-time features
that include:
Ability to Survey Country Specific Rates. When potential customers enter
our Web site, a pull-down screen is presented which prompts them to input the
country from which they are calling. Our rate calculator then determines the
per minute rate for a call to any country selected.
Immediate Account Sign Up, Credit Card Validation and Account Information.
Upon entering our site, a customer may submit a completed application for our
service with credit card information to our corporate database server. The
server creates an account for the customer after identity, password, payment
method and credit limit are checked and validated during the registration
process. The customer is then assigned an access number which identifies the
customer and which can be used immediately to initiate calls. Our
communications switch routes all details of the call to our platform. All this
information is stored in our corporate database.
Immediate Call Information. A customer can review a report of a call
immediately upon termination of the call. This report includes the detail of
the date and time, country and number called, length and cost of the call. Our
communications switch tracks all details of the call and provides the
information to the billing platform. All this information is stored in real
time in our corporate database. Customers can also review details of each of
their calls from the date of inception of their account. To the best of our
knowledge, customers' ability to access interim account information is not
widely available outside the U.S.
Monthly Invoicing. At the end of each billing period, an invoice and the
related call detail information is automatically generated and e-mailed to
customers after their credit cards have been charged and, based upon the credit
limit, pre-approved for the next billing period. We believe that our Web-based
software enables customers to administer their telecommunications needs with an
ease and functionality that is innovative and user-friendly, particularly
compared to alternatives in overseas markets.
Automated Credit Card Billing and Pre-approval. Our software also
automatically validates and bills customers' credit cards every four weeks. The
bill is itemized and upon billing, the account is automatically pre-approved
for the next billing cycle.
While we are aware of several companies that offer customers the ability
to sign up for services online, their customers must still typically submit a
completed application form online or fax the printed form, and then wait to be
contacted by an operator to set up the account (which could take a few days).
More importantly, we are not aware of any other telecommunications company
currently providing the combination of services we provide in real-time on the
Internet on a global basis.
We believe our automated method of signing up, provisioning, activating
and providing account information with a cost effective customer acquisition
and administration system in real time on a 24 hour, 7 day per week basis can
be adapted to other online or e-commerce businesses. Accordingly, we believe
that with adaptation of the application specific codes, our proprietary
software has the potential to be used by and licensed to companies in other
industries.
FUTURE AND PLANNED SERVICES
We plan to introduce several new services in the future. These services
include:
Direct Dial Service. In the next six to 18 months, we intend to offer
direct dial service from Australia, Austria, Denmark, Finland, France, Germany,
Italy, Japan, Netherlands, Norway, Spain, Sweden, Switzerland and the United
Kingdom. Users of direct dial service do not hang up and wait
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for a return telephone call. Instead, they dial a PIC code or local number
(similar to 10-10-321 in the U.S.) prior to completing the call. Subscribers
will sign up for this service on our Web site in the same manner as our
ReturnCall service. We intend to expand the countries from which a caller can
use direct dial service as markets in other countries further deregulate and
this service becomes available in those countries.
Calling Cards. We have contracted with Interconnect, a U.S.-based calling
and debit card reseller for AT&T, to provide discounted AT&T calling card
services to our customers. We will sell co-branded AT&T/CallNOW.com calling
cards with access from 165 countries. These services will be provisioned in the
same manner as our international and national long distance service.
Fax Service Over The Internet. Through a contract with Equinox
International, LLC, a U.S. telecommunications wholesale provider, customers
will be able to send and receive faxes delivered through the Internet. We
expect to begin offering this service in February 2000.
Telephone Directory Button. We offer a free global online telephone
directory. Once customers find their desired telephone number in our directory,
a pop-up form will appear asking them if they want to be connected to this
telephone number. By entering their own telephone number in the pop-up form,
the connection will occur automatically without having to dial the telephone
number.
CallNOW.com Members' Services Customized Web Page. We plan to provide each
customer with a customized Web page which, in addition to call monitoring and
billing information, will contain the following services:
International and National Long Distance Account. Each customer will be
assigned an account number for our national and international long distance
service.
Virtual Calling Card. Through a contract with Equinox International, LLC,
a U.S. telecommunications wholesale provider, customers will be given a
pre-selected CallNOW.com online calling card displaying their name on their
personalized site. By clicking on various icons next to the card, customers
will be able to see a list of toll free access numbers, request a hard copy of
the card, or review their calling card charges. We expect to begin offering
this service in February 2000.
Virtual Phone Book. Customers will be able to store their frequently
called numbers under this service. Customers will be able to click on a
CallNOW.com button to initiate a call to one of their frequently called
numbers.
Virtual Conference Calls. Customers will be able to select from their
virtual phone book or enter numbers manually on a field that will automatically
set up conference calls at a time specified by them. At the designated time, all
parties will be called and customers will be able to verify that connections
have been made to the desired telephone numbers by looking at their computer
screens.
Free e-mail Account. A free e-mail account will be set up for every
customer with an address, such as [email protected].
Customer Account Information. Access to a customer's invoice and call
detail report will be provided under this service.
Other Services. We believe that we have the ability to use our existing
technology to enhance international customer service offered by potential
sponsors and our affiliates. We are exploring opportunities to provide such a
service.
SALES AND MARKETING
CallNOW.com Branding Strategy
To support our affiliate network and to promote CallNOW.com as a leading
portal for telecommunications, we plan to initiate an advertising campaign in
countries with a large amount of international and national long distance
traffic and which also account for the deepest non-U.S. Internet penetration.
This campaign will seek to establish CallNOW.com as the site to go to for a
single source solution for telecommunications needs. We plan to utilize multiple
advertising media,
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such as print, television, radio and Web-based advertising in order to build our
brand, increase traffic and raise our profile among potential advertisers.
Our advertising will be country specific.
Our advertising program will highlight the advantages of our services in
their targeted markets as well as emphasize CallNOW.com as the online resource
for finding telephone numbers. In markets in which telecommunications have just
recently been deregulated, we will educate customers about new services
available to them. In addition, this branding will assist local and regional
affiliates who promote our services.
Affiliate Strategy
We believe that establishing affiliate relationships with other parties in
the Internet and telecommunications industries is an effective means of
generating sales of our services on a global basis. We currently have over 200
affiliates. We believe that these affiliates are key to creating brand
recognition in many disparate markets that we would have difficulty accessing
purely by traditional advertising alone. The sponsorship of our service by
affiliates gives a local-based flavor to our services which is important in
establishing ourselves in many markets around the world. We have various types
of affiliates, such as:
Premier search engines and portals--We recently entered into agreements
with each of the European and Japanese joint ventures of Lycos to be a premier
telecom partner in those geographical areas. They will periodically place
banners, promotional buttons, text links and other hyperlinks from their home
pages and Web guides to our Web site resulting in having our name and services
prominently displayed and offered in some of the most high-traffic sites on the
Internet. Additionally, a similar presence will periodically be provided on
search results pages. Also, during any keyword search relating to our industry
or services, our name and services should appear in prominent positions. These
agreements expire in the first half of 2001, unless terminated earlier by mutual
consent or after one year upon 90 days' prior written notice or upon other
conditions. We are obligated to make minimum guaranteed payments in an aggregate
amount of $460,000 to these Lycos joint ventures in the next 18 months. In
addition, we are obligated to pay these Lycos joint ventures a commission, based
on recurring monthly revenue derived from each customer they deliver to us,
which is offset against the guaranteed payments. These transactions are not
exclusive for either party and we are actively seeking similar agreements with
other prominent search engines.
On August 26, 1999, we entered into a two year agreement with Orientation
Global Network, Inc, which operates Orientation.com, a growing network of
regional Internet portals. Orientation will receive a commission on recurring
revenue for customers that Orientation provides to us.
National and local search engines--In most countries outside the U.S.,
e-commerce is still in a development stage and local sites are looking for ways
to generate revenue and traffic. Currently, we have agreements with a few
overseas search engines who are promoting our services on their home pages.
Master affiliates--Master affiliates are Internet businesses which provide
a number of telecommunications (and other) services to a large number of retail
sub-affiliates. In August 1999, we signed agreements with a telecommunications
association representing 10,000 Web-based affiliates and with another group that
has over 20,000 telecom related Web sites. In November 1999, we contracted with
Be Free, Inc., a provider of services that enables its customers to generate,
place and manage hyperlink promotions for their products and services, to manage
the administration of our affiliate programs. We are constantly in discussions
with other parties who may want to become Master affiliates who we believe offer
us the possibility of greatly expanding our number of customers. However, no
assurance can be given that any of our discussions will actually result in
signed agreements.
Telecom related sites--Some traditional resellers of telecom services have
developed static Web sites to promote their business. These resellers are eager
to turn their Web sites into interactive sites allowing customers to sign up 24
hours per day, anywhere in the world. We are focused on this opportunity because
the existing customer base for these sites is looking specifically for telecom
services.
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E-commerce sites--We have been contacted by travel sites, hotel search
engines and e-commerce retailers that wish to market our services as an added
feature for their customers. We intend to pursue these opportunities with the
proceeds from this offering.
For the majority of our affiliates, we provide a standard, co-branded site
that is designed to yield an immediate sign up for our international and
national long distance services by their customers. These sites include:
o a rate calculator;
o an online sign up application;
o a service description;
o a link to customer service; and
o four language capability.
Affiliates are attracted by the recurring revenue stream and the ability to
provide more services to their customers who visit their sites and will then
want to return to their sites. Our affiliate agreements are structured on a
revenue sharing basis. We offer our affiliates a percentage of sales revenues
generated by the affiliates' customers. Affiliates generally introduce and
market our services to their customers via strategic placement of a permanent
click-through CallNOW.com icon on their Web sites. In addition to revenue from
sales, we gain a valuable list of customers with e-mail and regular addresses,
telephone numbers and other demographic information about them.
OUR INTELLECTUAL PROPERTY
Our Internet strategy, based upon our Web platform and our enhanced
services, are all enabled and driven by software, the principal components of
which are proprietary to us. The proprietary software was custom designed to
our specifications. We filed a U.S. patent application for our proprietary
software on August 28, 1998, and an international patent application under the
Patent Cooperation Treaty on August 27, 1999. In November 1999, the U.S. Patent
and Trademark office initially rejected our application. We plan to present
arguments in support of the patentability of our software. Our international
patent application, which designates all treaty jurisdictions (about 100
countries), gives us the right to file Patent Cooperation Treaty national stage
applications at any time prior to February 28, 2001, in all treaty
jurisdictions in which we elect to seek patents for our proprietary software.
We are continuously developing refinements and new features to our
software. Our proprietary software enables us to offer to our customers the
combination of services and features that we currently provide. We believe the
technology resident in our software and switches should allow us to
differentiate our service offerings and provide us with a competitive advantage
in the marketplace. However, we cannot assure you that others will not be able
to develop software solutions or methods to deliver services and combinations
of services similar to ours without infringing on our intellectual property
rights. For a description of the risks related to our intellectual property,
see "Risk Factors--Other Risks Related To Our Business Generally--Failure To
Protect Our Intellectual Property Could Adversely Affect Our Brand And Our
Business."
COMPETITION
Most of our competition in the international telecommunications market is
from traditional communications common carriers and telephone authorities
(first tier), other carriers and resellers (second and third tier), all of whom
are using the conventional Public Switched Telephone Network. Additionally, in
the last ten years, alternative carriers have emerged who operate globally
using ReturnCall technology and, more recently, voice over Internet protocol
("IP") technology. Other potential competitors include cable television
companies, wireless telephone companies, large end users who have private
networks and electric and other utilities with rights of way such as railways
and microwave carriers.
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The first tier carriers are companies such as AT&T, MCI-Worldcom, British
Telecom and other PTTs, international and local. Without exception, these
companies are very large, have vast financial resources, and service most of
the current end users today. These companies have multi-billion dollar
investments in, and control most of, the existing infrastructure.
Some of the alternative carriers and resellers who have emerged include
RSL, Viatel, Espirit Telecom, Ursus and IDT. These companies serve retail
markets in direct competition with us. For example, Ursus has recently
announced an Internet approach to selling and administering some of their
services in a manner that may be similar to ours. We are also aware of other
resellers (for example, Talk.com, formerly TelSav) that have a similar approach
to ours in the U.S. domestic market. We expect to see other competitors emerge.
These carriers serve the small to mid-sized business markets using various
technologies, including their own fiber networks and resale of others'
capacity, through direct dial service in deregulating markets, by ReturnCall
and, more recently, by IP telephony. Other tier carriers are strictly wholesale
carriers such as Facilicom International, our primary carrier.
Competition for customers in the telecommunications industry is primarily
based on price and, to a lesser extent, on services and on the type and quality
of services offered. In most markets in which we compete, and in particular,
those markets that have been deregulated, prices to the end-user customer have
been decreasing and are expected to continue to decrease. Thus, we have
experienced declining revenue per billable minute in all of our markets, in
part as a result of increased worldwide competition within the
telecommunications industry. We have no control over the prices set by our
competitors, and some of our competitors may be able to use their financial
resources to cause severe price competition in the countries in which we
operate. Any such price competition would have a material adverse effect on our
business, financial condition and results of operations.
Our services are currently marketed to individuals and small businesses
and thus, we generally do not compete with large-carrier alliances who
generally target larger corporate customers. In addition, many smaller carriers
have emerged, most of which specialize in offering national and international
telephone services utilizing dial up access methods. Although many of these
represent potential resale providers for us, others may choose to go directly
to end-users and compete with us.
We should not be confused with a new class of service provider using the
Internet rather than traditional switched-circuit voice networks to provide
call completion, sometimes known as Internet telephony. Internet telephony
services are marketed as a low-cost way to make phone calls over the Internet
using personal computers and/or traditional telephones. We view Internet
telephony as a new technology for voice calls and intend to offer it as an
option in the future based on the price/quality considerations of our
customers. Whether or not we offer Internet telephony, some Internet telephony
providers will compete with future features we may offer such as allowing the
user to speak with sales or customer service representatives of online
retailers and other Web-based businesses while visiting their Web sites,
including pop-up video phone capability at the computer.
GOVERNMENTAL REGULATION
We are subject to regulation as a telecommunications service provider in
some jurisdictions. In some countries where we operate or plan to operate,
local laws or regulations limit or require prior government approval for the
provision of international telecommunications service in competition with
authorized carriers. For example, we provide our services by purchasing minutes
from other carriers for resale to our customers. As a result, we may be
affected by increased regulatory requirements in foreign jurisdictions. Also,
local laws and regulations differ significantly among the jurisdictions in
which we operate or plan to operate, and, within such jurisdictions, the
interpretation and enforcement of such laws and regulations can be
unpredictable. There can be no assurance that future regulatory, judicial,
legislative or political changes will permit us to offer to residents of such
countries all or any of our services or will not have a material adverse effect
on us, that regulators or third parties will not raise material issues
regarding our compliance with applicable laws or regulations, or that
governmental decisions will not have a material adverse effect on our business.
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If we are unable to provide the services which we presently provide or
intend to provide or to use our existing or contemplated transmission methods
due to our inability to obtain or retain the requisite governmental approvals
for such services or transmission methods, or for any other reason related to
regulatory compliance or lack thereof, such developments could have a material
adverse effect on our business, financial condition and results of operations.
Regulation of the telecommunications industry is changing rapidly both
domestically and globally. The FCC is considering a number of international
service issues in the context of several policy rulemaking proceedings in
response to specific petitions and applications filed by other international
carriers. We are unable to predict how the FCC will resolve the pending
international policy issues or how such resolution will effect our
international business. In addition, the World Trade Organization Basic Telecom
Agreement (the "WTO Agreement"), which reflects efforts to eliminate
government-owned telecommunications monopolies throughout Asia, Europe and
Latin America may affect us. Although we believe that these deregulation
efforts will create opportunities for new entrants in the telecommunications
service industry, there can be no assurance that they will be implemented in a
manner that would benefit us.
The regulatory framework in certain jurisdictions in which we provide
services is described below:
United States
Pursuant to the Communications Act of 1934, as amended (the
"Communications Act"), the FCC is empowered to regulate the telecommunications
industry in the U.S. Under current FCC policy, telecommunications carriers
reselling the services of other carriers, and not owning domestic
telecommunications transmission facilities of their own, are considered
non-dominant and, as a result, are subject to streamlined regulation. The
degree of regulation varies between domestic interstate telecommunications
services (services which originate and terminate within the U.S.) and
international telecommunications services (services which originate in the U.S.
and terminate in a foreign country or vice versa).
Non-dominant providers of domestic interstate telecommunications services
do not require prior authorization from the FCC to provide service, they only
need to have a tariff on file with the FCC setting forth the terms, conditions
and rates of their interstate telecommunications services. Conversely,
non-dominant providers of international services must obtain authorization to
provide service from the FCC pursuant to Section 214 of the Communications Act.
Carriers providing international service also must file a tariff with the FCC,
setting forth the terms, conditions and rates under which they provide
international services. The FCC has determined that it no longer will require
non-dominant providers of domestic services to file tariffs. That decision has
been stayed, pending appeal by the U.S. Court of Appeals for the District of
Columbia Circuit.
We provide both domestic interstate and international services to and from
the U.S. and therefore must possess authority under Section 214 of the
Communications Act and must file tariffs for domestic interstate and
international services with the FCC. We have held a 214 Authorization to
provide international switched resale services since March 1996. We also have
tariffs on file with the FCC setting forth the terms and conditions under which
we provide domestic interstate and international services.
We must also conduct our international business in compliance with the
FCC's International Settlements Policy, the rules that establish the
permissible boundaries for U.S.-based carriers and their foreign correspondents
to settle the cost of terminating each others' traffic over their respective
networks.
In addition to these authorization and tariff requirements, the FCC
imposes a number of additional requirements on all telecommunications carriers,
such as prior approval of transfers of control, including pro forma transfers
of control (without public notice), corporate reorganizations, and assignments
of regulatory authorizations. Such requirements may delay, prevent or deter a
change in our control or our acquisition of another company.
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The FCC also imposes certain restrictions on U.S.-licensed
telecommunications companies that are affiliated with foreign
telecommunications carriers, especially if the foreign telecommunications
carrier obtains a greater than 25% interest in a licensed carrier. If we become
controlled by or under common control with a foreign telecommunications
carrier, or we obtain a greater than 25% interest in or control over a foreign
telecommunications carrier, the FCC could restrict our ability to provide
service on certain international routes.
The regulatory requirements in force today impose a relatively minimal
burden on us. There can be no assurance, however, that the current regulatory
environment and the present level of FCC regulation will continue, or that we
will continue to be considered non-dominant. Any changes in the current
regulatory framework may adversely affect our business, financial condition or
results of operations.
International Regulation
Under the WTO Agreement concluded on February 15, 1997, 69 countries
comprising 95% of the global market for basic telecommunications services
agreed to permit competition from foreign carriers. In addition, 59 of these
countries have subscribed to specific pro-competitive regulatory principles.
The WTO Agreement became effective on February 5, 1998, and has been
implemented, to varying degrees, by the signatory countries. We believe that
the WTO Agreement will increase opportunities for us and our competitors.
However, we cannot assure you that the WTO Agreement will result in beneficial
regulatory liberalization in all signatory countries.
On November 26, 1997, the FCC adopted the Foreign Participation Order to
implement the U.S. obligations under the WTO Agreement. In this order, the FCC
adopted an open entry standard for carriers from World Trade Organization
member countries, generally facilitating market entry for such applicants by
eliminating certain existing tests. These tests remain in effect, however, for
carriers from non-World Trade Organization member countries. Requests for
reconsideration of the Foreign Participation Order are pending at the FCC.
Increasing regulatory liberalization in many countries' telecommunications
markets now permits more flexibility in the way we can route calls. Some
countries, however, continue to restrict carriers from providing ReturnCall
services.
European Union
In Europe, the regulation of the telecommunications industry is governed
at a supra-national level by the European Union (EU) formed by: Austria,
Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg,
the Netherlands, Portugal, Spain, Sweden and the United Kingdom. The EU was
established by the Treaty of Rome and subsequent conventions and is authorized
by such treaties to issue EU directives. EU member states are required to
implement these directives through national legislation. If an EU member state
fails to adopt such directives, the European Commission may take action,
including referral to the European Court of Justice, to enforce the directives.
In March 1996, the EU adopted the Full Competition Directive which
requires EU member states to allow the creation of alternative
telecommunications infrastructures by July 1, 1996, and affirms the obligations
of EU member states to abolish the PTTs' monopolies in voice telephony by 1998.
The Full Competition Directive also allows certain EU countries to delay the
abolition of their voice telephony monopoly. Countries that still have
temporary exemption include Portugal which expires on January 1, 2000 and
Greece which expires on December 31, 2000.
Each EU member state in which we plan to begin offering direct dial
service has a different regulatory regime and such differences have continued
beyond January 1998. Most EU member states require companies to obtain a
license in order to provide voice telephony services or construct and operate
telecommunications networks. However, the EU generally does not permit its
member states to require individual licenses for other types of services. As a
result, we may be delayed in obtaining or may not be able to obtain licenses in
certain countries that would allow us to compete effectively. Failure to obtain
regulatory authority in any European country may adversely affect our business,
financial condition or results of operations.
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Australia
Two federal regulatory authorities have control over the operation of the
Australian telecommunications industry. The Australian Communications Authority
is the authority regulating matters such as the licensing of carriers and
technical matters, and the Australian Competition and Consumer Commission has
the role of promoting competition and consumer protection.
Under the Australian regulatory framework, we will not be required to
maintain a carriage license in order to supply carriage services to the public
using network facilities owned by another carrier. Instead, we must comply with
legislated "service provider" rules contained in the Australian
Telecommunications Act of 1997 covering matters such as operator services,
regulation of access, directory assistance, provision of information to allow
maintenance of an integrated public number database, and itemized billing. In
addition, other federal legislation, various regulations pursuant to delegated
authority, ministerial declarations, codes, directions and court decisions
affecting telecommunications carriers may also apply to us.
There can be no assurances that we can obtain regulatory authority in
Australia. Failure to obtain regulatory authority in the future may adversely
affect our business, financial condition or results of operations.
Japan
Japan's regulatory authority is the Ministry of Post and
Telecommunications which enforces the Telecommunications Business Law. Under
this law, we may be required to obtain a Special Type II license allowing us to
provide additional services in Japan. There can be no assurance that we will
obtain a Special Type II license. Our failure to obtain a Special Type II
license could have an adverse effect on our ability to expand our operations in
Japan and could adversely affect our business, financial condition or results
of operations.
Latin America
During recent years, several Latin American countries have taken steps to
liberalize their telecommunications markets. Chile, El Salvador, Guatemala,
Mexico and Peru are among the most liberalized. Several other countries,
including Argentina and Venezuela, have partially or totally privatized their
dominant local carriers and partially opened their markets to competition.
Some important developments in the Latin American telecommunications
markets include: (i) Argentina has recently issued new licensing regulations
for telecommunications providers, and is currently licensing new competitive
voice carriers that may begin providing services in November 2000; (ii) Brazil
established an independent regulator, and partially opened its
telecommunications market to competition; (iii) the Mexican local and long
distance markets have been opened to competition and Telmex, the dominant local
carrier, has been required to interconnect with the networks of competing
carriers; and (iv) other countries such as Chile, Guatemala, El Salvador and
Peru have fully liberalized their market for all telecommunications services.
The degree of regulation and liberalization in the region varies
significantly among countries. There can be no assurance that we will obtain
regulatory authority in any of these countries. Failure to obtain regulatory
authority in any country may adversely affect our business, financial condition
or results of operations.
RETURNCALL
We offer service by means of call re-origination, which we refer to as
ReturnCall, pursuant to an FCC Section 214 Switched Voice Authorization. The
FCC has determined that call re-origination service using uncompleted call
signaling does not violate U.S. or international law, but has held that U.S.
companies providing such services must comply with the laws of the countries in
which they operate as a condition of such companies' Section 214 Switched Voice
Authorizations. The FCC reserves the right to condition, modify or revoke any
Section 214 Authorizations and impose fines for violations of the
Communications Act or the FCC's regulations, rules or policies promulgated
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thereunder, or for violations of the clear and explicit telecommunications laws
of other countries that are unable to enforce their laws against U.S. carriers.
FCC policy provides that foreign governments that satisfy certain conditions
may request FCC assistance in enforcing their laws against U.S. carriers.
Thirty-five countries have formally submitted information to the FCC
stating that certain call re-origination services violate their laws. In
November 1996, 57 countries reported to the International Telecommunications
Union that call re-origination services are prohibited in their country. Except
for the Philippines and Saudi Arabia, the FCC has stated that it has not
determined whether these submissions by foreign governments to the FCC or the
ITU are sufficient evidence of illegality for purposes of the FCC taking
enforcement action against U.S. carriers.
To date, the FCC has only ordered carriers to cease providing call
re-origination services to the Philippines and Saudi Arabia. Future FCC
enforcement action could include an order to cease providing call
re-origination services to any other country ultimately found to have provided
sufficient information to the FCC, the imposition of one or more restrictions
on us, monetary fines or, ultimately, the revocation of our Section 214
Switched Voice Authorization, and could have a material adverse effect on our
business, financial condition and results of operations. See "Risk
Factors--Risks Related To The Telcommunications Business--Legality of
ReturnCall."
INTERNET TELEPHONY
United States
While we currently do not offer Internet telephony, we may offer it to our
customers in the future. We believe that under U.S. law the Internet-related
services that we provide and those that we may provide including IP telephony
constitute information services, rather than telecommunications services. As
such, our Internet-related services are not currently regulated by the FCC or
state agencies responsible for regulating telecommunications carriers (although
some parts of our future operations may be subject to state or federal
regulation such as universal service, confidentiality of communications,
copyright, and excise taxes). However, several efforts have been made to enact
federal legislation that would either regulate or exempt from regulation
services provided over the Internet. Therefore, we cannot assure you that
Internet-related services will not be regulated in the future. Increased
regulation of the Internet may slow its growth by negatively impacting the cost
of doing business over the Internet.
We also cannot assure you that Internet telephony will continue to be
lightly regulated by the FCC and state regulatory agencies. The FCC has
determined that, at present, information service providers, including Internet
telephony providers, are not telecommunications carriers; however, we cannot be
certain that this position will continue. On April 10, 1998, the FCC issued a
report to Congress discussing its implementation of certain universal service
provisions contained in the 1996 amendments to the Communications Act. In its
report, the FCC stated that it would examine whether phone-to-phone Internet
telephony should be considered an information service or a telecommunications
service. The FCC noted that certain forms of phone-to-phone Internet telephony
appeared to lack the characteristics of an information service and to have the
same functionality as non-Internet protocol telecommunications services. In
addition, the FCC is currently considering whether to impose surcharges and/or
other common carrier regulations upon certain providers of Internet telephony.
If the FCC or Congress determines that Internet telephony is subject to
regulation as a telecommunications service, it could adversely affect our
business, financial condition or results of operations.
International
The regulatory treatment of Internet telephony in other countries varies
widely and is subject to constant change. Some countries treat Internet
telephony as does the U.S. and currently impose little or no regulation.
Conversely, countries that prohibit or limit competition for traditional voice
telephony services generally do not permit Internet telephony or strictly limit
the terms under which it may be provided. Other countries regulate Internet
telephony like traditional voice telephony services or determine on a
case-by-case basis whether to regulate Internet telephony as a voice service or
as
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<PAGE>
another telecommunications service. Finally, in many countries, legislation or
the regulatory authorities have not addressed Internet telephony. The varying
and constantly changing regulation of Internet telephony in the countries where
we plan to begin providing services may adversely affect our business,
financial condition or results of operations.
The EU, for example, distinguishes between voice telephony, which may be
regulated by the member states, and other telecommunications services, which
are fully liberalized. As concerns Internet telephony, the European Commission
concluded in a Communication to the member states that, at present, Internet
telephony should not be considered voice telephony and thus should not be
regulated as such by the member states. However, the Commission noted that
providers of Internet telephony whose services satisfied the EU's definition of
voice telephony could be considered providers of voice telephony and could be
regulated by the member states. Moreover, Commission Communications are not
binding on the member states.
OTHER REGULATION AFFECTING THE INTERNET
United States
Congress has recently adopted legislation that regulates certain aspects
of the Internet, including content, user privacy, and taxation. In addition,
Congress and other federal agencies are considering other proposals that would
further regulate use of the Internet. For example, Congress is currently
considering legislation on a wide range of issues including Internet spamming,
database privacy, gambling, pornography and child protection, Internet fraud,
privacy, and digital signatures. Similarly, various states have adopted or are
considering Internet-related legislation. Increased regulation of the Internet
may slow its growth, which may negatively impact the cost of doing business
over the Internet and adversely affect our business, financial condition or
results of operations.
International
The EU has also enacted legislation affecting the Internet. In particular,
the EU imposes restrictions on the collection and use of personal data and
grants. EU citizens have broad rights to access and limit the use of their
personal data. U.S. companies that collect or transmit information over the
Internet from individuals in EU member states are subject to EU legislation,
which imposes restrictions that are more stringent than existing Internet
privacy standards in the U.S. The potential effect on us of the EU legislation
or similar legislation elsewhere is uncertain. A prohibition on the export of
personal data could adversely affect our business, financial condition or
results of operations.
EMPLOYEES
As of November 8, 1999, we had 19 employees. In addition, we use
independent contractors and consultants when needed. We currently lack the
personnel that will be necessary for our expected growth. We intend to use a
significant portion of the proceeds of the offering to add additional
personnel, including management, sales personnel, technical personnel and
business development personnel. See "Use of Proceeds." In order to attract
qualified personnel, we may be required to offer incentives such as stock
options, stock awards or other additional non-cash compensation or may be
required to allocate a greater portion of the proceeds of the offering for this
purpose than is currently anticipated. None of our employees is represented by
a labor union, and we consider our employee relations to be satisfactory.
PROPERTIES
We lease an aggregate of approximately 4,000 square feet of office space
in New York, New York pursuant to two leases, both of which were entered into
in 1999, for our executive and administrative offices, at a total annual rental
of approximately $89,000. Both leases expire on April 30, 2002.
LEGAL PROCEEDINGS
Viatel, Inc. commenced an arbitration with the American Arbitration
Association, New York Regional Office, alleging that it is owed $194,672.40 by
us for "telecommunications services" provided
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by Viatel. We have asserted counterclaims against Viatel alleging that Viatel
has engaged in unjust and unreasonable charges and/or practices in violation of
the Communications Act. We have requested that we be awarded our actual
damages, in an amount to be determined at arbitration, as well as an award of
costs and reasonable attorneys' fees. Arbitration took place on August 31, 1999
and the parties have exchanged Post-Arbitration Briefs. A decision is expected
in November, 1999. We have accrued the full amount of the claim. However, we
and our legal counsel are optimistic that the matter will be resolved on terms
more favorable to us.
Reid Bernstein, an independent financial advisor, has alleged that he was
offered an opportunity by us to assist in the location of a potential candidate
for merger or acquisition, or a related financing. Mr. Bernstein claims to be
owed a five percent interest in us and a consulting fee of $60,000. Our
position is that no agreement was ever executed and delivered between the
parties, and, in any event, Mr. Bernstein did not perform. No arbitration
demand or summons and complaint has been served, either by or upon us. The
parties are currently discussing a resolution of the matter. We believe that we
have meritorious defenses to any claim which may be brought by Mr. Bernstein,
and if any such claim is brought, we will defend it vigorously.
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MANAGEMENT
OUR EXECUTIVE OFFICERS AND DIRECTORS
Our executive officers and directors are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---------------------------------- ----- ---------------------------------------
<S> <C> <C>
Christian Bardenheuer ............ 40 Chairman of the Board of Directors and
Chief Executive Officer
Warner R. Johnson, Jr. ........... 37 President and Director
Christopher R. Seelbach .......... 60 Chief Operating Officer, Acting Chief
Financial Officer and Director
Martin Casanova .................. 45 Chief Technical Officer
Edward Cabot ..................... 34 Director
Todd A. Goergen .................. 27 Director
Robert S. Tolmach, Jr. ........... 44 Director
</TABLE>
Christian Bardenheuer has served as our Chairman of the Board of Directors
and Chief Executive Officer since April 1999 and as Managing Director of our
subsidiary, Axicom, since its inception in August 1994. Prior to his
co-founding Axicom, from early 1993 to August 1994, Mr. Bardenheuer served as
President of Intertel Communications S.A., a Paris based telephone services
company and was responsible for forming strategic alliances with international
carriers and its marketing strategy. In addition, from 1992 to 1993, he was an
independent consultant to senior management at Viatel Inc., an international
telecommunications company, consulting on opportunities in Latin America. From
1990 to 1992, he worked as Vice President International at FM International, an
international management consulting firm. Prior to that, he worked with Reseal
International Limited Partnership, a high-tech packaging company, as Vice
President in the International Business Development Department. Mr. Bardenheuer
studied architecture at Universidad Piloto de Colombia from 1978 to 1981, and
continued his studies at the Universidad de los Andes for a General Managing
Program until 1982. He became a U.S. resident in 1982.
Warner R. Johnson, Jr. has served as our President and as a Director since
April 1999 and as Managing Director of Axicom, which he co-founded with
Christian Bardenheuer, since August 1994. Mr. Johnson was Director of Finance
of Viatel, Inc. from October 1992 through August 1994. From 1984 to 1990, he
held various capital markets and investment banking positions at PaineWebber,
Inc. in New York. Mr. Johnson received an A.B. in History/American Civilization
from Brown University in 1984 and an M.B.A. from Columbia University in 1987.
Christopher R. Seelbach has served as our Chief Operating Officer and
Acting Chief Financial Officer since June 1999 and as a Director since August
1999. Mr. Seelbach began consulting for Axicom in May 1998. From 1994 to 1998,
Mr. Seelbach was an independent consultant and served as President and Chief
Executive Officer of Belcom, Inc., a COMSAT telecommunications investment, and
as Acting President of Skysat Communications Network Corporation, a
telecommunications business development company. From 1992 to 1994, he was
Chief Operating Officer of Viatel, Inc. Prior to that, he was an executive with
a number of technology-based companies and venture capital firms. Mr. Seelbach
also was a consultant at McKinsey & Co. from 1967 to 1970. Mr Seelbach received
a B.S. in engineering from the U.S. Naval Academy in 1961 and an M.B.A. from
Columbia University in 1967.
Martin Casanova has served as our Chief Technical Officer since February
1996. From July 1993 to January 1996, Mr. Casanova was the Technical Director
for development of communications software of Sitel, Inc. From October 1992 to
June 1993, he was an assistant in software development at Brainstorm Monitoring
Corporation. From 1980 to 1992, Mr. Casanova was on the teaching staff of the
National University of Mar Del Plata in Buenos Aires, Argentina. He completed
his studies in electrical engineering at the National University of Mar Del
Plata in 1979.
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Edward Cabot was appointed as a Director in September 1999. Mr. Cabot has
served as the principal of Cabot Design, an interior design firm, which he
founded in 1995. From 1991 to 1995, he was a principal at Lesser Frich Cabot,
an architectural and design firm. Mr. Cabot received a B.A. in 1987 and a
Masters of Architecture in 1991, both from Columbia University.
Todd A. Goergen was appointed as a Director in September 1999. Mr. Goergen
has served as the Director of Acquisitions and Corporate Development at Blyth
Industries, Inc., a NYSE company, since 1999. Mr. Goergen also serves as a
Manager for ROPART Investments LLC, a family investment partnership. He sits on
the board of directors of several private companies, including Surfree.com, an
Internet service provider. From 1994 to 1999, he was an Associate and an
Analyst in the Mergers and Acquisitions Group of Donaldson, Lufkin & Jenrette.
Mr. Goergen received a B.A. with a double major in Economics and Political
Science from Wake Forest University in 1994.
Robert S. Tolmach, Jr. was appointed as a Director in September 1999.
Since 1998, Mr. Tolmach has served as a Managing Director of Environmental
Property Group, LLC, a fund that invests in remediating environmentally
sensitive properties. In 1998, he founded Verrazzano Partners LLC, which is
developing a Staten Island Ferry as a New York City Expo in Japan. From 1987 to
1991, Mr. Tolmach served as senior real estate manager for James D. Wolfensohn,
Incorporated. From 1986 to 1987, he was an associate at Carodan Corporation, a
real estate development and consulting firm, and from 1982 to 1986, he was a
principal at Arquitectonica International Corporation, an architectural firm,
and headed the firm's Texas office. From 1984 to 1986, he owned and developed
real estate in Houston and from 1980 to 1982, he was an architectural designer
in Houston. He received a B.A. with a double major in architecture and fine
arts from Rice University in 1978, and a B. Arch. from Rice University in 1980.
Pursuant to a letter agreement entered into in connection with its
investment in us, ROPART Investments LLC has the right to appoint one member of
our Board of Directors. However, such appointment is limited to one of either
Robert B. Goergen, Todd A. Goergen or Robert B. Goergen, Jr. On September 14,
1999, Todd A. Goergen was appointed to our Board of Directors as the initial
nominee of ROPART Investments LLC.
BOARD COMMITTEES
Executive Committee
Between meetings of our full board of directors, the Executive Committee
may exercise all of the power and authority of the board in the oversight of
the management of our business and affairs, subject to limitations imposed
under Delaware law. The members of the Executive Committee are Messrs.
Bardenheuer, Johnson and Seelbach, and Mr. Bardenheuer serves as Chairman of
the Executive Committee.
Audit Committee
The Audit Committee will review our internal accounting procedures and
controls and consult with and review the services provided by our independent
accountants. The members of the Audit Committee are Messrs. Cabot and Goergen.
Compensation Committee
The Compensation Committee will review and determine the stock option
grants for all employees, consultants, directors and other individuals and
review and determine the salaries of the Chief Executive Officer and the other
executive officers. In addition, the members of the Compensation Committee will
also review the terms of any transactions with any of our officers, directors,
or 10% stockholders to insure that the terms of any such transaction are fair
and reasonable. The members of the Compensation Committee are Messrs. Cabot,
Goergen and Tolmach, Jr.
DIRECTOR COMPENSATION
As compensation for their services, we expect to make annual grants of
options to purchase shares of our common stock to our independent directors. In
connection with the appointment of
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Messrs. Cabot, Goergen and Tolmach, Jr. as directors, we awarded each of them
an initial grant of options to purchase 10,000 shares of our common stock
pursuant to our stock option plan at an exercise price of $2.75 per share
(subject to an increase in exercise price if our compensation committee
determines that such increase is necessary based on third party determinations
of fair market value) vesting ratably over three years. We will also reimburse
directors for out-of-pocket expenses incurred in connection with attending
board of directors and committee meetings.
EMPLOYMENT AND CONSULTING AGREEMENTS
In November 1998, we entered into a consulting agreement with Christopher
R. Seelbach, now our Chief Operating Officer and Acting Chief Financial
Officer. Pursuant to the terms of the agreement, Mr. Seelbach was to have been
paid consulting fees of $5,000 per month from August 1998 through February
1999, and $10,000 per month from March 1999 until revenues reach $1.0 million
per month at which time his compensation will be increased to $15,000 per
month. As of the date of this prospectus, we owe Mr. Seelbach approximately
$15,000 representing consulting fees, which we intend to pay from the net
proceeds of this offering. For a discussion of payments owed to Mr. Seelbach,
see "Use of Proceeds" and "Related Party Transactions."
In addition, pursuant to the terms of the agreement, in 1998 and 1999, Mr.
Seelbach has been granted options to purchase 282,825 shares of our common
stock at exercise prices ranging from $.01 to $2.75 per share, representing
approximately 4.3% of our outstanding common stock prior to the offering
(assuming the exercise of such options).
During November 1999, we entered into an employment agreement with Mr.
Seelbach that replaced the November 1998 consulting agreement. Pursuant to the
terms of his employment agreement, Mr. Seelbach continues to be our Chief
Operating Officer and Acting Chief Financial Officer. The employment agreement
is for a one-year period and is automatically renewable for one additional year
unless we provide written notice to the contrary to Mr. Seelbach at least 60
days prior to the expiration of the agreement. The employment agreement
provides for monthly compensation of $10,000. Mr. Seelbach's compensation
increases to $14,000 per month upon the successful completion of this offering
for so long as he is both our Chief Operating Officer and the Acting Chief
Financial Officer. His compensation will be $12,000 for any period that he is
only our Chief Operating Officer. If our revenue increases to $1,000,000 per
month, his base salary will increase to $15,000 per month. Mr. Seelbach is also
entitled to participate in any bonus plan instituted by us. In addition, the
employment agreement requires us to grant non-qualified stock options in
connection with each equity financing that we consummate until the earlier of
(1) immediately following the successful completion of this offering or (2)
October 31, 2000. He will be granted options to purchase 5% of the number of
shares issued pursuant to such financing at an exercise price equal to the
purchase price paid by the investor or the public offering price if applicable.
The options will have an exercise term of five years. Thus, as part of this
offering, Mr. Seelbach will be granted options to purchase 200,000 shares at
the public offering price.
In July 1999, we entered into an employment agreement with Martin
Casanova. This agreement terminates in July 2001 and is automatically renewed
from year to year unless terminated by mutual agreement or by either party upon
60 days' notice. As our Chief Technical Officer, Mr. Casanova's duties include
operating, maintaining, and upgrading the hardware and software necessary for
the telecommunications services we provide and developing additional services,
such as calling cards and IVR services. He receives an annual base salary of
$120,000. In addition, subject to the discretion of our Board, Mr. Casanova may
be awarded an annual bonus of up to 20% of his annual base salary. He has been
granted options to purchase 45,000 shares of our common stock pursuant to our
stock option plan. For a description of a transaction entered into between a
company controlled by Mr. Casanova and us, see "Related Party Transactions."
EXECUTIVE COMPENSATION
The following table sets forth the annual and long-term compensation for
services in all capacities paid by us during 1996, 1997 and 1998 to our Chief
Executive Officer. No executive officer's
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compensation exceeded $100,000 during such years. For 1999, Messrs. Bardenheuer
and Johnson will each receive an annual salary of $180,000, effective upon the
consummation of this offering and retroactive to January 1, 1999, and a bonus
of up to 20% of their annual salary. For 1999, Mr. Seelbach will receive an
annual salary of $110,000 in accordance with his consulting/employment
agreement. For further details of Mr. Seelbach's consulting agreement, see
"--Employment and Consulting Agreements."
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM
---------------------------------------------------- COMPENSATION:
OTHER SHARES
NAME AND PRINCIPAL ANNUAL UNDERLYING ALL OTHER
POSITION YEAR SALARY BONUS COMPENSATION OPTIONS COMPENSATION
- ------------------------- ------ ---------------- ------- -------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Christian Bardenheuer 1998 $ 98,000(1) -- -- -- --
Chairman of the Board 1997 $ 90,000(2) -- -- -- --
of Directors and Chief 1996 $ 35,144 -- -- -- --
Executive Officer
</TABLE>
- ----------
(1) $15,500 of such salary was deferred and will be paid out of the net
proceeds from this offering.
(2) Approximately $15,300 of such salary was deferred and will be paid out of
the net proceeds from this offering.
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information regarding options granted in the
last fiscal year to an executive officer.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-------------------------------------
POTENTIAL REALIZABLE
VALUE AT
PERCENT OF ASSUMED ANNUAL RATES
NUMBER OF TOTAL OF
SECURITIES OPTIONS STOCK PRICE
UNDERLYING GRANTED TO APPRECIATION FOR
OPTIONS EMPLOYEES EXERCISE OF OPTION TERM
GRANTED IN FISCAL BASE PRICE EXPIRATION ---------------------
NAME (#) YEAR ($/SH) DATE 5% ($) 10% ($)
- --------------------------------- ------------ ----------- ------------ ------------------ ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Christopher Seelbach(1) ......... 96,875 100% $ 1.00 October 31, 2003 $26,765 $59,143
</TABLE>
- ----------
(1) For a further discussion of these options, see "--Employment and
Consulting Agreements."
Our Board of Directors has adopted a stock option plan, subject to
stockholder approval, pursuant to which we have reserved 2,200,000 shares of
common stock for issuance upon exercise of options which may be granted under
the plan. In September 1999, Mr. Casanova was granted options to purchase
45,000 shares and each of Messrs. Bardenheuer and Johnson were granted options
to purchase 300,000 shares of common stock at exercise prices of $2.75 per
share (subject to an increase in exercise price if our compensation committee
determines that such increase is necessary based on third party determinations
of fair market value), pursuant to this plan. See "--1999 Stock Option Plan."
In 1999, Mr. Seelbach was granted options to purchase 185,950 shares of
our common stock at exercise prices ranging from $.01 to $2.75 per share,
representing approximately 2.9% of our outstanding common stock prior to this
offering (assuming the exercise of such options). As part of this offering, Mr.
Seelbach will be granted options to purchase 200,000 shares at the public
offering price. For a further discussion of these options, see "--Employment
and Consulting Agreements."
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1999 STOCK OPTION PLAN
In September 1999, our Board of Directors adopted the 1999 Stock Option
Plan. The 1999 Plan is subject to approval by our stockholders which we intend
to seek prior to the closing of this offering.
The 1999 Plan provides for the grant of options to purchase up to, but not
in excess of, 2,200,000 shares of common stock to our officers, directors,
agents, consultants and independent contractors. Options may be either
"incentive stock options" within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended, or non-qualified options. Incentive stock
options may be granted only to our employees or employees of our subsidiary,
while non-qualified options may be granted to such persons and to non-employee
directors and consultants.
The 1999 Plan is administered by our Board of Directors or by our
Compensation Committee (the "Administrator"), which determines, among other
things, those individuals who receive options, the time period during which the
options may be exercised, the number of shares of common stock issuable upon
the exercise of each option and the option exercise price. The exercise price
per share of common stock subject to an incentive stock option may not be less
than the fair market value per share of common stock on the date the option is
granted (110% in the case of an incentive stock option granted to a person who
owns, directly or indirectly, at the time of the granting of an incentive stock
option to such person, 10% or more of the total combined voting power of all
classes of stock of us (a "10% Shareholder")). The exercise price per share of
the common stock subject to a non-qualified option may be established by the
Administrator. The aggregate fair market value, determined as of the date the
option is granted, of common stock for which any person may be granted
incentive stock options which first become exercisable in any calendar year
cannot exceed $100,000.
No stock option may be transferred by an optionee other than by will or
the laws of descent and distribution, and, during the lifetime of an optionee,
the option will be exercisable only by the optionee. In the event of
termination of employment other than by death, retirement or permanent and
total disability, the optionee will have no more than three months after such
termination during which the optionee shall be entitled to exercise all or any
part of such employee's option, unless otherwise determined by the
Administrator. Upon termination of employment of an optionee by reason of
death, retirement or permanent or total disability, such optionee's options
remain exercisable for one year thereafter to the extent such options were
exercisable on the date of such termination.
Options under the 1999 Plan must be issued within ten years from the
effective date of the Plan. Incentive stock options granted under the 1999 Plan
cannot be exercised more than ten years from the date of grant (five years in
the case of an incentive stock option granted to a 10% Shareholder). All
options granted under the 1999 Plan will provide for the payment of the
exercise price in cash or check or by delivery to us of shares of common stock
having a fair market value equal to the exercise price of the options being
exercised, or by a combination of such methods, or by such other methods
approved by the Administrator pursuant to the 1999 Plan. Therefore, an optionee
may be able to tender shares of common stock to purchase additional shares of
common stock and may theoretically exercise all of such optionee's stock
options with no investment.
Any unexercised options that expire or that terminate upon an employee's
ceasing to be employed by us become available again for issuance under the 1999
Plan. To date, options to purchase 972,400 shares of our common stock at
exercise prices of $2.75 per share (subject to an increase in exercise price if
our compensation committee determines that such increase is necessary based on
third party determinations of fair market value), have been granted under the
1999 Plan. All such options are subject to the approval of the 1999 Plan by our
stockholders.
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RELATED PARTY TRANSACTIONS
REORGANIZATION TRANSACTION
On March 19, 1999, Axicom issued a convertible debenture in the principal
amount of $500,000 to GEM France, S.A. (the "March Debenture"). The March
Debenture was convertible by its terms into 628,585 shares of our common stock.
GEM France subsequently assigned $50,000 principal amount of the March
Debenture to Turbo International Inc.
On April 6, 1999, in a series of related transactions, GEM France and
Turbo converted the March Debenture into 628,585 shares of our common stock as
part of the Axicom-American Ostrich transaction. Of this amount, 565,726
shares, or approximately 11.25%, were issued to GEM France. In connection with
the Axicom-American Ostrich transaction, Axicom's shareholders received
3,875,000 shares, or 88% of the issued and outstanding common stock of American
Ostrich Corporation, on a fully-diluted basis. Also, GEM Global Fund received
251,433 shares, or approximately 5% of our fully-diluted common stock, as a fee
for arranging for and structuring this transaction. Immediately after this
transacation, American Ostrich Corporation reincorporated in Delaware and
changed its name to CallNOW.Com, Inc.
In June 1999, we issued to GEM Investments Ltd. a convertible debenture in
the principal amount of $479,000 (the "June Debenture"). The June Debenture was
issued in tandem with warrants entitling the holder to purchase 100,000 shares
of our common stock at an exercise price of $0.01 per share (the "GEM
Warrants"). In September 1999, GEM Investments Ltd. converted the June
Debenture into 343,662 shares of our common stock and exercised the GEM
Warrants for 100,000 shares of our common stock.
All of the shares of common stock issued or issuable to GEM France, Turbo,
GEM Investments Ltd. and certain other shareholders of American Ostrich
Corporation are exempt from registration under the Securities Act and are
freely tradable pursuant to Rule 504 of Regulation D promulgated under the
Securities Act.
As of the date of this prospectus, GEM France no longer owns any shares of
our common stock and GEM Investments Ltd. owns approximately 7% of our
outstanding common stock.
SEELBACH FINDER'S FEE
In November 1998, we entered into a finders fee agreement with Christopher
R. Seelbach, now our Chief Operating Officer and Acting Chief Financial
Officer. Pursuant to the finders fee agreement, Mr. Seelbach was to be paid
$35,000 in connection with the $500,000 extension of credit by one of our
suppliers. As of the date of this Prospectus, we still owe Mr. Seelbach this
$35,000 fee, which we intend to pay from the net proceeds of this offering. For
further information, see "Use of Proceeds" and "Management--Employment and
Consulting Agreements."
CASANOVA SALE OF TECHNOLOGY AGREEMENT
On July 28, 1999, we entered into an agreement with Smart Software, a
corporation controlled by Mr. Martin Casanova, now our Chief Technical Officer,
who designed our telephone switching software. The agreement provides that,
over a period of two years, Mr. Casanova will complete the documentation of the
software we acquired from Smart Software. Smart Software will receive an
aggregate of $400,000 in eight quarterly installments, $200,000 of which will
be paid in the next 12 months with the proceeds of this offering. In addition,
we purchased the Software for an aggregate of 30,000 shares of our common
stock. For further information, see "Management--Employment and Consulting
Agreements."
SALARY OWED TO SENIOR MANAGEMENT
As of September 30, 1999, we owed Messrs. Bardenheuer and Johnson an
aggregate of approximately $61,000 for accrued and unpaid salary relating to
1997 and 1998. We intend to pay the entire amount out of the net proceeds of
this offering. For further information, see "Use of Proceeds."
57
<PAGE>
LOAN FROM OFFICER
Mr. Johnson, our President, loaned us $100,000 in 1996. The loan bore
interest at 12% per year. In addition, we were responsible for any interest and
penalties incurred by Mr. Johnson arising from unpaid tax liabilities resulting
from a gain on marketable securities sold by him to fund the loan. During 1999,
this liability, including interest on the loan and any interest and penalties
arising from Mr. Johnson's income tax deficiency, were paid in full. Such
penalties and interest on the tax deficiency totaled approximately $13,000.
Such charges were included as interest expense in our financial statements.
OPTIONS GRANTED TO OUR FOUNDERS
In September 1999, Messrs. Bardenheuer and Johnson were each granted
options to purchase 300,000 shares of common stock at an exercise price of
$2.75 per share (subject to an increase in exercise price if the Compensation
Committee determines that such increase is necessary based on third party
determinations of fair market value), pursuant to our stock option plan. For
further discussion of options we have granted, see "Management--Options Grants
In Last Fiscal Year."
58
<PAGE>
PRINCIPAL, SELLING AND REGISTERING STOCKHOLDERS
The following tables set forth certain information, as of November 1, 1999
and as adjusted to reflect the sale of 4,000,000 shares of common stock by us
in this offering, regarding beneficial ownership of our common stock by (1)
each director and executive officer, (2) all persons known by us to
beneficially own more than 5% of our common stock, (3) all directors and
executive officers as a group, (4) the stockholders who are selling shares in
this offering (adjusted to include the sale of their respective shares), and
(5) the stockholders whose shares are being registered pursuant to the
registration statement of which this prospectus forms a part but which are
subject to 180 day lock-up agreements. The principal stockholders table gives
effect to the shares of common stock that could be issued upon the exercise of
outstanding options and warrants which are or will become exercisable within 60
days of the date of this prospectus. Unless otherwise indicated in the
footnotes to the principal stockholders table, the following individuals have
sole voting and sole investment control with respect to the shares they
beneficially own, subject to community property laws where applicable.
<TABLE>
<CAPTION>
PRINCIPAL STOCKHOLDERS
--------------------------------------------------------
SHARES SHARES
BENEFICIALLY BENEFICIALLY
NAME AND ADDRESS OF OWNED PRIOR TO OWNED AFTER THE
BENEFICIAL OWNER OFFERING OFFERING
- --------------------------------------- --------------------------- --------------------------
NUMBER PERCENTAGE NUMBER PERCENTAGE
------------ ------------ ------------ -----------
<S> <C> <C> <C> <C>
Christian Bardenheuer (1) ............. 969,539 15.35% 969,539 9.40%
Warner Johnson, Jr. (1), (2) .......... 1,036,477 16.41% 1,036,477 10.05%
Christopher Seelbach (1), (3) ......... 193,750 2.98% 193,750 1.84%
Martin Casanova (1), (4) .............. 30,000 * 30,000 *
Todd A. Goergen (5)
c/o ROPART Investments LLC
100 Field Point Rd
Greenwich, CT 06830 .................. 90,909 1.43% 90,909 *
Edward Cabot
c/o McAlpine Associates
394 Broadway, 5th Floor
New York, NY 10013 ................... 125,510 1.99% 125,510 1.22%
Robert S. Tolmach, Jr.
c/o Verrazzano
Development Partners
330 East 38th Street
Apt. 54-O
New York, NY 10016 ................... 9,090 * 9,090 *
GEM Global Yield Fund Limited
c/o Loughtan 8 Co. 38 Hertford
Street
London WIY 7TG ....................... 443,662 7.03% 443,662 4.30%
Upper Brook Ltd. (6)
c/o Citco Bank and Trust Company
(Bahamas) Limited
P.O. Box CB-13136
Nassau Bahamas ....................... 507,272 8.03% 380,454 3.69%
Executive Officers and Directors as a
group (7 persons) (7) ................ 2,455,275 37.72% 2,455,275 23.36%
</TABLE>
59
<PAGE>
- ----------
* less than 1%
(1) Except as otherwise indicated, the address for the referenced stockholders
is c/o CallNOW.com, Inc., 50 Broad Street, New York, New
York 10004.
(2) Includes 33,469 shares of common stock held by Mr. Johnson's parents and
33,469 shares of common stock held by Mr. Johnson's brother. Mr. Johnson
disclaims beneficial ownership of such shares.
(3) Includes 193,750 shares of common stock which are issuable pursuant to
options exercisable within 60 days.
(4) Restricted shares which become vested in four semi-annual installments
commencing January 28, 2000.
(5) ROPART Investments LLC is the beneficial owner of 90,909 shares of common
stock and Mr. Goergen is a Manager of ROPART Investments LLC.
(6) Includes 126,818 shares being sold in this offering and 380,454 shares
being registered by us for Upper Brook Ltd., but not included in this
offering.
(7) See footnotes 2 through 5 above.
- ----------
<TABLE>
<CAPTION>
SELLING AND REGISTERING STOCKHOLDERS
-------------------------------------------------------------------------------
NUMBER OF
SHARES NUMBER OF SHARES TO BE SHARES
BENEFICIALLY SHARES TO BE REGISTERED IN BENEFICIALLY
NAME AND ADDRESS OF OWNED PRIOR TO SOLD IN CONNECTION OWNED AFTER THE
BENEFICIAL OWNER OFFERING OFFERING WITH THE OFFERING OFFERING
- --------------------------------- ---------------------- -------------- ------------------- ---------------------
NUMBER PERCENTAGE NUMBER PERCENTAGE
--------- ------------ --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Upper Brook Ltd.
c/o Citco Bank and Trust Company
(Bahamas) Limited
P.O. Box CB-13136
Nassau Bahamas ................. 507,272 8.03% 126,818 380,454 380,454 3.69%
Eden Capital Fund Limited
18 Upper Brook Street
London W1Y 1PD
England ........................ 38,182 * 9,546 28,636 28,636 *
New York Community Investment
Company L.L.C.
120 Broadway, 36th Floor
New York, NY 10271 ............. 114,109 1.81% 28,527 85,582 85,582 *
</TABLE>
- ----------
* less than 1%
60
<PAGE>
DESCRIPTION OF SECURITIES
The following summary description of our capital stock and selected
provisions of our certificate of incorporation and bylaws is qualified in its
entirety by reference to our certificate of incorporation and bylaws.
COMMON STOCK
We are authorized to issue up to 50,000,000 shares of common stock, par
value $.001 per share, of which 6,314,366 shares are outstanding as of the date
of this prospectus. Holders of common stock are entitled to one vote for each
share held of record on each matter submitted to a vote of stockholders. There
is no cumulative voting for election of directors. Subject to the prior rights
of any series of preferred stock which may from time to time be outstanding, if
any, holders of common stock are entitled to receive ratably dividends when, as
and if declared by the Board of Directors out of funds legally available
therefore and, upon our liquidation, dissolution or winding up, are entitled to
share ratably in all assets remaining after payment of liabilities and payment
of accrued dividends and liquidation preferences on the preferred stock, if any.
Holders of common stock have no preemptive rights and have no rights to convert
their common stock into any other securities. Our outstanding shares of common
stock are, and the shares offered by us in this offering will be, when issued
and paid for, fully paid and nonassessable.
CONVERTIBLE DEBENTURES
In August 1999, we issued two 5% convertible debentures in the aggregate
principal amount of $1,276,300 that mature in August 2002. For the first six
months after issuance, we are only obligated to make interest payments.
Thereafter, we are obligated to repay the principal in thirty equal
installments, plus interest. In the event that we raise a minimum of $5,000,000
in debt or equity, each debenture holder has the right to have its debt and
accumulated interest paid in four equal monthly installments. The debentures are
convertible at any time, in whole or in part, at the option of the each
debenture holder, into our common stock. One debenture is convertible at an 80%
discount to the average of the closing bid prices of our common stock for the
five trading days preceding the conversion while the other is convertible at a
90% discount to such average price. For both debentures, the conversion price
cannot be less than $7.06. The shares of common stock into which the debentures
are convertible are subject to transfer restrictions under the Securities Act of
1933, as amended, and under the terms of the debenture. We have agreed that upon
the earlier of nine months from the date of issuance of each debenture or the
filing of any registration statement, at the holders' request, we will register
all of the shares issuable upon conversion of these debentures. The holders have
waived their rights to have such shares registered in connection with this
offering.
REGISTRATION RIGHTS
After the closing of this offering, the holders of 90,909 outstanding
shares of common stock hold registration rights that allow them to "piggyback"
the registration of their shares under the Securities Act on future
registrations of our securities and holders of a maximum of 181,232 shares of
our common stock in the event of the conversion of our outstanding convertible
debentures have registration rights that allow them to "demand" the registration
of their shares under the Securities Act. Accordingly, whenever we propose to
register any shares of our common stock under the Securities Act (other than
registrations on Forms S-4 or S-8), these stockholders have the right to include
their shares of common stock in that registration. However, the number of shares
that those stockholders may include in any registration will be reduced if the
underwriters for that offering advise us that the aggregate number of shares
should be reduced. We are generally obligated to bear all expenses, other than
underwriting discount and sales commissions, of the registration of all shares
of common stock of those stockholders. The registration rights require those
stockholders to indemnify us in some circumstances. Registration of any of the
shares of common stock held by holders of registration rights generally would
result in those shares becoming freely tradable without restriction under the
Securities Act immediately following their distribution in the manner described
in the applicable registration statement.
61
<PAGE>
The holders of the Representatives' Warrants will have certain demand and
"piggyback" registration rights with respect to the shares of common stock
underlying such warrants, commencing one year after the effective date of this
offering. If the Representatives should exercise registration rights to effect
the distribution of the securities underlying the Representatives' Warrants,
they will be unable to make an active market in our securities prior to and
during such distribution. If they cease making a market in the common stock,
the market and market prices for the common stock may be materially adversely
affected, and holders thereof may be unable to sell or otherwise dispose of
their shares of common stock. For a detailed description of the
Representatives' Warrants, see "Underwriting."
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
Our certificate of incorporation limits the liability of our directors to
the maximum extent permitted by Delaware law. Delaware law provides that a
director of a corporation will not be personally liable for monetary damages
resulting from a breach of that individual's fiduciary duties as a director
except for liability for a breach of director's duty of loyalty, any act or
omission not in good faith or that involves intentional misconduct or a knowing
violation of the law, unlawful payments of dividends or unlawful stock
repurchases or redemptions, or for any transaction from which the director
derived an improper personal benefit. This limitation of liability does not
apply to liabilities arising under federal securities laws and does not affect
the availability of equitable remedies such as injunctive relief or rescission.
Section 145 of the Delaware General Corporation Law permits
indemnification by a corporation of certain officers, directors, employees and
agents. Our bylaws contain provisions which require us to indemnify our
officers and directors against liabilities in their capacities as such to the
maximum extent permitted by law. We believe that the provisions of our
certificate of incorporation and bylaws described above are necessary to
attract and retain qualified persons as directors and officers.
We have also obtained a policy of insurance under which our directors and
officers will be insured, subject to the limits of the policy, against certain
losses arising from claims made against such directors and officers by reason
of any acts or omissions covered under such policy in their respective
capacities as directors or officers, including liabilities under the Securities
Act.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to our directors, officers and controlling persons
pursuant to the foregoing provisions, or otherwise, we have been advised that,
in the opinion of the Commission, such indemnification is against public policy
as expressed in the Securities Act and is, therefore, unenforceable.
DELAWARE ANTI-TAKEOVER LAW
We are subject to the provisions of Section 203 of the Delaware General
Corporation Law. Section 203 prohibits a Delaware corporation from engaging in
any "business combination" with any "interested stockholder" for a period of
three years following the date that such stockholder became an interested
stockholder, unless (1) prior to such date, the board of directors of the
corporation approved either the business combination or the transaction which
resulted in the stockholder becoming an interested stockholder; (2) upon
consummation of the transaction which resulted in the stockholder becoming an
interested stockholder, the interested stockholder owned at least 85% of the
voting stock of the corporation outstanding at the time the transaction
commenced (for the purposes of determining the number of shares outstanding,
those shares owned (x) by persons who are directors and also officers and (y)
by employee stock plans in which employee participants do not have the right to
determine confidentially whether shares held subject to the plan will be
tendered in a tender or exchange offer, are excluded from the calculation); or
(3) on or subsequent to such date, the business combination is approved by the
board of directors and authorized at an annual or special meeting of
stockholders, and not by written consent, by the affirmative vote of at least
66 2/3% of the outstanding voting stock which is not owned by the interested
stockholder.
62
<PAGE>
For purposes of Section 203, a "business combination" includes (1) any
merger or consolidation involving the corporation and the interested
stockholder; (2) any sale, transfer, pledge or other disposition of 10% or more
of the assets of the corporation involving the interested stockholder; (3)
subject to certain exceptions, any transaction which results in the issuance or
transfer by the corporation of any stock of the corporation to the interested
stockholder; (4) any transaction involving the corporation which has the effect
of increasing the proportionate share of the stock of any class or series of
the corporation beneficially owned by the interested stockholder; or (5) the
receipt by the interested stockholder of the benefit of any loans, advances,
guarantees, pledges or other financial benefits provided by or through the
corporation. Section 203 defines an "interested stockholder" as any entity or
person beneficially owning 15% or more of the outstanding voting stock of the
corporation and any entity or person affiliated with or controlling or
controlled by such entity or person.
MARKET INFORMATION
From May 11, 1999 to July 30, 1999, our common stock was traded on the OTC
Bulletin Board. Since August 2, 1999, our common stock has traded in the Nasdaq
Quotation Bureau LLC's Pink Sheets. We filed an application to include our
common stock on the Nasdaq National Market System under the symbol "CALN".
TRANSFER AGENT
Atlas Stock Transfer Corporation, 5899 South State Street, Murray, Utah
84107, is the Transfer Agent for our common stock.
63
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon the consummation of the offering, we will have outstanding 10,314,666
shares of common stock, of which 5,758,595 shares, including the 4,164,891
shares offered hereby, will be freely tradable without restriction or further
registration under the Securities Act. In addition, 494,672 shares of
outstanding common stock are being registered in the registration statement of
which this prospectus is a part, but are subject to a lock-up agreement as
described below. The remaining 4,556,071 shares of common stock are "restricted
securities," as that term is defined in Rule 144 under the Securities Act, and
in the future may only be sold pursuant to a registration statement under the
Securities Act, in compliance with the exemption provisions of Rule 144 or
pursuant to another exemption under the Securities Act. Commencing in April
2000, substantially all of these restricted securities will be eligible for
sale in the public market pursuant to Rule 144 subject to the lock-up agreement
described below.
In general, under Rule 144, as currently in effect, a person, including a
person who may be deemed our "affiliate" as that term is defined under the
Securities Act, who has beneficially owned shares for at least one year would
be entitled to sell within any three-month period a number of shares that do
not exceed the greater of (1) 1% of the then outstanding shares of our common
stock, or (2) the average weekly trading volume of our common stock during the
four calendar weeks preceding such sale. Sales under Rule 144 are further
subject to certain restrictions relating to the manner of sale, notice and the
availability of current public information about us. After two years have
elapsed from the date of the issuance of restricted securities by us or their
acquisition from an affiliate, such shares may be sold without limitation by
persons who have not been our affiliates for at least three months.
We expect the beneficial owners of all shares of common stock to agree not
to sell shares for a period of 180 days after the date of this prospectus
without the consent of Kaufman Bros., L.P. In addition, without the consent of
Kaufman Bros., L.P., we have agreed not to sell or offer for sale any of our
securities for a period of 180 days following the date of this prospectus,
except in connection with strategic transactions or mergers and acquisitions
for which no consent is required.
No prediction can be made as to the effect, if any, that sales of
securities, or whether pursuant to Rule 144 or otherwise, the availability of
such securities for sale, will have on the market prices prevailing from time
to time for our common stock. However, even the possibility that a substantial
number of our securities may, in the near future, be sold in the public market
may adversely affect prevailing market prices for the common stock and could
impair our ability to raise capital through the sale of our equity securities.
64
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting
Agreement, we and the Selling Stockholders have agreed to sell an aggregate of
4,164,891 shares of common stock to the Underwriters named below, for whom
Kaufman Bros., L.P. and John G. Kinnard & Co. are acting as the
Representatives, and the Underwriters have severally agreed to purchase the
number of shares set forth opposite their respective names in the table below
at the offering price, less the underwriting discount set forth on the cover
page of this prospectus:
<TABLE>
<CAPTION>
UNDERWRITERS NUMBER OF SHARES
- --------------------------------------------------------- -----------------
<S> <C>
Kaufman Bros., L.P. ................................
John G. Kinnard and Company, Incorporated ..........
Total .............................................. 4,164,891
=========
</TABLE>
The Underwriting Agreement provides that the obligation of the
Underwriters to purchase the shares of common stock is subject to certain
conditions. The Underwriters are committed to purchase all of the shares of the
common stock, other than those covered by the over-allotment option described
below, if any are purchased.
The Underwriters propose to offer the shares to the public initially at
the public offering price set forth on the cover page of this prospectus, and
to certain dealers at such price less a concession not in excess of $ per
share. The Underwriters may allow, and such dealers may reallow, discounts not
in excess of $ per share; and the Underwriters may allow, and such dealers may
reallow, a concession of not more than $ per share to certain other dealers.
After this offering, the public offering price, the concession to selected
dealers and the reallowance to other dealers may be changed by the
Representatives.
We have also granted to the Underwriters, exercisable for 45 days from the
date of this prospectus, an option to purchase up to 624,734 additional shares
of common stock at the public offering price less the underwriting discount. To
the extent such option is exercised, each Underwriter will become obligated,
subject to certain conditions, to purchase additional shares of common stock
proportionate to such Underwriters' initial commitment as indicated in the
preceding table. The Underwriters may exercise such right of purchase only for
the purpose of covering over-allotments, if any, made in connection with the
sale of the shares.
We have also granted to the Representatives of the Underwriters, and their
respective designees, for nominal consideration, the Representatives' Warrants
to purchase up to an aggregate of 400,000 shares of our common stock. The
Representatives' Warrants will be exercisable for a period of four years,
commencing upon the first anniversary of the date of this prospectus, at an
initial exercise price equal to 120% of the public offering price per share.
The Representatives' Warrants are not redeemable by us under any circumstances.
Neither the Representatives' Warrants nor the shares of common stock issuable
upon exercise thereof may be transferred, assigned or hypothecated for a period
of 180 days after the date of this prospectus, except that they may be
assigned, in whole or in part, to any successor, officer or partner of the
Representatives, to the respective officers, partners or stockholders or any
successor of members of the selling group. The Representatives' Warrants will
contain anti-dilution provisions for appropriate adjustment of the exercise
price and number of shares which may be purchased upon the occurrence of
certain events, including the issuance of stock dividends, stock splits,
subdivisions or combinations of outstanding stock and reclassifications.
The holder(s) of a majority of the Representatives' Warrants and/or the
underlying shares shall have the right, during the five year period beginning
on the first anniversary date of this prospectus, on two occasions (one of
which will be at our sole expense), to require us to register the common stock
underlying the Representatives' Warrants by means of a registration statement
pursuant to the Securities Act, or a post-effective amendment thereto, as
appropriate, so as to enable such holders to publicly offer the underlying
shares. Moreover, if during the five year period beginning on the first
65
<PAGE>
anniversary date of this prospectus, we register any of our securities for sale
pursuant to a post-effective amendment or new registration statement, upon
request by any of the holders of the outstanding shares underlying the
Representatives' Warrants, we will be required to include such shares in such
registration.
We have agreed to pay the Representatives a non-accountable expense
allowance equal to 3% of the gross proceeds received by us from the sale of the
shares offered hereby. We have also agreed to pay certain expenses in
connection with this offering, including expenses in connection with qualifying
the shares offered hereby for sale under the laws of such states as the
Underwriters may designate and the placement of tombstone advertisements. We
have paid $25,000 to the Representatives as an advance for expenses.
We have agreed to indemnify the Underwriters against certain liabilities,
including civil liabilities under the Securities Act, or to contribute to
payments the Underwriters may be required to make in respect thereof.
We have agreed to give notice to the Representatives of meetings of our
Board of Directors and to permit a nominee of the Representatives to attend the
meetings as an observer. Kaufman Bros., L.P., on behalf of the Representatives,
also has the right, but not the obligation, to nominate one director to our
Board of Directors for four years from the closing of this offering.
We expect all of our directors and officers and stockholders, together
with the holders of options to purchase shares of our common stock, to agree
with the Underwriters not to publicly sell or otherwise dispose of any of their
shares of common stock or securities exercisable for shares of common stock for
a period of 180 days after the date of this prospectus without the prior
written consent of Kaufman Bros., L.P. In addition, we have agreed with the
Underwriters not to offer, sell or otherwise dispose of any shares of common
stock except for the shares of common stock offered hereby, the shares of
common stock issuable upon exercise of the Representatives' Warrants and the
shares of common stock issuable upon exercise of outstanding options granted
pursuant to our stock option plan for a period of 180 days after the date of
this prospectus without the prior written consent of Kaufman Bros., L.P.
Although our common stock is traded in the National Quotation Bureau,
LLC's Pink Sheets, such trading has been limited and sporadic. For more
information on the high and low ask prices per share of our common stock, see
"Price Range of Common Stock." The offering price of the common stock will be
determined by negotiation between us, the Selling Stockholders and the
Representatives. Factors to be considered in such negotiation, in addition to
the prices prevailing in the National Quotation Bureau, LLC's Pink Sheets,
include the history of and prospects for the industry in which we compete, an
assessment of our management, our prospects, our capital structure and the
general condition of the securities markets at the time of this offering. The
public offering price of the common stock does not necessarily bear any
relationship to our assets, net worth, earnings, book value, or other criteria
of value applicable to us and should not be considered an indication of the
actual value of the common stock. Such price is subject to change as a result
of market conditions and other factors, and the common stock may not be able to
be resold at the offering price.
During and after this offering, the Underwriters may purchase and sell
common stock in the open market. These transactions may include over-allotment
and stabilizing transactions and purchases to cover syndicate short positions
created in connection with the offering. The Underwriters also may impose a
penalty bid, whereby selling concessions allowed to syndicate members or other
broker-dealers in respect of the shares sold in the offering for their account
may be reclaimed by the syndicate if such shares are repurchased by the
syndicate in stabilizing or covering transactions. These activities may
stabilize, maintain or otherwise affect the market price of the common stock
which may be higher than the price that might otherwise prevail in the open
market. Neither we nor any of the Underwriters make any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the common stock. In addition, neither
we nor any of the Underwriters makes any representation that the Underwriters
will engage in such transactions or that such transactions, once commenced,
will not be discontinued at any time.
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<PAGE>
LEGAL MATTERS
The validity of the shares offered hereby will be passed upon by Stairs
Dillenbeck Finley & Merle, New York, New York. Certain legal matters in
connection with the offering will be passed upon for the Underwriters by
Squadron, Ellenoff, Plesent & Sheinfeld, LLP, New York, New York.
EXPERTS
Our financial statements and schedules as of December 31, 1998 and 1997
and for the years then ended, included in this prospectus and elsewhere in the
registration statement, have been audited by Horton & Company, L.L.C.,
independent public accountants, as indicated in their reports with respect
thereto, and are included herein in reliance upon the report of such firm given
upon their authority as experts in accounting and auditing.
Ernst & Young LLP, independent auditors, have audited our financial
statements for the year ended December 31, 1996, as set forth in their report.
We have included our financial statements in the prospectus and elsewhere in
the registration statement in reliance on Ernst & Young LLP's report, given on
their authority as experts in accounting and auditing.
ADDITIONAL INFORMATION
We have filed with the Commission a registration statement on Form S-1
(herein, together with all amendments and exhibits, referred to as the
"Registration Statement") under the Securities Act, with respect to the common
stock offered hereby. This prospectus does not contain all of the information
set forth in the registration statement, certain parts of which are omitted in
accordance with the rules and regulations of the Commission. For further
information with respect to us and our common stock, reference is hereby made
to the Registration Statement which may be examined without charge at the
public reference facilities maintained by the Commission at Room 1024, 450
Fifth Street, NW, Washington, DC 20549. Copies thereof may be obtained from the
Commission upon payment of the prescribed fees. Statements contained in this
prospectus as to the contents of any contract, agreement, or other document
referred to herein are not necessarily complete, and in each instance, if such
contract, agreement or other document is filed as an exhibit to the
Registration Statement, each such statement is qualified in all respects by
reference to such exhibit.
Upon completion of this offering, we will be subject to the informational
requirements of the Securities Exchange Act of 1934, as amended, and, in
accordance therewith, will file periodic reports, proxy statements and other
information with the Securities and Exchange Commission. Such reports, proxy
statements and other information can be inspected and copied at prescribed
rates at the public reference facilities maintained by the Commission at Room
1024, 450 Fifth Street, NW, Washington, DC 20549, and at the Commission's
Regional Offices at 7 World Trade Center, Suite 1300, New York, New York 10048;
and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Electronic
filings made via EDGAR are publicly available through the Commission's Web site
at http://www.sec.gov. Copies of such material can be obtained at prescribed
rates by writing to the Public Reference Section of the Commission, Room 1024,
450 Fifth Street, NW Washington, DC 20549.
67
<PAGE>
CALLNOW.COM, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
------------
<S> <C>
Independent Auditors' Reports ...................................................... F-2 -- F-3
Balance sheets as of December 31, 1997 and 1998 and September 30, 1999 ............. F-4
Statements of operations for the years ended December 31, 1996, 1997 and 1998 and
for the nine-month periods ended September 30, 1998 and 1999 ...................... F-5
Statements of stockholders' deficit for the years ended December 31, 1996, 1997 and
1998 and for the nine-month periods ended September 30, 1998 and 1999 ............. F-6
Statements of cash flows for the years ended December 31, 1996, 1997 and 1998 and
for the nine-month periods ended September 30, 1998 and 1999 ...................... F-7
Notes to financial statements ...................................................... F-8 -- F-22
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
CallNOW.com, Inc.
New York, New York
We have audited the accompanying balance sheets of CallNOW.com, Inc. as of
December 31, 1997 and 1998, and the related statements of operations,
stockholders' deficit and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of CallNOW.com, Inc. at December
31, 1997 and 1998, and the results of its operations and its cash flows for the
years then ended, in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that
CallNOW.com, Inc. will continue as a going concern. As more fully described in
Note 1, the Company has incurred recurring operating losses, has a working
capital deficiency, and has a net capital deficiency. These conditions raise
substantial doubt about the Company's ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 1. The
financial statements do not include any adjustment to reflect the possible
future effects on the recoverability and classification of assets or the
amounts and classification of liabilities that may result from the outcome of
this uncertainty.
HORTON & COMPANY, L.L.C.
Wayne, New Jersey
April 28, 1999
F-2
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
CallNOW.com, Inc.
We have audited the accompanying consolidated statements of operations,
stockholders' equity and cash flows of CallNOW.com, Inc. (formerly Axicom
Communications Group, Inc.) for the year ended December 31, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our 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 results of
operations and consolidated cash flows of CallNOW.com, Inc. for the year ended
December 31, 1996, in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that
CallNOW.com, Inc. (formerly Axicom Communications Group, Inc.) will continue as
a going concern. As more fully described in Note 1, CallNOW.com, Inc. (formerly
Axicom Communications Group, Inc.) has incurred recurring operating losses, has
a working capital deficiency, and has a net capital deficiency. These
conditions raise substantial doubt about CallNOW.com, Inc.'s (formerly Axicom
Communications Group, Inc.) ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 1. The
financial statements do not include any adjustment to reflect the possible
future effects on the recoverability and classification of assets or the
amounts and classification of liabilities that may result from the outcome of
this uncertainty.
ERNST & YOUNG LLP
New York, New York
June 6, 1997
F-3
<PAGE>
CALLNOW.COM, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
------------------------------- --------------
1997 1998 1999
--------------- --------------- --------------
ASSETS (UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash .......................................................... $ 107,832 $ 7,565 $ 846,680
Accounts receivable, net of allowances of $6,500 in 1997,
$6,000 in 1998 and $19,000 in 1999 .......................... 267,274 122,700 62,321
------------ ------------ ------------
Total current assets ........................................ 375,106 130,265 909,001
Property and equipment, net of accumulated depreciation ........ 277,835 512,303 1,033,185
Other assets ................................................... 33,704 36,785 758,323
------------ ------------ ------------
Total assets ................................................ $ 686,645 $ 679,353 $ 2,700,509
============ ============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Current portion of long-term debt ............................. $ 114,204 $ 128,688 $ 52,695
Accounts payable and accrued expenses ......................... 1,584,176 1,034,382 1,494,340
Loan payable-officer .......................................... 127,105 87,231 --
------------ ------------ ------------
Total current liabilities ................................... 1,825,485 1,250,301 1,547,035
Long-term debt, net of current portion ......................... 147,756 19,069 --
Other long-term liabilities .................................... -- 1,337,957 1,318,497
------------ ------------ ------------
Total liabilities ........................................... 1,973,241 2,607,327 2,865,532
------------ ------------ ------------
Stockholders' deficit:
Common stock, $.001 par value;
50,000,000 shares authorized;
3,875,000 shares issued and outstanding in 1997 and 1998;
6,314,666 shares issued and outstanding in 1999 ............. 3,875 3,875 6,315
Additional paid-in capital .................................... 837,059 837,059 4,838,712
Accumulated deficit ........................................... (2,127,530) (2,768,908) (5,010,050)
------------ ------------ ------------
Total stockholders' deficit ................................. (1,286,596) (1,927,974) (165,023)
------------ ------------ ------------
Total liabilities and stockholders' deficit ................. $ 686,645 $ 679,353 $ 2,700,509
============ ============ ============
</TABLE>
See notes to financial statements
F-4
<PAGE>
CALLNOW.COM, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE-MONTH PERIOD
YEAR ENDED DECEMBER 31, ENDED SEPTEMBER 30,
--------------------------------------------- -------------------------------
1996 1997 1998 1998 1999
------------- ------------- ------------- ------------- ---------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales ........................... $1,674,955 $5,010,027 $2,295,202 $1,794,595 $ 738,353
Cost of sales ....................... 1,276,934 4,293,524 1,681,978 1,374,153 547,361
---------- ---------- ---------- ---------- ------------
Gross profit ........................ 398,021 716,503 613,224 420,442 190,992
---------- ---------- ---------- ---------- ------------
Operating expenses:
Administrative ..................... 654,009 570,500 518,546 312,081 799,889
Sales and marketing ................ 475,432 807,989 438,430 312,344 410,142
Technical .......................... 178,652 143,134 101,330 106,191 145,254
Stock-based finders' fees .......... -- -- -- -- 480,610
Depreciation and
amortization ..................... 19,568 53,651 105,860 59,204 142,630
---------- ---------- ---------- ---------- ------------
Total operating expenses ......... 1,327,661 1,575,274 1,164,166 789,820 1,978,525
---------- ---------- ---------- ---------- ------------
Loss from operations ................ (929,640) (858,771) (550,942) (369,378) (1,787,533)
Interest expense .................... (1,154) (58,568) (90,436) (59,500) (453,609)
---------- ---------- ---------- ---------- ------------
Net loss ............................ $ (930,794) $ (917,339) $ (641,378) $ (428,878) $ (2,241,142)
========== ========== ========== ========== ============
Net loss per share .................. $ (0.24) $ (0.24) $ (0.17) $ (0.11) $ (0.47)
========== ========== ========== ========== ============
Weighted average common
shares outstanding ................. 3,875,000 3,875,000 3,875,000 3,875,000 4,768,160
========== ========== ========== ========== ============
</TABLE>
See notes to financial statements
F-5
<PAGE>
CALLNOW.COM, INC.
STATEMENTS OF STOCKHOLDERS' DEFICIT
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
AND FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1998 AND 1999
(INFORMATION FOR NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1998 AND 1999 IS
UNAUDITED)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
-------------------- PAID-IN ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT TOTAL
----------- -------- ------------- ---------------- ---------------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1996, as restated for
reverse acquisition accounting ............. 3,055,525 $3,055 $ 375,948 $ (279,397) $ 99,606
Shares issued during 1996 ................... 801,852 802 449,598 -- 450,400
Net loss .................................... -- -- -- (930,794) (930,794)
--------- ------ ---------- ------------ ------------
Balance, December 31, 1996 .................. 3,857,377 3,857 825,546 (1,210,191) (380,788)
Shares issued during 1997 ................... 17,623 18 11,513 -- 11,531
Net loss .................................... -- -- -- (917,339) (917,339)
--------- ------ ---------- ------------ ------------
Balance, December 31, 1997 .................. 3,875,000 3,875 837,059 (2,127,530) (1,286,596)
Net loss .................................... -- -- -- (641,378) (641,378)
--------- ------ ---------- ------------ ------------
Balance, December 31, 1998 .................. 3,875,000 $3,875 $ 837,059 $ (2,768,908) $ (1,927,974)
========= ====== ========== ============ ============
Balance at January 1, 1998 .................. 3,875,000 $3,875 $ 837,059 $ (2,127,530) $ (1,286,596)
Net loss (unaudited) ........................ -- -- -- (428,878) (428,878)
--------- ------ ---------- ------------ ------------
Balance at September 30, 1998 ............... 3,875,000 $3,875 $ 837,059 $ (2,556,408) $ (1,715,474)
========= ====== ========== ============ ============
Balance at January 1, 1999 .................. 3,875,000 $3,875 $ 837,059 $ (2,768,908) $ (1,927,974)
Shares issued during 1999 ................... 2,440,666 2,440 4,001,653 -- 4,004,093
Net loss (unaudited) ........................ -- -- -- (2,241,142) (2,241,142)
--------- ------ ---------- ------------ ------------
Balance at September 30, 1999 ............... 6,315,666 $6,315 $4,838,712 $ (5,010,050) $ (165,023)
========= ====== ========== ============ ============
</TABLE>
See notes to financial statements
F-6
<PAGE>
CALLNOW.COM, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE-MONTH
PERIOD
YEAR ENDED DECEMBER 31, ENDED SEPTEMBER 30,
-------------------------------------------- -------------------------------
1996 1997 1998 1998 1999
-------------- -------------- -------------- -------------- ----------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net loss ............................................ $ (930,794) $ (917,339) $ (641,378) $ (428,878) $ (2,241,142)
---------- ---------- ---------- ---------- ------------
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization .................... 19,568 53,651 105,860 59,204 142,630
Bad debts ........................................ 113,000 197,109 59,458 -- 65,608
Stock-based compensation ......................... -- 11,531 -- -- 36,897
Stock-based finders' fees ........................ -- -- -- -- 480,610
Interest charge arising from discount on
convertible debenture ........................... -- -- -- -- 410,137
Changes in operating assets and liabilities:
Accounts receivable ............................. (226,130) (176,800) 85,116 151,154 (5,229)
Other assets .................................... (86,832) 36,538 (3,081) (72) 18,128
Prepaid advertising ............................. -- -- -- -- (380,000)
Accounts payable ................................ 426,855 906,593 (549,794) 330,073 484,958
Commissions payable ............................. 50,447 -- -- -- --
Other long-term liabilities ..................... 56,762 (56,762) 1,137,957 -- (19,460)
---------- ---------- ---------- ---------- ------------
Net cash provided by (used in) operating
activities ................................... (577,124) 54,521 194,138 111,481 (1,006,863)
---------- ---------- ---------- ---------- ------------
Cash flows from investing activities:
Capital expenditures ............................... (149,865) (168,556) (140,328) (90,951) (231,012)
Deferred offering costs ............................ -- -- -- -- (291,249)
---------- ---------- ---------- ---------- ------------
Net cash used in investing activities .......... (149,865) (168,556) (140,328) (90,951) (522,261)
---------- ---------- ---------- ---------- ------------
Cash flows from financing activities:
Proceeds from long-term debt financing ............. 200,000 100,000 -- -- --
Principal payments on loan obligations ............. -- (38,040) (114,203) (84,362) (445,062)
Proceeds from officer loans (repayments) ........... 100,000 88,647 (39,874) (44,000) (87,231)
Proceeds from issuance of stock .................... 450,400 -- -- -- 2,900,532
---------- ---------- ---------- ---------- ------------
Net cash provided by (used in) financing
activities ................................... 750,400 150,607 (154,077) (128,362) 2,368,239
---------- ---------- ---------- ---------- ------------
Net increase (decrease) in cash ..................... 23,411 36,572 (100,267) (107,832) 839,115
Cash, beginning of period ........................... 47,849 71,260 107,832 107,832 7,565
---------- ---------- ---------- ---------- ------------
Cash, end of period ................................. $ 71,260 $ 107,832 $ 7,565 $ -- $ 846,680
========== ========== ========== ========== ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid .................................. $ -- $ 32,430 $ 75,193 $ 59,500 $ 43,472
========== ========== ========== ========== ============
</TABLE>
See notes to financial statements
F-7
<PAGE>
CALLNOW.COM, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1997 AND 1998
(INFORMATION FOR NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1998 AND 1999 IS
UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies of CallNOW.com, Inc.
(hereinafter "CallNOW" or the "Company") is presented to assist in understanding
the financial statements. The financial statements and notes are representations
of the Company's management, which is responsible for their integrity and
objectivity. These accounting policies conform to generally accepted accounting
principles and have been consistently applied in the preparation of the
financial statements.
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.
BASIS OF PRESENTATION
Effective April 6, 1999, pursuant to the terms of a plan of
reorganization, American Ostrich Corporation ("AOC") acquired all of the
outstanding common stock of AXICOM Communications Group, Inc. ("Axicom"), a New
York corporation, in exchange for 3,875,000 unregistered shares of AOC's common
stock. As a result of the transaction, the former shareholders of Axicom
received shares representing an aggregate of 88% of AOC's outstanding common
stock, resulting in a change in control of AOC. As a result of the merger,
Axicom became the wholly-owned subsidiary of AOC. Simultaneously therewith, AOC
amended its articles of incorporation to reflect a change in name to
CallNOW.com, Inc. ("CallNOW"), a Delaware corporation. References to the
"Company" refer to CallNOW together with its predecessor, Axicom.
The acquisition of Axicom by AOC has been accounted for as a reverse
acquisition. Under the accounting rules for a reverse acquisition, Axicom is
considered the acquiring entity and AOC the acquired entity. As a result,
historical financial statements presented for periods prior to the date of the
transaction are those of Axicom. However, the capital structure has been
retroactively restated to reflect the number of shares received by Axicom
shareholders in the acquisition and AOC's par value. Under purchase method
accounting, balances and results of operations of AOC (now CallNOW) will be
included in the Company's financial statements from the date of the
transaction, April 6, 1999.
In the reverse acquisition, the Company recorded assets and liabilities at
their historical cost basis which was deemed to approximate fair market value.
The reverse acquisition transaction is treated as a non-cash transaction,
except to the extent of cash acquired, since all consideration given was in the
form of common stock. Pro forma results of operations (assuming the business
combination had been effected in January 1997) are not presented because AOC
was inactive for the periods presented. As a result, pro forma results of
operations for the years ended December 31, 1996, 1997 and 1998, would be no
different than the historical statements of operations presented herewith.
INTERIM FINANCIAL REPORTING
The unaudited financial statements for the nine-month periods ended
September 30, 1998 and 1999 reflect all adjustments which are, in the opinion
of management, necessary to a fair statement of financial position, results of
operations and cash flows of the interim periods presented.
F-8
<PAGE>
CALLNOW.COM, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1997 AND 1998 (CONTINUED)
(INFORMATION FOR NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1998 AND 1999 IS
UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
BUSINESS ACTIVITY
The Company began operations in 1995 as Axicom Communications Group, Inc.
which provided low cost international telephone service globally. The Company's
principal operations were in providing clients in overseas locations with low
cost communication originated from a U. S. switch. The vast majority of the
Company's traffic is generated from small to mid-size businesses and
individuals. In addition, the Company has been involved in wholesale
arrangements with accounts in France and Hong Kong. The Company maintains a
global presence in the form of representative offices in about fifteen
countries and generates business in approximately equal portions from Europe,
Latin America and the rest of the world.
During 1997, the Company changed its principal strategy to that of
providing multiple telephone services using the Internet. In 1998, the Company
filed a patent for its proprietary Internet software which provides automated,
instant sign-up for services, real-time monitoring of call detail reports, and
on-line billing. The Company operates from its offices and switching facility
in New York City's financial district.
To market its services, CallNOW has developed an international affiliate
network of Internet search engines, Web-based e-commerce retailers and
telecom-related web sites where customers click for immediate sign up for
global telephone services. Affiliates are compensated on a revenue-sharing
basis derived from the usage of customers that have signed up for service from
their sites.
GOING CONCERN
The Company's initial capitalization provided the necessary funds to set
up the platform to provide services for clients. The cash flows from results of
operations were intended to be used for development and growth. The Company has
incurred operating losses, has a working capital deficiency and a net capital
deficiency as of December 31, 1996, 1997 and 1998. These conditions raise
substantial doubt about the Company's ability to continue as a going concern
for the next fiscal year. Management's plans in regard to these matters include
taking the Company public through the business combination described above, by
raising additional capital through private placements of convertible debt and
equity and through a planned public offering of the Company's common stock.
REVENUE RECOGNITION
The Company recognizes revenue on sales when services are performed.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost and are depreciated on the
straight-line basis using the estimated useful lives of the assets which range
from three to ten years.
INTERNET-ASSISTED RETURNCALL SOFTWARE
During November 1998, the Company acquired the rights, including the
copyright, to certain computer software and related documents. The software
enables customers and the Company to perform a series of tasks in real time.
Such procedures can be accessed from the Company's Internet Web site and
interact with the Company's database and telecommunications switch in order to
provide the following features:
F-9
<PAGE>
CALLNOW.COM, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1997 AND 1998 (CONTINUED)
(INFORMATION FOR NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1998 AND 1999 IS
UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
o Automatic sign-up of customers, including
o Credit card authorization
o Customer account creation on the Company's database
o Activation witH the telecommunications switch to enable immediate
access to the service
o Customer survey of country specific rates
o Customer review of call detai0l reports
o Automatic monthly invoicing to customers via e-mail
o Trigger call back service through the Internet.
The Company has submitted an application for a patent on this software.
INTERNAL-USE COMPUTER SOFTWARE
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-1 ("SOP 98-1"), "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use," which provides
guidance on when costs incurred for internal-use software should be
capitalized. SOP 98-1 is effective for financial statements with fiscal years
beginning after December 15, 1998, although earlier application is encouraged.
The Company elected to adopt the guidance in this pronouncement effective for
the year ended December 31, 1998. In accordance with the guidance provided by
SOP 98-1, the Company has capitalized internal and external costs to develop or
obtain internal use software during the application development stage. The
costs of upgrades and enhancements to internal-use software are also
capitalized when it is probable that such expenditures will result in
additional functionality. Costs incurred during the preliminary project stage
are expensed as incurred, as are training and maintenance costs.
CONCENTRATION OF CREDIT RISK
Financial instruments, which potentially subject the Company to
concentration of credit risk, consist principally of accounts receivable. The
Company's policies do not require collateral to support accounts receivable.
However, because of the diversity and credit worthiness of individual accounts
which comprise the total balance, management does not believe that the Company
is subject to any significant credit risk.
At December 31, 1998, the Company had accounts receivable from one
customer which represented 18% of the accounts receivable balance at that date.
At December 31, 1997, the Company had accounts receivable from one customer
which represented 14% of the accounts receivable balance at that date.
During 1998, two customers represented approximately 25% and 17%,
respectively, of the Company's revenues. The same two customers accounted for
approximately 49% and 12%, respectively, of the Company's revenues in 1997.
The Company operates primarily in four geographic regions, the United
States, Europe, Latin America and the Far East. The following is a summary of
local operations for countries from where the Company derives significant
revenues.
F-10
<PAGE>
CALLNOW.COM, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1997 AND 1998 (CONTINUED)
(INFORMATION FOR NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1998 AND 1999 IS
UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER NINE-MONTH
31, PERIOD ENDED
------------------- SEPTEMBER 30,
1997 1998 1999
-------- -------- --------------
(UNAUDITED)
<S> <C> <C> <C>
United States ............................... 7% 8% 9%
Honduras .................................... 11% 7% 6%
France ...................................... 10% 6% 7%
Germany ..................................... 4% 6% 11%
Austria ..................................... 3% 10% 7%
Other foreign countries (under 10%) ......... 65% 63% 60%
-- -- --
Total ....................................... 100% 100% 100%
=== === ===
</TABLE>
Revenues are attributed to countries based on location of customer. There
are no long-lived assets outside of the United States.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's receivables and payables are current and on normal terms
and, accordingly, are believed by management to approximate fair value.
Management also believes that long-term debt obligations approximate fair value
when current interest rates for similar debt securities are applied.
SUPPLEMENTARY DISCLOSURES OF NON-CASH INVESTING AND FINANCING ACTIVITIES
The Company financed property and equipment purchases as follows:
<TABLE>
<CAPTION>
NINE-MONTH
YEAR ENDED PERIOD ENDED
DECEMBER 31, 1998 SEPTEMBER 30, 1999
------------------- -------------------
(UNAUDITED)
<S> <C> <C>
Property and equipment purchased ......... $ 340,328 $ 482,500
Long-term liability incurred ............. (200,000) (350,000)
Stock issued ............................. -- (82,500)
---------- ----------
Capital expenditures ..................... $ 140,328 $ 50,000
========== ==========
</TABLE>
LOSS PER COMMON SHARE
Loss per common share is computed by dividing the net loss applicable to
common stockholders by the weighted average number of shares of common stock
outstanding during the period.
F-11
<PAGE>
CALLNOW.COM, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1997 AND 1998 (CONTINUED)
(INFORMATION FOR NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1998 AND 1999 IS
UNAUDITED)
2. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------- SEPTEMBER 30,
1997 1998 1999
----------- ------------- --------------
(UNAUDITED)
<S> <C> <C> <C>
Telecommunications equipment ........... $ 128,750 $ 132,778 $ 132,778
Software ............................... 205,111 541,411 1,199,942
Office furniture and equipment ......... 21,057 21,057 26,038
--------- ---------- ----------
354,918 695,246 1,358,758
Less accumulated depreciation .......... (77,083) (182,943) (325,573)
--------- ---------- ----------
Net property and equipment ............. $ 277,835 $ 512,303 $1,033,185
========= ========== ==========
</TABLE>
3. OTHER ASSETS
Other assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- SEPTEMBER 30,
1997 1998 1999
--------- --------- --------------
(UNAUDITED)
<S> <C> <C> <C>
Deferred offering costs ......... $ -- $ -- $ 291,249
Prepaid advertising ............. -- -- 380,000
Other ........................... 33,704 36,785 87,074
------- ------- ---------
$33,704 $36,785 $ 758,323
======= ======= =========
</TABLE>
Prepaid advertising costs are amortized as advertising services are
provided. See Note 10.
Costs incurred in connection with the Company's registration statement and
planned public offering of its common stock have been capitalized as deferred
offering costs. If such offering is successful, the costs will be charged
against the proceeds of the offering. If such offering is not successful, such
costs will be expensed.
4. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ SEPTEMBER 30,
1997 1998 1999
----------- ---------- --------------
(UNAUDITED)
<S> <C> <C> <C>
Note to a finance company, payable in 30
equal monthly installments of $7,750,
including principal and interest through
January 2000 ................................ $170,671 $ 94,033 $30,239
Note to a finance company, payable in
monthly installments of $3,875, including
interest at 12%, through March 2000 ......... 91,289 53,724 22,456
-------- -------- -------
261,960 147,757 52,695
Less current portion .......................... 114,204 128,688 52,695
-------- -------- -------
$147,756 $ 19,069 $ --
======== ======== =======
</TABLE>
F-12
<PAGE>
CALLNOW.COM, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1997 AND 1998 (CONTINUED)
(INFORMATION FOR NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1998 AND 1999 IS
UNAUDITED)
4. LONG-TERM DEBT (CONTINUED)
As of December 31, 1998, maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
- ----------------
<S> <C>
1999 ......... $128,688
2000 ......... 19,069
--------
$147,757
========
</TABLE>
The notes are secured by substantially all of the Company's assets and by
the collateral assignment of life insurance on the lives of Messrs. Bardenheuer
and Johnson (two of the Company's officers and stockholders) in the amount of
$250,000 each. In addition, the loans are subject to a number of affirmative
and negative covenants. The Lender also received warrants to purchase up to
2.9% of the Company's common stock. Such warrants are exercisable for a period
of ten years from the original date of the loans for total consideration of
$999. Such warrants include anti-dilutive provisions.
During May 1999, the above warrants were exercised, resulting in the
issuance of 114,109 shares of the Company's common stock.
5. OTHER LONG-TERM LIABILITIES
Other long-term liabilities consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ SEPTEMBER 30,
1997 1998 1999
---------- ----------- --------------
(UNAUDITED)
<S> <C> <C> <C>
Payable to an individual for purchase of
Internet assisted ReturnCall software
(Note 1). The liability is payable in
four semi-annual installments of $43,750
and a fifth payment of $25,000 due 90 days
thereafter. The first payment is due based
on the delivery date of user manuals
related to the software technology. As of
the date of this report, such manuals had
not been delivered. Therefore, the earliest
date for the initial installment would be
due no sooner than January 2000 .......... $ -- $200,000 $140,000
Payable to a trade creditor under a
$700,000 credit line. The trade credits
are collateralized by a security interest
in substantially all of the Company's
assets. This trade payable was exchanged
for a long-term convertible debenture
subsequent to year end (Note 10) ......... -- 629,203 700,000
</TABLE>
F-13
<PAGE>
CALLNOW.COM, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1997 AND 1998 (CONTINUED)
(INFORMATION FOR NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1998 AND 1999 IS
UNAUDITED)
5. OTHER LONG-TERM LIABILITIES (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- SEPTEMBER 30,
1997 1998 1999
------ ------------ --------------
(UNAUDITED)
<S> <C> <C> <C>
Payable to a trade creditor under a
$576,300 credit line. This trade payable
was exchanged for a long-term
convertible debenture subsequent to
year end (Note 10) ......................... -- 576,297 576,300
Payable to a corporation in six quarterly
installments of $50,000, without interest,
commencing August 1999 ..................... -- -- 300,000
Payable to a corporation in quarterly
installments of $50,000, without interest,
commencing November 1999 ................... -- -- 350,000
-- ------- -------
-- 1,405,500 2,066,300
Less current portion included in accounts
payable .................................... -- 67,543 747,803
-- --------- ---------
-- $1,337,957 $1,318,497
== ========== ==========
</TABLE>
At December 31, 1998, estimated maturities of other long-term liabilities
are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
- ----------------
<S> <C>
1999 ......... $ 67,543
2000 ......... 573,020
2001 ......... 623,020
2002 ......... 141,917
----------
$1,405,500
==========
</TABLE>
6. LOAN PAYABLE--OFFICER
Loan payable--officer represents an unsecured demand loan payable to one
of the Company's officers. The loan bears interest at 12%. The loan balance was
$100,000, $127,105 and $87,231 as of December 31, 1996, 1997 and 1998,
respectively. Interest and other expenses incurred by the Company in connection
with this loan totaled $1,154, $26,137 and $12,093 for 1996, 1997 and 1998,
respectively.
7. STOCKHOLDERS' DEFICIT
CAPITALIZATION
As discussed in Note 1, on April 6, 1999, the Company issued 3,875,000
shares of its common stock in connection with the reverse acquisition of
Axicom. The total shares of common stock issued and outstanding immediately
subsequent to the business combination was 4,396,457. The capital structure for
all periods presented has been retroactively restated to assume the capital
structure of
F-14
<PAGE>
CALLNOW.COM, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1997 AND 1998 (CONTINUED)
(INFORMATION FOR NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1998 AND 1999 IS
UNAUDITED)
7. STOCKHOLDERS' DEFICIT (CONTINUED)
CallNOW. The number of common shares shown outstanding is based on the number
of common shares received by shareholders of Axicom in connection with such
reverse acquisition (3,875,000 shares).
OPTIONS AND WARRANTS
In addition to the options and warrants issued in conjunction with a
long-term debt obligation (Note 4) and a consulting agreement (Note 8), the
seller of software technology described in Note 1 was granted the right to
receive 10,000 shares of the Company's common stock in lieu of a $25,000
payment.
8. COMMITMENTS AND CONTINGENCIES
LEASE AGREEMENTS
The Company leases office space and certain office equipment under
non-cancelable operating lease agreements through 2002. Future minimum rental
payments required under such agreements are as follows:
<TABLE>
<CAPTION>
YEAR ENDING OFFICE EQUIPMENT
DECEMBER 31, LEASES LEASES
- --------------------- ---------- ----------
<S> <C> <C>
1999 .............. $ 50,617 $26,015
2000 .............. 56,250 25,946
2001 .............. 56,250 23,197
2002 .............. 18,750 15,806
-------- -------
$181,867 $90,964
======== =======
</TABLE>
Total rental expense for all operating leases totalled $49,600, $71,068
and $77,534 for the years ended December 31, 1996, 1997 and 1998, respectively.
CONSULTING AGREEMENT
During 1998, the Company entered into a consulting agreement. Such
agreement provides for compensation of $5,000 per month commencing August 1998.
Such compensation increased to $10,000 per month effective March 1999.
Compensation will be increased to $15,000 per month upon the Company achieving
revenue of $1,000,000 per month.
In addition, the Company agreed to grant the consultant options to
purchase 5% of the Company. Effective November 1998, options representing 2.5%
of the Company were granted. These options are exercisable at $1 per share and
vest in May 1999. The options include anti-dilutive provisions so that the
number of options granted will be increased in the event of an equity financing
so that the consultant maintains his 2.5% ownership position. Such additional
options will be granted at the price of the equity financing and will vest six
months after such financing. Additional options for another 2.5% of the Company
will be granted at the next round of financing. Such options will be granted at
the price of the financing and will vest twelve months after the financing. The
consultant will be granted additional options (at the then stock price) upon
subsequent financing over the next two years to prevent dilution of his 5%
ownership. The options will remain in effect as long as the consultant remains
with the Company and are exercisable over five years. In the event the
consultant is terminated, the options will vest immediately.
F-15
<PAGE>
CALLNOW.COM, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1997 AND 1998 (CONTINUED)
(INFORMATION FOR NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1998 AND 1999 IS
UNAUDITED)
8. COMMITMENTS AND CONTINGENCIES (CONTINUED)
The Company has accounted for the fair value of the options issued to the
consultant in accordance with Statement on Financial Accounting Standards No.
123 "Accounting for Stock-Based Compensation" ("SFAS 123"). Fair value is
estimated based on the Black-Scholes option-pricing model. Because the exercise
price of the options granted during 1998 was significantly in excess of the
fair market value of the Company's stock at the date of the grant, application
of the Black-Scholes option-pricing model resulted in no fair value being
attributed to the options granted during 1998. Therefore, no compensation was
recorded as a result of such grant. See "Options granted to consultant" under
Note 10.
The consultant is also entitled to receive a $35,000 finder's fee for the
extension of the $700,000 vendor credit line described in Note 5.
SOFTWARE SUPPORT
Effective November 1998, the Company entered into an agreement with a
computer consultant to provide ongoing support and maintenance for its
proprietary Internet-assisted ReturnCall software. This agreement is for a
two-year period ending November 2000. The consultant receives a monthly fee of
$5,000 for the support and maintenance services.
FINANCIAL ADVISORY SERVICES
During February 1999, the Company discussed an agreement for an individual
to provide financial advisory services to the Company. Such services were to be
rendered in connection with the possible business combination with a public
company. Under the terms of the agreement, the advisor was to receive 5% of the
fully-diluted shares of the Company, or its successor, upon consummation of such
business combination, as well as a one-year consulting agreement for $60,000.
While the agreement was not finalized, a potential liability exists.
See "Legal proceedings" under Note 10.
TELECOMMUNICATION SERVICES
The Company routinely enters into agreements with long distance carriers
to provide telecommunications services to the Company for its customer traffic
at specified rates. Such agreements are typically short-term in duration and
automatically renewable.
LITIGATION
The Company is the defendant in an arbitration proceeding concerning a
1997 agreement to purchase customer accounts from the claimant. The claimant
alleges that the Company breached its agreement and is seeking relief in the
amount of $90,272. The Company has counter-claimed against the seller alleging
fraud, negligent misrepresentation and breach of contract. During July 1999,
the Company settled this arbitration and counter-claim for a total cost of
$46,922.
The Company is also a defendant in a litigation proceeding brought by a
former vendor which supplied telecommunication switching service and customer
billing and collection services. The 1996 suit claims that the Company owes the
plaintiff $97,134 plus interest for such services. The Company has denied the
allegations and filed a counterclaim alleging breach of contract, breach of
fiduciary responsibilities and right of set-off based on the plaintiff's
failure to bill and collect from the Company's customers. During 1996, the
plaintiff filed for bankruptcy. During July 1999, the litigation was settled at
no cost to the Company.
F-16
<PAGE>
CALLNOW.COM, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1997 AND 1998 (CONTINUED)
(INFORMATION FOR NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1998 AND 1999 IS
UNAUDITED)
9. INCOME TAXES
The Company accounts for income taxes using the liability method in
accordance with Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes." Under this method, deferred tax assets and
liabilities are determined based on differences between financial reporting and
tax bases of assets and liabilities and are measured using enacted tax rates
and laws that will be in effect when the differences are expected to reverse.
There were no significant temporary differences leading to deferred tax assets
or liabilities as of December 31, 1997 and 1998. Deferred tax assets arising
from net operating loss carryforwards have been reduced to zero through
valuation allowances.
10. INTERIM FINANCIAL INFORMATION (UNAUDITED)
CONVERTIBLE DEBENTURES
During May 1999, two trade creditors agreed to exchange $1,276,300 of
trade credits for three-year, 5% convertible debentures. Interest only will be
payable for the first six months. Thereafter, principal is payable in thirty
equal monthly installments plus interest. In the event that the Company raises
a minimum of $5,000,000 in debt or equity, each creditor has the right to have
its debt and accumulated interest paid in four equal monthly installments. The
debentures are convertible at any time, in whole or in part, at the option of
the creditor, into common stock of the Company at a discount to the average
closing bid price of the Company's stock for five trading days preceding the
conversion, but not less than $7.06. Such conversion shares are subject to
transfer restrictions under the Securities Act of 1933 and under the terms of
the agreement. The Company agreed that upon the earlier of nine-months from the
issuance of the convertible debenture, or the filing of any registration
statement, that it will register all of the conversion shares at the creditors'
option. The agreements became effective in late August 1999.
Because the debentures had a beneficial conversion feature which enables
the holders to convert at a discount to the market price of the Company's
common stock, a deferred charge of $76,969 has been recorded. Such charge is
being amortized as a charge to interest expense over the estimated nine-month
period the debentures are expected to be outstanding. For the month of
September 1999, the Company recorded a charge to interest expense of $8,552
related to such discount.
During March 1999, the Company sold $500,000 of 2% convertible debentures,
due April 2004. The debentures and any unpaid interest thereon are convertible
into shares of the Company's common stock at the option of the holders. The
conversion price shall be the lesser of an amount which results in the
debentures being converted into 12.5% of the fully diluted common stock or 80%
of the average closing bid price for the Company's common stock for the seven
trading days immediately preceding the conversion. Such shares issued in
conversion shall not exceed 628,585 shares. The debentures contain
anti-dilutive provisions. During May 1999, the debentures were converted in
full into 628,585 shares of the Company's common stock.
Because the debentures had a beneficial conversion feature which enabled
the holders to convert at a discount to the market price of the Company's
common stock, an additional interest charge of $128,585 has been recorded for
the nine-month period ended September 30, 1999.
During June 1999, the Company issued $479,000 of convertible debentures
along with warrants entitling the holder to purchase 100,000 shares of the
Company's common stock at an exercise price of $.01 per share. During September
1999, the debentures were converted into 343,662 shares of the Company's common
stock and the warrants to purchase 100,000 shares were exercised. Because the
warrants were exercisable at a price which was $2.74 below the estimated market
price of $2.75 per share, $274,000 of the proceeds received from the debenture
were allocated to the value of the
F-17
<PAGE>
CALLNOW.COM, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1997 AND 1998 (CONTINUED)
(INFORMATION FOR NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1998 AND 1999 IS
UNAUDITED)
10. INTERIM FINANCIAL INFORMATION (UNAUDITED) (CONTINUED)
warrants and recorded as additional paid in capital. This resulted in the
convertible debt being issued at a $273,000 discount to the face value. This
discount was recorded as a charge to interest expense during the nine-month
period ended September 30, 1999.
PRIVATE PLACEMENTS
During July 1999, the Company completed a private placement of 545,454
shares of its common stock at a price of $2.75 per share, raising an aggregate
of $1,500,000 of equity. In September 1999, the Company issued an additional
146,399 shares of its common stock at a price of $2.75 per share, in a private
placement transactions which raised a total of $402,597.
ADVERTISING AGREEMENTS
Prepaid advertising costs arise from agreements entered into with
companies that operate as an Internet portal and search engine. The agreements
provide that such companies will periodically place banners, promotional
buttons, text links and other hyperlinks from their home pages and web guides
to CallNOW's Web site. Under the terms of one agreement entered into during
June 1999, such company guarantees a minimum of 120 million "visits". The
agreement specifies that CallNOW is obligated to make payments totaling
$400,000, with $100,000 payable upon execution of the agreement and the balance
payable over an eighteen-month period without interest (Note 5). The total cost
of the agreement is being recognized based on the number of "visits" the
Company receives monthly. The advertising program began operation during the
quarter ended September 30, 1999. During such period, the Company received
approximately 600,000 "visits". Therefore, advertising expense of $20,000,
representing 5% of the total cost of the agreement, was recognized.
During June 1999, the Company entered into an agreement with another
Internet portal and search engine company to provide services similar to that
described above. Under the terms of the agreement, such company guarantees a
minimum of 48 million "visits". The agreement specifies that CallNOW is
obligated to make payments totaling $160,000, with $40,000 payable upon the
effective date of the agreement and the balance payable over an eighteen month
period without interest. The total cost of the agreement is being recognized
based on the number of "visits" the Company receives monthly. It is anticipated
that the advertising program will begin operations during December 1999.
EMPLOYMENT AGREEMENTS
In July 1999, the Company entered into an employment agreement with an
individual to be the Company's Chief Technical Officer. This agreement
terminates in July 2001 and is automatically renewed from year to year unless
terminated by mutual agreement of by either party upon 60 days notice. The
Chief Technical Officer receives an annual base salary of $120,000. In
addition, subject to the discretion of the Company's Board of Directors, he may
be awarded an annual bonus of up to 20% of his annual base salary. He has been
granted options to purchase 45,000 shares of the Company's common stock
pursuant to the Company's option plan.
During November 1999, the Company entered into an employment agreement
with its Chief Operating Officer and Acting Chief Financial Officer to replace
the November 1998 consulting agreement. The employment agreement is for a
one-year period and is automatically renewable for one additional year unless
the Company provides written notice to the contrary at least 60 days prior to
the expiration of the agreement. The agreement provides for monthly
compensation of $10,000. Such compensation increases to $14,000 per month upon
the sucessful completion of the Company's public offering for so long as the
employee is both the Chief Operating Officer and the Acting Chief
F-18
<PAGE>
CALLNOW.COM, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1997 AND 1998 (CONTINUED)
(INFORMATION FOR NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1998 AND 1999 IS
UNAUDITED)
10. INTERIM FINANCIAL INFORMATION (UNAUDITED) (CONTINUED)
Financial Officer. Compensation will be $12,000 for such period that the
employee is only the Chief Operating Officer. When the Company's revenues
increase to $1,000,000 per month, the employee's base salary will increase to
$15,000 per month. The employee is also entitled to participate in any bonus
plan instituted by the Company. In addition, the employee shall receive a grant
of non-qualified stock options in connection with each equity financing that
the Company consummates until the earlier of (1) immediately following the
successful completion of the Company's public offering or (2) October 31, 2000.
The employee will be granted options to purchase 5% of the number of shares
issued pursuant to such financing at an exercise price equal to the purchase
price paid by the investor or the public offering price if applicable. The
options shall have an exercise term of five years.
EXECUTIVE COMPENSATION
For 1999, Messrs. Bardenheuer and Johnson will each receive an annual
salary of $180,000, effective upon the consummation of the Company's public
offering and retroactive to January 1, 1999, and a bonus of up to 20% of their
annual salary. The difference between each officer's current annual
compensation of $93,333 and $180,000 (a total of $173,334) will be recorded as
additional compensation expense upon the successful completion of the Company's
proposed public offering.
SALE OF TECHNOLOGY AGREEMENT
On July 28, 1999, the Company entered into an agreement with a corporation
controlled by the Company's Chief Technical Officer who designed the Company's
telephone switching, account activation and billing software. The agreement
provides that, over a period of two years, this corporation will create
documentation for the software and switching system. Consideration for the
software and the documentation consists of an aggregate of $400,000, payable in
eight quarterly installments and 30,000 shares of the Company's common stock.
OPTIONS GRANTED TO CONSULTANT
Through April 1999, the consultant described in Note 8 was granted options
to purchase 129,174 shares of the Company's common stock. The Company has
accounted for the fair value of the options granted to the consultant in
accordance with SFAS 123. Fair value is estimated based on the Black-Scholes
option-pricing model with the following weighted average assumptions used for
grants: dividend yield of zero; expected volatility of 30%; risk-free interest
rate of 6%; and expected lives of one year. The fair value is recognized as
compensation cost over the vesting period of the options. Compensation costs
arising from such grants totals $24,541 for the nine-month period ended
September 30, 1999. A summary of options granted to the consultant, are as
follows:
F-19
<PAGE>
CALLNOW.COM, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1997 AND 1998 (CONTINUED)
(INFORMATION FOR NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1998 AND 1999 IS
UNAUDITED)
10. INTERIM FINANCIAL INFORMATION (UNAUDITED) (CONTINUED)
<TABLE>
<CAPTION>
WEIGHTED
DATE OF DATE OPTIONS AVERAGE
GRANT VESTED GRANTED EXERCISE PRICE
--------------- ---------------- ------------ ---------------
<S> <C> <C> <C> <C>
Outstanding at January 1, 1999..... November 1998 May 1999 96,875 $ 1.00
March 1999 September 1999 96,875 $ 1.00
March 1999 March 2000 31,429 $ 0.80
April 1999 April 2000 870 $ 0.01
------
Outstanding at September 30,
1999 ............................. 226,049
=======
Options exercisable at
September 30, 1999 ............... 183,750
Weighted average fair value of
options granted during the
nine-month period ended
September 30, 1999 ............... $ 0.15
</TABLE>
1999 STOCK OPTION PLAN
In September 1999, the Company's Board of Directors adopted the 1999 Stock
Option Plan. The 1999 Plan is subject to approval by the Company's
stockholders.
The 1999 Plan provides for the grant of options to purchase up to, but not
in excess of, 2,200,000 shares of common stock to the Company's officers,
directors, agents, consultants and independent contractors. Options may be
either "incentive stock options" within the meaning of Section 422 of the
Internal Revenue Code of 1986, as amended, or non-qualified options. Incentive
stock options may be granted only to our employees and employees of our
subsidiary, while non-qualified options may be granted to such persons and to
non-employee directors and consultants.
The 1999 Plan is administered by the Company's Board of Directors or by
the Compensation Committee of the Board of Directors (the "Administrator"),
which determines, among other things, those individuals who receive options,
the time period during which the options may be exercised, the number of shares
of common stock issuable upon the exercise of each option and the option
exercise price. The exercise price per share of common stock subject to an
incentive stock option may not be less than the fair market value per share of
common stock on the date the option is granted (110% in the case of an
incentive stock option granted to a person who owns, directly or indirectly, at
the time of the granting of an incentive stock option to such person, 10% or
more of the total combined voting power of all classes of the Company's stock
(a "10% Shareholder")). The exercise price per share of the common stock
subject to a non-qualified option may be established by the Administrator. The
aggregate fair market value, determined as of the date the option is granted,
of common stock for which any person may be granted incentive stock options
which first become exercisable in any calendar year cannot exceed $100,000.
No stock option may be transferred by an optionee other than by will or
the laws of descent and distribution, and, during the lifetime of an optionee,
the option will be exercisable only by the optionee. In the event of
termination of employment other than by death, retirement or permanent and
total disability, the optionee will have no more than three months after such
termination during which the optionee shall be entitled to exercise all or any
part of such employee's option, unless otherwise determined by the
Administrator. Upon termination of employment of an optionee by reason of
death, retirement or permanent or total disability, such optionee's options
remain exercisable for one year thereafter to the extent such options were
exercisable on the date of such termination.
F-20
<PAGE>
CALLNOW.COM, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1997 AND 1998 (CONTINUED)
(INFORMATION FOR NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1998 AND 1999 IS
UNAUDITED)
10. INTERIM FINANCIAL INFORMATION (UNAUDITED) (CONTINUED)
Options under the 1999 Plan must be issued within ten years from the
effective date of the Plan. Incentive stock options granted under the 1999 Plan
cannot be exercised more than ten years from the date of grant (five years in
the case of an incentive stock option granted to a 10% Shareholder). All options
granted under the 1999 Plan will provide for the payment of the exercise price
in cash or check or by delivery to the Company of shares of common stock having
a fair market value equal to the exercise price of the options being exercised,
or by a combination of such methods, or by such other methods approved by the
Administrator pursuant to the 1999 Plan. Therefore, an optionee may be able to
tender shares of common stock to purchase additional shares of common stock and
may theoretically exercise all of such optionee's stock options with no
investment.
Any unexercised options that expire or that terminate upon an employee's
ceasing to be employed by the Company become available again for issuance under
the 1999 Plan. In September 1999, options to purchase 958,000 shares of the
Company's common stock at exercise prices of $2.75 per share were granted under
the 1999 Plan. All such options will be subject to the approval of the 1999
Plan by the Company's stockholders. Such grant included options to purchase
300,000 shares granted to each of Messrs. Bardenheuer and Johnson, two of the
Company's officers and stockholders. In addition, the Company granted options
to purchase a total of 30,000 shares to its three outside directors at an
exercise price of $2.75. Such options vest ratably over a three-year period.
Also, the Company granted non-plan options to its Chief Operating Officer.
Such options vest one year after the date of the grant and are exercisable for
a five-year period.
The following is a summary of employee stock option transactions during
the nine-month period ended September 30, 1999:
<TABLE>
<CAPTION>
WEIGHTED
NON-PLAN PLAN AVERAGE
OPTIONS OPTIONS EXERCISE PRICE
---------- --------- ---------------
<S> <C> <C> <C>
Granted -- June 1999 ...................... 17,183 -- $ 1.40
June 1999 ............................ 5,000 -- $ 0.01
July 1999 ............................ 27,273 -- $ 2.75
September 1999 ....................... 7,320 -- $ 2.75
September 1999 ....................... -- 958,000 $ 2.75
------ -------
Outstanding at September 30, 1999 ......... 56,776 958,000
====== =======
</TABLE>
STOCK RESERVED FOR ISSUANCE
In addition to the options listed above, the Company has reserved 181,232
shares for issuance under the convertible debentures payable to trade creditors
described above. In addition, the Company's Chief Operating Officer is entitled
to options to purchase 200,000 shares exercisable at the public offering price
upon the successful completion of the Company's proposed public offering.
STOCK-BASED COMPENSATION
The Company has elected to follow Accounting Principles Board of Opinion
No. 25, "Accounting for Stock issued to Employees" (APB 25) and related
interpretations in accounting for its employee stock options. Under APB 25,
when the exercise price of employee stock options granted equals the market
price of the underlying stock on the date of grant, no compensation expense is
recorded. For options granted at an exercise price that is less than the market
price of the Company's stock, the Company recognizes compensation expense based
on the intrinsic value of the options granted over
F-21
<PAGE>
CALLNOW.COM, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1997 AND 1998 (CONTINUED)
(INFORMATION FOR NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1998 AND 1999 IS
UNAUDITED)
10. INTERIM FINANCIAL INFORMATION (UNAUDITED) (CONTINUED)
the vesting period. Compensation cost arising from such grants totals $12,356
for the nine-month period ended September 30, 1999. The Company has adopted the
disclosure-only provisions of SFAS 123, "Accounting for Stock-Based
Compensation". Had compensation cost been determined based on the fair value of
stock options on grant date consistent with the method prescribed by SFAS 123,
the Company's net loss and loss per share amounts for the nine-month period
ended September 30, 1999, would have been revised to the pro forma amounts
shown below.
<TABLE>
<S> <C>
Net loss:
As reported $2,241,142
Pro forma $2,255,159
Loss per share:
As reported $ (0.47)
Pro forma $ (0.47)
</TABLE>
The fair value of each option grant was estimated on the date of the grant
using the Black-Scholes option-pricing model with the following assumptions:
dividend yield of zero; expected volatility of 30%; risk-free interest rate of
6%; and expected lives of one year.
LEGAL PROCEEDINGS
The financial advisor described in Note 8 has alleged that he was offered
an opportunity by the Company to assist in the location of a potential
candidate for merger or acquisition, or a related financing. As a result, the
consultant claims to be owed a five percent interest in the Company and a
consulting fee of $60,000. The Company's position is that no agreement was ever
executed and delivered between the parties, and, in any event, the consultant
did not perform. No arbitration demand or summons and complaint has been
served, either by or upon the Company. The parties are currently discussing a
resolution of the matter. Management of the Company believes it has meritorious
defenses to the potential claim and intends to vigorously defend the Company's
position. While it is not possible to determine the ultimate outcome at this
time, management believes that the resolution of the matter will not have a
material effect on the Company's financial position.
STOCK-BASED FINDERS' FEES
In conjunction with the business combination described in Note 1, AOC
issued 485,465 warrants to purchase its common stock at an exercise price of
$.01 per share for services rendered as finders' fees. Such warrants were
immediately exercised, resulting in the issuance of 485,465 shares of common
stock. The Company recorded a charge for stock-based finders' fees of $480,610
during the nine-month period ended September 30, 1999.
F-22
<PAGE>
- --------------------------------------------------------------------------------
-----------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Prospectus Summary ....................... 3
Risk Factors ............................. 9
Use of Proceeds .......................... 23
Price Range of Our Common Stock .......... 24
Dividend Policy .......................... 25
Capitalization ........................... 25
Dilution ................................. 26
Selected Financial Data .................. 27
Management's Discussion and Analysis of
Financial Condition and Results of
Operations ............................ 28
Business ................................. 35
Management ............................... 52
Related Party Transactions ............... 57
Principal, Selling and Registering
Stockholders .......................... 59
Description of Securities ................ 61
Shares Eligible for Future Sale .......... 64
Underwriting ............................. 65
Legal Matters ............................ 67
Experts .................................. 67
Additional Information ................... 67
Financial Statements ..................... F-1
</TABLE>
-----------------------------------
UNTIL , 1999 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
THAT EFFECT TRANSACTIONS IN THESE SECURITIES, WHETHER OR NOT PARTICIPATING IN
THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO
THE DEALERS' OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND
WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
4,164,891 SHARES
[LOGO]
CALLNOW.COM, INC.
COMMON STOCK
--------------------------------------------
PROSPECTUS
--------------------------------------------
KAUFMAN BROS., L.P.
JOHN G. KINNARD AND COMPANY,
INCORPORATED
1999
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The expenses of this offering are as follows:
<TABLE>
<S> <C>
S.E.C. Registration Fee (1) ................................ 13,603.74
N.A.S.D. Filing Fee (1) .................................... 5,111.44
Nasdaq National Market System Qualification Fee ............
Representative's Non-Accountable Expense Allowance .........
Accounting Fees ............................................
Legal Fees and Expenses ....................................
Blue Sky Qualification Fees and Expenses ...................
Printing and Engraving .....................................
Transfer Agent's Fees and Expenses .........................
Miscellaneous Expenses .....................................
Total ..................................................... $
</TABLE>
- ----------
(1) Assuming a public offering price of $8.00 per share.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Registrant's certificate of incorporation limits the liability of the
Registrant's directors to the maximum extent permitted by Delaware law.
Delaware law provides that a director of a corporation will not be personally
liable for monetary damages for breach of that individual's fiduciary duties as
a director except for liability for (i) a breach of the director duty of
loyalty to the corporation or its stockholders, (ii) any act or omission not in
good faith or that involves intentional misconduct or a knowing violation of
the law, (iii) unlawful payments of dividends or unlawful stock repurchases or
redemption, or (iv) any transaction from which the director derived an improper
personal benefit.
This limitation of liability does not apply to liabilities arising under
federal securities laws and does not affect the availability of equitable
remedies such as injunctive relief or recission.
Section 145 of the Delaware General Corporation Law provides that a
corporation may indemnify directors and officers, as well as other employees
and individuals, against attorneys fees and other expenses, judgments, fines
and amounts paid in settlement actually and reasonably incurred by such person
in connection with any threatened, pending or completed actions, suits or
proceedings in which such person was or is a party or is threatened to be made
a party by reason of such person being or having been a director, officer,
employee or agent of the corporation. The Delaware General Corporation Law
provides that Section 145 is not exclusive of other rights to which those
seeking indemnification may be entitled under any bylaw, agreement, vote of
stockholders or disinterested directors or otherwise.
The Registrant's certificate of incorporation and bylaws provide that the
Registrant is required to indemnify its directors and officers to the maximum
extent permitted by law. The Registrant's bylaws also require the Registrant to
advance expenses incurred by an officer or director in connection with the
defense of any action or proceeding arising out of that party's status or
service as a director of officer of the Registrant or as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise, if serving as such at the
Registrant's request. The Registrant has procured insurance on behalf of any
director or officer for any liability arising out of his or her actions in a
representative capacity.
Reference is also made to the Underwriting Agreement to be filed as
Exhibit 1.1 to this Registration Statement for information concerning the
underwriters' obligation to indemnify the Registrant and its officers and
directors in certain circumstances.
II-1
<PAGE>
ITEM 15.
Recent Sales of Unregistered Securities
Since September 15, 1996, the Registrant issued and sold the following
securities:
In December 1996, Axicom entered into a loan agreement with New York
Community Investment Company L.L.C. ("NYCIC"). As part of such agreement,
Axicom issued warrants to purchase 74,665 shares of Axicom common stock at an
aggregate exercise price of $999. The issuance of the warrants was exempt from
registration pursuant to Section 4 (2) of the Securities Act of 1933, as
amended (the "Securities Act"). The warrant was exercised in April 1999 and, as
a result of the Axicom-American Ostrich transaction, NYCIC received 114,109
shares of CallNOW.com stock.
From November 1998 to the present, the Registrant granted an aggregate of
282,825 options to Chris Seelbach pursuant to his Consulting/Employment
Agreement. Of these 282,825 options, 5,870 have an exercise price of $0.01 per
share, 31,429 have an exercise price of $0.795 per share, 193,750 have an
exercise price of $1.00 per share, 17,183 have an exercise price of $1.39 per
share and 34,593 have an exercise price of $2.75 per share. The issuance of
these options was exempt from registration pursuant to Section 4(2) of the
Securities Act.
On March 30, 1999, American Ostrich Company issued 12,555,317 shares of
its common stock to Jenson Services, Inc. a Utah corporation and financial
consulting firm in exchange for $37,500. In April 1999, American Ostrich
Company declared a 32,000 to one reverse stock split (17,400 shares
post-split). This issuance was exempt from registration pursuant to Section
4(2) of the Securities Act.
On April 6, 1999, Axicom issued $500,000 principal amount 2% Convertible
Debenture due April 2004 to GEM France, S.A. ("GEM") in exchange for $500,000
in cash. The issuance of this Convertible Debenture was exempt from
registration pursuant to Rule 504 promulgated under the Securities Act. GEM
subsequently assigned $50,000 principal amount of this $500,000 Convertible
Debenture to Turbo International Inc. ("Turbo"). In April 1999, GEM and Turbo
converted these Convertible Debentures into 628,585 shares of the Registrant's
common stock which shares were issued under exemptions from registration
pursuant to Rule 504 promulgated under the Securities Act.
In April 1999, American Ostrich Company, a Delaware corporation whose
stock was publicly traded on the Over The Counter Bulletin Board, acquired all
of the issued and outstanding common stock of Axicom (the "Acquisition"). In
consideration of the Acquisition, Axicom's shareholders received 3,875,000
shares of American Ostrich Company common stock. In addition, GEM Global Fund
received warrants to purchase 251,433 shares of American Ostrich Company common
stock at an exercise price of $.01 per share as a fee for arranging for and
structuring the Acquisition.
On April 6, 1999, American Ostrich Company also issued warrants to
purchase its common stock at an exercise price of $.01 per share to the
following companies for services rendered as finder's fees:
<TABLE>
<S> <C>
Cicero Cinzano Ltd. Warrant to purchase 40,000 shares
Camisado Venturos Ltd. Warrant to purchase 69,852 shares
Out Back Ltd. Warrant to purchase 69,852 shares
New York, New York, Ltd. Warrant to purchase 54,328 shares
</TABLE>
All of the foregoing warrants to purchase in the aggregate 485,465 shares
of common stock of the Registrant were exercised in April 1999 and the shares
were issued pursuant to Rule 504.
In June 1999, the Registrant issued a $479,000 principal amount 2%
Convertible Debenture due June 2004 plus a Warrant to purchase 100,000 shares
of the Registrant's common stock at an exercise price of $.01 per share, to GEM
Investments Ltd. in exchange for $479,000 in cash. In September 1999, GEM
Investments Ltd. converted this Debenture into 343,662 shares of the
Registrant's common stock and exercised the Warrant to purchase 100,000 shares
of the Registrant's common stock. All such shares were issued pursuant to Rule
504 promulgated under the Securities Act.
II-2
<PAGE>
In July 1999, the Registrant sold an aggregate of 545,454 shares of its
common stock to Eden Capital Fund Limited and Upper Brook Ltd. at a price of
$2.75 per share. These shares were issued pursuant to Section 4(2) of the
Securities Act, including Regulation D promulgated thereunder.
In connection with the purchase of technology by the Registrant, the
Registrant paid a combination of cash and stock, including the issuing of
30,000 shares and 10,000 shares of its common stock to Mr. Martin Casanova and
Mr. Guibert Englebienne, in July 1999 and September 1999, respectively.
In September 1999, the Registrant sold 9,090, 36,400, 10,000 and 90,909
shares of its common stock to Robert Tolmach, Jr., David Ford, Peter Williams
and ROPART Investments LLC, respectively, at a price of $2.75 per share. These
shares were issued pursuant to Section 4(2) of the Securities Act, including
Regulation D promulgated thereunder.
ITEM 16. EXHIBITS
<TABLE>
<S> <C>
(a) Exhibits:
1 Form of Underwriting Agreement.*
3.1 Certificate of Incorporation of Registrant, dated April 8, 1999.*
3.1a Certificate of Ownership and Merger of American Ostrich Corporation, a
Utah corporation, into CallNOW.com, Inc., a Delaware corporation.*
3.2 Bylaws of Registrant.*
4.1 Form of Specimen Common Stock Certificate of Registrant.
4.2 5% Convertible Debenture Due August 31, 2002, issued to New Media
Corporation, in the principal amount of $576,300.*
4.3 5% Convertible Debenture Due August 26, 2002, issued to Facilicom
International, Inc., in the principal amount of $700,000.*
4.4 Form of Lock-up Agreement.*
4.5 Form of Representatives' Warrants.*
5.1 Opinion of Stairs Dillenbeck Finley & Merle, as to legality of the
securities being offered hereby.**
5.2 Opinion of Swidler Berlin Shereff Friedman, LLP.**
10.1 Sale of Technology Agreement, dated November 30, 1998, by and between
AXICOM Communications Group, Inc. ("Axicom") and Mr. Guibert Englebienne.
10.2 Consulting/Employment Agreement, dated November 1, 1998, between Axicom
and Mr. Chris Seelbach.*
10.3 Consulting Agreement dated as of November 30, 1998, between Mr. Guibert
Englebienne and Axicom.**
10.4 Asset Purchase Agreement made as of May 19, 1999, between Buttle & Tuttle
Ltd and Registrant.*
10.5 Agreement dated March 2, 1999, between Lloyd Layton Golding and Christian
Bardenheuer; Axicom.
10.6 Loan Agreement between Axicom and New York Community Investment Company
L.L.C., dated December 27, 1996.*
10.7 Security Agreement made on December 27, 1996, between Axicom and New York
Community Investment Company L.L.C.*
10.8 Promissory Notice, dated December 27, 1996, made by Axicom to New York
Community Investment Company L.L.C. in the face amount of $200,000.*
</TABLE>
II-3
<PAGE>
<TABLE>
<S> <C>
10.9 Promissory Note, dated March , 1997, made by Axicom to New York
Community Investment Company L.L.C. in the face amount of $100,000.*
10.10 Lease Agreement, dated as of March 25, 1999, between Fifty Broad
Street, Inc. and Fifty New Street, Inc. and Axicom (Re: Room 520 in
the building known as 50 Broad St.)**
10.11 Lease Agreement, dated as of March 25, 1999, between Fifty Broad
Street, Inc. and Fifty New Street, Inc. and Axicom (Re: Room 501 in
the building known as 50 Broad St.)**
10.12 Agreement, dated May 12, 1999, between Lycos-Bertelsmann GmbH and
Registrant.
10.13 Agreement, dated May 26, 1999, between Lycos Japan and Registrant.
10.14 International Carrier Voice Service Agreement, dated October 14, 1997,
between Facilicom International, L.L.C. and Axicom.**
10.15 Long Distance Reseller Service Agreement, dated April 6, 1999, between
Interoute, Inc. and Axiom.
10.16 Carrier Services Agreement, dated June 21, 1999, between International
Telecom, Inc. and Registrant.
10.17 1999 Stock Option Plan.*
10.18 Form of Agreement With Respect to Option Grant.*
10.19 Employment Agreement, dated as of , 1999, between the Registrant and
Ann K. McShea.**
10.20 Employment Agreement, dated as of July 28, 1999, between the
Registrant and Martin Casanova.
10.21 Employment Agreement, dated as of June 1, 1999, between the Registrant
and Josune Garcia Yauguas.*
10.22 Sale of Technology Agreement, dated July 28, 1999, between the
Registrant and Smart Software.
10.23 Stock Purchase Agreement, dated September 16, 1999, between the
Registrant and ROPART Investments LLC.*
10.24 Letter Agreement, dated September 16, 1999, between the Registrant and
ROPART Investments LLC.*
10.25 Stock Purchase Agreement, dated July 30, 1999, by and among the
Registrant, Upper Brook Ltd. and Eden Capital Fund Limited.
10.26 Employment Agreement, made effective November , 1999 by and between
Christopher R. Seelbach and the Registrant.
16 Letters re: Change in Certifying Accountant From Ernst & Young LLP and
the Registrant
21 Subsidiaries.*
23.1 Consent of Ernst & Young, L.L.P. (included on page II-7)
23.2 Consent of Horton & Company, L.L.C. (included on page II-8)
23.3 Consent of Stairs Dillenbeck Finley & Merle (included in Exhibit 5.1).
23.4 Independent Auditors' Report on Other Financial Information.
24 Power of Attorney.*
27 Financial Data Schedule for nine months ended September 30.
</TABLE>
- ----------
* Previously filed
** To be filed by amendment.
(b) Financial Statement Schedules:
99 Schedule II--Valuation and Qualifying Accounts.
II-4
<PAGE>
ITEM 17. UNDERTAKINGS.
Registrant hereby undertakes to provide to the Underwriters at the closing
specified in the Underwriting Agreement certificates in such denominations and
registered in such names as required by the Underwriters to permit prompt
delivery to each purchaser. Insofar as indemnification for liabilities arising
under the Securities Act may be permitted to directors, officers and
controlling persons of Registrant pursuant to the foregoing provisions, or
otherwise, Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by Registrant for expenses incurred or paid by a director, officer or
controlling person of 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, 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.
Registrant hereby further 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;
(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. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar
value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form
of prospectus filed with the Commission pursuant to Rule 424
(b) if, in the aggregate, the changes in volume and price
represent no more than 20 percent change in the maximum
aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration
statement.
(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.
(2) That, for the purpose of determining any liability under the
Securities Act, 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
securities being registered which remain unsold at the termination of the
offering.
(4) That, for purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by Registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(5) That, for purposes of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement for the securities offered in the
registration statement, and the offering of the securities at that time shall
be deemed to be the initial bona fide offering of these securities.
II-5
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS AMENDMENT NO. 1 TO THE REGISTRATION STATEMENT TO BE SIGNED
ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF NEW
YORK, STATE OF NEW YORK, ON THE 10th DAY OF NOVEMBER, 1999.
CallNOW.com, Inc.
By: /s/ Christian Bardenheuer
------------------------------------
Christian Bardenheuer
Chairman of the Board of Directors
and Chief Executive Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 1 TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING
PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------- --------------------------------------- ------------------
<S> <C> <C>
/s/ Christian Bardenheuer Chairman of the Board of Directors, November 10, 1999
--------------------------- Chief Executive Officer and Director
Christian Bardenheuer
(Principal Executive Officer)
/s/ Christopher R. Seelbach Chief Operating Officer, Acting Chief November 10, 1999
--------------------------- Financial Officer and Director
Christopher R. Seelbach (Principal Financial and Accounting
Officer)
* President and Director November 10, 1999
---------------------------
Warner R. Johnson, Jr.
* Director November 10, 1999
---------------------------
Edward Cabot
* Director November 10, 1999
---------------------------
Todd A. Goergen
* Director November 10, 1999
---------------------------
Robert S. Tolmach, Jr.
By: /s/ Christian Bardenheuer
------------------------
Attorney-in-fact
</TABLE>
II-6
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated June 6, 1997, in Amendment No. 1 to the Registration
Statement (Form S-1 No. 333-88065) and related Prospectus of CallNOW.com, Inc.
(formerly Axicom Communications Group, Inc.) for the registration of shares of
5,284,297 its common stock.
/s/ ERNST & YOUNG LLP
New York, New York
November 9, 1999
II-7
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
CallNOW.com, Inc.
New York, New York
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated April 28, 1999 relating
to the financial statements of CallNOW.com Inc., which appears in such
Prospectus. We also consent to the references to us under the headings "Experts"
in such Prospectus.
/S/ HORTON & COMPANY, LLC
Wayne, New Jersey
November 9, 1999
II-8
<PAGE>
EXHIBIT 4.1
INCORPORATED UNDER THE LAWS OF THE
STATE OF DELAWARE
NUMBER SHARES
CUSIP NO. 13123R 10 5
CallNOW.com, Inc.
50,000,000 AUTHORIZED SHARES $.001 PAR VALUE NON-ASSESSABLE
THIS CERTIFIES THAT
IS THE RECORD HOLDER OF
Shares of CALLNOW.COM, INC. Common Stock
transferable on the books of the Corporation by the holder hereof in person or
by duly authorized attorney upon surrender of this Certificate properly
endorsed. This Certificate is not valid until countersigned by the Transfer
Agent and registered by the Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile
signatures of its duly authorized officers.
COUNTERSIGNED AND REGISTERED
Dated: ATLAS STOCK TRANSFER
5899 S. State, Salt Lake City, Utah 04107 (801) 266-7151
By AUTHORIZED SIGNATURE
SECRETARY PRESIDENT
<PAGE>
The following abbreviations, when used in the inscription on the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<CAPTION>
<S> <C>
TEN COM - as tenants in common UNIF GIFT MIN ACT - ______ Custodian _______
TEN ENT - as tenants by the entireties (Cust) (Minor)
JT TEN - as joint tenants with right of under Uniform Gifts to Minors
Survivorship and not as tenants Act ____________________
in common (State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
For Value Received, ______ hereby sell, assign and transfer unto PLEASE INSERT
SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- -----------------------------------
- -----------------------------------
- --------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
_________________________________________________________________________ Shares
of the capital stock represented by the within certificate, and do hereby
irrevocably constitute and appoint
________________________________________________________________________Attorney
to transfer the said stock on the books of the within named Corporation
with full power of substitution in the premises.
Dated _______________________
- -------------------------------------------------------------------------------
NOTICE: SIGNATURE MUST CORRESPOND TO THE NAME AS WRITTEN UPON THE FACE OF THIS
CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR
ANY CHANGE WHATSOEVER, AND MUST BE GUARANTEED BY A BANK, BROKER OR ANY
OTHER ELIGIBLE GUARANTOR INSTITUTION THAT IS AUTHORIZED TO DO SO UNDER
THE SECURITIES TRANSFER AGENTS MEDALLION PROGRAM (STAMP) UNDER RULES
PROMULGATED BY THE U.S. SECURITIES AND EXCHANGE COMMISSION.
<PAGE>
SALE OF TECHNOLOGY AGREEMENT Exhibit 10.1
This Sale of Technology Agreement ("Agreement") is made and
effective this 30th day of November 1998, by and between Axiom Communications
Group, Inc., a New York Corporation ("Buyer"), and Guibert Englebienne
("Seller").
Seller has developed and owns all rights, including the
copyright, to certain computer software and related documents;
Buyer wishes to purchase, and Seller wishes to sell, such
software and documentation, the related goodwill and all other associated
property rights, including all copyrights and all rights to enhanced, modified
and updated versions and derivative works related thereto.
NOW, THEREFORE, in consideration of the promises and the
mutual covenants contained herein, the parties agree as follows:
1. Transfer.
A. Software. Seller hereby sells, assigns, conveys and
transfers to Buyer all of Seller's right, title and interest in and to the
following described computer software (the "Software"): The software consists of
a set of scripts, applications and database stored procedures which are either
embedded or executed from a web page and interact with the corporate database
and telecommunications switch in order to provide the following features through
the Company's web site.
Automatic sign up of customers.
Includes:
Credit card authorization (interfacing with third party
program).
Customer account creation on the corporate database.
Sub accounts to allow the usage from several locations.
Activation on the telecommunications switch for these accounts
(interfacing with a third party program).
Retrieval of call detail information directly from the corporate
database.
<PAGE>
Retrieval of invoices.
Callback trigger directly from the web page.
These scripts are built using CGI scripting and Java applications that
are connected to the database using the Sybase's Jconnect libraries.
The Software includes:
(i) The first version of the Software and all subsequent versions
thereof in all versions delivered to Axiom on March 15, 1998
and all forms of expression thereof, including any Software
source code, object code, flow charts, and block diagrams, and
programmer documentation, previous versions, notes, other
information relating to the Software; and all copyrights,
trade secrets, patentable inventions, proprietary rights and
intellectual property contained therein including Seller's
copyright in the Software.
(ii) A demonstration version of Sybase Jconnect. Buyer agrees to
purchase, at its own expense, the full working version for
each computer on which the Software is installed and Seller
agrees to install, for no additional compensation, said
working version of Sybase.
B. Delivery. The Software has been delivered to Buyer
prior to execution of this Agreement. Seller shall from time to time, but
without further consideration, execute and deliver such instruments or documents
and take such other action as is reasonably necessary which Buyer may request in
order to more effectively carry out this Agreement and to vest in Buyer the
Software and title thereto.
2. Purchase Price. In consideration for the transfer of the
Software, Buyer shall pay to Seller, (A) $175,000 payable in four equal
installments commencing thirty days after the closing of any initial public or
private financing by Buyer but, in any event, not later than January 1, 1999 and
every six months thereafter. (B) an additional $25,000 payable in one
installment ninety days after the last payment set forth in 2 (A) or, at
Seller's option, exercisable upon his receipt of the first payment called for in
section (A) hereof, an option to purchase up to 10,000 shares of Buyer's stock
of the same class and value provided to employees (but not officers of the
Company) of the Company (most favored nation class) at the discounted price of
$2.50 a share. The option to purchase up to 10,000 shares of Buyer's stock will
expire within one (1) month of the date option is vested. It is expressly agreed
that none of the payments set forth herein is contingent upon Buyer obtaining
public or private financing.
<PAGE>
3. Default.
(1) In the event that Buyer fails to make any payment due
hereunder on the date due, interest shall, without further notice, accrue on the
unpaid balance due at the rate of 9% per annum.
(2) Upon written notice of default in payment, Buyer shall
have the right to cure as follows: 45 days from the date payment was due within
which to pay 30% of the amount in default, plus accrued interest, and an
additional 45 days from the date payment was due within which to pay the
remaining 70% of the amount in default, plus accrued interest;
(3) If Buyer fails to cure the default as set forth above,
then, at Seller's sole option, Seller shall be entitled to (1) immediate payment
of the full amount remaining unpaid and Buyer shall not have any right to use
the Software until such payment is made, or (2) return of all right title and
interest to the Software an any related copyrights or patents in which case
Buyer shall not have any further right to use the Software;
(4) If Seller fails to provide the Manuals (as defined in the
Consulting Agreement) as set forth in paragraph 9 of the Consulting Agreement
dated November 30, 1998, then for each day of delay, payment due under this
agreement shall be deferred two days , without interest.
4. Representations and Warranties of Seller. Seller
represents, warrants and covenants as follows:
A. Title; Infringement. Seller has good and
marketable title to the Software, including copyright to the Software, and has
all necessary rights to enter into this Agreement without violating any other
agreement or commitment of any sort. Seller does not have any outstanding
agreements or understandings, written or oral, concerning the Software.
B. No Liens. The software is not subject to any lien,
encumbrance, mortgage or security interest of any kind.
C. Authority Relative to this Agreement. This
agreement is a legal, valid and binding obligation of Seller. The execution and
delivery of this Agreement by Seller and the performance of and compliance by
Seller with the terms and conditions of this Agreement will not result in the
imposition of any lien or other encumbrance on any of the Assets, and will not
conflict with or result in a breach by Seller of any of the terms, conditions or
provisions of any order, injunction, judgement, decree, statute, rule or
regulation applicable to Seller, the Software, or any note, indenture or other
agreement, contract, license or instrument by which any of the Software may be
bound or
<PAGE>
affected. No consent or approval by any person or public authority is required
to authorize or is required in connection with, the execution, delivery or
performance of this Agreement by Seller.
D. Warranty. Seller hereby warrants that for a period
of twelve (12) months from the date hereof the Software shall (1) be free of
defects in programming and operation, (2) function in accordance with the
specifications set forth in the Functional Specifications in Schedule A attached
hereto; and (3) be merchantable and fit for the purpose of selling,
provisioning, invoicing and charging communication services on-line in its
current configuration. In the event that the Software fails to perform in
accordance with this warranty, Buyer shall inform Seller of such fact and Seller
shall provide, free of charge, such programming, design, and installation
services as may be necessary to correct such errors. In the event that the
Software error can not be corrected by Seller within a reasonable time, then, at
Buyer's discretion, Buyer may return the Software and Seller will return any
payments made up to the date the Software is returned, and neither party will
have any further obligation to the other party. In the event that the Software
error can not be corrected by Seller within a reasonable time and Buyer does not
wish to return the Software, the purchase prices in paragraph 2 herein shall be
reduced, by an amount equal to the cost to the Company to have the error
corrected by a third party.
E. Limitation of Liability. THE WARRANTIES IN THIS AGREEMENT
ARE GIVEN IN LIEU OF ALL OTHER WARRANTIES, EXPRESSED AND IMPLIED, AND ARE THE
SOLE WARRANTIES MADE BY SELLER WITH RESPECT TO THE SOFTWARE. SELLER SHALL HAVE
NO LIABILITY FOR CONSEQUENTIAL, EXEMPLARY, OR INCIDENTAL DAMAGES.
5. Acceptance. The Software was integrated into Buyer's
English version Web Site for the purpose of testing the Software. The Buyer has
accepted the Software.
6. Training. Seller shall provide all instructions and
training reasonably necessary to train one entry level engineer hired and paid
by Buyer to maintain and operate the Software. Nothing herein shall make Seller
an employer of said person.
7. No Brokers. All negotiations relative to this Agreement
have been carried on by Buyer directly with Seller, without the intervention of
any person as the result of any act of Buyer or Seller (and, so far as known to
either party, without the intervention of any such person) in such manner as to
give rise to any valid claim against the parties hereto for brokerage
commissions, finder's fees other like payment.
<PAGE>
8. Consents, Further Instruments and Cooperation. Buyer and
Seller shall each use their respective best efforts to obtain the consent or
approval of each person or entity, if any, whose consent or approval shall be
required in order to permit it to consummate the transactions completed hereby,
and to execute and deliver such instruments and to take such other action as may
be required to carry out the transaction contemplated by this agreement. Seller
shall execute, or cause its employees and agents to execute, any patent or
copyright application or other similar document or instruments, following
Buyer's reasonable request.
9. Buyer's Use of the Software. Buyer may, at its sole
discretion, market, license and sell the Software under names and trade names of
its own choosing, and may develop updated and modified versions and derivative
works of the Software without attribution of authorship to Seller as long as it
is not in breach under the terms of this Agreement. Buyer shall own all rights
and title, including copyrights, in and to updated and modified versions and
derivative works of the Software without requiring permission from Seller and
without incurring payment obligations in addition to those provided herein.
Buyer may market or use the Software in whatever manner and at whatever prices
it sees fit.
10. Seller's Non-Use of the Assets. Seller retains no rights
whatsoever in the Software and does not retain the right to use the Software or
any material relating to the Software for any purpose, personal, commercial, or
otherwise. Seller furthermore shall maintain all information relating to the
Software or use of the Software in confidence and shall not disclose any aspect
of the Software to any third party without the prior written consent of Buyer.
Seller agrees not to participate in any activities relating to the business of
providing telecommunications services which competes, directly or indirectly,
with Buyer's marketing or distribution of the Software for a period of one (1)
year following the expiration of the Consulting Agreement, provided, however,
that Buyer is not in breach hereunder.
11. Confidentiality. It is anticipated by the parties hereto
that during the design implementation, development, and testing of the Software,
Seller will necessarily acquire knowledge of the business, trading practices,
financial structure, operations and fiduciary relationships of Buyer, and Buyer
will acquire knowledge of the business practices, customer contacts and similar
trade secrets of Seller (collectively, the "Confidential Information"). Each
party hereby agrees to maintain the confidentiality and to instruct its
employees to maintain the confidentiality of the Confidential Information. Each
party shall, upon Acceptance of the Software, upon termination of this
Agreement, or upon demand of the other party, whichever is sooner, return any
and all documents containing Confidential Information, or from which
Confidential Information could be inferred, including any copies or
reproductions thereof, to the other. The
<PAGE>
obligation to maintain the confidentiality of the Confidential Information as
provided hereunder shall survive the termination of this Agreement.
12. Governing Law. This Agreement shall be construed and
enforced in accordance with the laws of the State of New York.
13. Assignment. Neither Buyer nor Seller may assign this
Agreement or any obligation herein without the prior written consent of the
other party. This Agreement shall be binding upon and inure to the benefit of
the parties named herein and their respective heirs, executors, personal
representatives, successors and assigns. Buyer may assign this Agreement to a
subsidiary or affiliate or as part of the sale of the Buyer's business. Seller
may assign to a corporation or limited liability Company of which Seller is the
controlling principal.
14. Entire Agreement. This Agreement contains the entire
understanding of the parties, and supersedes any and all other agreements
presently existing or previously made, written or oral, between Buyer and Seller
concerning its subject matter. This Agreement may not be modified except by a
writing signed by both parties.
15. Severability. If any provision of this Agreement is
declared by a court of competent jurisdiction to be invalid, void or
unenforceable, the remaining provisions of this Agreement nevertheless will
continue in full force and effect without being impaired or invalidated in any
way.
16. Notices. All notices, requests, demands, and other
communications hereunder shall be deemed to have been duly given and received if
delivered or mailed, certified or registered mail, or the equivalent in
Argentina, with postage prepaid:
If to Buyer:
Christian Bardenheuer
c/o Axiom Communications Group, Inc.
50 Broad Street
Suite 501
New York, New York 10004
If to Seller:
Guibert Englebienne
Av. Colon 3366, 7th Floor
Mar del PLATA 7600
Argentina
17. Relationship of the Parties. The relationship between
Buyer and Seller under this Agreement is intended to be that of buyer and
seller, and nothing in this Agreement is intended to be construed so as to
suggest that the parties hereto are partners or joint venturers, or either party
or its employees are the employee or agent of
<PAGE>
the other. Except as expressly set forth herein, neither Buyer nor Seller has
any express nor implied right or authority under this Agreement to assume or
create any obligations on behalf of or in the name of the other or to bind the
other to any contract, agreement or undertaking with any third party.
18. Headings. Headings used in this Agreement are provided for
convenience only and shall not be used to construe meaning or intent.
19. Waiver. Failure of either party to exercise in any respect
any of the rights provided herein shall not be deemed a waiver of any right
hereunder.
20. Arbitration. Any dispute arising out of or relating to
this Agreement shall be resolved pursuant to the rules set forth by the American
Arbitration Association in New York City pursuant to which each party shall have
the right to designate an arbitrator of their choice. The two arbitrators shall
select a third, impartial arbitrator. The parties shall each bear equally the
fees of the arbitrator. Nothing herein shall preclude either party from seeking
or obtaining injunctive relied in aid or arbitration.
21. Survivability. Paragraphs 4, 9 to 12 of this Agreement
will survive the expiration or any termination of this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the day and year first above written.
AXIOM COMMUNICATIONS GROUP, INC.
By: _/s/ Christian Bardenheuer__________________
Christian Bardenheuer
Co-Managing Director
By: _/s/ Warner R. Johnson, Jr._________________
Warner Johnson,
Co-Managing Director
______/s/ Guibert Englebienne___________________
Guibert Englebienne
<PAGE>
Schedule A
The software consists of a set of scripts and programs that enable customers and
the Company to perform a set of tasks in real time.
The software allows customers on line to:
o Survey country specific rates
o Sign up new customers in real time and use the call back services
immediately
o Review call detail reports upon hanging up. (Once direct connection to
the switch is established using third party software Solaris. Until then,
within 24 hours.)
o Automatically send monthly modification of invoices to customer's via
e-mail and automatically send invoices from Company's web site.
o Create an account for callback services, including:
o Validating information inputted by customer
The script includes several restrictions in order to ensure that the
information provided by each new customer is valid and that it is
submitted in a manner that is consistent with the standards set in
the corporate database. For internal usage, the script also allows
for the creation of a demonstration (demo or test) account.
o Obtaining credit card authorization
To verify each new credit card, the company uses a third party
program called PCHub by Tellan Software. This program uses a
conventional modem and regular telephone line to connect with the
credit card bureau currently in use by the Company. PCHub currently
verifies cards from Visa, MasterCard and American Express. PCHub
obtains an instant authorization code, which allows the Company to
charge the customer at the end of every billing cycle. The time
required to obtain an authorization depends upon the availability of
the line, modem and network. The system can handle multiple
authorizations simultaneously by submitting the request to PCHub.
These requests are managed by the PCHub.
o Creating customer accounts on the corporate database
Using a third party software, Jconnect libraries from Sybase, the
script, which is written in Java, seamlessly connects to the
administrative database and creates a record on each new customer
based upon the password, personal and payment information provided
by each customer at sign-up. Multiple users can sign-up at the same
time. At the request of the Company, currently the customer is able
to activate call back services for a maximum of three separate
telephone numbers, however, the software is capable of being altered
to activate as many separate telephone numbers as desired. Each
telephone number is stored separately in the DID aisle in the
administrative/corporate database under the customer's account
number. Only the first telephone number requested by a new customer
is automatically activated with a US$20 credit limit, (set in the
credit table within the administrative/corporate database) until the
customer sends signed photocopy of the credit card. When the company
receives the new customer's confirmation fax and credit card
identification has been established, an operator activates the
remaining accounts on the administrative/corporate database and the
switch, and brings the credit limit to the authorized level.
o Activating the account on the switch to enable immediate access to
the service
The telecommunications switch and corporate database that is being
used by the Company stores all the information relating to the
customers' account number, password, return numbers and credit
limits on text files an tables. This enables customers to have
immediate access to the call back
<PAGE>
service. The third party switch is currently running under Unix on a
different server than the web server. In order for the script to
update the switch's table with new information, it is necessary for
the web server to have access via a network drive to an NFS exported
subdirectory on the switch. The seller has configured the software
to access the switch tables in the format and location currently in
use at the Company. This format and location must remain the same in
order for the system to run without further modifications. The
script updates the DID table on the switch to enable the use of the
first return number for which the customer required service and
immediately updates the customer's credit table to include the US$20
credit limit.
o OBTAIN A CALL DETAIL REPORT
Using a DID number and the customer's password, the software
immediately initiates a connection to the administrative/corporate
database and generates within minutes a report of all calls recorded
onto the database between the dates specified. The requested report is
shown on the customer's Internet browser.
o VIEW THE MONTHLY INVOICE ONLINE
Every four weeks, the Software automatically e-mails customers
requesting to visit the Company's secure site by hyperlink. Once on
this site, customers are asked to input their account number and
password, and within minutes the customer can retrieve invoices in a
readable format.
o TRIGGER A CALLBACK SERVICE THROUGH THE INTERNET
The switch can initiate a call back session by receiving an e-mail from
an existing customer, which includes in the subject the customer's DID
and the number to call. Within minutes, the third party switch
initiates both calls. For customers without e-mail a page permanently
resides on the Company's web site which is capable of sending the
requisite e-mail on behalf of the customer after instantly verifying
the customer's password and related DID.
The Software requires the following third party software components
that must be installed and correctly configured so that the software
can efficiently and effectively handle signups within 3 minutes of
submitted. The seller shall provide the Company with information on the
hardware and software upgrades required to maintain this response time
as traffic grows and the Company agrees to provide those resources.
o Windows NT Server 4.0 with Internet Information Server version 4.
o Perl 5.0 for Win32
o Java 1.1.6
o Jconnect libraries from Sybase
o NFS client mapping the S: drive to the directory where the switch
tables resides with full access permissions.
o PCHub software properly configured according to manufacturer
specifications and merchant account, running all the time. The web
server must have permission to get authorizations on this PCHub.
The parties agree that processing times may vary negatively as a result
of random external factors and that any standards specified herein can
not be guaranteed to be valid at all times but in most instances.
<PAGE>
Exhibit 10.5
AGREEMENT
Agreement made and entered into this day March 2, 1999, by and between
Lloyd Layton Golding
of 3101 Wessynton Way Alexandria, Virginia,
herein referred to as "Seller", and
Christian Bardenheuer; Axicom Inc.
of 50 Broad Street, 3 501
New York, NY 10004
herein referred to as "Buyer"
Seller hereby agrees to transfer on or before the date as described in the
'Delivery' section of this agreement the following Property: Registration of the
Domain Name 'CALLNOW.COM' in the name of the Buyer with Network Solutions, Inc.
(NSI) as the Registrant for use as an internet address by the Buyer.
Registration of this and any domain name with the NSI does not confer any legal
rights to that name as outlined in the required Domain Name Registration
Agreement with the NSI, hereby referenced, rather, it is the exclusive right to
the use of the Domain Name as an internet address by the Buyer that is conveyed.
It is this right, considered as Ownership, considered as Property, that is
contracted for herein.
Buyer agrees to accept the Property and pay for Property in accordance with the
terms of this Agreement.
No part of this agreement shall be considered a material breech of, nor shall
dissolve, the current Domain Name Registration Agreement between the Seller and
the NSI during the period prior to Ownership transfer as described in the
'Delivery' section of this agreement.
The Seller hereby warrants that the Seller is the single and proper Registrant
of the Property and that registration is in good standing as evidenced by such
listing by the NSI reflecting on a non "On Hold" status, and that this
Registration is in full compliance with the Domain Name Registration Agreement
between the Registrant and NSI, and furthermore, that to the best of Sellers
knowledge and belief, that as of the effective date of this contract that there
exists no disputes, claims or actions with or against the Seller and the
registration of the Property.
CONSIDERATION
Buyer agrees to pay the Seller a total of THREE THOUSAND EIGHT HUNDRED DOLLARS
($3,800 U.S.) sales price for the Property (Payment). Such Payment shall be made
by delivery of certified check, company check, or money order in U.S. funds to
the Seller's address.
<PAGE>
DELIVERY
Upon timely receipt and successful deposit of the Payment, the Property will be
considered sold and the Seller shall modify and register with the NSI all
required Information so as to initiate the transfer of control and Ownership and
all rights of use of the Property to the Seller within 10 calendar days. The
Seller shall not be held responsible for any unusual delays in processing of the
Ownership transfer caused by the NSI or the Buyer, but will endeavor to expedite
any actions required of the Seller to complete the Ownership transfer.
The Seller shall first initiate the delivery of a "New" 'Domain Name
Registration Agreement' to the Buyer via e-mail which the Buyer shall complete
and e-mail to the NSI who shall auto return a tracking number to the Buyer which
shall be forwarded to the Seller by the Buyer in a timely manner. This
information must be delivered to the Seller prior to the initiation of the
exchange proceedings. This may occur before or after the execution of this
Agreement and delivery of payment. The Seller shall then complete a 'Registrant
Name Change Agreement', the standard document required by the NSI to allow the
Buyer to become the registrant and new owner, and as such, the Buyer shall
receive from the Seller a finalized and notarized 'Registrant Name Change
Agreement' with which the Buyer shall become familiar, and shall sign and return
to the NSI on their own accord. Said agreement shall include authorization to
delete the Seller as the registrant and allow the Buyer to become the new
registrant and will constitute a contract between the Buyer and the NSI.
Delivery of the 'Registrant Name Change Agreement' to the Buyer shall be
considered the end of the contract period and fulfillment of the Sellers
obligation to the Buyer. The Seller shall further assist, coordinate and
cooperate in good faith with any reasonable request by the Buyer for assistance
with any matter or execution of documents required of the Buyer by the NSI to
complete the ownership transfer as may be practical while located remotely from
the Buyer. The Buyer shall be responsible to the NSI for any and all
registration fees and subsequent renewal fees required by the NSI which are
currently $35 per year.
INDEMNITY
The Seller shall indemnify and hold harmless the Buyer against any and all
claims, actions suits, proceedings costs, expenses, damages, and liabilities,
including attorneys fees and costs, arising out of, connected with, or resulting
from the use of the Domain Name prior to the effective date of this contract.
The Buyer shall indemnify and hold the Seller harmless against any and all
claims, actions suits, proceedings costs, expenses, damages, and liabilities,
including attorneys fees and costs, arising out of, connected with, or resulting
from the use of the Domain Name. The Seller shall have no liability for any loss
to the Buyer which may occur before or after the final Ownership transfer.
After the Seller completes the registration on behalf of the Buyer, the Seller
shall no longer be a party to the original current Domain Name Registration
Agreement and shall
<PAGE>
be indemnified of any future claims or actions prior to and most especially
after the Ownership transfer.
DEFAULT
In the event the Seller defaults in initiation of proceedings of delivery of the
Property to the Buyer pursuant to the 'Delivery' section, the Buyer may exercise
any one or more of the following remedies:
A. To declare the amount of Payment made to the Seller due and payable to the
Buyer in refund within 14 calendar days.
B. To terminate this agreement.
C. To peruse any other remedy at law or in equity.
In the event the Buyer defaults in delivery of Payment as of the due date as
referenced in this agreement, Seller may exercise one or more of the following
remedies:
A. To terminate this agreement.
B. To peruse any other remedy at law or in equity.
C. To maintain ownership and control of the Domain Name and use of the Domain
Name for any purpose without obligation to the Buyer. Buyer hereby waives any
and all claims for damages occurring by such default by the Buyer.
SEVERABILITY
It is agreed that if any term or provision throughout this Agreement should be
declared invalid, it shall not affect the remaining terms or provisions which
shall continue to be binding.
PARTIES
The Buyer and Seller shall maintain communication as may be necessary during the
duration of this contract period and shall inform the other of any changes of
location, contact or company information as may occur from time to time. This
information as is current at the time of execution of this Agreement is
identified below for the records of both parties.
Buyer: Christian Bardenheuer telephone number: 212/686-2000
Company Name: Axiom Inc. facsimile number: 212/686-3807
Contact: Same e-mail address: [email protected]
Current Address: 50 Broad St #501; New York, NY 10004
Seller: Lloyd Layton Golding telephone number: 703/799-5991
Current Address: 3101 Wessynton Way facsimile number: 703/799-5991
Alexandria, Virginia 22309 e-mail address: [email protected]
<PAGE>
Both parties shall notify the other of any changes within 5 calendar days of any
changes by methods as outlined in 'Notices'.
NOTICES
Both parties agree that communication may be made directly by US or
International mail, telephone, fax and electronic mail. Correspondence by US or
International mail shall be deemed effective. Correspondence by electronic mail
shall be considered proper, binding and effective.
ENTIRE AGREEMENT
This contains the entire Agreement between the Seller and the Buyer. No
modifications of this Agreement shall be effective unless in writing and
executed by both the Buyer and the Seller.
Agreement made and entered into this day: March 2, 1999. This Agreement has been
executed in duplicate, whereby both Buyer and Seller have retained one copy
each.
BUYER:
Individual Name
/s/ Christian Bardenheuer_______, March 2, 1999
Christian Bardenheuer
Axiom Inc.
SELLER:
________________________________, March 2, 1999
Lloyd Layton Golding
<PAGE>
Exhibit 10.12
AGREEMENT
This Term Sheet is by and between Lycos-Bertelsmann GmbH. a German
Corporation with a principal place of business at Carl-Bertelsmann-Strasse,
161L, Postfach 310, D-33311, Gutersloh, Germany, ("Lycos-Bertelsmann"), and
CallNow.com, Inc. a US company with a principal place of business at 50 Broad
Street, Suite 401, New York, New York, 10004 USA ("CallNow.com")
Both parties agree to execute a definitive agreement by April 30, 1999
Recitals
A. Lycos-Bertelsmann is the owner or licensee of certain Pan-European
Web services (collectively, the "Lycos-Bertelsmann Services", together with all
localized adaptations including operated by Lycos-Bertelsmann' subsidiaries,
joint ventures and licensees around the world, the "Lycos Site");
B. CallNow.com, Inc. the operator of a Web site accessible through the
URL www.callnow.com, (the CallNow.com site) that provides an on-line
telecommunications products and services over the Internet
Overview
Lycos-Bertelsmann will place banners, promotional buttons, text links and other
hyperlinks from Lycos and Tripod to the CallNow.com site.
<PAGE>
Terms
1/ Lycos-Bertelsmann' Obligations:
Advertising Impressions. Lycos shall provide advertising links
promoting the CallNow.com site within the Lycos sites. Lycos shall
provide these advertising impressions in accordance with Lycos'
standard advertising terms and conditions.
Affiliate Program Impressions. Lycos shall provide links promoting the
CallNow.com Affiliate Program for members within the European Tripod
Sites (textlink in Homepage Studio, Homepage Studio Done Link,
Affiliate Info Page, Welcome Letter, Template Builder+ 120x60 button on
Affiliate Home Page). Lycos shall place these and links in Tripod Sites
dedicated to member homepage building.
Premier Partner Status. Lycos shall designate CallNow.com as a Premier
Partner in Tripod's Affiliate Program.
Impression Guarantees. Lycos guarantees during the term of this
agreement it shall provide CallNow.com with 120,000,000 impressions as
follows: (i) 60,000,000 advertising impressions (as described in
Section 1 above) (ii) 60,000,000 Affiliate program impressions (as
described in Section 1 above). CallNow.com shall have the right, at its
own expense, to audit Lycos's books and records for the purpose of
verifying impressions served. Such audits will be made not more than
once per year, and not less than (10) ten days written notice, during
regular business hours, by auditors reasonably acceptable to Lycos.
Such audits shall not interfere with Lycos's normal business . In the
event that Lycos has not delivered 120,000,000 impressions by the end
of the Term, Lycos will continue to deliver impressions until that
level of impressions is received.
2/ CallNow.com, Inc.'s obligations:
Integration . CallNow.com shall provide Lycos with any assistance
requested by Lycos in establishing links between Lycos and the
CallNow.com Site.
Lycos Integration Fees. During the period beginning on the Effective
Date and ending on the two year anniversary, CallNow.com shall pay
Lycos-Bertelsmann $400,000 payable as follows: (i) $100,000 within 30
days of the Effective Date; (ii) six quarterly installment payments of
$50,000 due 90, 180, 270, 360, 450, 540 days after the Effective Date.
Lycos Transaction Fees. In addition to the integration fees outlined
above, during the term and for two years thereafter, for a total of
four years, CallNow.com shall owe Lycos-Bertelsmann a percentage of any
sales made by users and affiliates referred to the CallNow.com Site
through the impressions outlined in Section 1. Initially, CallNow.com
shall owe Lycos-Bertelsmann 20% of the Net Sales Revenue. Lycos'
percentage of the Net Sales shall be credited dollar for dollar against
the integration fee outlined above, until such time as the full amount
of the integration fee has been offset. At such time, the percentage
share due Lycos shall decrease to 15% of the Net Sales Revenue, and
CallNow.com shall commence paying Lycos its share of the Net Sales
Revenue within thirty (30) days of such occurrence.
Affiliate Bounties. CallNow.com shall pay Lycos $40.00 (the "Affiliate
Bounty") for every Tripod member who registers for the CallNow.com
Partner Affiliate Program. CallNow.com shall pay quarterly, the
Affiliate Bounty as follows: 50% upon registration by the user and 50%
upon the user signing a minimum of five customers for CallNow.com
products or services.
2
<PAGE>
3/ Term:
The term ("Term") of this Agreement shall commence on the Effective
Date and continue for two years unless terminated earlier as provided
below
4/ Marks: Lycos hereby grants to CallNow.com the non-exclusive,
non-transferable right to use the Lycos Marks solely for the purposes
of co-branding specified in this Agreement. CallNow.com hereby grants
Lycos the non-exclusive, non-transferable right to use the CallNow.com
Marks solely for the purposes specified in this Agreement. Except as
expressly stated herein, neither party shall make any other use of the
other party's marks. Upon request of either party, the other party
shall provide appropriate attribution of the use of the requesting
party's marks. (E.g., "Go Get It R is a registered service mark of
Lycos, Inc. All Rights Reserved.").
5/ Representations and Warranties: Each party hereby represents and
warrants as follows:
a. Corporate Power. Such party is duly organized and validly
existing under the laws of the state of its incorporation and has full
corporate power and authority to enter into this Agreement and to carry
out the provisions hereof.
b. Due Authorization. Such party is duly authorized to execute
and deliver this Agreement and to perform its obligations hereunder.
c. Binding Agreement. This Agreement is a legal and valid
obligation binding upon it and enforceable with its terms. The
execution, delivery and performance of this Agreement by such party
does not conflict with any agreement, instrument or understanding, oral
or written, to which it is a party or by which it may be bound, nor
violate any law or regulation of any court, governmental body or
administrative or other agency having jurisdiction over it.
d. Intellectual Property Rights. Such party has the full and
exclusive right to grant or otherwise permit the other party to access
the CallNow.com Site content and to use the trademarks, logos and trade
names as set forth on this Agreement, and that it is aware of no claims
by any third parties adverse to any of such property rights.
The representations and warranties and covenants in this Section 6 are
continuous in nature and shall be deemed to have been given by each
party at execution of this Agreement and at each stage of performance
hereunder. These representations, warranties and covenants shall
survive termination or expiration of this Agreement.
6/ Limitation of Warranty. EXCEPT AS EXPRESSLY WARRANTED IN SECTION 6
ABOVE, EACH PARTY EXPRESSLY DISCLAIMS ANY FURTHER WARRANTIES, EITHER
EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO, THE IMPLIED
WARRANTIES OF MERCHANTABILITY, OR FITNESS FOR A PARTICULAR PURPOSE.
7/ Indemnification.
<PAGE>
a. CallNow.com Indemnity. CallNow.com will at all times
indemnify and hold harmless Lycos and its officers, directors,
shareholders, employees, accountants, attorneys, agents, successors and
assigns from and against any and all third party claims, damages,
liabilities, costs and expenses, including reasonable legal fees and
expenses, arising out of or related to any breach of any warranty,
representation, covenant or agreement made by CallNow.com in this
Agreement. Lycos shall give CallNow.com prompt written notice of any
claim, action or demand for which indemnity is claimed. CallNow.com
shall have the right, but not the obligation, to control the defense
and/or settlement of any claim in which it is named as a party. Lycos
shall have the right to participate in any defense of a claim by
CallNow.com with counsel of Lycos' choice at Lycos' own expense. The
foregoing indemnity is conditioned upon: prompt written notice by Lycos
to CallNow.com of any claim, action or demand for which indemnity is
claimed; complete control of the defense and settlement thereof by
CallNow.com; and such reasonable cooperation by Lycos in the defense as
CallNow.com may request.
b. Lycos Indemnity. Lycos will at all times defend, indemnify
and hold harmless CallNow.com and its officers, directors,
shareholders, employees, accountants, attorneys, agents, successors and
assigns from and against any and all third party claims, damages,
liabilities, costs and expenses, including reasonable legal fees and
expenses, arising out of or related to any breach of any warranty,
representation, covenant or agreement made by Lycos in this Agreement.
CallNow.com shall give Lycos prompt written notice of any claim, action
or demand for which indemnity is claimed. Lycos shall have the right,
but not the obligation, to control the defense and/or settlement of any
claim in which it is named as a party. CallNow.com shall have the right
to participate in any defense of a claim by Lycos with counsel defense
of CallNow.com chosen at its own expense. The foregoing indemnity is
conditioned upon; prompt written notice by CallNow.com to Lycos of any
claim, action or demand for which indemnity is claimed; complete
control of the defense and settlement thereof by Lycos; and such
reasonable cooperation by CallNow.com in the defense of Lycos may
request.
8/ Confidentiality, Press Releases.
a. Non-Disclosure Agreement. The parties agree and
acknowledge that, as a result of negotiating,
entering into and performing this Agreement, each
party has and will have access to certain of the
other party's Confidential Information (as defined
below). Each party also understands and agrees that
misuse and/or disclosure of that information could
adversely affect the other party's business.
Accordingly, the parties agree that, during the Term
of this Agreement and thereafter, each party shall
use and reproduce the other party's Confidential
Information only for purposes of this Agreement and
only to the extent necessary for such purpose and
shall restrict disclosure of the other party's
Confidential Information to its employees,
consultants or independent contractors with a need to
know and shall not disclose the other party's
Confidential Information to any third party without
the prior written approval of the other party .
Notwithstanding the foregoing, it shall not be a
breach of this Agreement for either party to disclose
Confidential Information of the other party if
required to do so under law or in a judicial or other
governmental investigation or proceeding, provided
the other party has been given prior notice and the
disclosing party has sought all available safeguards
against widespread dissemination prior to such
disclosure.
b. Confidential Information Defined. As used in this
Agreement, the term "Confidential Information" refers
to: (i) the terms and conditions of this Agreement;
(ii) each party's trade secrets, business plans,
strategies, methods and/or practices; and (iii) other
information relating to either party that is not
generally known to the public, including information
about either party's personnel, products, customers,
marketing strategies, services or future business
plans. Notwithstanding the foregoing, the term
"Confidential Information" specifically excludes (A)
information that is now in the public domain or
subsequently enters the public domain by publication
or otherwise through no action or fault of the other
party; (B) information that is known to either party
without restriction, prior to receipt from the other
party under this Agreement, from its own independent
sources as evidenced by such party's written records,
and which was not acquired,
<PAGE>
directly or indirectly, from the other party; (C)
information that either party receives from any third
party reasonably known by such receiving party to
have a legal right to transmit such information, and
not under any obligation to keep such information
confidential; and (D) information independently
developed by either party's employees or agents
provided that either party can show that those same
employees or agents had no access to the Confidential
Information received hereunder.
c. Press Releases. Lycos and CallNow.com may jointly
prepare press releases concerning the existence of
this Agreement and the terms hereof. Otherwise, no
public statements concerning the existence or terms
of this Agreement shall be made or released to any
medium except with the prior approval of Lycos and
CallNow.com or as required by law, except where such
information is already clearly in the public domain
or the subject of existing jointly approved press
releases.
9/ Termination. Either party may terminate this Agreement if (a) the
other party files a petition for bankruptcy or is adjudicated bankrupt;
(b) a petition in bankruptcy is filed against the other party and such
petition is not dismissed within sixty (60) days of the filing date; (c)
the other party becomes insolvent or makes an assignment for the benefit
of its creditors pursuant to any bankruptcy law; (d) a receiver is
appointed for the other party or its business; (e) upon the occurrence
of a material breach by the other party if such breach is not cured
within thirty (30) days after written notice is received by the
breaching party identifying the matter constituting the material breach;
(f) after 1 year either party may exercise the right to terminate the
agreement under this clause, 10/(f), in which case, Lycos must give 90
days notice to CallNow.com and agrees to waive any further payments from
CallNow.com. Equally, should CallNow.com exercise this clause, 10(f),
then they shall give 90 days notice to Lycos-Bertelsmann and remain
liable for subsequent monthly guaranteed payments falling due under the
terms of this agreement within the 90 day notice period; (g) by mutual
consent of the parties
10/ Force Majeure. In the event that either party is prevented from
performing, or is unable to perform, any of its obligations under this
Agreement due to any cause beyond the reasonable control of the party
invoking this provision, the affected party's performance shall be
excused and the time for performance shall be extended for the period
of delay or inability to perform due to such occurrence.
11/ Relationship of Parties. CallNow.com and Lycos are independent
contractors under this Agreement, and nothing herein shall be construed
to create a partnership, joint venture or agency relationship between
CallNow.com and Lycos. Neither party has authority to enter into
agreements of any kind on behalf of the other.
12/ Assignment, Binding Effect. Neither Lycos nor CallNow.com may
assign this Agreement or any of its rights or delegate any of its
duties under this Agreement without the prior written consent of the
other.
13/ Choice of Law and Forum. This Agreement, its interpretation,
performance or any breach thereof, shall be construed in accordance
with, and all questions with respect thereto shall be determined by,
the laws of the Commonwealth of Massachusetts applicable to contracts
entered into and wholly to be performed within said state. CallNow.com
hereby consents to the personal jurisdiction of the Commonwealth of
Massachusetts, acknowledges that venue is proper in any state or
Federal court in the Commonwealth of Massachusetts, agrees that any
action related to this Agreement must be brought in a state or Federal
court in the Commonwealth of Massachusetts, and waives any objection
CallNow.com has or may have in the future with respect to any of the
foregoing.
14/ Good Faith. The parties agree to act in good faith with respect to
each provision of this Agreement and any dispute that may arise related
hereto.
<PAGE>
15/ Additional Documents/Information. The parties agree to sign and/or
provide such additional documents and/or information as may reasonably
be required to carry out the intent of this Agreement and to effectuate
its purposes.
16/ Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be deemed to be an original, but all
of which together shall constitute one and the same instrument.
17/ No Waiver. The waiver by either party of a breach or a default of
any provision of this Agreement by the other party shall not be
construed as a waiver of any succeeding breach of the same or any other
provision, nor shall any delay or omission on the part of either party
to exercise or avail itself of any right, power or privilege that it
has, or may have hereunder, operate as a waiver of any right, power or
privilege by such party.
18/ Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective heirs,
successors and assigns.
19/ Severability. Each provision of this Agreement shall be severable
from every other provision of this Agreement for the purpose of
determining the legal enforceability of any specific provision.
20/ Notices. All notice required to be given under this Agreement must
be given in writing and delivered either in hand, by certified mail,
return receipt requested, postage pre-paid, or by Federal Express or
other recognized overnight delivery service, all delivery charges
pre-paid, and addressed:
If to Lycos-Bertelsmann: Lycos-Bertelsmann-Bertelsmann GmbH & Co KG
Carl-Bertelsmann-Strasse, 161L
Postfach 315, D-33311 Gutersloh, Germany
Fax No.: (+49) 5241 80 61655
Attention: Controller
With a copy to: Business Development Director
Lycos-Bertelsmann GmbH & Co KG
400-2 Totten Pond Road
Waltham MA 02154
Fax No.: (781) 370 2600
If to CallNow.com:
CallNow.com, Inc.
50 Broad Street, Suite 501
New York, NY 10004
Attention: Mr. Christian Bardenheuer
<PAGE>
22/ Entire Agreement. This Agreement contains the entire understanding
of the parties hereto with respect to the transactions and matters
contemplated hereby, supersede all previous agreements between
Lycos-Bertelsmann and CallNow.com concerning the subject matter, and
cannot be amended except by writing signed by both parties. No party
hereto has relied on any statement, representation or promise of any
other party or with any other officer, agent, employee or attorney for
the other party in executing this Agreement except as expressly stated
herein.
23/ Limitations of Liability. UNDER NO CIRCUMSTANCES SHALL EITHER PARTY
BE LIABLE TO THE OTHER PARTY FOR INDIRECT, INCIDENTAL, CONSEQUENTIAL,
SPECIAL OR EXEMPLARY DAMAGES (EVEN IF THAT PARTY HAS BEEN ADVISED OF
THE POSSIBILITY OF SUCH DAMAGES), ARISING FROM ANY PROVISION OF THIS
AGREEMENT (INCLUDING SUCH DAMAGES INCURRED BY THIRD PARTIES), SUCH AS,
BUT NOT LIMITED TO, LOSS OF REVENUE OR ANTICIPATED PROFITS OR LOST
BUSINESS. IN NO EVENT SHALL EITHER PARTY BE LIABLE FOR DAMAGES IN
EXCESS OF THE AMOUNT RECEIVED BY THE OTHER PARTY UNDER THIS AGREEMENT,
PROVIDED THAT THIS SECTION DOES NOT LIMIT EITHER PARTY'S LIABILITY TO
THE OTHER FOR (A) WILLFUL AND MALICIOUS MISCONDUCT; (B) DIRECT DAMAGES
TO REAL OR TANGIBLE PERSONAL PROPERTY; (C) BODILY INJURY OR DEATH
CAUSED BY NEGLIGENCE; OR (D) INDEMNIFICATION OBLIGATIONS HEREUNDER.
IN WITNESS WHEREOF, the parties have duly executed and delivered this Agreement
as of the date set forth above.
CallNow.com, Inc. Lycos Bertelsmann GmbH & Co KG
By: /s/ CH Bardenheuer By: /s/ Christoph Mohn
-------------------------------- -------------------------------
Name: CH Bardenheuer Name: Christoph Mohn
Title: Chairman and CEO Title: CEO
Date: Date: 12th May 1999
<PAGE>
AGREEMENT
This Agreement is by and between Lycos Japan, (a joint Venture between
Lycos Inc., Sumitomo Corporation and Internet Initiative Japan) a Japanese
Corporation with a principal place of business at 5F Kinseisha Bldg.,
Kandanishikicho, Chiyoda-Ku, Tokyo, 101-0054 Japan ("Lycos Japan"), and
CallNow.com, Inc. a US company with a principal place of business at 50 Broad
Street, Suite 501, New York, New York, 10004 USA ("CallNOW.com").
Both parties agree to execute a definitive agreement by May 24, 1999
Recitals
A. Lycos Japan is the owner or licensee of the Japanese Web service.
B. CallNow.com, Inc. the operator of a Web site accessible through the
URL www.CallNow.com, (the "CallNow.com Site") that provides a online
telecommunications products and services over the Internet.
Overview
Lycos Japan will place banners, promotional buttons, text links and other
hyperlinks from its Home Pages and Web Guides to the CallNOW.com site.
Additionally a presence will be provided on search results pages in the form of
banners, promotional buttons, text links and other hyperlinks. Lycos Japan will
provide keyword product when available.
<PAGE>
TERMS
1/ Lycos Japan's Obligations:
Advertising Impressions. Lycos Japan shall provide advertising links promoting
the CallNOW.com site within the Lycos Japan sites. Lycos Japan shall provide
these advertising impressions in accordance with Lycos Japan' standard
advertising terms and conditions.
Affiliate Program. Lycos Japan will provide links promoting CallNOW.com on its
Affiliate Program Community, when available. Lycos Japan will allocate a part of
48,000,000 impressions to Affiliate Program when available.
Premier Partner Status. Lycos Japan shall designate CallNOW.com as a Premier
Partner in its Affiliate Program, when available.
Impression Guarantees. Lycos Japan guarantees during the term of this agreement
it shall provide CallNOW.com with 48,000,000 impressions. CallNOW.com shall have
the right, at its own expense, to audit Lycos Japan's books and records for the
purpose of verifying impressions served. Such audits will be made not more than
once per year, and not less than (10) ten days written notice, during regular
business hours, by auditors reasonably acceptable to Lycos Japan. Such audits
shall not interfere with Lycos Japan's normal business. In the event that Lycos
Japan has not delivered 48,000,000 impressions by the end of the Term, Lycos
Japan will continue to deliver impressions until that level of impressions is
received.
2/ CallNOW.com Inc.'s obligations:
Integration. CallNow.com shall provide Lycos Japan with any assistance requested
by Lycos Japan in establishing links between Lycos Japan and the CallNOW.com
Site.
Lycos Japan Integration Fees. During the period beginning on the Effective Date
and ending on the two year anniversary, CallNOW.com shall pay Lycos Japan
$160,000 payable as follows: (i) $40,000 within 30 days of the Effective Date;
(ii) six quarterly installment payments of $20,000 due 90, 180, 270, 360, 450,
540 days after the Effective Date.
Lycos Japan Transaction Fees. In addition to the integration fees outlined
above, during the term and for two years thereafter, for a total of four years,
CallNOW.com shall owe Lycos Japan a percentage of any sales made my users and
affiliates referred to the CallNOW.com Site through the impressions, promotions
and offers outlined in Section 1. Initially, CallNOW.com shall owe Lycos Japan
20% of the Net Sales Revenue. Lycos Japan's percentage of the Net Sales shall be
credited dollar for dollar against the Integration Fee outlined above, until
such time as the full amount of Integration Fee has been offset. At such time,
the percentage share due Lycos Japan shall decrease to 15% of the Net Sales
Revenue, and CallNOW.com shall commence paying Lycos Japan its share of the Net
Sales Revenue at the end of each quarter such occurrence.
Affiliate Bounty. WHEN AVAILABLE, CallNOW.com shall pay Lycos Japan $40 (the
"Affiliate Bounty") for every affiliate member who registers for the CallNOW.com
Partner Affiliate
<PAGE>
Program. CallNOW.com shall pay Lycos every calendar quarter the Affiliate Bounty
as follows: 50% upon registration by the affiliate and 50% upon the affiliate
signing a minimum of five customers for the CallNOW.com products or services.
3/ Term:
The term ("Term") of this Agreement shall commence on the Effective Date and
continue for two years unless terminated earlier as provided in Article 9/
below.
4/ Marks:
Lycos Japan hereby grants to CallNOW.com the non-exclusive right to use the
Lycos Japan Marks solely for the purposes of co-branding specified in this
Agreement. CallNOW.com hereby grants Lycos Japan the Non-exclusive,
non-transferable right to use the CallNOW.com Marks solely for the purposes
specified in this Agreement. Except as expressly stated herein, neither party
shall make any other use of the other party's marks. Upon request of either
party, the other party shall provide appropriate attribution of the use of the
requesting party's marks.
5/ Representations and Warranties: Each party hereby represents and
warrants as follows:
a. Corporate Power. Such party is duly organized and validly existing
under the laws of the state of its incorporation and has full corporate power
and authority to enter into this Agreement and to carry out the provisions
hereof.
b. Due Authorization. Such party is duly authorized to execute and
deliver this Agreement and to perform its obligations hereunder.
c. Binding Agreement. This Agreement is a legal and valid obligation
binding upon it and enforceable with its terms. The execution, delivery and
performance of this Agreement by such party does not conflict with any
agreement, instrument or understanding, oral or written, to which it is a party
or by which it may be bound, nor violate any law or regulation of any court,
governmental body or administrative or other agency having jurisdiction over it.
d. Intellectual Property Rights. Such party has the full and exclusive
right to grant or otherwise permit the other party to access the CallNOW.com
Site content and to use the trademarks, logos and trade names as set forth on
this Agreement, and that it is aware of no claims by any third parties adverse
to any of such property rights.
The representations and warranties and covenants in this Section 5 are
continuous in nature and shall be deemed to have been given by each party at
execution of this Agreement and at each stage of performance hereunder. These
representations, warranties and covenants shall survive termination or
expiration of this Agreement.
6/ Limitation of Warranty. EXCEPT AS EXPRESSLY WARRANTED IN SECTION 5
ABOVE, EACH PARTY EXPRESSLY DISCLAIMS ANY FURTHER WARRANTIES, EITHER
<PAGE>
EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO, THE IMPLIED WARRANTIES OF
MERCHANTABILITY, OR FITNESS FOR A PARTICULAR PURPOSE.
7/ Indemnification:
a. CallNOW.com Indemnity. CallNOW.com will at all times indemnify and
hold harmless Lycos Japan and its officers, directors, shareholders, employees,
accountants, attorneys, agents, successors and assigns from and against any and
all third party claims, damages, liabilities, costs and expenses, including
reasonable legal fees and expenses, arising out of or related to any breach of
any warranty, representation, covenant or agreement made by CallNOW.com in this
Agreement. Lycos Japan shall give CallNOW.com prompt written notice of any
claim, action or demand for which indemnity is claimed. CallNOW.com shall have
the right, but not obligation, to control the defense and/or settlement of any
claim in which it is named as a party. Lycos Japan shall have the right to
participate in any defense of a claim by CallNOW.com with counsel of Lycos
Japan's choice at Lycos Japan's own expense. The foregoing indemnity is
conditioned upon: prompt written notice by Lycos Japan to CallNOW.com of any
claim, action or demand for which indemnity is claimed; complete control of the
defense and settlement thereof by CallNOW.com; and such reasonable cooperation
by Lycos Japan in the defense as CallNOW.com may request.
b. Lycos Japan Indemnity. Lycos Japan will at all times defend,
indemnify and hold harmless CallNOW.com and its officers, directors,
shareholders, employees, accountants, attorneys, agents, successors and assigns
from and against any and all third party claims, damages, liabilities, costs and
expenses, including reasonable legal fees and expenses, arising out of or
related to any breach of any warranty, representation, covenant or agreement
made by Lycos Japan in this Agreement. CallNOW.com shall give Lycos Japan prompt
written notice of any claim, action or demand for which indemnity is claimed.
Lycos Japan shall have the right, but not the obligation, to control the defense
and/or settlement of any claim in which it is named as a party. CallNOW.com
shall have the right to participate in any defense of a claim by Lycos Japan
with counsel defense of CallNOW.com chosen at its own expense. The foregoing
indemnity is conditioned upon; prompt written notice by CallNOW.com to Lycos
Japan of any claim, action or demand for which indemnity is claimed; complete
control of the defense and settlement thereof by Lycos Japan; and such
reasonable cooperation by CallNOW.com in the defense of Lycos Japan may request.
8/ Confidentiality, Press Releases:
a. Non-Disclosure Agreement. The parties agree and acknowledge
that, as a result of negotiating, entering into and performing
this Agreement, each party has and will have access to certain
of the other party's Confidential Information (as defined
below). Each party also understands and agrees that misuse
and/or disclosure of that information could adversely affect
the other party's business. Accordingly, the parties agree
that, during the Term of this Agreement and thereafter, each
party shall use and reproduce the other party's Confidential
Information only for purposes of this Agreement and only to
the extent necessary for such purpose and shall restrict
disclosure of the other party's Confidential Information to
its employees, consultants or independent contractors with a
need to know and shall not disclose the other party's
confidential information to any third party without the prior
written approval of the other party. Notwithstanding the
<PAGE>
foregoing, it shall not be a breach of this Agreement for
either party to disclose Confidential Information of the other
party if required to do so under law or in a judicial or other
governmental investigation or proceeding, provided the other
party has been given prior notice and the disclosing party has
sought all available safeguards against widespread
dissemination prior to such disclosure.
b. Confidential Information Defined. As used in this Agreement,
the term "Confidential Information" refers to (i) the terms
and conditions of this Agreement; (ii) each party's trade
secrets, business plans, strategies, methods and/or practices;
and (iii) other information relating to either party that is
not generally know to the public, including information about
either party's personnel, products, customers, marketing
strategies, services or future business plans. Notwithstanding
the foregoing, the term "Confidential Information"
specifically excludes (A) information that is now in the
public domain or subsequently enters the public domain by
publication or otherwise through no action or fault of the
other party; (B) information that is known to either party
without restriction, prior to receipt from the other party
under this agreement from its own independent sources as
evidenced by such party's written records, and which was not
acquired, directly or indirectly, from the other party; (C)
information that either party receives from any third party
reasonably known by such receiving party to have a legal right
to transmit such information, and not under any obligation to
keep such information confidential; and (D) information
independently developed by either party's employees or agents
provided that either party can show that those same employees
or agents had no access to the Confidential Information
received hereunder.
c. Press Releases. Lycos Japan and CallNOW.com may jointly
prepare press releases concerning the existence of this
Agreement and the terms hereof. Otherwise, no public
statements concerning the existence or terms of this Agreement
shall be made or released to any medium except with the prior
approval of Lycos Japan and CallNOW.com or as required by law,
except where such information is already clearly in the public
domain or the subject or existing jointly approved press
releases.
9/ Termination. Either party may terminate this Agreement if (a) the
other party files a petition for bankruptcy or is adjudicated bankrupt; (b) a
petition in bankruptcy is filed against the other party and such petition is
not dismissed within sixty (60) days of the filing date; (c) the other party
becomes insolvent or makes an assignment for the benefit of its creditors
pursuant to any bankruptcy law; (d) a receiver is appointed for the other party
or its business; (e) upon the occurrence of a material breach by the other
party if such breach is not cured within thirty (30) days after written notice
is received by the breaching party identifying the matter constituting the
material breach; (f) after 1 year either party may exercise the right to
terminate the agreement under this clause, 9/(f), in which case, Lycos Japan
must give 90 days notice to CallNOW.com and agrees to waive any further
payments from CallNOW.com. Equally, should CallNOW.com exercise this clause,
9(f), then they shall give 90 days notice to Lycos Japan and remain liable for
subsequent monthly guaranteed payments falling under the terms of this
Agreement within the 90 day notice period; (g) by mutual consent of the
parties.
10/ Force Majeure. In the event that either party is prevented from
performing, or is unable to perform, any of its obligations under this
Agreement due to any cause beyond the reasonable control of
<PAGE>
the party invoking this provision, the affected party's performance shall be
excused and the time for performance shall be extended for the period of delay
or inability to perform due to such occurrence.
11/ Relationship of Parties. CallNOw.com and Lycos Japan are independent
contractors under this Agreement, and nothing herein shall be construed to
create a partnership, joint venture or agency relationship between CallNOW.com
and Lycos Japan. Neither party has authority to enter into agreements of any
kind on behalf of the other.
12/ Assignment, Binding Effect. Neither Lycos Japan nor CallNOW.com may
assign this Agreement or any of its rights or delegate any of its duties under
this Agreement without the prior written consent of the other.
13/ Choice of Law and Forum. This Agreement, its interpretation,
performance or any breach thereof, shall be construed in accordance with, and
all questions with respect thereto shall be determined by, the laws of the
Commonwealth of Massachusetts applicable to contracts entered into and wholly
to be performed within said state. CallNOW.com hereby consents to the personal
jurisdiction of the Commonwealth of Massachusetts, acknowledges that venue is
proper in any state or Federal court in the Commonwealth of Massachusetts,
agrees that any action related to this Agreement must be brought in a state or
Federal court in the Commonwealth of Massachusetts, and waives any objection
CallNOW.com has or may have in the future with respect to any of the foregoing.
14/ Good Faith. The parties agree to act in good faith with respect to
each provision of this Agreement and any dispute that may arise related hereto.
15/ Additional Documents/Information. The parties agree to sign and/or
provide such additional documents and/or information as may reasonably be
required to carry out the intent of this Agreement and to effectuate its
purposes.
16/ Counterparts. This Agreement may be executed in multiple counterparts,
each of which shall be deemed to be an original, but all of which together
shall constitute one and the same instrument.
17/ No Waiver. The waiver by either party of a breach or a default of any
provision of this Agreement by the other party shall not be construed as a
waiver of any succeeding breach of the same or any other provision, nor shall
any delay or omission on the part of either party to exercise or avail itself of
any right, power or privilege that it has, or may have hereunder, operate as a
waiver of any right, power or privilege by such party.
18/ Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective heirs,
successors and assigns.
19/ Severability. Each provision of this Agreement shall be severable
from every other provision of this Agreement for the purpose of determining the
legal enforceability of any specific provision.
20/ Notices. All notice required to be given under this Agreement must be
given in writing and delivered either in hand, by certified mail, return
receipt requested, postage pre-paid, or by Federal Express or other recognized
overnight delivery service, all delivery charges pre-paid, and addressed:
<PAGE>
If to Lycos Japan: Lycos Japan Kabushiki Kaisha
5F Kinseisha Bldg., 3-15, Kandanishikicho,
Chiyoda-ku, Tokyo, 101-0054 Japan
Attention: Mr. Kazuo Francis Yoshida, C.E.O.
If to CallNOW.com: CallNOW.com, Inc.
50 Broad Street, Suite 501
New York, NY 10004
Attention: Mr. Christian Bardenheuer, C.E.O.
22/ Entire Agreement. This Agreement contains the entire understanding of
the parties hereto with respect to the transactions and matter contemplated
hereby, supersede all previous agreements between Lycos Japan and CallNOW.com
concerning the subject matter, and cannot be amended except by writing signed
by both parties. No party hereto has relied on any statement, representation or
promise of any other party or with any other officer, agent, employee or
attorney for the other party in executing this Agreement except as expressly
stated herein.
23/ Limitations of Liability. UNDER NO CIRCUMSTANCES SHALL EITHER PARTY
BE LIABLE TO THE OTHER PARTY FOR INDIRECT, INCIDENTAL, CONSEQUENTIAL, SPECIAL
OR EXEMPLARY DAMAGES (EVEN IF THAT PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF
SUCH DAMAGES), ARISING FROM ANY PROVISION OF THIS AGREEMENT (INCLUDING SUCH
DAMAGES INCURRED BY THIRD PARTIES), SUCH AS, BUT NOT LIMITED TO, LOSS OF
REVENUE OR ANTICIPATED PROFITS OR LOST BUSINESS. IN NO EVENT SHALL EITHER PARTY
BE LIABLE FOR DAMAGES IN EXCESS OF THE AMOUNT RECEIVED BY THE OTHER PARTY UNDER
THIS AGREEMENT, PROVIDED THAT THIS SECTION DOES NOT LIMIT EITHER PARTY'S
LIABILITY TO THE OTHER FOR (A) WILLFUL AND MALICIOUS MISCONDUCT; (B) DIRECT
DAMAGES TO REAL OR TANGIBLE PERSONAL PROPERTY; (C) BODILY INJURY OR DEATH
CAUSED BY NEGLIGENCE; OR (D) INDEMNIFICATION OBLIGATIONS HEREUNDER.
IN WITNESS WHEREOF, the parties have duly executed and delivered this Agreement
as of the date set forth above.
CallNOW.com, Inc. Lycos Japan KK
By: /s/ Christian Bardenheuer _________ By: /s/ Kazuo Francis Yoshida _____
Name: Christian Bardenheuer, C.E.O. Name: Kazuo Francis Yoshida, C.E.O.
Title: C.E.O. Title: C.E.O.
Date: May 26, 1999 Date: May 26, 1999
<PAGE>
Exhibit 10.15
LONG DISTANCE RESELLER SERVICE AGREEMENT
This long distance reseller service agreement ("Agreement") is made and entered
as of the last date shown below, and is entered by and between Interoute, Inc.
("Interoute") having a place of business at 110-72 Corona Avenue, Corona, NY
11368 and Axicom Communications Group, Inc. ("Customer") having its principal
place of business at 50 Broad Street, New York, NY 10004. Interoute and Customer
are the parties to this Agreement, and are referred to herein as the "Parties,"
with each being a "Party."
WITNESSETH:
WHEREAS, Interoute is a long distance provider, and Customer desires to purchase
long distance service ("Services") from Interoute on the terms provided below,
and Interoute desires to sell long distance service to Customer on the terms
provided below;
NOW, THEREFORE, the Parties agree as follows:
1. SERVICES AND PRICING:
a. Commencing on the later of the date of full execution date of
this Agreement or the date when the Parties have taken
necessary steps (the Parties proceeding with reasonable
diligence) for Services to be provided, Interoute will provide
telecommunication Services to Customer for its traffic.
Interoute reserves the right to, from time to time, set a
limit of monthly-minutes (the "Limit"), which Customer may run
with Interoute, in which case Interoute shall have no
obligation to allow traffic beyond the Limit. Notwithstanding
the existence of the Limit, Customer shall be liable for all
traffic beyond the Limit.
b. The telecommunication Services shall be billed at the rates
set out in Exhibit A and as the rates may be amended as below,
which rates are in US dollars, the currency for this
Agreement.
c. Calls will be billed as follows:
i. Calls to locations other than Mexico will be at
thirty-second minimum duration, and thereafter in
six-second increments rounded to the next highest
one-tenth (1/10th) of a minute; and
ii. Calls to Mexico will be billed in one-minute
increments, rounded to the next highest minute.
d. At any time, with at least three (3) days' prior written
notice,
i. The rates and offering set out in Exhibit A may be
changed by Interoute, and
ii. The above billing provisions may be changed by
Interoute.
2. CHARGES AND PREPAYMENT TERMS: Customer will deal with Interoute on a
prepaid basis. Customer shall deposit with Interoute moneys (the
'Deposit') which are estimated to pay for the upcoming
telecommunication Services which will be used by Customer. Services
will be terminated automatically, without any notice, upon exhaustion
of the Deposit, and in this event will be restored when and if the
Deposit is replenished. Customer must decide how much money should be
deposited with Interoute to prevent Services termination. Customer is
solely responsible for monitoring its Deposit to avoid termination of
Services. Interoute reserves the right to, at its discretion, in
writing or orally (the 'Replenishment Notice') advise Customer within
one day of when the Deposit appears to be nearing exhaustion, and the
Customer shall on or before the next business day, by cash, bank check,
certified funds or wire transfer of immediately available US funds (or
through another means that is approved by Interoute), replenish the
Deposit. In the event that Interoute shall not provide Services for
which Customer has prepaid,
<PAGE>
Interoute shall, upon Customer's written request, refund all unused
Deposit funds to Customer within seven (7) days, and in other
circumstances the Deposit shall be nonrefundable. Deposit moneys will
be maintained by Interoute in its general operating accounts and no
interest will be paid to Customer on the moneys. The replenishment of
the Deposit shall be by cash, bank check, certified funds or wire
transfer. Cash, bank check and certified funds will only be credited on
the later of shortly after when payment is received by Interoute or if
payment is not made during the business day early during the next
business day and only on the day when the funds are good. Wire transfer
will only be credited on the later of shortly after when a copy of a
bank receipt showing the transfer is faxed to Interoute or if
Customer's fax is not sent during the business day, early during the
next business day. Instructions for wires to Interoute are as
follows:______________________________________________________________
______________________________________________________________________
_________________. (Interoute will complete this area upon execution).
3. PROVISIONING: Customer will at its expense provide interconnection
facilities linking its switch to Interoute's New York switch at a DS1
level.
4. INVOICING: Interoute will invoice Customer weekly with printed invoices
showing the charges against the Deposit.
5. CDR BILLING SERVICES: Interoute will provide CDR on floppy to Customer
on a monthly basis for $35.00, which amount will be charged against the
Deposit.
6. TERM: This Agreement is for ninety (90) days from the date of its
commencement, and automatically renews for thirty (30) day extensions
thereafter, unless either Party notifies the other in writing of their
intent to terminate this Agreement. Either Party may terminate this
Agreement for any reason with or without cause.
7. CONFIDENTIALITY. The terms of this Agreement and any information
revealed by either Party to the other Party under this Agreement which
information is not in the public realm, is deemed to be confidential.
Neither Party shall at any time disclose any of the terms of this
Agreement nor any such previously described confidential information to
any other third Party except to the professional advisors of either
Party or as may be required by applicable law. Breach of this provision
shall support equitable relief in favor the Party harmed by the breach.
If either party is required by applicable law to disclose confidential
information, that Party shall immediately advise the other Party.
8. TAXES: The undersigned hereby certifies that the Services furnished by
Interoute, are exempt from: 1) federal excise tax on communication
Services and facilities under applicable IRC provision(s) and 2) state
and local sales & use, utility user and telephone tax, and other state
and local governmental assessments as are directed to end-user
customers, as a sale for the purposes of resale. At such time when the
claimed status no longer applies, written notice of rescission will be
submitted in accordance with applicable IRC provision(s). It is
understood that no tax, surcharge or assessment will be collected by
Interoute, on charges for said Services, and that it will be the
responsibility of the undersigned to collect such tax as may be due
from its customers and remit as required by law, rule, regulation, or
ordinance.
9. BILLING DISPUTES: Any billing disputes shall be presented by Customer
to Interoute in reasonable detail, in writing, within THIRTY (30) days
of the earlier of: A) the date of the billing in question (i.e., the
Invoice); or B) when information regarding the charges were first
provided to Customer. Any dispute not timely raised shall be waived.
10. NO WARRANTY: Interoute provides no warranty, express or implied, with
respect to Services it provides and expressly disclaims any warranty of
merchantability or fitness for a particular purpose or use.
2
<PAGE>
11. CUSTOMER RESPONSIBILITIES: The Customer alone, at its own expense
shall: A) be responsible for any taxes [local, state, federal,
international or otherwise], which may be or become due on the
Services; B) be responsible for preparing and timely filing any tax
returns or other reporting returns which may be or become due on the
Services; C) be responsible for examining Interoute's technical systems
to determine their compatibility with Customer's systems. Interoute has
not made any representations as to technical compatibility and will not
make modifications to its systems to provide the Services; D) Ensure
that Interoute's systems and the Services shall not be used for any
illegal purposes; and E) be responsible to perform any actions which
are necessary in order to enable Interoute to provide Services to
Customer.
12. LIABILITY LIMITATIONS: In no event will either Party be liable to the
other Party for any indirect, special, incidental or consequential
losses or damages, including without limitation, loss of revenue, loss
of customers or clients, loss of goodwill or loss of profits arising in
any manner from this Agreement and the performance or non performance
of obligations hereunder. The only possible liability under this
Agreement to the Parties shall be as follows: A) If Customer defaults
in any way (i.e., Customer nonpayment, Customer late payment, Customer
misrepresentation, Customer nonperformance of any sort, hereinafter a
"Default") under this Agreement: I) Customer shall be liable for
Interoute's attorney's fees and other professional's fees (whether or
not arbitration is pursued), filing fees, costs and all other expenses
associated with pursuing Customer for the Default (including, but not
limited to, expenses which may be associated with any arbitration and
collection steps thereafter) and II) Customer shall be liable for
unpaid Services provided under this Agreement, which Services Interoute
may re-rate by increasing the per minute cost of such Services by $.01
(the Parties acknowledge that Interoute's pricing is established at its
low levels premised upon Customer's commitment to timely pay for
Services and otherwise comply with this Agreement - if there is a
Customer Default the per minute $.01 increase is appropriate) and for
interest at 15% annually on the above amount due from when the unpaid
Services charges were first due; and B) Both Parties shall be
responsible in law and equity for any breach of the above
CONFIDENTIALITY paragraph provisions.
13. FORCE MAJEURE, ETC.: No failure or omission on the part of Interoute
shall result in any liability to Customer if Interoute was prevented
from performing its duties to what is commonly referred to as Force
Majeure or by other matters outside of Interoute's control (by way of
example only, fire, flood, war, civil unrest, power failure, change of
law, failures by parties supplying service to Interoute, earthquake,
other Act of God, change of law, etc.).
14. MISCELLANEOUS: This Agreement, and the rights and obligations
hereunder, shall inure to the benefit of, and shall be binding upon,
the Parties and their respective legal successors and permissible
assigns; provided, that Customer may not transfer or assign any or all
of its rights or obligations hereunder without the prior written
consent of Interoute. No change or modification or waiver of any
provision of this Agreement shall be valid unless the same is in
writing and signed by the Parties. The failure of any Party at any time
to insist upon strict performance of any condition, promise, agreement,
or understanding set forth in this Agreement shall not be construed as
a waiver or relinquishment of the right to insist upon strict
performance of the same condition, promise, agreement, or understanding
at a future time. This Agreement shall be enforced under and construed
in accordance with the laws of the State of New York (without regard to
its conflict of laws principles). Any dispute under this Agreement
shall be resolved by a one-arbitrator arbitration before the Garden
City, NY American Arbitration Assoc., under their usual rules for
expedited arbitration, and the Parties consent to their entry of final
award/judgement with regard to any dispute, and to jurisdiction of the
courts of N.Y. and the courts of their State for enforcement of any
award/judgment. At the commencement of any arbitration by Interoute,
Customer shall be required to post with the arbitrator any amounts
which Interoute alleges to be due, absent which the arbitration shall
be summarily determined with prejudice in favor of Interoute. This
Agreement shall be construed as if drawn mutually by both parties, and
shall remain valid even if one or more provisions are deemed illegal or
unenforceable - in which event this Agreement shall be read as if
modified to give effect to the Parties' intent in making this
Agreement. This Agreement shall not create any agency, partnership or
joint venture relationship
3
<PAGE>
between the Parties. Time is of the essence in the performance of this
Agreement and for all periods shown herein. This Agreement may be
executed in counterpart, and by fax, and shall only be valid if both
signed and co-signed during seven days (unless the Parties waive this
execution requirement by their actions). This Agreement contains the
entire Agreement of the Parties with respect to its subject matter and
supersedes all prior Agreements or understandings, oral or written,
with respect to its subject matter. Notices and communications between
the Parties under this Agreement shall be in writing sent by FedEx or
Fax and shall be valid as of when they are delivered.
In Witness Whereof, the Parties have affixed their hands and seals the last day
and year written below.
Interoute, Inc. CUSTOMER
110-72 Corona Avenue Axicom Communications Group, Inc.
Corona, NY 11368 50 Broad Street
Tel. No.: 718 271 4300 New York, NY 10004
Fax No.: 718 271 0004 Tel. No.: 212 785-4386
By:________________Date:___________ Fax No.: 212 785-4388
Customer is incorporated in New York State
Customer's Tax ID is 13-3786474
By: /s/ Christian Bardenheuer, CEO
Date: 4/6/99
4
<PAGE>
EXHIBIT A
COUNTRY PRICE PER MINITE - all prices in US dollars
- --------------------------------------------------------------------------------
see attached see attached and Riders (if any)
and Riders (if any)
The above offerings do not include calls to cellular exchanges or cellular
numbers and AIT reserves the right to block any of the above offerings with no
notice. All other areas not included under this Agreement are blocked.
Calls (to locations other than Mexico) will be billed at thirty-second minimum
duration, and thereafter in six-second increments rounded to the next highest
one-tenth (1/10th) of a minute.
Calls to Mexico, all bands, will be billed in one-minute increments, rounded to
the next highest minute.
CUSTOMER, Axicom Communications Group, Inc.
By: Sign here print name and corporate capacity below
- --------------------------------------------------------------------------------
Date:_________________
5
<PAGE>
Exhibit 10.16
CARRIER SERVICES AGREEMENT
This Carrier Services Agreement ("Agreement") is entered into as of this 21st
day of June, 1999 by and between FORVAL INTERNATIONAL TELECOM, INC., a New
Jersey corporation ("FORVAL") with its principal offices at 50 Tice Blvd.,
Woodcliff Lakes, N.J. 07675, and CALLNOW.COM, INC ("Customer"), a Delware
corporation, with its principal offices at 50 Broad St. - 5th Floor, New York,
NY 10004. FORVAL and CALLNOW.COM, INC. may be referred to collectively as
"PARTIES", and singularly as a "PARTY".
SECTION 1. SERVICES
1.1 SERVICES PROVIDED. FORVAL agrees to provide and Customer agrees to accept
switched telecommunications services ("Services" or "Service") as described in
the Service Schedule(s) identified herewith, subject to the terms of this
Agreement.
SECTION 2: TERMS & CONDITIONS
2.1 EFFECTIVE DATE; TERM The term of this Agreement (the "Term") shall commence
as of the date first written above (the "EFFECTIVE DATE") and shall continue
until terminated by either Party in accordance with the terms herein.
2.2 START OF SERVICE The obligations of the Parties hereunder shall commence
with respect to any Service as of the date Service becomes available ("Start of
Service"). Start of Service for particular Service shall be as further described
in the relevant Service Schedule(s)
SECTION 3. TARIFFS AND SERVICE SCHEDULE
3.1 TARIFF AND SERVICE SCHEDULES Service requested by Customer hereunder shall
be requested on FORVAL Service Schedule forms (substantially in the form
attached hereto) and subscribed to by authorized representatives of Customer and
FORVAL (the "Service Schedule"). Each Service Schedule shall reference this
Agreement and shall become a part of this Agreement to the extent that it
describes the Service; Requested Service Date; Service Interconnection, if any,
relevant to the Service in question; charges: specific Service terms; and other
information necessary for FORVAL to provide Service to Customer.
SECTION 4. SERVICE INTERCONNECTIONS
4.1 INTERCONNECTION OF CUSTOMER FACILITIES In order to receive Service from
FORVAL hereunder, Customer must establish dedicated DS-1 circuits between
Customer's network and FORVAL's designated network location meet point ("POP")
as specified in the Service Schedule(s).
4.2 CIRCUIT UTILIZATION Customer must provide a minimum "Average Utilization" on
each DS-1 Service Interconnection circuit (or DS-1 equivalent) at each FORVAL
POP of not less than 100,000 minutes of usage per calendar month (or prorated
month) for each month of the Minimum Service Term. For the purposes of
calculation, the total usage of all circuits at each POP will be aggregated in
order to calculate the Average Utilization per circuit. In the event Customer
fails to meet the 100,000 minutes minimum Average Utilization per circuit in any
given month, Forval reserves the right to cancel the affected ports with thirty
(30) days advanced written notice to Customer.
SECTION 5. CARRIER SERVICE RATES, COMMITMENTS AND DISCOUNTS
5.1 CARRIER SERVICE INTERNATIONAL AND DOMESTIC OUTBOUND USAGE RATES. Base
usage rates ("Base Rates") for International and Domestic Outbound
calls are specified in Schedule A. Base Rates are the amounts charged
by Forval before the addition of any taxes, surcharges or other fees.
<PAGE>
5.2 BILLING. Unless otherwise specified in the Terms & Conditions section
of schedule A, FORVAL will calculate the length of each International
Outbound call based upon a minimum billing period of 30 seconds with
rounding to the next higher 6 second period, Domestic Outbound calls
based upon a minimum billing period of 6 seconds with rounding to the
next higher 6 seconds, and calls to Mexico will be based upon a minimum
billing period of 60 seconds with rounding to the next higher 60
seconds.
5.3 RATE INCREASE FORVAL shall have the right to increase the rates
hereunder on 7 days written notice to Customer at any time over the
course of the Service Term, unless otherwise stated in the Terms
Conditions section of Schedule A.
5.4 NO OTHER DISCOUNTS. Customer will receive no other discounts, credits,
or bonuses that are not expressly provided for in this Agreement.
SECTION 6. BILLING CHARGES AND PAYMENT TERMS:
6.1 CHARGES FORVAL shall invoice Customer on a weekly basis, or upon such other
basis as may be mutually agreed to by the Parties following Start of Service.
Services shall be billed at the rates and charges set out herein and in the
applicable Schedules. FORVAL shall invoice Customer by facsimile, U.S. mail, or
Overnight Mail service on or about the third business day after the close of
each billing cycle for the Services and for any other sums due FORVAL. Each
Invoice ("Invoice") shall detail: (i) the amount due FORVAL, or the credit due
Customer, as applicable; and (ii) any other sums due FORVAL in accordance with
this Agreement.
6.2 PAYMENT Payment for each invoice shall be due (the "Due Date") no later than
five (5) calendar days from the Invoice Date. Any invoice not paid by the Due
Date shall bear late payment fees at the rate of 1-1/2% per month (or such lower
amount as may be justified by law) until paid.
6.3 TAXES Customer acknowledges and understands that all charges stated in
Service Schedules are computed by FORVAL exclusive of any applicable use,
excise, gross receipts, sales and privilege taxes, duties, fees or other taxes
or similar liabilities (other than general income or property taxes), including
but not limited to those related to universal service or pursuant to similar
regulatory, federal or state laws, whether charged to or against FORVAL or
Customer because of the Service furnished to Customer ("Additional Charges").
Such Additional Charges shall be invoiced by FORVAL, and, unless Customer is
exempt therefrom, paid by Customer, in addition to all other charges provided
for herein.
6.4 FRAUDULENT USAGE Customer understands that FORVAL may have no ability to
prevent fraudulent use of Service by third parties, and therefore, as between
Customer and FORVAL, Customer shall be solely responsible hereunder for
protecting against fraudulent use of the Service. Further, Customer shall be
responsible for paying for all usage of the Service hereunder, whether such
usage was fraudulent or otherwise, i.e., claims of fraudulent usage, other than
that which may result from FORVAL's gross negligence or intentional misconduct,
shall not constitute a valid basis for dispute of an Invoice.
6.5 BILLING DISPUTES The Parties agree that time is of the essence for payment
of all Invoices; provided, however, that Customer may withhold payment of
amounts disputed in good faith pending resolution of such dispute. If an Invoice
is not paid in full, Customer shall provide written notice and supporting
documentation for any good-faith dispute it may have with that Invoice
("Dispute") at the time payment is made. In addition, the Customer shall have
sixty (60) days after the Invoice Due Date to notify Forval of any billing
disputes. Customer shall provide written notice and supporting documentation for
any good-faith dispute it may have with that Invoice ("Dispute") within this
sixty (60) day period. If Customer does not report a Dispute with this sixty
(60) day period, then Customer shall have waived its dispute right for that
Invoice. FORVAL will use reasonable efforts to resolve timely Disputes within 30
days after its receipt of the Dispute notice. If a Dispute is not resolved
within the 30-business-day period to Customer's satisfaction, then at Customer's
request the Dispute will be escalated to an executive officer of FORVAL. If the
Dispute is not resolved within 15 days after such escalation, then either Party
may
<PAGE>
commence and action in accordance with Section 12.2 below, provided that the
prevailing Party in such action shall be entitled to payment of its reasonable
attorney fees and costs by the other Party.
6.6 SUSPENSION OF SERVICE In the event that prepayment is not received from
Customer by the Due Date, FORVAL shall have the right, without written notice,
to immediately suspend all or any portion of the Service to Customer until such
time as Customer has paid in full all charges then due, including any late fees.
Following such payment, FORVAL shall be required to reinstate Service to
Customer only upon the provision by Customer to FORVAL of Customer's advance
payment of the direct cost to FORVAL from third parties for such costs required
to reinstate Service. If Customer fails to make such payment by a date
reasonably determined by FORVAL, Customer will be deemed to have canceled the
suspended Service effective retroactively as of the date of such suspension.
6.7 CREDIT Customer's execution of this Agreement signifies Customer's
acceptance of FORVAL's initial and continuing reasonable credit approval
procedures and policies. FORVAL reserves the right to withhold initiation or
full implementation of Service under this Agreement pending initial satisfactory
credit review and approval thereof which may be conditioned upon terms specified
by FORVAL, including but not limited to, security for payments due hereunder in
the form of a cash deposit, guarantee, irrevocable letter of credit or other
means. Customer and FORVAL hereby mutually agree to establish a credit line in
the amount of $15,000 between them. This credit line is the maximum "NET
BALANCE" that shall be due to either Party by the other Party at any given time
based upon the aggregate amount of both past due amounts and current usage
(defined as usage for Services that have been used but are yet unbilled and
unpaid) of Services. At the time that either Party begins to reach this Net
Balance due to the other Party of $15,000, then the Party owing the unfavorable
Net Balance hereby agrees to immediately wire sufficient funds to the other
Party's bank account for an amount sufficient to keep the unfavorable Net
Balance due to an amount less than the $15,000 maximum credit amount. If the
Party owing the unfavorable Net Balance does not take action to wire sufficient
funds, then the Party to whom the Net Balance is due shall have the right, after
giving 24 hour written notice to the owing Party, to immediately suspend service
to the owing Party at the point where the Net Balance due reaches the maximum
credit limit of $15,000. Customer understands and agrees that this credit line
is NOT a substitute for payment of invoices by the due date, regardless of
whether or not the Customer has or has not reached the maximum $15,000 Net
Balance amount.
FORVAL's obligation to provide Service to Customer shall not commence until
thirty days after Customer has returned to FORVAL an executed agreement, or
Customer has provided to FORVAL a security deposit as required by this Section
6.7, whichever occurs later.
7. TERMINATION RIGHTS
7.1 REGULATORY CHANGES If the FCC, any state or other regulatory agency or court
of competent jurisdiction elects to implement or enforce a rule, regulation, law
or order which has the effect of canceling, changing, or superseding any
material term or provision of this Agreement (collectively "Regulatory
Requirement"), then this Agreement shall be deemed modified in such a way as the
Parties mutually agree is consistent with the form, intent and purpose of this
Agreement and as is necessary to comply with such Regulatory Requirement. Should
the Parties not be able to agree on modifications necessary to comply with a
Regulatory Requirement within 30 days after the Regulatory Requirement is
implemented or enforced, then upon written notice either Party may, to the
extent practicable, terminate that portion of this Agreement impacted by the
Regulatory Requirement enforcement.
7.2 DISSOLUTION OF CORPORATION AND NON-PAYMENT Either Party may terminate this
Agreement upon the other Party's insolvency, dissolution or cessation of
business operations. FORVAL may terminate this Agreement for Customer's failure
to pay any Invoice by the Due Date within 2 business days following Customer's
receipt of written notice of such delinquency from FORVAL.
7.3 BREACH OF AGREEMENT In the event of a breach of any material term or
condition of this Agreement by a Party (other than failure to pay which is
covered under Section 7.2 above), the other Party may terminate this Agreement
upon 30 days written notice, unless the breaching Party cures the breach during
the 30 day period. If the breach is of a type that cannot reasonably be cured
within a 30 day period,
<PAGE>
the parties shall negotiate in good faith regarding the breaching Party's
efforts to effect a cure, and the Parties may address such a breach by executing
a written waiver of this paragraph; provided, however, that in the event that
such good faith negotiation fails, and if the Parties do not execute such a
written waiver of this paragraph, then the non-breaching Party may terminate
this Agreement effective upon written notice to the breaching Party.
7.3.1 Upon any material breach by Customer after expiration of all
applicable notice and cure periods, FORVAL may at its sole option do
any or all of the following:
(i) cease accepting traffic;
(ii) cease all electronically and manually generated information and
reports;
(iii) draw on any letter of credit, security deposit or other assurance
of payment and enforce interest provider by Customer;
(iv) terminate this Agreement and Service without liability to FORVAL;
(v) pursue such other legal or equitable remedy or relief as may be
appropriate.
7.4 NETWORK PROTECTION In the event Customer's Service traffic volumes (or
traffic distribution patterns to individual cities and countries) results in a
lower than industry standard completion rate, severely abnormal or
disproportionate distribution of traffic by city, or other similar abnormality
which adversely affects the FORVAL network (including, but not limited to
looping situations where Customer's traffic is delivered by FORVAL to another
carrier for termination and ultimately returned to FORVAL), FORVAL reserves the
right to block and refuse to accept such adverse traffic at any time, without
prior notice or liability.
SECTION 8. WARRANTIES AND FORCE MAJEURE
8.1 WARRANTY Service shall be provided by FORVAL in accordance with the
applicable technincal standards established for call transport by the
telecommunications industry. FORVAL MAKES NO OTHER WARRANTY, EXPRESS OR IMPLIED,
WITH RESPECT TO TRANSMISSION, EQUIPMENT OR SERVICE PROVIDED THEREUNDER, AND
EXPRESSLY DISCLAIMS ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR ANY
PARTICULAR PURPOSE OR FUNCTION.
8.2 FORCE MAJEURE Other than with respect to failure to make payments due
hereunder for Service actually provided, neither Party shall be liable
under this Agreement for delays, failures to perform, damages, losses
or destruction, or malfunction of any equipment, or any consequence
thereof, caused or occasioned by, or due to fire, earthquake, flood,
water, the elements, labor disputes or shortages, utility curtailments,
power failures, explosions, civil disturbances, governmental actions,
shortages of equipment or supplies, unavailability of transportation,
acts or omissions of third parties.
SECTION 9. LIMITATION OF LIABILITY
9.1 DEFECTS IN TRANSMISSION In no event shall FORVAL be liable to Customer,
any of Customer's own customers or any other third party in any
respect, including, without limitation, for any damages, either direct,
indirect, consequential, special, incidental, actual, punitive, or any
other damages, or for any lost profits of any kind or nature
whatsoever, arising out of mistakes, accidents, errors, omissions,
interruptions, or defects or delays in transmission of Service,
including but not limited to those which may be caused by regulatory or
judicial authorities. FORVAL'S sole liability to Customer in the event
of mistakes, accidents, errors, omissions, interruptions, defects or
delays in transmission of Service (individually and collectively
"Defects"), other than Defects arising out of or resulting from
FORVAL's gross negligence or intentional misconduct, shall be to credit
to Customer any amounts due from or paid by Customer hereunder for
Service not provided at all or not provided in accordance with the
standards described in Section 8.1 above.
<PAGE>
9.2 NO CONSEQUENTIAL DAMAGES In no event shall either Party be liable to
the other Party for incidental and consequential damages, loss of
goodwill, or other claims for indirect damages in any manner related to
this Agreement or the Services.
9.3 INDEMNIFICATION Notwithstanding any of the provisions of this Agreement
which may be construed to the contrary, each party will indemnify the
other Party, its directors, officers, employees, agents and
representatives ("Indemnified Parties"), and save them harmless from
and against any and all claims, actions, damages, liabilities and
expenses (collectively "Losses") occasioned by any act or omission of
such Party, its directors, officers, employees, agents or
representatives or its carriers or clients relating to the performance
of its obligation or use of the Service provided hereunder. If any
Indemnified Party shall, without fault on its part, be made a party to
any litigation commenced by or against such Indemnified Party or
respective party, then the other Party shall protect and hold such
Indemnified Party harmless, and shall pay all costs, expenses, losses,
damages, settlement payments and reasonable attorney's fees incurred or
paid by such Indemnified Party in connection with said litigation.
SECTION 10. ASSIGNMENT AND WAIVERS
10.1 ASSIGNMENT This Agreement shall not be assigned by either Party without
written consent of the other Party, which shall not be unreasonably
withheld. Notwithstanding the foregoing, either Party may, without the
other Party's consent, assign this Agreement to a successor, affiliate,
subsidiary, or to a corporation controlling or under the same control
as such Party, provided that the assignee undertakes in writing to
assume all obligations and duties of the assignor, the assignor shall
thereafter be relieved of such obligations and duties except in
connection with matters arising out of events occurring prior to the
date of such undertaking.
10.2 WAIVERS Failure of either Party to enforce or insist upon compliance
with the provisions of this Agreement shall not be construed as a
general waiver or relinquishment of any provision or right under this
Agreement.
SECTION 11. CONFIDENTIALITY & PROPRIETARY INFORMATION
11.1 PROPRIETARY INFORMATION Each Party agrees that all information
furnished to it by the other Party, or to which it has access under
this Agreement, shall be deemed the confidential and proprietary
information or trade secrets (collectively referred to as "Proprietary
Information") of the Disclosing Party and shall remain the sole and
exclusive property of the Disclosing Party (the Party furnishing the
Proprietary Information referred to as the "DISCLOSING PARTY" and the
other Party referred to as the "RECEIVING PARTY"). Each Party shall
treat the Proprietary Information and the contents of this Agreement in
a confidential manner and, except to the extent necessary in connection
with the performance of its obligations under this Agreement, or
without the written consent of the Disclosing Party neither Party may
directly or indirectly disclose the same to anyone other than its
employees, attorneys or accountants, on a need to know basis, who agree
to be bound by the terms of this Section.
11.2 CONFIDENTIALITY The confidentiality obligations of this Section 11 do
not apply to any portion of the Proprietary Information which is (i) or
becomes public knowledge through no fault of the Receiving Party; (ii)
in the lawful possession of Receiving Party prior to disclosure to it
by the Disclosing Party (as confirmed by the Receiving Party's
records); (iii) disclosed to the Receiving Party without restriction on
disclosure by a person who has the lawful right to disclose the
information; or (iv) disclosed pursuant to the lawful requirements or
request of a governmental agency or court of competent jurisdiction. If
the Receiving Party is requested or legally compelled by a governmental
agency or court of competent jurisdiction to disclose any of the
Proprietary Information of the Disclosing Party, the Receiving Party
agrees that it will provide the Disclosing Party with prompt written
notice of such requests so that the Disclosing Party has the
opportunity to pursue legal and equitable remedies regarding potential
disclosure.
<PAGE>
SECTION 12: GOVERNING LAW AND ARBITRATION
12.1 GOVERNING LAW This Agreement is subject to the laws of New York, and
shall be interpreted, construed, and enforced in all respects in
accordance with the laws of New York. Customer hereby consents to the
jurisdiction and venue of such courts and waives any right to object to
such jurisdiction and venue.
12.2 ARBITRATION Any controversy, claim or dispute among the Parties,
directly or indirectly, concerning this Agreement or the breach hereof
or the subject matter hereof, including questions concerning the scope
and applicability of this arbitration clause, shall be finally settled
by (i) arbitration which shall be held in accordance with the rules of
the American Arbitration Association in New York, New York. One
arbitrator shall be selected by Customer, one arbitrator shall be
selected by FORVAL and one arbitrator shall be selected jointly by the
first two arbitrators selected. The Parties severally agree to expedite
the arbitration proceedings in every way, so that the arbitration
proceedings shall be commenced within thirty days after request
therefor is made, and shall continue thereafter, without interruption,
and that the decision of the arbitrators should be handed down within
thirty days after the hearings in the arbitration proceedings are
closed. The arbitrators shall have the right and authority to assess
the cost of the arbitration proceedings and to determine how their
decisions or determination as to each issue or matter in dispute may be
implemented or enforced. The decision in writing of any two of the
arbitrators shall be binding and conclusive on all of the Parties to
this Agreement. Should either Customer on the one hand, or FORVAL on
the other hand, fail to appoint an arbitrator as required by this
Section 12.2 within thirty days after receiving written notice from the
other Party to do so, the arbitrator appointed by such other Party
shall act for all of the Parties and his decision in writing shall be
binding and conclusive on the Parties to this Agreement. Any decision
or award of the arbitrators shall be final and conclusive on the
Parties to this Agreement; there shall be no appeal therefrom other
than for fraud or misconduct; judgment upon such decision or award may
be entered in any competent court located in the United States of
America or elsewhere; and application may be made to such court for
confirmation of such decision or award for an order of enforcement and
for any other legal remedies that may be necessary to effectuate such
decision or award.
SECTION 13. TAXES AND ASSESSMENTS:
13.1 TAXES Customer agrees that FORVAL shall not be responsible for the
collection and remittance of any governmental assessments, surcharges
or fees pertaining to Customer's resale of the Services.
SECTION 14. REPRESENTATION
14.1 REPRESENTATION The parties acknowledge and agree that the relationship
between them is solely that of independent contractors. Neither Party,
nor its respective employees, agents or representatives, has any right,
power or authority to act or create any obligation, express or implied,
on behalf of the other Party.
SECTION 15. NOTICES
15.1 Notices All notices, including but not limited to, demands, requests
and other communications required or permitted to be sent hereunder,
shall be in writing and shall be deemed to be delivered when actually
received, whether upon personal delivery or if sent by facsimile, mail
or overnight delivery. All notices shall be addressed as follows, or to
such other address as each of the Parties hereto may notify the other.
<PAGE>
FORVAL INTERNATIONAL TELECOM, INC. CALLNOW.COM, INC.
ATTN: Dean Cary ATTN: Jordi Suarez
50 Tice Blvd. 50 Broad St - 5th Floor
Woodcliff Lakes, N.J. 07675 New York, NY 10004
Facsimile: 201-802-0601 Facsimile # 212-785-4561
SECTION 16. TRADE NAMES
16.1 TRADE NAMES Neither Party may use the name, logo, trade name, service
marks, or printed materials of the other Party, or such Party's parent,
subsidiary or affiliated companies, in any promotional or advertising
material statement, document, press release or broadcast without the
prior written consent of the other Party, which consent may be granted
or withheld at the other Party's sole discretion.
SECTION 17. SURVIVAL OF PROVISIONS
17.1 SURVIVAL Any obligations of the Parties relating to moneys owed, as
well as those provisions relating to confidentiality, assurances of
payment, limitations on liability and indemnification, shall survive
termination of this Agreement.
18. UNENFORCEABILITY OF PROVISIONS:
18.1 UNENFORCEABILITY The illegality or unenforceability of any provision of
this Agreement shall not affect the legality or enforceability of any
other provision or portion. If any provision or portion of this
Agreement is deemed illegal or unenforceable for any reason, there
shall be deemed to be made such minimum change in such provision or
portion as is necessary to make it valid and enforceable as so
modified.
SECTION 19. ENTIRE AGREEMENT AND INTEGRATION
19.1 ENTIRE AGREEMENT This Agreement and all Exhibits, Schedules and other
attachments incorporated herein, represent the entire agreement between the
Parties with respect to the subject matter hereof and supersede and merge all
prior agreements, promises, understandings, statements, representations,
warranties, indemnities and inducements to the making of this Agreement relied
upon by either Party, whether written or oral. No amendment or other
modification to this Agreement shall be valid unless in writing and signed by
both Parties.
<PAGE>
By its signature below, each Party acknowledges and agrees that sufficient
allowance has been made for review of this Agreement by respective counsel and
that each Party has been advised as to its legal rights, duties and obligations
under this Agreement. Each Party has executed this Agreement as of the date
first written above
FORVAL INTERNATIONAL TELECOM, INC. CALLNOW.COM, INC.
By:_______________________________________ By: /s/ Christopher R . Seelbach
(Signature) (Signature)
By:_______________________________________ By: Christopher R. Seelbach
(Print Name) (Print Name)
Title:____________________________________ Title: COO
Date:_____________________________________ Date: 6/21/99
<PAGE>
SERVICE SCHEDULE
(FORVAL CARRIER SERVICE)
FORVAL International Telecom, Inc. (FORVAL) agrees to provide, and Customer
agrees to accept, the FORVAL Service ("Carrier Service") subject to terms and
conditions set forth herein and contained in certain Carrier Service Agreement
between FORVAL and Customer dated this day of June, 1999. Neither the Customer
nor FORVAL shall be obligated with respect to the Service described below until
this Service Schedule is subscribed to by an authorized representative of
Customer and FORVAL.
FORVAL agrees to provide its Carrier Service to the locations described
in Schedule A, and at rates set forth in Schedule A, and subject to the
terms set forth in the Carrier Service Agreement.
Start of Service for FORVAL Carrier Service will occur concurrently
with the activation of each Service Interconnection relevant to the
Service in question.
It is understood that the dedicated DS-1 lines connecting the
Customer's network to the FORVAL network POP will be the responsibility
of the Customer. FORVAL's POP is located at 60 Hudson Street, Suite
1015, New York, NY unless otherwise specified below.
FORVAL POP Location (if different than
above):_______________________________________
Customer Location: 2 MFS Local Loops at 60 Hudson Currently Connected
to LDEXCHANGE To Be Moved To FORVAL
Requested Service Date: ASAP
Service Interconnection Circuit Type/Quality: T-1 or E-1 T-1 two
Monthly Recurring Charge Per Circuit/Interconnection: None
...its signature below, each Party acknowledges and agrees to the terms
and conditions contained herein....Service Schedule. The Parties have
executed this Service Schedule on the 18th day of June, 1999.
FORVAL INTERNATIONAL TELECOM, INC. CALLNOW.COM, INC.
By:_______________________________________ By: /s/ Christopher R. Seelbach
(Signature) (Signature)
By:_______________________________________ By: Christopher R. Seelbach
(Print Name) (Print Name)
Title:____________________________________ Title: COO
Date:_____________________________________ Date: 6/21/99
<PAGE>
Exhibit 10.20
EMPLOYMENT AGREEMENT
AGREEMENT, dated as of the 28 day of July, 1999, between CallNOW.com,
Inc., a Delaware corporation (the "Corporation"), and Martin Casanova (the
"Employee").
WHEREAS, the Corporation is engaged as the leading Internet portal for
telecommunications e-commerce business (the "Business"); and
WHEREAS, the Corporation desires to employ the Employee upon the terms
and conditions hereinafter set forth and also included in the Sale of Technology
Agreement dated July 28, 1999 which is incorporated herein, and the Employee
desires to accept such employment;
NOW, THEREFORE, it is agreed as follows:
1) EMPLOYMENT. The Corporation hereby employs the Employee, and the
Employee accepts employment with the Corporation, as Chief Technical
Officer.
2) SCOPE OF DUTIES. The Employee shall perform all duties required
hereunder fully, professionally and to the best of the Employee's
ability. The duties of the Employee under this Agreement shall include,
but not be limited to, the following, and as further defined in
Attachment 1
a. Assist in the management of the operations, maintenance and
upgrading of the hardware and software necessary for the
telecommunications services the company provides.
b. Manage the hardware and software maintenance for the software
and services as described in the Sale of Technology Agreement
dated July , 1999.
c. Provide development management for additional services that
the Company desires to provide including calling cards, IVR
services, and others that arise.
d. Represent the company as its Chief Technology Officer
3) COMPENSATION. As the Employee's entire compensation for all services
rendered to the Corporation hereunder, the Employee shall receive such
compensation as specified below:
a. Base Salary: The Corporation shall pay the Employee a base
yearly salary of $120,000
b. Annual Bonus: The Employee will be eligible for an annual
bonus of up to 20% of base salary
<PAGE>
c. Option Plan: One year after the execution of this Agreement,
Employee shall receive an option to purchase 15,000 shares of
the Corporation's non-voting stock (the "Stock") at $2.50 a
share. Additionally, on the expiration date of the first and
second renewal Terms of this Agreement, Employee shall receive
in each instance an additional option to purchase 15,000
shares of Stock at $2.50 Dollar a share (collectively, all
options are referred to herein as the "Options").
4) EXCLUSIVE SERVICE. During the term of this Agreement, the Employee
shall not, either directly or indirectly, be engaged by any person or
entity other than the Corporation, or otherwise make any commitments or
engage in any activities which may conflict with the performance of the
Employee's services hereunder.
5) COPYRIGHT. The Employee hereby acknowledges and agrees that all
services rendered hereunder shall be rendered as an "employee for hire"
of the Corporation as such term is defined in the Copyright Act of the
United States, and that all results and proceeds of the Employee's
services hereunder shall be and at all times remain the sole and
exclusive property of the Corporation, forever free and clear of any
claims of the Employee, the Employee's heirs, successors,
representatives or assigns. The Employee hereby sells and assigns to
the Corporation such results and proceeds, including the copyright
therein for its full term and any extensions and renewals thereof, to
the extent such results and proceeds are not "works for hire" within
the meaning of said Copyright Act.
6) BENEFITS. The Employee shall participate in and contribute to the
Corporations health insurance and disability plan, as these may be
provided by Management.
7) VACATIONS. The Employee shall be entitled to 30 days unpaid vacation at
such reasonable times as shall be approved by Management.
8) COVENANT OF EMPLOYEE. The Employee acknowledges that the Employee's
work will give the Employee access to the confidential affairs and
proprietary information of the Corporation. Therefore, the agreements
and covenants of the Employee contained in this Section 9 are essential
to the business and goodwill of the Corporation and the Corporation
would not have entered into this Agreement but for the covenants and
agreements set forth in this Section 9. Accordingly, the Employee
covenants and agrees that:
a. During his employment the Employee shall keep secret and
retain in strictest confidence, and shall not use for his
benefit or the benefit of others, except in connection with
the business and affairs of the Corporation, all confidential
matters relating to the Company's Business, including without
limitation information relating to customers, clients,
suppliers, proprietary technology, sources of supply, customer
list, rates, commissions paid, or other data and information
about the Corporation or its Business, except with the
Corporations prior written consent.
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<PAGE>
b. The Employee also covenants that he will deliver promptly to
the Company on termination of employment with the Corporation
for any reason, all memoranda, manuals, notes, records, data,
databases, reports and other documents in any form whatsoever,
related to the Corporation's Business, which the Employee
obtained while employed and which Employee may have under his
control.
c. The Employee acknowledges and agrees that any breach by him of
any of the provisions of Section 9 would result in irreparable
injury and damage for which money damages would not provide
adequate remedy. Therefore, if the Employee beaches, or
threatens to commit a breach of, any of the provisions of
Section 9, the Corporation shall have the following rights and
remedies: the rights and remedy to have the specified
covenants specifically enforced by any court having equity
jurisdiction and the right and remedy to require the Employee
to account for any pay over to the Corporation all
compensation, profits, monies, accruals, increments or other
benefits derived or received by him as the result of any
transactions constituting a breach of the restrictive
covenants.
9) ILLNESS: COMPENSATION CONTINUATION. The Employee is authorized to take
up-to twenty (20) good faith sick days during the Term of this
Agreement. The Corporation shall have the right to terminate this
Agreement in the event the Employee is unable, because of any illness
or physical incapacity, to perform the duties set forth herein for a
period of time in excess of the allowable sick days and vacation days.
10) TERM AND TERMINATION.
The term of this Agreement shall commence on the date hereof and shall
expire on the last day of the twenty-fourth month, (the"Term") and shall
thereafter be automatically renewed from year to year unless terminated by
mutual agreement of the parties in writing or by either party giving not less
than sixty (60) days written notice to the other party specifying the date of
termination.
11) ASSIGNMENT PROHIBITED. The services called for by the agreement are
personal in nature and may not be assigned or delegated by the
Employee. Any purported assignment contrary to the foregoing is and
shall be null and void.
12) MISCELLANEOUS.
a. This Agreement and the Sale of Technology Agreement dated
July , 1999 set forth the entire understanding of the
parties with respect to the Employee's engagement, and
supersedes any and all prior agreements, whether oral or
written.
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<PAGE>
b. No amendments or additions to these Agreements shall be
binding unless in writing and signed by both parties, except
as herein may otherwise be provided.
c. Neither party hereto shall be deemed to waive any rights
arising by virtue of these Agreements unless such waiver is in
writing, and no such waiver shall be deemed to be a continuing
waiver of the right(s) referred to in such writing or to waive
any other rights hereunder.
d. The paragraph headings used in this Agreement are included
solely for convenience and shall not affect, or be used in
connection with, the interpretation of this Agreement.
e. If any portion of this Agreement is found to be invalid or
unenforceable, the parties agree that such provisions be
enforced to the greatest extent permitted by law and the
remaining portions shall remain in effect.
f. This Agreement, its interpretation, performance or any breach
thereof, shall be construed in accordance with, and all
questions with respect thereto shall be determined by, the
laws of the State of New York applicable to contracts entered
into and wholly to be performed within said state. Any
controversy or claim arising out of or relating to this
Agreement or the breach thereof shall be settled by
arbitration in accordance with the Commercial Arbitration
Rules of the American Arbitration Association and by judgment
upon the award rendered by the arbitrator(s) may be entered
into any court having jurisdiction thereof.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date and
year first above written.
CallNOW.com, Inc. ("Corporation")
By: /s/ Christopher R. Seelbach
Title: COO
Martin Casanova ("Employee")
By: /s/ R. M. Casanova
Title:
4
<PAGE>
Exhibit 10.22
SALE OF TECHNOLOGY AGREEMENT
This Sale of Technology Agreement ("Agreement") is made and
effective this 28th day of July 1999, by and between CallNOW.com, Inc., a
Delaware Corporation ("Buyer"), and Smart Software a company organized under the
laws of Argentina, with a principal address at Bolivar 2514 3rd Floor, Mar del
Plata, Buenos Aires, Argentina ("Seller").
Whereas, Seller has developed and owns all rights, to certain
computer software and related documents;
Whereas, Buyer wishes to purchase, and Seller wishes to sell,
such software and documentation
NOW, THEREFORE, in consideration of the promises and the
mutual covenants contained herein, the parties agree as follows:
1. Transfer.
A. Software. Seller hereby sells, assigns, conveys and
transfers to Buyer all of Seller's right, title and interest in and to the
following described computer software (the "Software"): The Software consists of
a set of scripts and applications which are either embedded or executed from a
switch and interact with the corporate database and web server, the Unix based
callback switching IVR and its value added services system that provide the
following features.
(i) Least Cast Routing
(ii) Speed Dialing and closed User Group Feature
(iii) Manual and web based update activation of
customers' DIDs
(iv) Callback switching
(v) IVR administrative model to change
destination number and customer prompts
(vi) E-mail and DTMF triggering
(vii) CDR generation in text mode
(viii) Sessions export via e-mail
<PAGE>
(ix) Local credit limit deactivation
(x) NFS export to personal computer clients
(xi) The software includes: The first version of
the Software and all subsequent versions
thereof in all versions delivered to CallNOW
and all forms of expression therof,
including any software source code, object
code, flow charts, and block diagrams, and
programmer documentation, previous versions,
notes, other information relating to the
Software; and any copyrights Seller may have
a right to, related to THIS SOFTWARE.
B. Delivery. The updated executable version of the Software has been
delivered to Buyer prior to execution of this Agreement. Seller shall form time
to time, execute and deliver such instruments or documents and take such other
action as is reasonably necessary which Buyer may request in order to more
effectively carry out this agreement and to vest in buyer the Software and title
thereto.
2. Purchase Price. In consideration for the transfer of the Software, Buyer
shall pay to Seller 30,000 shares of restricted common stock of CallNow.com,
Inc. stock, 7,500 shares of which shall vest every six months from the first day
of the month of this Agreement (i.e., on January 1, 2000 or until the end of any
restrictive period whichever is latest, July 1, 2000, January 1, 2001 and July
1, 2001).
3. Manuals. Buyer shall create Manuals, all as more particularly described in
Section 4(B) hereof. In consideration thereof, Buyer shall pay to Seller
$400,000 in eight (8) equal quarterly installments of $50,000, commencing
fifteen days after the signing of this contract.
2
<PAGE>
4. Default.
A. In the event that Buyer fails to make any payment due hereunder on
the date due, interest shall, without further notice, accrue on
the unpaid balance due at the rate of 12% per annum.
B. If buyer fails to cure the default within three business days of a
written notice of default from Seller, then, at Seller's sole
option, Seller shall be entitled to immediate payment of the full
amount remaining unpaid.
C. If Seller fails to provide the Manuals (as hereinafter defined in
timely accordance with the Schedule contained in Section 5
hereof), then for each day of delay, payment due under this
agreement shall be deferred two days, without interest.
5. Delivery of Manual. Seller agrees and understands that it must complete or
update the following manuals (the "Manuals") by the dates specified herein
as follows:
On or before June 1, 2000, Seller must provide an English version
software manual (the "Software Manual") and switching manual detailing every
aspect of the switching system, least cost routing, rates and customer
accounts tables (the "Switching System Manual") reasonably understandable by
an experienced programmer or engineer and setting forth in detail every
aspect of the Software and Switching System through 1999.
6. Representations and Warranties of Seller. Seller represents, warrants and
covenants as follows:
A. Title Infringement. Seller has good and marketable title to the
Software,
3
<PAGE>
and has all necessary rights to enter into this Agreement without
violating any other agreements or commitments of any sort. Seller
does not have any outstanding agreements or understandings,
written or oral, concerning the Software.
B. No Lien. The software is not subject to any lien, encumbrance,
mortgage or security interest of any kind.
C. Authority Relative to this Agreement. This agreement is a legal,
valid and binding obligation of Seller. The execution and delivery
of this Agreement by Seller and the performance of and compliance
by Seller with the terms and conditions of this Agreement will not
result in the imposition of any lien or other encumbrance on any
of the Assets, and will not conflict with or result in a breach by
Seller of any of the terms, conditions or provisions of any order,
injunction, judgement, decree, statute, rule or regulation
applicable to Seller, the Software, or any note, indenture or
other agreement, contract, license or instrument by which any of
the Software may be bound or affected. No consent or approval by
any person or public authority is required to authorize or is
required in connection with, the execution, delivery or
performance of this Agreement by Seller.
D. Warranty. Seller hereby warrants that as of the date hereof the
Software (1) functions in accordance with the specifications set
forth in this Agreement, and (2) fit for the purpose of providing,
least cost routing and switching of callback services and other
value-added features set forth in Section 1.A.
E. Limitation of Liability. THE WARRANTIES IN THIS AGREEMENT ARE
GIVEN IN LIEU OF ALL OTHER WARRANTIES, EXPRESSED AND
4
<PAGE>
IMPLIED, AND ARE THE SOLE WARRANTIES MADE BY SELLER WITH RESPECT
TO THE SOFTWARE. SELLER SHALL HAVE NO LIABILITY FOR CONSEQUENTIAL,
EXEMPLARY, OR INCIDENTAL DAMAGES.
7. Representations and Warranties of Buyer. Buyer represents, warrants and
covenants as follows: Authority Relative to this Agreement. This Agreement
is a legal, valid and binding obligation of Buyer. The execution and
delivery of this Agreement by Buyer and the performance of and compliance
by Buyer with the terms and conditions of this Agreement will not conflict
with or result in a breach by Buyer of any of the terms, conditions or
provisions of any order, injunction, judgment, decree, statute, rule or
regulation applicable to Buyer, or any note, indenture or other agreement,
contract, license or instrument by which Buyer may be bound or affected. No
consent or approval by any person or public authority is required to
authorize or is required in connection with, the execution, delivery or
performance of this Agreement by Buyer.
8. Acceptance. The Buyer has accepted the Software AS IS on the date hereof.
9. No Brokers. All negotiations relative to this Agreement have been carried
on by Buyer directly with Seller, without the intervention of any person as
the result of any act of Buyer or Seller (and, so far as known to either
party, without the intervention of any such person) in such manner as to
give rise to any valid claim against the parties hereto for brokerage
commissions, finder's fees other like payment.
10. Consents, Further Instruments and Cooperation. Buyer and Seller shall each
use their respective best efforts to obtain the consent or approval of each
person or entity, if any, whose consent or approval shall be required in
order to permit it to consummate the transactions completed hereby, and
5
<PAGE>
to execute and deliver such instruments and to take such other action as
may be required to carry out the transaction contemplated by this
Agreement.
11. Buyer's Use of the Software. Buyer may, at its sole discretion, market,
license and sell the Software under names and trade names of its own
choosing, and may develop updated and modified versions and derivative
works of the Software without attribution of authorship to Seller as long
as it is not in breach under the terms of this Agreement. Buyer shall own
all rights and title, including copyrights, if any, in an to updated and
modified versions and derivative works of the Software without requiring
permission from Seller and without incurring payment obligations in
addition to those provided herein. Buyer may market or use the Software in
whatever manner and at whatever prices it sees fit.
12. Seller's Non-Use of the Assets; Confidentiality.
A. Seller retains no rights whatsoever in the Software and does not
retain the right to use the Software or any material included in
the Software for any purpose, personal, commercial, or otherwise.
This Agreement does not preclude Seller from designing any new
software for third parties.
B. Seller furthermore shall maintain all information relating to the
Software or use of the Software in confidence and shall not
disclose any aspect of the Software to any third party without the
prior written consent of Buyer.
13. Governing Law. This Agreement shall be construed and enforced in accordance
with the laws of the State of New York.
14. Assignment. Neither Buyer nor Seller may assign this Agreement or any
obligation herein without the prior written consent of the other party and this
Agreement shall inure to the benefit of the parties named herein and their
respective heirs, executors, personal representatives, successors and
6
<PAGE>
assigns. Buyer may assign this Agreement to a subsidiary or affiliate or as
part of the sale of the Buyer's business. Seller may assign to a
corporation or limited liability Company of which Mr. Martin Casanova is
the controlling principal.
15. Entire Agreement. This Agreement contains the entire understanding of the
parties, and supersedes any and all other agreements presently existing or
previously made, written or oral, between Buyer and Seller concerning its
subject matter. This Agreement may not be modified except by a writing
signed by both parties.
16. Severability. If any provision of this Agreement is declared by a court of
competent jurisdiction to be valid, void or unenforceable, the remaining
provisions of this Agreement nevertheless will continue in full force and
effect without being impaired or invalidated in any way.
17. Notices. All notices, requests, demands, and other communications hereunder
shall be deemed to have been duly given and received if delivered or
mailed, certified or registered mail, or the equivalent in Argentina, with
postage prepaid:
If to Buyer:
Christian Bardenheuer
c/o CallNOW.com, Inc.
50 Broad Street, Suite 501
New York, New York 10004
If to Seller:
Mr. Martin Casanova
24 Fairway Drive
Stamford, CT 06903
18. Relationship of the Parties. The relationship between Buyer and Seller
under this Agreement is intended to be that of buyer and seller, and
nothing in this Agreement is intended to be construed so as to suggest that
the party or its employees are the employee or agent of the other. Except
as expressly set forth herein, neither Buyer nor Seller has any express nor
implied right or authority
7
<PAGE>
under this Agreement to assume or create any obligations on behalf of or in
the name of the other or to bind the other to any contract, agreement or
undertaking with any third party.
19. Headings. Headings used in this Agreement are provided for convenience only
and shall not be used to construe meaning or intent.
20. Waiver. Failure of either party to exercise in any respect any of the
rights provided herein shall not be deemed a waiver of any right hereunder.
21. Arbitration. Any dispute arising out of or relating to this Agreement shall
be resolved pursuant to the rules set forth by the American Arbitration
Association in New York City pursuant to which each party shall have the
right to designate an arbitrator of their choice. The two arbitrators shall
select a third, impartial arbitrator. The parties shall each bear equally
the fees of the arbitrator. Nothing herein shall preclude either party from
seeking or obtaining injunctive relief in aid or arbitration.
22. Survivability. Paragraphs 4, 9 to 12 of this Agreement will survive the
expiration or any termination of this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
CallNow.com, Inc. Smart Software
By:________________________ By:_______________________
Christian Bardenheuer Martin Casanova
CEO Authorized Representative
<PAGE>
10.25
STOCK PURCHASE AGREEMENT
BETWEEN
CallNOW.Com, Inc.
AND
EDEN CAPITAL FUND LIMITED and
UPPER BROOK LTD.
DATED JULY 30, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C> <C> <C>
STOCK PURCHASE AGREEMENT.........................................................................................1
1. DEFINITIONS.............................................................................................2
2. SALE AND PURCHASE OF SHARES.............................................................................2
2.1. Sale and Purchase of Shares........................................................2
2.2. Closing............................................................................2
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY...........................................................3
3.1. Organization and Standing..........................................................3
3.2. Subsidiaries.......................................................................3
3.3. Certificate or Articles of Incorporation and Bylaws................................4
3.4. Capital Structure of the Company...................................................4
3.5. Directors, Officers and Employees..................................................4
3.6. Financial Statements...............................................................4
3.7. No Liabilities.....................................................................5
3.8. Accounts Receivable; Accounts Payable..............................................5
3.9. Taxes..............................................................................5
3.10. Conduct of Business; Absence of Material Adverse Change............................7
3.11. Title to Property and Assets.......................................................8
3.12. Insurance..........................................................................8
3.13. Intellectual Property..............................................................9
3.14. Year 2000 Compliance..............................................................10
3.15. Debt Instruments..................................................................10
3.16. Leases............................................................................11
3.17. Other Agreements..................................................................11
3.18. Books and Records.................................................................13
3.19. Litigation; Disputes..............................................................13
3.20. Labor Relations...................................................................13
3.21. Employee Benefit and Compensation Plans and Arrangements..........................14
3.22. Transactions with Related Parties.................................................14
3.23. Operations of the Company.........................................................14
3.24. Restrictions and Consents.........................................................14
3.25. Authorization; No Conflict........................................................15
3.26. Absence of Violation..............................................................15
3.27. Compliance with Law; Approvals....................................................15
3.28. Binding Obligation................................................................16
3.29. Disclosure........................................................................16
3.30. Use of Proceeds...................................................................16
3.31. Offering of the Securities........................................................17
3.32. Material Customers and Suppliers..................................................17
3.33. SEC Filings.......................................................................17
3.34. Authorization of Agreements, etc. ................................................17
3.35. Company is not an Investment Company. Neither the Company,
nor any Subsidiary of the Company is on "Investment Company,
as defined in Section 3(c) of the U.S. Investment Company Act
of 1940, as amended...............................................................18
</TABLE>
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<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
4. REPRESENTATIONS AND WARRANTIES OF THE INVESTORS........................................................18
4.1. Organization and Standing...........................................................18
4.2. Authorization.......................................................................18
4.3. No Registration Under the Securities Act............................................18
4.4. Acquisition for Investment..........................................................19
4.5. Evaluation of Merits and Risks of Investment........................................19
4.6. Additional Information..............................................................19
5. CONDITIONS PRECEDENT...................................................................................19
5.1. Opinion of Counsel..................................................................19
5.2. Representations and Warranties to be True and Correct...............................19
5.3. Performance.........................................................................19
5.4. All Proceedings to be Satisfactory..................................................20
5.5. Supporting Documents................................................................20
5.6. Documents at Closing................................................................20
5.7. Consents............................................................................20
6. REGISTRATION RIGHTS....................................................................................21
6.1. Registration of the Shares..........................................................21
6.2. Investor Cooperation................................................................23
6.3. Indemnification.....................................................................24
6.4. Rule 144............................................................................27
6.5. Registration Expenses...............................................................27
7. SURVIVAL OF REPRESENTATIONS; INDEMNIFICATION REMEDIES..................................................28
7.1. Survival of Representations.........................................................28
7.2. General Indemnity...................................................................28
7.3. Specific Performance................................................................28
7.4. Remedies Cumulative.................................................................28
8. MISCELLANEOUS..........................................................................................29
8.1. Additional Actions and Documents....................................................29
8.2. No Brokers..........................................................................29
8.3. Jury Waiver.........................................................................29
8.4. Publicity...........................................................................29
8.5. Expenses............................................................................29
8.6. Financial Information...............................................................30
8.7. Assignment..........................................................................30
8.8. Entire Agreement; Amendment.........................................................30
8.9. Waiver..............................................................................30
8.10. Severability........................................................................31
8.11. Governing Law.......................................................................31
8.12. Notices.............................................................................31
8.13. Headings............................................................................32
8.14. Execution in Counterparts...........................................................32
8.15. Binding Effect......................................................................33
EXHIBIT A Definitions......................................................................................Exh. A
</TABLE>
<PAGE>
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "Purchase Agreement") is
entered into as of July 30, 1999 by and between CallNOW.Com, Inc., a Delaware
corporation (the "Company"), Eden Capital Fund Limited, a limited partnership
organized under the laws of the Cayman Islands ("Eden") and Upper Brook Ltd. a
corporation organized under the laws of the Bahamas ("Upper Brook") together the
"Investors".
WHEREAS, the Company desires to issue and sell to the
Investors, and the Investors desire to subscribe for and acquire from the
Company, an equity interest in the Company, upon the terms and conditions
hereinafter set forth;
NOW, THEREFORE, in consideration of the foregoing and of the
mutual covenants and agreements hereinafter set forth, the parties hereto agree
as follows:
1. DEFINITIONS
For all purposes of this Purchase Agreement, certain
capitalized terms specified in Exhibit A shall have the meanings set forth in
that Exhibit A, except as otherwise expressly provided.
2. SALE AND PURCHASE OF SHARES
2.1. SALE AND PURCHASE OF SHARES
On the basis of the representations, warranties and agreements
contained herein, and subject to the terms and conditions hereof, the Company
agrees to issue and sell to the Investors, and the Investors, severally and not
jointly, agree to purchase from the Company, 545,454 shares (the "Shares") of
the Company's Common Stock, par value $0.001 per share (the "Common Stock"), at
a price per Share of $2.75. The number of Shares to be purchased by each
Investor and the purchase price to be paid by each Investor is as set forth on
the signature page attached hereto.
2.2. CLOSING
The closing of the sale and purchase of the Shares shall take
place at the offices of Seward & Kissel LLP, One Battery Park Plaza, New York,
New York 10004, at 10:00 a.m., New York time, on July 30, 1999 hereof or at such
other location, date and time as may be agreed upon between the Investors and
the Company (the "Closing"). At the Closing, the Company shall issue and deliver
to each Investor a stock certificate or certificates in definitive form,
registered in the name of such Investor, representing the Shares purchased by
such Investor, free and clear of any Encumbrances of whatever nature. As payment
in full for the Shares being purchased by it at the Closing, and against
delivery of the stock certificate or certificates, on the Closing Date each
Investor shall deliver to the Company by wire transfer of immediately available
funds the amount set forth below the name of such Investor on the signature page
hereto.
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3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as specifically set forth in the Disclosure Schedule
(with a disclosure with respect to a Section of this Purchase Agreement to
include a specific reference in the Disclosure Schedule to the Section of this
Purchase Agreement to which each such disclosure applies), the Company
represents and warrants (which representation and warranty shall be deemed to
include the disclosure with respect thereto so specified in the Disclosure
Schedule) to the Investors as follows:
3.1. ORGANIZATION AND STANDING
The Company is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware and has all
requisite corporate power and corporate authority to own, operate and lease its
Assets, to carry on its business as currently conducted and to carry out the
transactions contemplated hereby. The Company has made available to the
Investors complete and correct copies of the certificate of incorporation and
by-laws of the Company, with all amendments thereto, as in effect on the date of
this Purchase Agreement. The Company is not qualified to conduct business in any
other jurisdiction which is not listed on the Disclosure Schedule, and neither
the nature of the business conducted by, nor the character of the Assets owned,
leased or otherwise held by, the Company makes such qualification necessary
except where the failure to be so qualified would have a Material Adverse
Effect.
3.2. SUBSIDIARIES
Except as set forth on the Disclosure Schedule, the Company
has no Subsidiaries and no equity investment or other interest in, nor has the
Company made advances or loans to, any corporation, association, partnership,
joint venture or other entity, other than credit extended in the Ordinary Course
of Business. The Disclosure Schedule sets forth (a) the authorized capital stock
of each direct and indirect Subsidiary of Company and the percentage of the
outstanding capital stock of each Subsidiary directly or indirectly owned by
Company, and (b) the nature and amount of any such equity investment, other
interest or advance. All of such shares of capital stock of Subsidiaries
directly or indirectly held by Company have been duly authorized and validly
issued and are outstanding fully paid and nonassessable. Company directly, or
indirectly through wholly owned Subsidiaries, owns all such shares of capital
stock of the direct or indirect Subsidiaries free and clear of all Encumbrances.
Each Subsidiary is a corporation duly organized, validly existing and in good
standing under the laws of its state or jurisdiction of incorporation (as listed
in the Disclosure Schedule), and has all requisite corporate power and authority
to own, operate and lease its Assets and to carry on its business as currently
conducted. Each Subsidiary is qualified to conduct business and is in good
standing in the states, countries and territories listed in the Disclosure
Schedule. The Subsidiaries are not qualified to conduct business in any other
jurisdictions, and neither the nature of their businesses nor the character of
the Assets owned, leased or otherwise held by them makes any such qualification
necessary. There is no state, country or territory wherein the absence of
licensing or qualification as a foreign corporation would have a Material
Adverse Effect on the Company or any of its Subsidiaries.
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3.3. CERTIFICATE OR ARTICLES OF INCORPORATION AND BYLAWS
Company has Furnished to the Investors a true and complete
copy of the certificate or articles of incorporation of Company and of each
Subsidiary, as currently in effect, certified as of a recent date by the
Secretary of State (or comparable governmental authority) of the respective
jurisdictions of incorporation, and a true and complete copy of the bylaws of
Company and of each Subsidiary, as currently in effect, certified by their
respective corporate secretaries. Such certified copies are attached as exhibits
to, and part of, the Disclosure Schedule.
3.4. CAPITAL STRUCTURE OF THE COMPANY
The Disclosure Schedule sets forth the authorized capital
stock of the Company. All outstanding shares of capital stock of the Company
have been duly authorized and validly issued and are fully paid and
nonassessable. Except as set forth on the Disclosure Schedule, no shares of
capital stock of the Company or any Subsidiary have been reserved for any
purpose. Except as set forth on the Disclosure Schedule, there are no
outstanding securities convertible into or exchangeable for the capital stock of
the Company or any Subsidiary, or warrants to purchase or to subscribe for any
shares of such stock or other securities of the Company or any Subsidiary. There
are no outstanding Agreements affecting or relating to the voting, issuance,
purchase, redemption, repurchase, transfer or registration for sale under the
Securities Act of any securities of the Company or any Subsidiary, except as
contemplated hereunder or described in the Disclosure Schedule.
3.5. DIRECTORS, OFFICERS AND EMPLOYEES
The Disclosure Schedule lists all current directors and
officers of the Company and all managers and consultants of the Company who,
individually, receive or are entitled to receive annual compensation from the
Company in excess of $50,000, showing each such person's name, position, and
annual remuneration, bonuses and fringe benefits for the current fiscal year. To
the knowledge of the Company, during the past ten years no director or officer
of the Company has: (i) been arrested or convicted for any crime material to an
evaluation of such person's ability or integrity, including, without limitation,
any violation of any federal or state law which currently or has previously
regulated the types of business in which the Company is currently or has
previously been engaged; (ii) filed a petition under federal bankruptcy or any
state insolvency laws; or (iii) been a director or officer of a business entity
which has filed a petition under federal bankruptcy or any state insolvency
laws, or had a receiver or similar officer appointed by a court to administer
the business or property of such entity.
3.6. FINANCIAL STATEMENTS
(a) The Company has prepared and Furnished to the Investors,
the audited consolidated balance sheets of the Company as of the end of the
fiscal years ending December 31, 1996, 1997 and 1998, and the audited
consolidated statements of income, stockholders' equity and cash flow for such
periods (the "Audited Financial Statements"). The Company has Furnished to the
Investors the unaudited balance sheet of the Company dated March 31, 1999, and
the unaudited statements of income, stockholders' equity and cash flow for the
three months ended March 31, 1999. (The March 31, 1999, unaudited financial
statements and the Audited
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<PAGE>
Financial Statements are herein referred to collectively as the "Financial
Statements"). All of the Financial Statements, including, without limitation,
the notes thereto, referred to in this Section or Furnished to the Investors
after the date hereof pursuant to this Purchase Agreement: (i) are in accordance
with the books and records of the Company, (ii) present fairly in all material
respects the consolidated financial position of the Company as of the respective
dates and the results of operations and cash flow for the respective periods
indicated, and (iii) have been prepared in accordance with generally accepted
accounting principles applied on a basis consistent with prior accounting
periods except for the absence of footnotes and customary year-end adjustments
in the case of the March 31, 1999, unaudited financial statements (which will
not deviate Materially from the other Financial Statements). The Financial
Statements set forth all changes in accounting methods (for financial accounting
purposes) at any time made, agreed to, or required with respect to the Company.
3.7. NO LIABILITIES
Except as reflected in the Financial Statements, as of March
31, 1999, there existed no liabilities (whether contingent or absolute, matured
or unmatured, known or unknown) of the Company other than (i) incurred in the
Ordinary Course of Business and in amounts that are not individually Material,
and (ii) for taxes, assessments and other governmental charges, if such taxes,
assessments and other charges (x) are not yet due and payable, or (y) are due
and payable but can be paid hereafter without penalty or interest and for which
a proper accrual relating thereto is reflected in the Financial Statements and
which will be paid before penalty or interest begins to accrue thereon. Except
as described in the Disclosure Schedule, since March 31, 1999, the Company has
not incurred any liabilities (whether contingent or absolute, matured or
unmatured, known or unknown) other than in the Ordinary Course of Business and
in amounts that are not individually or in the aggregate Material.
3.8. ACCOUNTS RECEIVABLE; ACCOUNTS PAYABLE
(a) The accounts receivable of the Company shown on the
Financial Statements Furnished to the Investors, or thereafter acquired by the
Company, have been collected or, to the Company's knowledge, represent valid
rights to receive payment for bona fide services rendered or goods sold which
are not currently in default, or anticipated to default, and except as set forth
on the Disclosure Schedule, are not subject to discounts, rebates or to offsets
of any kind.
(b) Except as set forth on the Disclosure Schedule, the
Company is current on all accounts payable.
3.9. TAXES
(a) The Company has (or, in the case of returns becoming due
after the date hereof and on or before the Closing Date, will have prior to the
Closing Date) duly filed (or obtained extensions with respect to) all Tax
Returns required to be filed on or before the Closing Date with respect to all
applicable Taxes. No penalties or other charges are or will become due with
respect to any such Tax Returns as the result of the late filing thereof. All of
the Tax Returns are (or, in the case of returns becoming due after the date
hereof and on or before the Closing Date, will be) true and complete in all
Material respects. The Company: (i) has paid all
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Taxes due or claimed to be due by any taxing authority in connection with any
such Tax Returns; or (ii) has established (or, in the case of amounts becoming
due after the date hereof, prior to the Closing Date will have paid or
established) in the Financial Statements provided to the Investors adequate
reserves (in conformity with generally accepted accounting principles
consistently applied) for the payment of such Taxes. The amounts set up as
reserves for Taxes on the Financial Statements are sufficient for the payment of
all unpaid Taxes as of the dates thereof, whether or not such Taxes are disputed
or are yet due and payable, for or with respect to the period, and for which the
Company may be liable in its own right or as a transferee of the Assets of, or
successor to, any corporation, person, association, partnership, joint venture
or other entity.
(b) The Company, either individually or in its own right or as
a transferee, does not have and on the Closing Date will not have any liability
for Taxes payable for or with respect to any periods prior to and including the
Closing Date in excess of the amounts actually paid prior to the Closing Date or
reserved for in the Financial Statements (other than Taxes accruing after March
31, 1999, in the Ordinary Course of Business which are not payable on or prior
to the Closing Date).
(c) Except as set forth in the Disclosure Schedule, there is
no action, suit, proceeding, audit, investigation or claim pending or, to the
knowledge of the Company, threatened in respect of any Taxes for which the
Company is or may become liable, nor has any deficiency or claim for any such
Taxes been proposed, asserted or, to the knowledge of the Company, threatened.
The Company has not consented to any waivers or extensions of any statute of
limitations with respect to the collection or assessment of any Taxes against
the Company. There is no Agreement, waiver or consent providing for an extension
of time with respect to the assessment or collection of any Taxes against the
Company and no power of attorney granted by the Company with respect to any tax
matters is currently in force.
(d) The Company has Furnished or otherwise made available to
the Investors true and complete copies of all Tax Returns and all written
communications relating to any such Tax Returns or to any deficiency or claim
proposed and/or asserted, irrespective of the outcome of such matter, but only
to the extent such items relate to tax years (i) which are subject to an audit,
investigation, examination or other proceeding, or (ii) with respect to which
the statute of limitations has not expired.
(e) The Disclosure Schedule sets forth (i) all federal tax
elections that currently are in effect with respect to the Company, and (ii) all
elections for purposes of foreign, state or local Taxes and all consents or
Agreements for purposes of federal, foreign, state or local Taxes in each case
that reasonably could be expected to affect or be binding upon the Company or
its Assets or operations after Closing. The Disclosure Schedule sets forth all
Material changes in accounting methods for Tax purposes at any time made, agreed
to, or required with respect to the Company.
(f) Except as set forth on the Disclosure Schedule, the
Company has not: (i) been a partner in a partnership or an owner of an interest
in an entity treated as a partnership for federal income tax purposes; (ii)
executed or filed with the Internal Revenue Service any consent to have the
provisions of Section 341(f) of the Code apply to it; (iii) been subject to
Section 999 of the Code; (iv) been a passive foreign investment company as
defined in Section 1296(a) of the
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Code; or (v) been a party to any Agreement relating to the sharing, allocation
or payment of, or indemnity for, Taxes.
3.10. CONDUCT OF BUSINESS; ABSENCE OF MATERIAL ADVERSE CHANGE
Except as otherwise contemplated by the terms of this Purchase
Agreement or as set forth in the Disclosure Schedule, since December 31, 1998,
there has been no material adverse change in the business, operations,
prospects, condition (financial or otherwise), Assets or liabilities of the
Company. Except as set forth in the Disclosure Schedule or as contemplated
hereunder, since December 31, 1998, the Company has conducted business
substantially in the manner heretofore conducted and only in the Ordinary Course
of Business, and the Company has not:
(a) incurred any loss Materially and adversely affecting any
of its Assets as the result of any fire, explosion, flood, windstorm,
earthquake, labor trouble, riot, accident, act of God or public enemy or armed
forces, or other casualty;
(b) issued any capital stock or member interests, bonds or
other corporate securities or debt instruments, granted any options, warrants or
other rights calling for the issuance thereof, or borrowed any funds (other than
borrowings in the Ordinary Course of Business in amounts, individually or in the
aggregate, that do not exceed $50,000);
(c) incurred, or become subject to, any obligation or
liability (absolute or contingent, matured or unmatured, known or unknown),
except current liabilities incurred in the Ordinary Course of Business and liens
for current taxes, assessments or governmental charges or levies on property not
yet due and delinquent;
(d) discharged or satisfied any Encumbrance or paid any
obligation or liability (absolute or contingent, matured or unmatured, known or
unknown) other than current liabilities shown in the Financial Statements and
current liabilities incurred since December 31, 1998 in the Ordinary Course of
Business;
(e) declared or made payment of, or set aside for payment, any
dividends or distributions of any Assets, or purchased, redeemed or otherwise
acquired any of its capital stock, any securities convertible into capital
stock, or any other securities;
(f) mortgaged, pledged or subjected to any Encumbrance any
Material Assets, except for (i) Encumbrances reflected in the Financial
Statements of the Company or on the Disclosure Schedule, (ii) Encumbrances
consisting of zoning or planning restrictions, easements, permits and other
restrictions or limitations on the use of real property or irregularities in
title thereto which do not Materially detract from the value of, or impair the
use of, such property by the Company in the operation of their respective
businesses, and (iii) liens for current taxes, assessments or governmental
charges or levies on property not yet due and delinquent;
(g) sold, exchanged, transferred or otherwise disposed of any
Material Assets, or canceled any Material debts or claims, except in each case
in the Ordinary Course of Business;
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(h) written down the value of any Material Assets or written
off as uncollectible any Material notes or accounts receivable, except
write-downs and write-offs in the Ordinary Course of Business, none of which,
individually or in the aggregate, are Material;
(i) entered into any transactions other than in the Ordinary
Course of Business;
(j) increased by more than five percent (5%) the rate of
compensation payable, or to become payable, by the Company to any of its
officers, employees, agents or independent contractors over the rate being paid
to them on December 31, 1998;
(k) made or permitted any amendment or termination of any
Material Agreement to which it is a party or which it owns;
(l) through negotiation or otherwise made any commitment or
incurred any liability to any labor organization;
(m) made any accrual or arrangement for or payment of bonuses
or special compensation of any kind to any director, officer or employee other
than in the Ordinary Course of Business;
(n) directly or indirectly paid any severance or termination
pay to any officer or employee in excess of three months' salary;
(o) made capital expenditures, or entered into commitments
therefor, aggregating more than $50,000;
(p) made any change in any method of accounting or accounting
practice;
(q) entered into any transaction of the type described in
Section 3.23 or
(r) made an Agreement to do any of the foregoing.
3.11. TITLE TO PROPERTY AND ASSETS
The Company has good, valid and marketable title to all
Material Assets owned by it, free and clear of all Encumbrances other than those
Encumbrances referred to in the Financial Statements (or the notes thereto) and
liens for taxes not yet due and payable. The Company does not own any real
estate, and the Company is not a United States Real Property Holding Company as
defined under Section 897 of the Code. All personal property of the Company is
in good operating condition and repair in all Material respects (ordinary wear
and tear and routinely scheduled maintenance excepted) and is suitable and
adequate for the uses for which it is intended or is being used.
3.12. INSURANCE
Other than as set forth in the Disclosure Schedule, the
Company has insurance coverage under policies that (a) are with insurance
companies reasonably believed by the Company to be financially sound and
reputable; (b) are in full force and effect; (c) are sufficient
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for compliance by the Company with all requirements of Law and of all Agreements
to which the Company is a party; (d) to the Company's knowledge are valid and
outstanding policies enforceable against the insurer; and (e) in the Company's
reasonable belief, provide adequate insurance coverage for the Assets and
business of the Company.
3.13. INTELLECTUAL PROPERTY
(a) The Company owns, or is licensed or otherwise possesses
all necessary rights to use all patents, trademarks, trade names, service marks,
trade dress, copyrights and any applications therefore, maskworks, schematics,
technology, know-how, trade secrets, inventory, ideas, algorithms, processes,
computer software programs and applications (in both source code and object code
form), and tangible or intangible proprietary information or material
("Intellectual Property") that are used in the business or products of the
Company.
(b) The Disclosure Schedule lists all (i) patents, patent
applications, registered and unregistered trademarks, trade names and service
marks, registered and unregistered copyrights, and maskworks included in the
Intellectual Property that are owned by the Company, including the
jurisdictions, both domestic and foreign, in which each such item of
Intellectual Property right has been issued or registered or in which any
application for such issuance and registration has been filed, (ii) licenses,
sublicenses and other agreements as to which the Company is a party and pursuant
to which any person is authorized to use any Intellectual Property owned by the
Company (other than mass-market shrink wrap software), and (iii) licenses,
sublicenses and other agreements to which the Company is a party and pursuant to
which the Company is authorized to use any third party patents, trademarks or
copyrights, including software (other than mass-market shrink wrap software)
("Third Party Intellectual Property Rights") which are incorporated in, are, or
form a part of, any Company product.
(c) Except as disclosed on the Disclosure Schedule, the
Company has taken (or, with respect to Third Party Intellectual Property Rights
that are Material to the Company's business or products, has ensured that the
owner thereof has taken) all necessary action in all appropriate jurisdictions,
both domestic and foreign, to register and maintain the registration of all
Intellectual Property that is Material to the Company's business or products
that may be registered.
(d) To the knowledge of the Company, there is no actual or
suspected unauthorized use, disclosure, infringement or misappropriation of any
Intellectual Property rights of the Company, or any Third Party Intellectual
Property Rights, that are Material to the Company's business or properties, to
the extent licensed by or through the Company, by any third party, including any
employee or former employee of the Company. Except as set forth on the
Disclosure Schedule, there are no royalties, fees or other payments or
compensation payable by the Company to any person by reason of the ownership,
use, sale or disposition of Intellectual Property.
(e) The Company is not, nor will it be as a result of the
execution and delivery of this Purchase Agreement, the Common Stock, or the
Agreements contemplated hereby, or the performance of its obligations
thereunder, in breach of any license, sublicense or other
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agreement relating to the Intellectual Property, including Third Party
Intellectual Property Rights.
(f) The Company has no knowledge that the conduct of the
business of the Company infringes any patent, trademark, service mark,
copyright, trade secret or other proprietary right of any third party.
(g) All officers, directors, employees and consultants of the
Company have executed and delivered to the Company an agreement regarding
assignment to the Company of any Intellectual Property arising from services
performed for the Company by such persons. Except as disclosed on the Disclosure
Schedule, there is no Intellectual Property developed by a stockholder,
director, officer, consultant or employee of the Company that is used in the
business of the Company that has not been transferred to, or is not owned free
and clear of any liens or Encumbrances by, the Company.
(h) The Company has entered into written confidentiality
agreements with all third parties having access to Company-owned Intellectual
Property in connection with the disclosure to, or use or appropriation by, those
third parties, of Intellectual Property owned by the Company that is not
otherwise protected by a patent, a patent application, copyright, trademark, or
other registration or legal scheme.
3.14. YEAR 2000 COMPLIANCE
(a) Each system owned by the Company comprised of software,
hardware or databases, the operational failure of which would be reasonably
likely to result in a Material Adverse Effect (collectively, a "System") will be
able to accurately process date data, including, but not limited to,
calculating, comparing and sequencing from, into and between the twentieth
century (through year 1999), the year 2000 and the twenty-first century,
including leap year calculations ("Year 2000 Complian ). The Company has no
reason to believe that it or any of its Subsidiaries will incur material
expenses arising from or relating to the failure of any of their Systems to be
Year 2000 Compliant.
(b) All vendors of products to the Company or any of its
Subsidiaries, the operational failure of which would be reasonably likely to
result in a Material Adverse Effect, and such respective products, to the
knowledge of the Company, are (or prior to December 31, 1999, will be) Year 2000
Compliant. To the knowledge of the Company after a reasonably diligent
investigation, each such vendor will continue to furnish its products to the
Company or its Subsidiaries, as applicable, without interruption or
material delay, on and after January 1, 2000. However, the Company depends on,
and its systems connect to, systems of other companies, particularly
international and foreign telecommunications providers. The Company makes no
representations as to the Company's interconnection with such providers.
3.15. DEBT INSTRUMENTS
The Disclosure Schedule lists all mortgages, indentures,
notes, guarantees and other Agreements for or relating to borrowed money
(including, without limitation, conditional sales agreements and capital leases)
involving payments by the Company aggregating in excess of $25,000 per year to
which the Company is a party or which have been assumed by the
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Company or to which any Material Assets are subject that are not specifically
disclosed in the Financial Statements. The Company has performed all the
Material obligations under the Agreements listed on the Disclosure Schedule and
those that are specifically disclosed in the Financial Statements required to be
performed by it to date and are not in default in any respect under any of the
foregoing, and, to the knowledge of the Company, there has not occurred any
event which (whether with or without notice, lapse of time or the happening or
occurrence of any other event) would constitute such a default.
3.16. LEASES
The Disclosure Schedule lists all leases and other Agreements
under which the Company is a lessee or lessor of any Material Asset (including
real property), or holds, manages or operates any Material Asset owned by any
third party, or under which any Material Asset owned by the Company is held,
operated or managed by a third party. Except as described in the Disclosure
Schedule, the Company is the owner and holder of all the leasehold estates
purported to be granted by the leases or other Agreements listed in the
Disclosure Schedule. Each such lease and other Agreement is in full force and
effect and constitutes a legal, valid and binding obligation of, and is legally
enforceable against, the Company, and, to the Company's knowledge, the other
parties thereto (except as enforceability may be limited or affected by
bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance and
other similar laws and equitable principles now or hereafter in effect and
affecting the rights and remedies of creditors generally), and grants the
leasehold estate it purports to grant free and clear of all Encumbrances. All
necessary governmental approvals with respect thereto have been obtained and all
necessary filings or registrations therefor have been made, in each case to the
extent that the Company is responsible therefor, other than where the failure to
obtain any such approvals would not have a Material Adverse Effect, and there
are no outstanding disputes thereunder and, to the knowledge of the Company,
there have been no threatened cancellations thereof. The Company has in all
respects performed all material obligations thereunder required to be performed
by it to date. Neither the Company nor, to the knowledge of the Company, any
other party is in default in any respect under any of the foregoing, and, to the
knowledge of the Company, there has not occurred any event which (whether with
or without notice, lapse of time or the happening or occurrence of any other
event) would constitute such a default.
3.17. OTHER AGREEMENTS
(a) The Disclosure Schedule lists all Material Agreements to
which the Company is a party or by which the Company is bound at the date
hereof. Each such Material Agreement is in full force and effect and constitutes
a legal, valid and binding obligation of, and is legally enforceable against the
Company and to the Company's knowledge, the other parties thereto (except as
enforceability may be limited or affected by bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance and other similar laws and
equitable principles now or hereafter in effect and affecting the rights and
remedies of creditors generally). All necessary governmental approvals with
respect thereto have been obtained and all necessary filings or registrations
therefor have been made, in each case to the extent that the Company is
responsible therefor, other than where the failure to obtain any such approvals
would not have a Material Adverse Effect, and there are no outstanding disputes
thereunder and, to the knowledge of the Company, there have been no threatened
cancellations thereof. The Company has performed all
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the material obligations thereunder required to be performed to date. Neither
the Company nor, to the knowledge of the Company, any other party is in default
in any Material respect under any of the Agreements listed in the Disclosure
Schedule, and, to the knowledge of the Company, there has not occurred any event
which (whether with or without notice, lapse of time or the happening or
occurrence of any other event) would constitute such a default.
(b) Except as listed in the Disclosure Schedule (and without
limiting the foregoing), the Company is not a party to any oral or written:
(i) Agreement for the employment of any officer, employee,
consultant or independent contractor;
(ii) license agreement or distributor, dealer,
manufacturer's representative, sales agency, advertising, property management or
brokerage agreement;
(iii) Agreement with any labor organization or other
collective bargaining unit;
(iv) Agreement for the future purchase of materials,
supplies, services, merchandise or equipment involving payments of more than
$50,000 over its remaining term (including, without limitation, periods covered
by any option to renew by either party);
(v) Agreement for the purchase, sale or lease of any real
estate or other Assets involving payments of more than $50,000 over its
remaining term (including, without limitation, periods covered by any option to
renew by either party);
(vi) profit-sharing, bonus, incentive compensation,
deferred compensation, stock option, severance pay, stock purchase, employee
benefit, insurance, hospitalization, pension, retirement or other similar plan
or Agreement;
(vii) Agreement for the sale of any of its Material Assets
or the grant of any preferential rights to purchase any of its Material Assets
or rights, other than in the Ordinary Course of Business;
(viii) Agreement which contains any provisions requiring
the Company to indemnify or guarantee the obligations of any other party;
(ix) joint venture agreement or other Agreement involving
the sharing of profits;
(x) outstanding loan to any person or entity or receivable
due from any stockholder of the Company or persons or entities Controlling,
Controlled by or under common Control with the Company;
(xi) Agreement (including, without limitation, Agreements
not to compete and exclusivity Agreements) that reasonably could be interpreted
to impose any restriction on any business operations of the Company;
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(xii) other Material Agreement which by its terms does not
terminate or is not terminable by the Company within 30 days or upon 30 days'
(or less) notice.
(xiii) Agreement which entitles any customer or customers
to a rebate or right of set-off, singly or in the aggregate, in amount in excess
of $50,000, or which vary in any material respect from the Company's or any
Subsidiary's standard contracts; or
(xiv) Agreement with any supplier of goods or services
containing any provision permitting any party other than the Company or
Subsidiary to renegotiate the price or other terms, or containing any pay-back
or other similar provision upon the occurrence of a failure by the Company or
any Subsidiary to meet its obligations under the Agreement when due or the
occurrence of any other event;
3.18. BOOKS AND RECORDS
The books of account, stock records, minute books and other
records of the Company are true and accurate and have been maintained in
accordance with good business practices and the matters contained therein are
appropriately and accurately reflected in the Financial Statements.
3.19. LITIGATION; DISPUTES
(a) Except as described in the Disclosure Schedule, there are
no actions, suits, claims, arbitrations, proceedings or known investigations
pending or, to the knowledge of the Company, threatened or reasonably
anticipated against, affecting or involving the Company, its Subsidiaries, or
their business or Assets, or the transactions contemplated by this Purchase
Agreement before or by any court, arbitrator or governmental authority, domestic
or foreign. The Company and its Subsidiaries are not operating under, subject to
or in default with respect to any order, award, writ, injunction, decree or
judgment of any court, arbitrator or governmental authority. The Company has
Furnished to the Investors copies of all pleadings filed with respect to any
Material litigation in which the Company and its Subsidiaries are engaged.
(b) Except as set forth on the Disclosure Schedule, the
Company is not currently involved in or, to the knowledge of the Company,
reasonably anticipates any material dispute with any of its current or former
employees, agents, brokers, distributors, vendors, customers, business
consultants, franchisees, franchisers, representatives or independent
contractors (or any current or former employees of any of the foregoing persons
or entities) which would reasonably be expected to have a Material Adverse
Effect.
3.20. LABOR RELATIONS
There are no strikes, work stoppages, grievance proceedings,
union organization efforts or other controversies pending or, to the knowledge
of the Company, threatened or reasonably anticipated between the Company and (a)
any current or former employees of the Company, or (b) any union or other
collective bargaining unit representing the employees. The Company is in
compliance in all Material respects with all Laws relating to employment or the
workplace, including, without limitation, provisions relating to wages, hours,
collective bargaining, safety and health, work authorization, equal employment
opportunity, immigration,
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withholding, unemployment compensation, worker's compensation, employee privacy
and right to know. Except as set forth on the Disclosure Schedule, there are no
collective bargaining agreements, employment agreements between the Company and
any of its employees, or professional service agreements not terminable at will
relating to the businesses and Assets of the Company. The consummation of the
transactions contemplated hereby will not cause the Company or the Investor to
incur or suffer any liability relating to, or obligation to pay, severance,
termination or other payments to any person or entity.
3.21. EMPLOYEE BENEFIT AND COMPENSATION PLANS AND ARRANGEMENTS.
Neither the Company nor any Subsidiary sponsors, maintains,
contributes to or has any liabilities to a Pension Plan or Welfare Plan, and
neither the Company nor any Subsidiary has ever sponsored, maintained,
contributed to or had any liabilities to a Pension Plan or Welfare Plan. Other
than as indicated on the Disclosure Schedule, the Company or any Subsidiary does
not provide nor has ever provided any material Fringe Benefits.
3.22. TRANSACTIONS WITH RELATED PARTIES
Except as set forth on the Disclosure Schedule, neither any
present or former officer, director or stockholder of the Company, nor any
Affiliates of the officers, directors or stockholders, are currently a party to
any transaction with the Company, including, without limitation, any Agreement
providing for the employment of, furnishing of services by, rental of Assets
from or to, or otherwise requiring payments to, any of the officers, directors,
stockholders or Affiliates.
3.23. OPERATIONS OF THE COMPANY
(a) The Company's e-commerce marketplace has been commercially
operational, meaning that its web site ("http:\\www.CallNOW.Com") (the "Web
Site") has been capable of performing, and has performed, order taking and
fulfillment functions, for at least the twenty (20) days prior to the date of
this Agreement.
(b) In conducting its business, the Company does not take
possession of any products through its Web Site. The Company has reviewed its
foreign, state and local sales and use tax or value added tax liability and has
conducted and will continue to conduct its business in a manner designed to
minimize its foreign, state and local tax liability. The Company is currently in
compliance with all foreign, state and local sales and use and value added tax
laws except where such failure would not have Material Adverse Effect.
3.24. RESTRICTIONS AND CONSENTS
Except as set forth on the Disclosure Schedule, there are no
Agreements, Laws or other restrictions of any kind to which the Company is a
party or to which the Company's Assets are subject that would prevent or
restrict the execution, delivery or performance of this Purchase Agreement or
prohibit or limit the continued operation of the business of the Company after
the date hereof on substantially the same basis as heretofore operated, as a
result of the execution, delivery or performance of this Purchase
Agreement. The Disclosure Schedule lists all Agreements and Laws that require
the consent or acquiescence of any person or entity not party
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to this Purchase Agreement with respect to any aspect of the execution,
delivery or performance of this Purchase Agreement by the Company.
3.25. AUTHORIZATION; NO CONFLICT
The execution, delivery and performance by the Company of this
Purchase Agreement and all other Documents contemplated hereby, the fulfillment
of and compliance with the respective terms and provisions hereof and thereof,
and the consummation by the Company of the transactions contemplated hereby and
thereby, do not and will not: (a) conflict with, or violate any provision of,
any Law having applicability to the Company or any of its Assets, or any
provision of the certificate of incorporation or bylaws of the Company; (b)
conflict with, or result in any breach of, or constitute a default under any
Material Agreement to which the Company is a party or by which the Company or
any of its Assets may be bound; or (c) result in or require the creation or
imposition of or result in the acceleration of any indebtedness, or of any
Encumbrance of any nature upon, or with respect to any of the Material Assets of
the Company.
3.26. ABSENCE OF VIOLATION
The Company is not in violation of or default under, nor has
the Company breached, any term or provision of its certificate of incorporation
or bylaws or any Material Agreement or restriction to which the Company is a
party or by which the Company is bound or any of its Material Assets are bound
or affected. Neither the Company nor any of its officers, directors, employees
or agents (or, to the Company's knowledge, stockholders, distributors,
representatives or other persons acting on the express, implied or apparent
authority of such entity) have paid, given or received or have offered or
promised to pay, give or receive, any bribe or other unlawful, questionable
payment of money or other thing of value, any extraordinary discount, or any
other unlawful or unusual inducement, to or from any person, business
association or governmental official or entity in the United States or elsewhere
in connection with or in furtherance of the business of the Company (including,
without limitation, any offer, payment or promise to pay money or other thing of
value (a) to any foreign official or political party (or official thereof) for
the purposes of influencing any act, decision or omission in order to assist the
Company in obtaining business for or with, or directing business to, any person,
or (b) to any person, while knowing that all or a portion of such money or other
thing of value will be offered, given or promised to any such official or party
for such purposes. The business of the Company is not in any manner dependent
upon the making or receipt of such payments, discounts or other inducements.
3.27. COMPLIANCE WITH LAW; APPROVALS
Except as set forth in the Disclosure Schedule:
(a) The operations of the Company have been conducted, in all
Material respects, in compliance with all Laws (including Environmental Laws)
and regulations applicable to the Company's business.
(b) The Company has not received notice of any violation (or
of any investigation, inspection, audit, or other proceeding by any governmental
authority involving
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allegations of any violation) of any Law, nor is in material default with
respect to any Law, and to the knowledge of the Company, no investigation,
inspection, audit, or other proceeding by any governmental authority involving
allegations of violation of any Law is threatened or contemplated;
(c) The Company has all licenses, franchises, permits,
authorizations or approvals from all governmental authorities ("Approvals")
required for the conduct of the business of the Company and the occupancy and
operation, for its present uses, of the real and personal property which the
Company owns or leases, except where the failure to have such Approvals would
not, individually or in the aggregate, have a Material Adverse Effect, and the
Company is not in violation of any such Approval or any terms or conditions
thereof.
(d) All such Approvals are in full force and effect, have been
issued to and fully paid for by the holder thereof and, to the knowledge of the
Company, no suspension or cancellation thereof has been threatened; and
(e) No such Approvals will in any way be affected by, or
terminate or lapse by reason of, the transactions contemplated by this Purchase
Agreement or any of the other agreements contemplated hereunder or executed
herewith.
3.28. BINDING OBLIGATION
This Purchase Agreement constitutes a valid and binding
obligation of the Company, enforceable in accordance with its terms, is in full
force and effect and constitutes a legal, valid and binding obligation of, and
is legally enforceable against, the Company, (except as enforceability may be
limited or affected by bankruptcy, insolvency, reorganization, moratorium,
fraudulent conveyance and other similar laws and equitable principles now or
hereafter in effect and affecting the rights and remedies of creditors
generally); and each Document to be executed by the Company pursuant hereto,
when executed and delivered in accordance with the provisions thereof, shall be
a valid and binding obligation of the Company, enforceable in accordance with
its terms.
3.29. DISCLOSURE
No representation or warranty by the Company in this Purchase
Agreement, and no Document Furnished or to be Furnished to the Investors
pursuant to or in connection with this Purchase Agreement, contains or will
contain any untrue or misleading statement of a Material fact or omits or will
omit any Material fact necessary to make the statements contained herein or
therein, in light of the circumstances under which made, not misleading. All
facts that would reasonably be expected to be Material to an investor
making a decision to invest in equity securities of the Company have been
disclosed to the Investors.
3.30. USE OF PROCEEDS
The Company shall use the proceeds from the sale of the Shares
to fund working capital and for other general corporate purposes.
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3.31. OFFERING OF THE SECURITIES
Except for the Investors neither the Company nor any person
authorized or employed by the Company as agent, broker, dealer or otherwise in
connection with the offering or sale of the Shares or any security of the
Company similar to the Shares has offered the Shares or any such similar
security for sale to, or solicited any offer to buy the Shares or any such
similar security from, or otherwise approached or negotiated with respect
thereto with, any person or persons, and neither the Company nor any person
acting on its behalf has taken or will take any other action (including, without
limitation, any offer, issuance or sale of any security of the Company under
circumstances which might require the integration of such security with the
Shares or any component thereof under the Securities Act), in either case so as
to subject the offering, issuance or sale of the Shares to the registration
provisions of the Securities Act.
3.32. MATERIAL CUSTOMERS AND SUPPLIERS
No customer or supplier which is Material to the Company or
any Subsidiary has terminated, Materially reduced or threatened to terminate or
Materially reduce its purchases from, or provision of products or services to,
the Company or any Subsidiary, as the case may be.
3.33. SEC FILINGS
Since January 1, 1996, the Company has not (i) issued any
security covered by a registration statement filed with the SEC pursuant to the
Securities Act or the Investment Company Act of 1940, as amended, and no
security issued by the Company has ever been registered pursuant to the
Securities Exchange Act of 1934, as amended or (ii). The Company has not
purchased or sold any security of which it or any affiliate was the issuer at
any time when the information publicly available relating to the Company, at the
time and in light of the circumstances under which it was made, was false or
misleading with respect to any Material fact or omitted to state any Material
fact necessary in order to make the statements made therein not false or
misleading.
3.34. AUTHORIZATION OF AGREEMENTS, ETC.
(a) The execution and delivery by the Company of this Purchase
Agreement, the performance by the Company of its obligations hereunder, and the
issuance, sale and delivery of the Shares have been duly authorized by all
requisite corporate action and will not (i) violate, conflict with or require
any consent or approval under any provision of any law, permit, license, order
of any court or other agency of government applicable to the Company or its
Subsidiaries, the Certificate of Incorporation of the Company, as amended (the
"Charter"), or Articles of Incorporation of its Subsidiaries, or the By-laws of
the Company or its Subsidiaries, or any provision of any indenture, agreement or
other instrument to which the Company or its Subsidiaries or any of their
properties or assets is bound, (ii) conflict with, result in a breach of or
constitute (with due notice or lapse of time or both) a default under any such
indenture, agreement or other instrument or (iii) result in the creation or
imposition of any lien, charge, restriction, claim or encumbrance of any nature
whatsoever upon any of the properties or assets of the Company or its
Subsidiaries, which in any case would have a Material Adverse Effect.
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(b) The Shares to be issued to the Investors hereunder have
been duly authorized, and, when so issued, will be validly issued, fully paid
and non-assessable shares of the Company's Common Stock with no personal
liability attaching to the ownership thereof and will be free and clear of all
liens, charges, restrictions, claims and Encumbrances. The issuance, sale and
delivery of the Shares hereunder are not subject to any preemptive right of
stockholders of the Company or to any right of first refusal or other
right in favor of any person.
3.35. COMPANY IS NOT AN INVESTMENT COMPANY
Neither the Company, nor any Subsidiary of the Company is an
"Investment Company" as defined in Section 3(a) of the U.S. Investment Company
Act of 1940, as amended.
4. REPRESENTATIONS AND WARRANTIES OF THE INVESTORS
Each Investor hereby represents and warrants, severally and
not jointly, to the Company as follows:
4.1. ORGANIZATION AND STANDING
The Investor is duly organized, validly existing and in good
standing under the laws of the state or jurisdiction of its formation and each
has the full and unrestricted power and authority to enter into this Purchase
Agreement and to carry out the transactions contemplated hereby.
4.2. AUTHORIZATION
The execution, delivery and performance by that Investor of
this Purchase Agreement and all other Documents contemplated hereby, the
fulfillment of and the compliance with the respective terms and provisions
hereof and thereof, and the consummation by the Investor of the transactions
contemplated hereby and thereby have been duly authorized, and will not: (a)
conflict with, or violate any term or provision of the Investor's certificate of
incorporation or limited partnership agreement or other governing documents or
(b) conflict with, or result in any breach of, or constitute a default under,
any Agreement to which the Investor is a party or by which such Investor is
bound. No other action is necessary for the Investor to enter into this Purchase
Agreement and all other Documents contemplated hereby and to consummate the
transactions contemplated hereby and thereby.
4.3. NO REGISTRATION UNDER THE SECURITIES ACT
Subject to the obligations of the Company to register the
Shares for resale pursuant to Section 6, the Investor understands that the
Shares to be purchased by it at Closing pursuant to the terms of this Purchase
Agreement have not and will not be registered under the Securities Act or any
state securities laws, been issued in reliance upon exemptions contained in the
Securities Act or interpretations thereof and in the applicable state securities
laws, and cannot be offered for sale, sold or otherwise transferred unless the
Common Stock being acquired hereunder is registered or qualified for exemption
from registration under the Securities Act.
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4.4. ACQUISITION FOR INVESTMENT
The Shares are being acquired under this Purchase Agreement by
the Investors solely for their own account, for investment and not with a view
toward distribution within the meaning of the Securities Act, subject to the
obligations of the Company to register the Shares for resale pursuant to Section
6.
4.5. EVALUATION OF MERITS AND RISKS OF INVESTMENT
The Investor has knowledge and experience in financial and
business matters such that it is capable of evaluating the merits and risks of
its investment in the Shares. The Investor is an " accredited investor" within
the meaning of Rule 501(a) under the Securities Act. The Investor understands
and is able to bear any economic risks associated with such investment
(including, without limitation, the necessity of holding the Shares for an
indefinite period of time.
4.6. ADDITIONAL INFORMATION
The Investor acknowledges that it has been afforded the
opportunity to ask questions and receive answers concerning the Company and to
obtain additional information that it has requested to verify the accuracy of
the information contained herein. Notwithstanding the foregoing, nothing
contained herein shall operate to modify or limit in any respect the
representations and warranties of the Company or to relieve them from any
obligations to the Investors for breach thereof or the making of misleading
statements or the omission of material facts in connection with the transactions
contemplated herein.
5. CONDITIONS PRECEDENT
Contemporaneously with the execution of this Agreement, the
Company shall deliver to the Investors the following:
5.1. OPINION OF COUNSEL
The Investors shall have received an opinion of Stairs
Dillenbeck Finley & Merle, counsel to the Company, as of the Closing Date, in a
form reasonably acceptable to the Investors.
5.2. REPRESENTATIONS AND WARRANTIES TO BE TRUE AND CORRECT.
The representations and warranties of the Company contained in
this Purchase Agreement shall be true, complete and correct in all material
respects on and as of the Closing Date with the same effect as though such
representations and warranties had been made on and as of such date, and the
Chief Executive Officer or Chief Operating Officer of the Company shall have
certified to such effect to the Investors in writing on behalf of the Company.
5.3. PERFORMANCE.
The Company shall have performed and complied in all material
respects with all agreements contained herein required to be performed or
complied with by it prior to or at the
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Closing Date, and the Chief Executive Officer or Chief Operating Officer of the
Company shall have certified to the Investors in writing to such effect on
behalf of the Company.
5.4. ALL PROCEEDINGS TO BE SATISFACTORY.
All corporate and other proceedings to be taken by the Company
in connection with the transactions contemplated hereby and all documents
incident thereto shall be reasonably satisfactory in form and substance to the
Investors and their counsel and the Investors and their counsel shall have
received all such counterpart originals or certified or other copies of such
documents as they reasonably may request.
5.5. SUPPORTING DOCUMENTS.
The Investors shall have received copies of the following
documents:
(a) The Charter, certified as of a recent date by the
Secretary of State of the State of Delaware, together with a certificate of said
Secretary dated as of a recent date as to the legal existence and good standing
of the Company in the State of Delaware, and certificates of the Secretary of
State of each jurisdiction in which the Company is qualified to do business as a
foreign corporation dated as of a recent date as to the Company's qualification
and good standing in such jurisdiction.
(b) A certificate of the Chief Executive Officer or Chief
Operating Officer of the Company dated as of the Closing Date and certifying (i)
that attached thereto is a true and complete copy of the Bylaws of the Company
as in effect on the date of such certification, (ii) that attached thereto is a
true and complete copy of all resolutions adopted by the Board of Directors of
the Company authorizing the execution, delivery and performance of this Purchase
Agreement and the issuance, sale and delivery of the Shares, (iii) that all such
resolutions are in full force and effect and are all of the resolutions adopted
in connection with the transactions contemplated by this Purchase Agreement, and
(iv) to the incumbency and signatures of each officer of the Company executing
this Purchase Agreement and the Shares on behalf of the Company and any
certificate or instrument furnished pursuant hereto, and a certification by
another officer of the Company as to the incumbency and signature of the officer
signing the certificate referred to in this subsection (b).
5.6. DOCUMENTS AT CLOSING
All documents required to be furnished by the Company to the
Investors prior to or at Closing shall have been so furnished.
5.7. CONSENTS
(a) The Investors shall have received all consents,
authorizations and approvals of governmental and private parties which are
required to be obtained in order to consummate the transactions contemplated
hereby, and such consents, authorizations and approvals shall be in full force
and effect on the Closing Date.
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(b) The Company shall have received all consents,
authorizations and approvals of governmental and private parties which are
required to be obtained in order to consummate the transactions contemplated
hereby, and such consents, authorizations and approvals be in full force and
effect on the Closing Date.
All such documents shall be satisfactory in form and substance to the Investors
and their counsel.
6. REGISTRATION RIGHTS
6.1. REGISTRATION OF THE SHARES.
The Company agrees to register the Shares for resale under the
Securities Act. To the extent the Company conducts an underwritten offering, the
Company will ensure that 136,364 of the Shares are included in that underwritten
offering, in the proportions chosen by the Investors. The balance of the Shares
shall be registered pursuant to Rule 415 for resale commencing after the
holdback period set forth in Section 6.2(c) hereof. In this connection, the
Company shall:
(a) Prepare and file with the SEC as soon as reasonably
practicable, and in no case later than October 1, 1999, a registration statement
on Form S-1 or any other form which counsel for Company shall deem appropriate,
and which form shall be available for the sale of the Shares in accordance with
the intended methods of distribution thereof, and use its best efforts to cause
such registration statement to become and remain effective as provided herein,
provided that before filing with the SEC a registration statement or prospectus
or any amendments or supplements thereto, Company will (A) furnish to one
counsel selected by Investors copies of all such documents proposed to be filed
for said counsel's review and comment, and (B) notify Investors of any stop
order issued or threatened by the SEC and take all reasonable actions required
to prevent the entry of such stop order or to remove it if entered.
(b) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement effective for
a period of not less than two years or such shorter period that will terminate
when the Shares have been sold (but not before the expiration of the time
periods referred to in Section 4(3) of the Securities Act and Rule 174, or any
successor thereto, if applicable), and comply with the provisions of the
Securities Act with respect to the disposition of all securities covered by such
registration statement during such period in accordance with the intended
methods of disposition by the sellers thereof set forth in such registration
statement.
(c) Furnish to Investors and each underwriter, if any, of
Shares covered by such registration statement such number of copies of such
registration statement, each amendment and supplement thereto (in each case
including all exhibits thereto), and the prospectus included in such
registration statement (including each preliminary prospectus), in conformity
with the requirements of the Securities Act, and such other customary documents
as Investors may reasonably request in order to facilitate the disposition of
the Shares owned by Investors.
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<PAGE>
(d) Use its best efforts to register or qualify such Shares
under such other state securities or "blue sky" laws of such jurisdictions as
Investors, and each underwriter, if any, of Shares covered by such registration
statement reasonably request and do any and all other acts and things that may
be reasonably necessary or advisable to enable Investors and each underwriter,
if any, to consummate the disposition in such jurisdictions of the Shares owned
by Investors; provided that Company will not be required to (A) qualify
generally to do business in any jurisdiction where it would not otherwise be
required to qualify but for this clause (d), (B) subject itself to taxation or
regulation of its business in any such jurisdiction other than Delaware or (C)
consent to general service of process in any such jurisdiction other than
Delaware.
(e) Use its best efforts to cause the Shares covered by such
registration statement to be registered with or approved by such other
governmental agencies or authorities exercising jurisdiction over Company to
enable Investors to consummate the disposition of such Shares.
(f) Promptly notify Investors, at any time when a prospectus
relating thereto is required to be delivered under the Securities Act of the
happening of any event that comes to Company's attention if, as a result of such
event, the prospectus included in such registration statement contains an untrue
statement of a Material fact or omits to state any Material fact required to be
stated therein or necessary to make the statements therein not misleading; and
Company will promptly prepare and furnish to Investors a supplement or amendment
to such prospectus so that, as thereafter delivered to the purchasers of such
Shares, such prospectus will not contain an untrue statement of a Material fact
or omit to state any Material fact required to be stated therein or necessary to
make the statements therein not misleading.
(g) Use its best efforts to cause all such Shares to be listed
on a national securities exchange in the United States or the Nasdaq Stock
Market, if the listing of such Shares is then permitted under the rules of such
exchange or Nasdaq, or and on each securities exchange on which similar
securities issued by Company may then be listed or quoted, and enter into such
customary agreements including, if required, a listing application and
indemnification agreement in customary form, and to provide a transfer agent and
registrar for such Shares covered by such registration statement no later than
the effective date of such registration statement.
(h) Enter into such customary agreements (including an
underwriting agreement or qualified independent underwriting agreement, in each
case, in customary form) and take all such other actions as Investors or the
underwriters retained by Investors, if any, reasonably request in order to
expedite or facilitate the disposition of such Shares, including customary
representations, warranties, indemnities and agreements.
(i) Make available for inspection, during normal business
hours of Company, by Investors, any underwriter participating in any disposition
pursuant to such registration statement, and any attorney, accountant or other
agent retained by Investors or any such underwriter (collectively, the
"Inspectors"), all Material financial and other records and pertinent corporate
documents and properties of Company and its subsidiaries, if any, as shall be
reasonably necessary to enable them to exercise their due diligence
responsibility, and cause Company's officers, directors and employees, and those
of Company's affiliates, if any, to supply
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all Material information and respond to all inquiries reasonably requested by
any such Inspector in connection with such registration statement.
(j) In the case of an underwritten offering, use its best
efforts to obtain a "cold comfort" letter from Company's appointed auditors in
customary form and covering such matters of the type customarily covered by
"cold comfort" letters as the underwriter(s) may reasonably request.
(k) Otherwise use its best efforts to comply with all
applicable rules and regulations of the SEC, and make available to Investors, as
soon as reasonably practicable, an earnings statement covering a period of at
least twelve months beginning after the effective date of the registration
statement (as the term "effective date" is defined in Rule 158(c) under the
Securities Act) which earnings statement shall satisfy the provisions of Section
11(a) of the Securities Act and Rule 158 thereunder.
(l) In the case of an underwritten offering, make available
the services of such executive officers of Company, as the underwriter(s) may
reasonably request, for participation in a road show in furtherance of the
underwriter's(s') bookmaking or sales effort, so long as such participation does
not Materially interfere with the performance by any such officer of his or her
duties to Company.
6.2. INVESTOR COOPERATION
(a) In connection with the Company's obligation to register
the Shares for resale, Investors shall furnish to Company such information
regarding the Shares with respect to the intended method of disposition of the
Shares held by Investors as Company shall reasonably request and as shall be
required in connection with the action to be taken by Company.
(b) Investors agree that, upon receipt of any notice from
Company of the happening of any event of the kind described in Section 6.1.(f)
hereof, Investors will forthwith discontinue disposition of any Shares until
Investors' receipt of the copies of the supplemented or amended prospectus
contemplated by Section 6.1.(f) hereof, and, if so directed by Company,
Investors will deliver to Company (at Company's expense) all copies (including,
without limitation, any and all drafts), other than permanent file copies, then
in Investors' possession, of the prospectus covering such Shares current at the
time of receipt of such notice. In the event that Company shall give any such
notice, the period mentioned in Section 6.1.(b) hereof shall be extended by the
number of days during the period from and including the date of the giving of
such notice pursuant to Section 6.1.(f) hereof to and including the date when
Investors shall have received the copies of the supplemented or amended
prospectus contemplated Section 6.1.(f) hereof.
(c) In connection with the Company's contemplated underwritten
offering, Investors agree not to effect any sale or distribution, including any
private placement or any sale pursuant to Rule 144A under the Securities Act (or
any successor provision) or any sale pursuant to Rule 144 (or any successor
provision) under the Securities Act or otherwise, of any Shares, other than by
pro-rata distribution to their shareholders, partners, affiliates, or other
beneficial Investors, and not to effect any such sale or distribution of any
other equity security of Company
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during the five (5) calendar days prior to, and during the 180-calendar-day
period (or such greater or lesser period as may be agreed upon between such
Investors and the managing underwriter of such offering) that begins on the
effective date of such registration statement (except as part of such
registration), without the prior written consent of the managing underwriter of
such offering; provided, however, that such Investors have received written
notice of such registration at least two business days prior to the anticipated
beginning of the 5-calendar-day period referred to above.
(d) Company agrees (i) not to effect any public sale or
distribution of any of its equity securities or of any security convertible into
or exchangeable or exercisable for any equity security of Company (other than
any such sale or distribution of such securities in connection with any merger
or consolidation by Company or any Affiliate of Company or the acquisition by
Company or an Affiliate of Company of the securities or substantially all the
assets of any other Person or in connection with an employee stock ownership
plan, stock option plan or other benefit plan or in connection with any dividend
reinvestment or other similar plan) during the 120-calendar-day period (or such
greater or lesser period as may be agreed upon between Company and the
Investors) which begins on, the 181st day from the effective date of such
registration statement without the prior written consent of Investors, and (ii)
that any agreement entered into after the date hereof pursuant to which Company
issues or agrees to issue any privately placed equity securities shall contain a
provision under which the holders of such securities agree not to effect any
public sale or distribution of any such securities during the period and in the
manner referred to in the foregoing clause (i).
6.3. INDEMNIFICATION.
(a) Indemnification by Company. In the event of any
registration of any Shares under the Securities Act pursuant to this Purchase
Agreement, Company will indemnify and hold harmless, to the fullest extent
permitted by law, each Investor, its directors and officers, general partners,
limited partners and managing directors, and each other Person, if any, who
Controls, is Controlled by or is under common Control with any Investor within
the meaning of the Securities Act against any and all losses, claims, damages or
liabilities, joint or several, and expenses (including any amounts paid in any
settlement effected with Company's consent, which consent will not be
unreasonably withheld) to which any Investor, any such director or officer or
general or limited partner or managing director or any such Controlling Person
may become subject under the Securities Act, United States state securities
"blue sky" laws, common law or otherwise, insofar as such losses, claims,
damages or liabilities (or actions or proceedings in respect thereof) or
expenses arise out of or are based upon (A) any untrue statement or alleged
untrue statement of any Material fact contained in any registration statement
under which such securities were registered under the Securities Act, in any
preliminary, final or summary prospectus contained therein, or in any amendment
or supplement thereto, or (B) any omission or alleged omission to state therein
a Material fact required to be stated therein or necessary to make the
statements therein not misleading. Company shall reimburse each Investor and
each such director, officer, general partner, limited partner, managing director
and Controlling Person for any legal or any other expenses reasonably incurred
by them in connection with investigating or defending such loss, claim,
liability, action or proceeding; provided, however, that Company shall not be
liable in any such case to the extent that any such loss, claim, damage,
liability (or action or proceeding in respect thereof) or expense arises out of
or is based upon an untrue
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statement or omission made in reliance upon and in conformity with information
regarding such by any Investor, any such director or officer or general or
limited partner or managing director or any such Controlling Person furnished to
Company in writing by such Investor, director or officer or general or limited
partner or managing director or such Controlling Person specifically for use in
the registration statement or prospectus; and, provided, further, that Company
shall not be liable to any Investor or any such Controlling Person, within the
meaning of the Securities Act, pursuant to this Section 6.3(a) with respect to
any preliminary prospectus or the final prospectus or the final prospectus as
amended or supplemented as the case may be, to the extent that any such loss,
claim, damage or liability of such Investor or Controlling Person results from
the fact that such Person sold Shares to a Person to whom there was not sent or
given, at or prior to the written confirmation of such sale, a copy of the final
prospectus or of the final prospectus as then amended or supplemented, whichever
is most recent, if Company has previously furnished copies thereof to such
Person and such final prospectus, as then amended or supplemented, had corrected
any such misstatement or omission. The indemnity provided for herein shall
remain in full force and effect regardless of any investigation made by or on
behalf of any Investor or any such director, officer, general partner, limited
partner, managing director or Controlling Person and shall survive the transfer
of such Shares by any Investor.
(b) Indemnification by Investors. In the event of any
registration of any Shares under the Securities Act pursuant to this Purchase
Agreement, each Investor will severally indemnify and hold harmless, to the full
extent permitted by law, Company, its directors and officers, general partners,
limited partners and managing directors, and each other Person, if any, who
Controls, is Controlled by or is under common Control with Company within the
meaning of the Securities Act and each other Investor against any and all
losses, claims, damages or liabilities, joint or several, and expenses
(including any amounts paid in any settlement effected with Investor's consent,
which consent will not be unreasonably withheld) to which Company, any such
director or officer or general or limited partner or managing director or any
such Controlling Person or such other Investor may become subject under the
Securities Act, United States state securities "blue sky" laws, common law or
otherwise, insofar as such losses, claims, damages or liabilities (or actions or
proceedings in respect thereof) or expenses arise out of or are based upon (A)
any untrue statement or alleged untrue statement of any Material fact contained
in any registration statement under which such Shares were registered under the
Securities Act, any preliminary prospectus, final or summary prospectus
contained therein, or any amendment or supplement thereto, or (B) any omission
or alleged omission to state therein a Material fact required to be stated
therein or necessary to make the statements therein not misleading. Investor
shall reimburse Company and each such director, officer, general or limited
partner, managing director and Controlling Person and such other Investor for
any legal or any other expenses reasonably incurred by them in connection with
investigating or defending such loss, claim, liability, action or proceeding;
provided however, that each Investor shall be liable hereunder (i) in any such
case if and only to the extent that any such loss, claim, damage, liability (or
action or proceeding in respect thereof) or expense arises out of or is based
upon an untrue statement or omission made in reliance upon and in conformity
with information regarding such Investor furnished to Company in writing by such
Investor specifically for use in the registration statement or prospectus, and
(ii) in any event in no greater amount than the gross proceeds (including any
underwriting commission or discount) received by such Investor from its sale of
Shares pursuant to such registration statement or prospectus. The indemnity
provided for herein shall remain in full force and effect regardless of any
investigation made by or on behalf of
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Company or any such director, officer, general partner, limited partner,
managing director, Controlling Person or other Investor and shall survive the
transfer of such Shares by the indemnifying Investor.
(c) Notices of Claims, Etc. Promptly after receipt by an
indemnified party hereunder of written notice of the commencement of any action
or proceeding with respect to which a claim for indemnification may be made
pursuant to this Section 6.3., such indemnified party will, if a claim in
respect thereof is to be made against an indemnifying party, promptly give
written notice to the indemnifying party of the commencement of such action,
provided, however, that the failure of any indemnified party to give notice as
provided herein shall not relieve the indemnifying party of its obligations
under the preceding subsections of this Section 6.3, except to the extent that
the indemnifying party is actually Materially prejudiced by such failure to give
notice. In case any such action is brought against an indemnified party, unless
in such indemnified party's reasonable judgment a conflict of interest between
such indemnified party and indemnifying parties may exist in respect of such
claim, the indemnifying party will be entitled to participate in and, jointly
with any other indemnifying party similarly notified, to assume the defense
thereof, to the extent that it may wish, with counsel reasonably satisfactory to
such indemnified party, and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party will not be liable to such indemnified party for any legal or
other expenses subsequently incurred by the latter in connection with the
defense thereof, unless in such indemnified party's reasonable judgment a
conflict of interest between such indemnified and indemnifying parties arises in
respect of such claim after the assumption of the defense thereof, and the
indemnifying party will not be subject to any liability for any settlement made
without its written consent (which consent shall not be unreasonably withheld).
No indemnifying party will consent to entry of any judgment or enter into any
settlement that does not include as an unconditional term thereof the giving by
the claimant or plaintiff to such indemnified party of a release from all
liability in respect to such claim or litigation. An indemnifying party who is
not entitled to, or elects not to, assume the defense of a claim will not be
obligated to pay the fees and expenses of more than one counsel in any single
jurisdiction for all parties indemnified by such indemnifying party with respect
to such claim, unless in the reasonable judgment of any indemnified party a
conflict of interest may exist between such indemnified party and any other of
such indemnified parties with respect to such claim, in which event the
indemnifying party shall be obligated to pay the fees and expenses of such
additional counsel or counsels as may be reasonably necessary. Notwithstanding
anything to the contrary set forth herein, and without limiting any of the
rights set forth above, in any event any party will have the right to retain, at
its own expense, counsel with respect to the defense of a claim.
(d) Contribution. In order to provide for just and equitable
contribution in circumstances in which the indemnity agreement provided for in
this Section 6.3 is for any reason held to be unenforceable although applicable
in accordance with its terms, Company and Investors shall contribute to the
aggregate losses, liabilities, claims, damages and expenses of the nature
contemplated by such indemnity agreement incurred by Company and Investors in
such proportion as shall be appropriate to reflect the relative fault of
Company, on the one hand, and Investors on the other, with respect to the
statements or omissions that resulted in such loss, liability, claim, damage or
expense, or action in respect thereof, as well as any other relevant equitable
considerations. The relative fault shall be determined by reference to, among
other
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things, whether the untrue or alleged untrue statement of a Material fact
or omission or alleged omission to state a Material fact relates to information
supplied by Company or Investors, the intent of the parties and their relative
knowledge, access to information and opportunity to correct or prevent such
statement or omission. Company and Investors agree that it would not be just and
equitable if contribution pursuant to this Section 6.3. were to be determined by
pro rata allocation or by any other method of allocation that does not take into
account the equitable considerations referred to herein. Notwithstanding
anything to the contrary contained herein, Company and Investors agree that any
contribution required to be made by Investors pursuant to this Section 6.3.
shall not exceed the net proceeds from the offering of Shares (before deducting
expenses) received by Investors with respect to such offering. For purposes of
this Section 6.3., each Person, if any, who Controls any Investor within the
meaning of the Securities Act shall have the same rights to contribution as
Investors, and each director of Company, each officer of Company who signed the
registration statement, and each Person, if any, who Controls Company within the
meaning of Section 15 of the Securities Act shall have the same rights to
contribution as Company. With respect to any claim pursuant to this Section 6.3.
no Person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any Person
who was not guilty of such fraudulent misrepresentation.
6.4. RULE 144.
Company agrees that, so long as any Shares are registered
under the Exchange Act, it will file in a timely manner all reports required to
be filed by it pursuant to the Exchange Act and, if at any time Company is not
required to file such reports, it will make available to the public, to the
extent required to permit the sale of Shares by Investors pursuant to Rule 144,
current information about itself and its activities as contemplated by Rule 144
under the Securities Act, as such Rule may be amended from time to time.
6.5. REGISTRATION EXPENSES
(a) The Company agrees to pay all registration expenses
incident to the performance or compliance with this Purchase Agreement and the
registration of the Shares, regardless of whether the registration statement
becomes effective, including without limitation: (i) all SEC, stock exchange, or
National Association of Securities Dealers, Inc. registration and filing fees,
(ii) all fees and expenses incurred in connection with compliance with state
securities or blue sky laws (including reasonable fees and disbursements of
counsel for any underwriters in connection with blue sky qualifications of any
of the Shares), (iii) all expenses of any Persons in preparing or assisting in
preparing, word processing, printing and distributing the registration statement
relating to the Shares, any underwriting agreements and other documents relating
to the performance of and compliance with this Purchase Agreement, (iv) all fees
and expenses incurred in connection with the listing, if any, of any of the
Shares on any securities exchange, (v) all rating agency fees, (vi) the fees and
disbursements of counsel for Company and of Company's independent public
accountants, including the expenses of any special audits or "cold comfort"
letters required by or incident to such performance and compliance, (vii) any
fees and disbursements of any underwriters customarily paid by issuers or
sellers of securities and the reasonable fees and expenses of any special
experts retained in connection with the registration statement relating to any
of the Shares, including underwriting discounts and commissions and
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transfer taxes, if any and (viii) in the case of an underwritten offering all
expenses of any road show deemed reasonably necessary by the underwriters in
their bookmaking or sales effort.
7. SURVIVAL OF REPRESENTATIONS; INDEMNIFICATION REMEDIES
7.1. SURVIVAL OF REPRESENTATIONS
All representations, warranties, covenants, and other
Agreements made by any party to this Purchase Agreement herein or pursuant
hereto shall also be deemed made on and as of the Closing Date as though such
representations, warranties, covenants, indemnities and other Agreements were
made on and as of such date, and all the representations, warranties, covenants,
indemnities and other Agreements shall survive the Closing Date.
7.2. GENERAL INDEMNITY.
The Company hereby indemnifies and holds harmless each
Investor and its successors and assigns and their respective directors,
officers, employees and agents against and in respect of any and all costs,
expenses, debts, liabilities and obligations incurred by any of them, including
reasonable attorney fees and expenses, for breach of any representation,
warranty or promise made to any of them by the Company or any Subsidiary
hereunder. Each of the Investors hereby severally (and not jointly) indemnifies
and holds harmless the Company and its successors and assigns and their
respective directors, officers, employees and agents against and in respect of
any and all costs, expenses, debts, liabilities and obligations incurred by any
of them, including reasonable attorney fees and expenses, for breach of any
representation, warranty or promise made to any of them by such Investor
hereunder except for representations warranties or promises made pursuant to
Section 6. which contains separate indemnification provisions.
7.3. SPECIFIC PERFORMANCE
In addition to any other remedies which the Investors may have
at law or in equity, the Company hereby acknowledges that the Shares and the
Company are unique, and that the harm to the Investors resulting from breaches
by the Company of its obligations cannot be adequately compensated by damages.
Accordingly, the Company agrees that the Investors shall have the right to have
all obligations, undertakings, Agreements, covenants and other provisions of
this Purchase Agreement specifically performed by the Company and that the
Investors shall have the right to seek an order or decree of such specific
performance in any of the courts of the United States of America or of any state
or other political subdivision thereof.
7.4. REMEDIES CUMULATIVE
The remedies provided herein shall be cumulative and shall not
preclude the assertion by the Company or the Investors of any other rights or
the seeking of any other remedies against the other, or their respective
successors or assigns.
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8. MISCELLANEOUS
8.1. ADDITIONAL ACTIONS AND DOCUMENTS
After Closing, each of the parties hereto hereby agrees to
take or cause to be taken such further actions, to execute, deliver and file or
cause to be executed, delivered and filed such further Documents, and will
obtain such consents, as may be necessary or as may be reasonably requested in
order to fully effectuate the purposes, terms and conditions of this Purchase
Agreement.
8.2. NO BROKERS
Each of the parties hereto represents and warrants to the
other parties (and to each of them) that, such party has not engaged any broker,
finder or agent in connection with the transactions contemplated by this
Purchase Agreement and has not incurred (and will not incur) any unpaid
liability to any broker, finder or agent for any brokerage fees, finders' fees
or commissions, with respect to the transactions contemplated by this Purchase
Agreement. Each party agrees to indemnify, defend and hold harmless each of the
other parties from and against any and all claims asserted against such parties
for any such fees or commissions by any persons purporting to act or to have
acted for or on behalf of the indemnifying party.
8.3. JURY WAIVER
The parties hereto waive all right to trial by jury in any
action or proceeding to enforce or defend any rights under this agreement or any
of the transactions or agreements contemplated hereby.
8.4. PUBLICITY
Neither the Investors nor the Company shall issue any press
release or make any public disclosure regarding the transaction contemplated
hereby unless such press release or public disclosure is approved by those
parties expressly mentioned by name in the press release in advance.
Notwithstanding the foregoing, each of the parties hereto may, in documents
required to be filed by it with the SEC or other regulatory bodies, make such
statements with respect to the transactions contemplated hereby as each may be
advised by counsel as legally necessary or advisable and may make such
disclosure as it is advised by its counsel as required by law.
8.5. EXPENSES
Subject to the provisions of this Section 7.6, each party
hereto shall pay its own expenses incident to this Purchase Agreement and the
transactions contemplated hereunder, including all legal and accounting fees and
disbursements, except that the Company agrees to pay the Investors' legal fees
and expenses up to an aggregate of $5,000.
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8.6. FINANCIAL INFORMATION.
For so long as the Company is not a reporting company under
the Exchange Act, the Company agrees to send the following to each Invester: (i)
promptly following the date on which they become available but in no event later
than 90 days after the end of each fiscal year, a copy of the Company's audited
annual financial statements: (ii) promptly following the date on which they
become available but in no event later than 45 days after the end of each fiscal
quarter, a copy of the Company's unaudited quarterly financial statements; (iii)
promptly following the release thereof, facsimile copies of all press releases
issued by the Company or any of its Subsidiaries; and (iv) copies of any notices
and other information made available or given to the stockholders of the Company
generally, contemporaneously with the making available or giving thereof to the
stockholders.
8.7. ASSIGNMENT
Each Investor shall have the right to assign its rights and
obligations under this Purchase Agreement, in whole or in part, to any Affiliate
of an Investor or to designate any of its Affiliates (to the extent permitted by
Law) to receive directly the Shares to be purchased hereunder or to exercise any
of the rights of such Investor, or to perform its obligations, provided that
such assignee shall have been deemed to have made the representations and
warranties contained in Article 4 hereof. The Company shall not assign its
rights and obligations under this Purchase Agreement, in whole or in part,
whether by operation of law or otherwise, without the prior written consent of
the Investors, and any), such assignment contrary to the terms hereof shall be
null and void and of no force and effect. In no event shall the assignment by
the Company or an Investor of its rights or obligations under this Purchase
Agreement, whether before or after the Closing, release the Company or the
Investor from their respective liabilities and obligations hereunder.
8.8. ENTIRE AGREEMENT; AMENDMENT
This Purchase Agreement, including the Disclosure Schedule,
the Exhibits and other Documents referred to herein or Furnished pursuant
hereto, constitutes the entire Agreement among the parties hereto with respect
to the transactions contemplated herein, and it supersedes all prior oral or
written Agreements, commitments or understandings with respect to the matters
provided for herein. No amendment or modification of this Purchase Agreement
shall be valid or binding unless set forth in writing and duly executed and
delivered by the Company and the Investors.
8.9. WAIVER
No delay or failure on the part of any party hereto in
exercising any right, power or privilege under this Purchase Agreement or under
any other Documents Furnished in connection with or pursuant to this Purchase
Agreement shall impair any such right, power or privilege or be construed as a
waiver of any default or any acquiescence therein. No single or partial exercise
of any such right, power or privilege shall preclude the further exercise of
such right, power or privilege, or the exercise of any other right, power or
privilege. No waiver shall
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be valid against any party hereto unless made in writing and signed by the party
against whom enforcement of such waiver is sought and then only to the extent
expressly specified therein.
8.10. SEVERABILITY
If any part of any provision of this Purchase Agreement or any
other Agreement or document given pursuant to or in connection with this
Purchase Agreement shall be invalid or unenforceable in any respect, such part
shall be ineffective to the extent of such invalidity or unenforceability only,
without in any way affecting the remaining parts of such provision or the
remaining provisions of this Purchase Agreement.
8.11. GOVERNING LAW
This Purchase Agreement, the rights and obligations of the
parties hereto, and any claims or disputes relating thereto, shall be governed
by and construed in accordance with the laws of the State of New York (excluding
the conflicts of law principles thereof).
8.12. NOTICES
All notices, demands, requests, or other communications which
may be or are required to be given, served, or sent by any party to any other
party pursuant to this Purchase Agreement shall be in writing and shall be hand
delivered, sent by overnight courier or mailed by first-class, registered or
certified mail, return receipt requested, postage prepaid, or transmitted by
telegram, telecopy or telex, addressed as follows:
(i) If to Eden:
Eden Capital Fund Limited
18 Upper Brook Street
London W1Y 1PD
England
Attn: Tom Henderson
Fax #: (011) 44-171-290-3040
(ii) If to Upper Brook:
Upper Brook Ltd.
c/o Citco Band and Trust Company (Bahamas) Limited
Bahamas Financial Centre, 3rd Floor
Shirley & Charlotte Streets
P.O. Box CB-13136
Nassau Bahamas
Fax #: (242) 356-0223
in each case with a copy (which shall not constitute notice)
to:
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Seward & Kissel LLP
One Battery Park Plaza
New York, New York 10004
Attn: Peter E. Pront/Gary J. Wolfe
Fax #: (212) 480-8421
(iii) If to the Company:
CallNOW.Com, Inc.
50 Broad St., 5th Floor
New York, New York 10004
Fax #: (212) 785-4388
with a copy (which shall not constitute notice) to:
Stairs Dillenbeck Finley & Merle
330 Madison Avenue, Suite 2900
New York, New York 10017-5090
Attn: Neil Parent
Fax #: (212) 687-3523
Each party may designate by notice in writing a new address to
which any notice, demand, request or communication may thereafter be so given,
served or sent. Each notice, demand, request, or communication which shall be
hand delivered, sent, mailed, telecopied or telexed in the manner described
above, shall be deemed sufficiently given, served, sent, received or delivered
for all purposes at such time as it is delivered to the addressee (with the
return receipt, the delivery receipt, or (with respect to a telecopy or telex)
the answerback or confirmation being deemed conclusive, but not exclusive,
evidence of such delivery) or at such time as delivery is refused by the
addressee upon presentation.
8.13. HEADINGS
Section headings contained in this Purchase Agreement are
inserted for convenience of reference only, shall not be deemed to be a part of
this Purchase Agreement for any purpose, and shall not in any way define or
affect the meaning, construction or scope of any of the provisions hereof.
8.14. EXECUTION IN COUNTERPARTS
To facilitate execution, this Purchase Agreement may be
executed in as many counterparts as may be required. It shall not be necessary
that the signatures of, or on behalf of, each party, or that the signatures of
all persons required to bind any party, appear on each counterpart; but it shall
be sufficient that the signature of, or on behalf of, each party, or that the
signatures of the persons required to bind any party, appear on one or more of
the counterparts. All counterparts shall collectively constitute a single
Agreement. It shall not be necessary in making proof of this Purchase Agreement
to produce or account for more than a number of counterparts containing the
respective signatures of, or on behalf of, all of the parties hereto.
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8.15. BINDING EFFECT
Subject to any provisions hereof restricting assignment, this
Purchase Agreement shall be binding upon and shall inure to the benefit of the
parties hereto and their respective successors, heirs, executors,
administrators, legal representatives and assigns.
IN WITNESS WHEREOF, the undersigned have duly executed this
Agreement, or have caused this Agreement to be duly executed on their behalf, as
of the day and year first hereinabove set forth.
THE COMPANY:
CallNOW.Com, Inc.
By: ________________________________
Name:
Title:
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THE INVESTORS:
EDEN CAPITAL FUND LIMITED
By: ________________________
Name:
Title
Number of Shares___38,182____________
Purchase Price $____105,000.50_______
UPPER BROOK LTD.
By: ________________________
Name:
Title:
Number of Shares___507,272___________
Purchase Price $____1,394,998________
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EXHIBIT A
TO STOCK PURCHASE AGREEMENT
DATED AS OF JULY 30, 1999
DEFINITIONS
"AFFILIATE" means: (a) with respect to a person, any member of
such person's family; (b) with respect to an entity, any officer, director,
stockholder, partner or investor of or in such entity or of or in any Affiliate
of such entity; and (c) with respect to a person or entity, any person or entity
which directly or indirectly, through one or more intermediaries, Controls, is
Controlled by, or is under common Control with such person or entity.
"AGREEMENT" means any concurrence of understanding and
intention between two or more persons (or entities) with respect to their
relative rights and/or obligations or with respect to a thing done or to be done
(whether or not conditional, executory, express, implied, in writing or meeting
the requirements of contract), including, without limitation, contracts, leases,
promissory notes, covenants, easements, rights of way, covenants, commitments,
arrangements and understandings.
"ASSETS" means assets of every kind and everything that is or
may be available for the payment of liabilities (whether inchoate, tangible or
intangible), including, without limitation, real and personal property.
"CHARTER" means the Certificate of Incorporation of the
Company.
"CLAIMS" means all demands, claims, actions or causes of
action, assessments, losses, damages (including, without limitation, diminution
in value), liabilities, costs and expenses, including, without limitation,
interest, penalties and attorneys' fees and disbursements.
"CLOSING" means the Closing of the sale of Shares to the
Investors under this Purchase Agreement.
"CLOSING BALANCE SHEETS" means the latest balance sheets
contained in the Financial Statements.
"CLOSING DATE" is the date on which the Closing occurs.
"CODE" means the Internal Revenue Code of 1986, as amended,
and all Laws promulgated pursuant thereto or in connection therewith.
"COMMON STOCK" means the Company's Common Stock, par value
$0.001 per share.
"COMPANY" means CallNOW.Com, Inc., a Delaware corporation.
(throughout this document, Company shall also include is Subsidiaries whether or
not so indicated).
<PAGE>
"CONTROL" means possession, directly or indirectly, of power
to direct or cause the direction of management or policies (whether through
ownership of voting securities, by Agreement or otherwise).
"DISCLOSURE SCHEDULE" means the disclosure schedule identified
as the Disclosure Schedule to the Purchase Agreement.
"DOCUMENTS" means any paper or other material (including,
without limitation, computer storage media) on which is recorded (by letters,
numbers or other marks) information that may be evidentially used, including,
without limitation, legal opinions, mortgages, indentures, notes, instruments,
leases, Agreements, insurance policies, reports, studies, Financial Statements
(including, without limitation, the notes thereto), other written financial
information, schedules, certificates, charts, maps, plans, photographs, letters,
memoranda and all similar materials.
"ENCUMBRANCE" means, with respect to any Asset, any mortgage,
lien, pledge, encumbrance, security interest, deed of trust, option,
encroachment, reservation, order, decree, judgment, condition, restriction,
charge, Agreement, claim or equity of any kind.
"ENVIRONMENTAL LAWS" means any Laws (including, without
limitation, the Comprehensive Environmental Response, Compensation, and
Liability Act), including any plans, other criteria, or guidelines promulgated
pursuant to such Laws, now or hereafter in effect relating to the generation,
production, installation, use, storage, treatment, transportation, release,
threatened release, or disposal of Hazardous Materials, noise control, or the
protection of human health, safety, natural resources, animal health or welfare,
or the environment.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended, and all Laws promulgated pursuant thereto or in connection
therewith.
"Exchange Act' means the U.S. Securities Exchange Act of 1934,
as amended.
"EXHIBIT" means an exhibit attached to the Purchase Agreement.
"FINANCIAL STATEMENTS" has the meaning set forth in Section
3.6.
"Fringe Benefits" means (i) incentive or deferred compensation
arrangements, (ii) arrangements that could be characterized as providing for
additional compensation, severance benefits or compensation associated with a
change in control of the Company or any Subsidiary or (iii) arrangements
providing stock options or stock bonus to an employee, former employee, a
director, former director, any agent providing services to the Company or any
Subsidiary, and any dependant of the such persons.
"FURNISHED" means supplied, delivered or provided in any way.
"HAZARDOUS MATERIALS" means any wastes, substances, radiation,
or materials (whether solids, liquids or gases) (i) which are hazardous, toxic,
infectious, explosive, radioactive, carcinogenic, or mutagenic; (ii) which are
or become defined as a "pollutants" "contaminants", "hazardous materials,"
"hazardous wastes," "hazardous substances," "toxic
- 2 -
<PAGE>
substances," "radioactive materials," "solid wastes," or "petroleum", "oil"
other similar designations in, or otherwise subject to regulation under, any
Environmental Laws; (iii) without limitation, which contain polychlorinated
biphenyls (PCBs), asbestos, lead-based paints, urea-formaldehyde foam
insulation, and petroleum or petroleum products (including, without limitation,
crude oil or any fraction thereof) or (iv) which pose a hazard to human health,
safety, natural resources, industrial hygiene, or the environment, or an
impediment to working conditions.
"INTELLECTUAL PROPERTY" means all franchises, patents, patent
qualifications, trademarks, service marks, trade names, trade styles, brands,
private labels, copyrights, know-how, computer software, industrial designs and
drawings and general intangibles of a like nature, trade secrets, licenses, and
rights and filings with respect to the foregoing, and all reissues, extensions
and renewals thereof.
"LAWS" means all foreign, federal, state and local statutes,
laws, ordinances, regulations, rules, resolutions, orders, determinations,
writs, injunctions, awards (including, without limitation, awards of any
arbitrator), judgments and decrees applicable to the specified persons or
entities and to the businesses and Assets thereof (including, without
limitation, Laws relating to securities registration and regulation; the sale,
leasing, ownership or management of real property; employment practices, terms
and conditions, and wages and hours; safety, health and fire prevention; and
environmental protection, including Environmental Laws).
"MATERIAL" means material to the Company and its Subsidiaries,
taken as a whole.
"MATERIAL ADVERSE EFFECT" means any material adverse effect on
the assets, properties, business, operations, prospects, condition (financial or
otherwise) or liabilities of the Company and its Subsidiaries, taken as a whole.
"MATERIAL ASSET" means an Asset having a value equal to or in
excess of $25,000, or Assets having an aggregate value in excess of $50,000.
"ORDINARY COURSE OF BUSINESS" means ordinary course of the
Company's business consistent with past practices and business operations.
"PENSION PLAN" means an "employee pension benefit plan" as
such term is defined in Section 3(2) of ERISA.
"PERSON" means any individual, partnership, joint venture,
corporation, trust, unincorporated organization, government or department or
agency of a government.
"QUALIFIED PLAN" means a pension plan that satisfies, or is
intended by the Company to satisfy, the requirements for tax qualification
described in Section 401 of the Code.
"RELEASE" means any emission, spill, seepage, leak, escape,
leaching, discharge, injection, pumping, pouring, emptying, dumping, disposal,
or release of Hazardous Materials from any source (including without limitation
the Real Property) into or upon the environment, including the air, soil,
improvements, surface water, groundwater, the sewer, septic system, or waste
treatment, storage, or disposal systems at, on, above, or under the Real
Property.
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<PAGE>
"SECTION" means a Section (or a subsection) of this Purchase
Agreement.
"SECURITIES ACT" means the Securities Act of 1933, as amended,
and all laws promulgated pursuant thereto or in connection therewith.
"SHARES" means the Common Stock being purchased by the
Investors pursuant to the terms of this Purchase Agreement.
"SUBSIDIARY" means a corporation or other entity (other than
an Affiliate as defined above) of which at least 50% of the outstanding
securities or other interests having rights to vote or otherwise exercise
Control are held, directly or indirectly, by the Company.
"TAXES" means all federal, state, local and foreign taxes
(including, without limitation, income, profit, franchise, sales, use, real
property, personal property, ad valorem, excise, employment, social security and
wage withholding taxes) and installments of estimated taxes, assessments,
deficiencies, levies, imports, duties, license fees, registration fees,
withholdings, or other similar charges of every kind, character or description
imposed by any governmental or quasi-governmental authorities, and any interest,
penalties or additions to tax imposed thereon or in connection therewith.
"TAX RETURNS" means all federal, state, local, foreign and
other applicable tax returns, declarations of estimated tax reports required to
be filed by the Company or any Subsidiary (without regard to extensions of time
permitted by law or otherwise).
"WELFARE PLAN" means an "employee welfare benefit plan" as
such term is defined in Section (3)(1) of ERISA.
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<PAGE>
This Employment Agreement (the "Agreement") is made, effective November __,
1999, by and between Christopher R. Seelbach, an individual residing at 44
Woodcrest Ave., Short Hills, New Jersey 07078, Social Security Number:
________________________ ("Employee") and CallNOW.com, Inc., a Delaware
corporation, with offices at 50 Broad Street, New York, New York 10004 (the
"Company").
W I T N E S S E T H:
- --------------------
WHEREAS, the Company is engaged in offering telecommunications services
through its e-commerce Web site; and
WHEREAS, the Employee represents that he possesses certain professional
qualifications which enable him to perform the Duties referred to below; and
WHEREAS, the Company has the desire to continue the Employee's professional
services as a full-time employee of the Company; and
WHEREAS, the Company and the Employee desire to enter into this Agreement
to replace in its entirety that certain Employment/Consulting Agreement, dated
November 1, 1998, between the Company and the Employee (the "1998 Agreement");
NOW, THEREFORE, in consideration of the premises and of the mutual promises
and covenants, and the monetary consideration, the fairness and adequacy of
which are hereby acknowledged, herein contained, the parties hereto agree as
follows:
I. EMPLOYEE'S TITLE AND DUTIES
A. The Employee shall initially carry the title of Chief Operating Officer
and Acting Chief Financial Officer ("Acting CFO"). The Board of Directors
may change the titles of any officers and employees at any time, if it
believes such change to be in the best interest of the Company.
B. Employee will report to the Chief Executive Officer of the Company and
the Company's Board of Directors.
C. Employee will devote all of his professional time to the performance of
his duties hereunder.
D. Employee will perform any duties as may be assigned by the Chief
Executive Officer or the Company's Board of Directors.
II. OTHER TERMS OF ENGAGEMENT
A. Compensation
1. In consideration of Employee's performance of professional services
as specifically set forth and for the Term herein, the Company shall
pay the Employee a Base Salary of $10,000 per month, payable in two
equal installments each month, subject to the provisions of Section
V.B. below. When the Company consummates the public offering pursuant
to that
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INITIAL___________________
<PAGE>
registration statement on Form S-1, Registration No. 333-88065, the
Employee's Base Salary will be increased to $14,000 per month for so
long as Employee is both Chief Operating Officer and Acting CFO, and
$12,000 per month during such period that Employee is not Acting CFO.
When the Company's revenues reach $1,000,000 per month, the
Employee's Base Salary will be increased to $15,000 per month.
Employee shall also be entitled to participate in any Bonus Plan
instituted by the Company, provided, however, it is understood that
the Compensation Committee or, if no Compensation Committee, the
Board, will determine bonuses separately for each individual in
accordance with their contributions and performance, and not on the
basis of a standard percentage of salary.
2. In addition to the foregoing, the Employee shall also be reimbursed
for all reasonable out-of-pocket expenses actually incurred by him in
the furtherance of his engagement hereunder, including travel
expenses, etc. Such expenses shall be reimbursed upon submission to
the Company of invoices containing original receipts for all such
expenditures, and upon review by the Company with respect to the
reasonable nature thereof. The Company reserves the right to dispute
any such expenses as unreasonable, or not incurred, or fully
incurred, in connection with his employment. Expenses in excess of
$200.00 must be pre-approved by the Chief Executive Officer or a
member of the Board of Directors of the Company.
3. The Employee shall also receive a grant of non-qualified stock
options in connection with each equity financing that the Company
consummates. The Employee will be granted options to purchase that
number of shares equal to five percent (5%) of the number of shares
issued pursuant to such financing. These non-qualified options shall
be issued under the terms of the Company's Stock Option Plan,
including the right to make payment of the exercise price of such
options in accordance with Section 5.4 of the Stock Option Plan,
except for the following terms:
(a) the exercise price shall equal the purchase price paid by the
investor for such equity (in the case of a public offering, the
exercise price shall equal the public offering price), and
(b) these options shall vest twelve (12) months from the dates of
grant, provided, however, that Employee has a continuous
employment relationship with the Company during such twelve (12)
month period. Notwithstanding the foregoing provision of this
paragraph (b), the rights granted to Employee in the
second-to-last sentence of section 6 of the 1998 Agreement (a
copy of which is attached to this Agreement as Exhibit A, and
such sentence of which is incorporated by reference into this
Agreement) shall remain in effect for the Term of this Agreement
and apply as if specifically included herein, and
(c) these options shall have an exercise term of five years from
the dates of grant, regardless of whether Employee has a
continuous employment relationship with the Company during such
five (5) year period.
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INITIAL___________________
<PAGE>
Notwithstanding anything herein to the contrary,
(d) in the event that Employee either terminates his own
obligations hereunder or is terminated for Cause, the standard
provisions of the Stock Option Plan will determine the remaining
term for exercise and forfeiture of his options, and
(e) if Employee is terminated without Cause or if this Agreement
expires pursuant to its terms, the exercise term shall remain at
five years from the date of grant, as specified in this Section
II. A. 3.
For purposes of this entire Agreement, termination for "Cause" shall
mean dismissal for dishonesty, conviction or confession of a crime
punishable by law (except minor violations), fraud, gross misconduct,
or breach of Section III of this Agreement.
NOTWITHSTANDING ANYTHING HEREIN TO THE CONTRARY, THE EMPLOYEE'S RIGHT
TO RECEIVE OPTIONS UNDER THIS SECTION II. A.3 SHALL BE TERMINATED AND
BE OF NO FURTHER EFFECT IMMEDIATELY FOLLOWING THE EARLIER OF (i) THE
CONSUMMATION OF THE COMPANY'S PUBLIC OFFERING PURSUANT TO THAT
REGISTRATION STATEMENT ON FORM S-1, REGISTRATION NO. 333-88065 OR
(ii) ANY OTHER PUBLIC OFFERING OF SECURITIES BY THE COMPANY OR (iii)
OCTOBER 31, 2000.
4. Employee shall also be entitled to participate in any broader
qualified or unqualified incentive option plan or program offered to
other employees, provided that the Compensation Committee will
determine for each employee the number, if any, of future options or
other benefits to be granted under such plan or program, and any
options granted pursuant thereto shall be in complete accordance with
the terms of the Company's Stock Option Plan, and not in accordance
with any conflicting terms set forth in this Agreement.
5. With respect to the options previously granted to the Employee
pursuant to the 1998 Agreement, it is hereby agreed that to the
extent any provision in the 1998 Agreement is either silent or
ambiguous, then such provision shall be construed in accordance with
the Company's Stock Option Plan and that the Employee is granted the
right to make payment of the exercise price of such options in
accordance with Section 5.4 of the Company's Stock Option Plan
6. It is agreed that, pursuant to the provisions of 1998 Agreement
Employee has, at the date hereof, become entitled to receive options
to purchase (a) 193,750 shares, which options have vested prior to
the date hereof; and (b) 89,075 shares, which have not yet vested as
of the date hereof. It is hereby confirmed that as regards all
options granted to Employee prior to the date hereof, the exercise
term shall be 5 years from the dates of grant, regardless of whether
this Agreement is renewed. As regards all options granted to Employee
prior to the date hereof that have not vested prior to the date
hereof, such options shall vest twelve (12) months from the dates of
grant, provided, however, that Employee has a continuous employment
relationship with the Company
PAGE 3 OF 11
INITIAL___________________
<PAGE>
during such twelve (12) month period. Notwithstanding the foregoing
provision of this paragraph, the rights granted to Employee in the
second-to-last sentence of section 5 of the 1998 Agreement (such
sentence of which is incorporated by reference into this Agreement)
shall remain in effect for the Term of this Agreement and apply as if
specifically included herein.
7. The Employee acknowledges that he is not entitled to any further
compensation of any kind beyond that discussed in this Section II.
B. Employee shall be entitled to participate in any group health and/or
life insurance plans, and any other benefits, including all sick days
and paid holidays, offered to other employees of the Company, and to
vacations pursuant to the following schedule:
1. During the initial Term, Employee shall be entitled to four (4) weeks
of paid vacation, in accordance with the Company's policies, as may
be amended from time to time, provided however, that the Employee
shall take no more than two (2) weeks of consecutive vacation, and
that the timing of any vacation must be coordinated and approved by
the Chief Executive Officer, which approval will not be reasonably
withheld.
2. If the Agreement is continued for an additional Term, Employee shall
be entitled to four (4) weeks of paid vacation, in accordance with
the Company's policies, as may be amended from time to time, provided
however, that the Employee shall take no more than two (2) weeks of
consecutive vacation, and that the timing of any vacation must be
coordinated and approved by the Chief Executive Officer, which
approval will not be reasonably withheld.
C. Location for Performance of Employee's Services
The Employee shall perform the services required hereunder at such
location or locations as may be reasonably useful for the efficient
completion of Employee's assignment(s); provided, however, that the
Employee acknowledges and agrees that, in connection with his
engagement hereunder, he may be required to travel on behalf of the
Company.
D. No Restriction of Performance
Employee represents and warrants that Employee is under no
obligation, by written agreement or otherwise, to any third party
which would prohibit Employee from rendering services hereunder.
III. CONFIDENTIALITY
A. "Proprietary Information" shall mean all information (financial,
technical, or otherwise) in whatever form (tangible, verbally
communicated or otherwise) which is generated by and of which is
disclosed to the Employee by the Company or any of its officers,
employees or directors subsequent to the date of his initial engagement
as consultant of the Company, May 1, 1998 (the "Initial Employment
Date") and relates in any way to the Company or the subject matter of
the services
PAGE 4 OF 11
INITIAL___________________
<PAGE>
to be provided by the Employee, including, without limitation, trade
secrets, discoveries, ideas, concepts, know-how, techniques, diagrams,
flow charts, data, computer programs, algorithms, codes, solutions,
tools, marketing and development plans, customer or investor names and
other technical or business information, information regarding existing
and/or contemplated products, processes, techniques or know-how, or any
data or information developed by the Employee pursuant to the
performance of Employee's services hereunder.
B. "Proprietary Information" shall also include any such information which
is disclosed to the Employee by the Company or any of its officers,
employees or directors, orally, by samples or demonstrations of
processes or equipment to the Employee subsequent to the Initial
Employment Date.
C. Notwithstanding anything herein contained, "Proprietary Information"
shall not include:
1. information which is or comes into the public domain (provided that
the information in the public domain has not or does not come into
the public domain as the result of wrongful disclosure by the
Employee);
2. information which is known to the Employee prior to disclosure by the
Company and can be shown by the Employee's written records to have
been known to Employee prior to such disclosure; and
3. information which is subsequently lawfully obtained by the Employee
from a third party where such third party is not known by the
Employee to be under any obligation of confidentiality to the
Company.
D. During Employee's employment hereunder and for a period of three (3)
years from the termination of Employee's services, Employee hereby
agrees that Employee shall:
1. maintain such Proprietary Information in confidence and abstain from
any use of Proprietary Information, other than for purposes of
performing Employee's services as specified herein without the prior
written consent of the Company;
2. abstain from copying such Proprietary Information for other than use
in the performance of his duties hereunder;
3. limit dissemination of the Proprietary Information to individuals in
the employ of, or consultants to, the Company who have executed
agreements in writing which acknowledge their obligation to maintain
the secrecy of such Proprietary Information; and
4. make no disclosure of Proprietary Information to any other person
without the prior written consent of the Company.
E. Employee covenants to keep the terms of this agreement confidential and
not to disclose any of its terms or contents to anyone other than (i)
his attorneys or accountants who shall be similarly bound by this
covenant, (ii) as required by law or ordered by a court of competent
jurisdiction, or (iii) in the course of making good faith application
for credit, (iv) as necessary in the course of discussions with
prospective employers or prospective partners in a business venture.
Employee acknowledges that any breach of this covenant shall constitute
grounds for termination for Cause pursuant to Section V.B. hereof.
PAGE 5 OF 11
INITIAL___________________
<PAGE>
IV. INTELLECTUAL PROPERTY RIGHTS
A. Any reports, data, presentations, discoveries, inventions, software
codes, programming methods, programs, algorithms, tools or ideas made or
conceived by the Employee in connection with or during the performance
of services for the Company shall be the property of the Company, and
the Employee shall have no interest of any kind therein, and the
Employee, without further charge to the Company other than payment by
the Company to the Employee at the rate of $100 per hour for time
involved in the event this Agreement shall have terminated, shall
execute, acknowledge, and deliver to the Company all such further
papers, including applications for trademark or copyright protection as
may be necessary to enable the Company to publish or protect said
reports, data, presentations, and ideas or the embodiment thereof by
trademark or copyright or otherwise in any and all countries and to vest
title to said trademarks, copyrights, reports, data, or presentations,
and ideas in the Company or its nominees, their successors or assigns,
and shall render all such assistance as the Company may require in
proceeding or litigation involving said inventions, improvements,
presentations, or ideas.
B. Any work, copyrightable or otherwise, created by the Employee in
connection with or during the performance of services shall be
considered a work made for hire, whether published or unpublished, and
all rights therein shall be the property of the Company as employer,
author and sole owner of copyright in such work. The Employee, without
charge to the Company other than payment by the Company to the Employee
at the rate of $100 per hour for time involved in the event Employee's
engagement hereunder shall have terminated, but at the Company's expense
shall duly execute, acknowledge, and deliver to the Company all such
further papers, including assignments and applications for copyright
registration or renewal, as may be necessary to enable the Company to
publish or protect said works by copyright or otherwise in any and all
countries and to vest title to said works in the Company, or its
nominees, their successors or assigns, and shall render all such
assistance as the Company may require in any proceeding or litigation
involving the rights of said works.
C. The provisions of this Section IV shall not apply to such portions of
the Employee's reports as may contain tables, data or other information
which the Employee has obtained from third parties (provided such third
party is not known by the Employee to be under any obligation of
confidentiality to the Company), or from the Employee's files, data
banks or other reports dating prior to the Initial Employment Date, or
to programs and methodologies which are not related to the business, or
any business opportunity, of the Company.
V. TERM AND TERMINATION
A. This Agreement shall be in full force and effect from the date first
written above and the entire Agreement shall terminate one year from
such date (the "Term"), unless earlier terminated pursuant to other
provisions contained herein, including the provisions of paragraphs B
through E of this Section V. This Agreement will automatically renew for
one additional year unless the Company provides the Employee with
written notice to the contrary at least 60 days prior to the expiration
of the initial Term.
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INITIAL___________________
<PAGE>
B. The Company shall have the right to terminate the Employee, with or
without Cause, at any time by giving written notice to the Employee,
such termination to be effective at the time such notice is given by the
Company. In such event, the Company's obligations under this Agreement,
except as set forth in those options granted prior to the date of
termination and surviving termination pursuant to other provisions
herein, shall be terminated, including without limitation, its
obligations to make the payments set forth in Section II. In the case of
termination under this Section V.B., all of the Employee's obligations
(other than those set forth in Sections III, IV, VI.B and VI.C. hereof)
hereunder shall terminate at the time the termination of the Company's
obligations becomes effective.
C. The Employee may terminate his obligations hereunder (other than those
set forth in Sections III, IV, VI.B. and VI.C. of this Agreement) by
giving the Company written notice of such termination, provided such
termination shall not take effect until the expiration of thirty (30)
days from the date such notice is given. The Employee agrees to complete
any assignments then in progress and to cooperate fully with the Company
in the termination of his obligations under this Agreement. In the case
of any termination under this Section V.C., the Employee's obligations
hereunder (other than those set forth in Sections III, IV, VI.B. and
VI.C. of this Agreement) shall terminate and all of the Company's
obligations hereunder, including without limitation its obligations to
make the payments set forth in Section II (except with respect to the
amounts payable prior to such termination, and except as set forth in
those options vested prior to the date of termination and surviving
termination pursuant to other provisions herein,), shall terminate at
the time the termination of the Employee' obligations (other than those
set forth in Sections III, IV, VI.B. and VI.C. of this Agreement) become
effective.
D. This Agreement shall terminate (other than the obligations of the
Employee set forth in Sections III, IV, VI.B. and VI.C. of this
Agreement) upon the expiration of the Term. In the case of any
termination under this Section V, the Employee's obligations hereunder
(other than the obligations of the Employee set forth in Sections III,
IV, VI.B. and VI.C. of this Agreement) shall terminate. Upon such
termination of the Employee's obligations, all of the Company's
obligations hereunder, including without limitation its obligations to
make the payments set forth in Section II shall terminate, provided,
however that its obligations with respect to amounts payable prior to
such termination and its obligations as set forth in those options
granted prior to the date of termination and surviving termination
pursuant to other provisions herein, shall not then terminate.
E. This Agreement shall terminate without further action of any party if
the Employee shall die or become disabled. For purposes of this
Agreement, the term "disability" shall mean a physical or mental
incapacity of the Employee which has prevented him from performing the
essential functions of his duties hereunder for ninety (90) days,
whether or not consecutive, out of any twelve (12) consecutive months.
In the case of any termination under this Section V.E., the Employee's
obligations hereunder (other than, in the case of disability, those set
forth in Sections III, IV. VI.B. and VI.C. of this Agreement) shall
terminate. Upon such termination of the Employee's obligations, all of
the Company's obligations
PAGE 7 OF 11
INITIAL___________________
<PAGE>
hereunder, including without limitation its obligations to make the
payments set forth in Section II shall terminate, provided, however that
its obligations with respect to amounts payable prior to such
termination and its obligations as set forth in those options granted
prior to the date of termination and surviving termination pursuant to
other provisions herein, shall not then terminate.
F. Upon cessation of Employee's services hereunder, Employee will submit to
Company all documents, records, plans and other tangible materials
developed or obtained by Employee (including all copies thereof),
whether or not from the Company, in connection with Employee's services
which are in Employee's possession or under Employee's control, and
Employee will to the fullest extent feasible reduce to useful
documentary or media form and submit to Company all material knowledge
and information which Employee has developed or acquired in connection
with Employee's services and which the Company would not otherwise
possess.
VI. ADDITIONAL UNDERTAKINGS BY THE EMPLOYEE
A. During the Term, the Employee shall not enter into any agreements or
arrangements with, nor perform any consulting services or other business
services for, any third parties which would, by their nature or their
terms, conflict with the terms hereof or the Employee's obligation and
ability to perform his duties hereunder.
B. During the Term of this Agreement and any renewal, and for a period of
twenty four (24) months after cessation thereof, for whatever reason,
the Employee will not:
1. solicit any employee of the Company to terminate or modify that
employee's employment relation or in any way to act in a manner
detrimental to the Company;
2. solicit any past or current client, or any partner, affiliate or
agent of any past or current client, of the Company to terminate or
modify that client's relationship with the Company or in any way to
act in a manner detrimental to the Company;
3. solicit any past or current client, or any partner, affiliate or
agent of any past or current client, of the Company to purchase
competitive products and services from another person or entity other
than the Company, or to sell competitive products and services for or
on behalf of another person or entity other than the Company;
4. solicit any investor, affiliate, partner or agent of the Company to
terminate or modify that person or entity's relationship with the
Company or in any way to act in a manner detrimental to the Company;
5. solicit any person or entity with whom the Company has business
dealings to modify those dealings or act in a manner detrimental to
the Company.
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<PAGE>
C. NO COMPETITION. If the Company terminates the Employee's employment
hereunder with or without Cause, or if the Employee terminates this
Agreement for any reason, the Employee agrees that during a period of
twelve months after the date of termination, the Employee will not,
directly or indirectly, own, manage, operate, control or participate in
the ownership management, operation or control of, or be connected with
as an officer, employee, partner, director or otherwise, or have any
financial interest in or aid or assist anyone else on a full-time,
part-time or consulting basis in the conduct of, any business enterprise
(including, without limitation, Net2Phone; FaciliCom; Cognigen; iPhone;
Phone.com; LivePerson; DeltaThree; IXTC; VolTec, or any affiliates of
the foregoing; or any of the Company's partners, agents or affiliates)
in direct competition with the Company in any place in the world in
which the Company has offices or conducts business or contemplates
conducting business. Ownership not to exceed five percent (5%) of the
voting stock of any publicly held corporation shall not constitute a
violation hereof, provided Employee has no active role in the
management, operation or control of the business enterprise
VII. REMEDIES FOR BREACH
The Employee acknowledges that Employee's violation of any of the
provisions of Sections III and IV and VI of this Agreement will cause
irreparable injury to the Company, and Employee agrees that, in any case, that
the Company shall be entitled, in addition to any other rights and remedies the
Company may have at law or in equity, to an injunction enjoining and restraining
Employee from doing or continuing to do any act which violates any provision of
this Agreement.
VIII. SURVIVAL OF COVENANTS
All covenants by the Employee contained Sections III, IV, V, VI and VII of
this Agreement shall survive the termination of this Agreement, and shall be
enforceable thereafter in accordance with their respective terms.
IX. DISPUTE RESOLUTION AND ARBITRATION
A. Arbitration. In the event of any dispute, controversy, claim or
difference that should arise between the parties out of or relating to or in
connection with this Agreement or the breach thereof, the parties shall endeavor
to settle such conflicts amicably among themselves. Should they fail to do so,
the matter in dispute shall be settled by arbitration in New York, New York, in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association.
B. Award to be Final. Any award or judgment of the arbitrators shall be
final and binding on the parties and shall be enforceable in any court
of competent jurisdiction.
C. Attorneys' Fees. All reasonable attorneys' fees incurred by the
prevailing party in the resolution of any dispute, controversy, claim or
difference hereunder shall be borne by the losing party.
PAGE 9 OF 11
INITIAL___________________
<PAGE>
X. MISCELLANEOUS
A. Notice. Any important notice required or permitted hereunder shall be
validly and effectively given only if sent by telex, telefax, or if
delivered personally to the other party, or if sent by certified mail,
postage prepaid, to the address of the respective party first above
indicated or to such other address as shall be advised by either party
to the other in writing, with a copy of said notice being sent to Stairs
Dillenbeck Finley & Merle, 330 Madison Avenue, New York, New York 10017,
Attn: Santiago Rendon, Esq. For purposes of proving delivery by mail as
aforesaid, unless otherwise specifically provided, it shall be
sufficient to demonstrate that the letter containing the notice was
properly addressed and duly deposited at a post office as a certified
letter with sufficient postage attached thereto.
B. Severability. Should one or more provisions of this Agreement be held
unenforceable, for whatever cause, the validity of the remainder of this
Agreement shall remain unaffected. The parties shall, in such event,
attempt in good faith to agree on new provisions which best correspond
to the object of this Agreement.
C. Entire Agreement. The parties have entered into the present Agreement
after negotiations and discussions, an examination of its text, and an
opportunity to consult counsel. This Agreement constitutes the entire
understanding between the parties regarding to specific subject matter
covered herein. This Agreement supersedes any and all prior written or
oral contracts or understandings between the parties hereto, including,
without limitation, the 1998 Agreement, except the provisions thereof
recited in Section II of this Agreement shall survive, and be
incorporated by reference herein, for the purposes recited in Section II
hereof. between the Employee and the Company, and neither party shall be
bound by any statements or representations made by either party not
embodied in this Agreement. The confidentiality provisions contained in
Section III hereof shall apply retroactively to the entire relationship
of the parties from the date of May 1, 1998. No provisions herein
contained shall be waived, modified or altered, except by an instrument
in writing, duly executed by the parties hereto.
D. Relationship of Parties. This Agreement and the transactions of the
parties thereunder, shall be deemed to create, for all purposes, an
employer-employee relationship between the Company and Employee, and not
to constitute a joint venture or partnership. Unless otherwise agreed by
both parties in writing, it is agreed that Employee shall have no right
or authority to act for or to bind the Company in any way, or to
represent that the Company is responsible for the acts or omissions of
Employee.
E. Governing Law. This Agreement shall be subject to and governed in all
respects by, the substantive laws of the State of New York, U.S.A.,
without giving effect to the conflict of laws principles thereof. This
Agreement shall be construed without regard to or aid of any presumption
or other rule requiring construction against the patry drawing or
causing this Agreement to be drawn since counsel for both the Company
and the Employee have combined in creating same.
F. No Implied Waivers. No delay or omission by either party to exercise its
rights and remedies in connection with the breach or default of the
other shall operate as or be construed as a waiver of such rights or
remedies as to any subsequent breach.
PAGE 10 OF 11
INITIAL___________________
<PAGE>
G. Counterparts. This Agreement may be executed in any number of
counterparts, but all counterparts hereof shall together constitute but
one agreement. In proving this Agreement, it shall not be necessary to
produce or account for more than one counterpart signed by both of the
parties.
H. Binding Nature. This Agreement shall be binding upon and shall inure to
the benefit of the parties to this Agreement only.
I. Assignment. Neither party will have the right to assign, pledge or
transfer all or any part of this Agreement without the prior written
consent of the other, and any such purported assignment, pledge or
transfer by a party without such prior written consent shall be void,
except that the Company may assign its rights, but only along with its
obligations, under this Agreement to any successor entity or any other
entity which acquires, or into which may be merged, the Company.
J. Capacity. Each party represents one to the other that it is under no
incapacity to enter into or perform this Agreement and that each person
signing this Agreement on its behalf has the authority to do so, and
each shall never otherwise assert.
K. Captions. The captions appearing in this Agreement are inserted only as
a matter of convenience and for reference and in no way define, limit or
describe the scope and intent of this Agreement or any of the provisions
hereof.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
COMPANY CallNOW.com, Inc.
By: /s/ Christian Bardenheuer
----------------------------------------
Name: Christian Bardenheuer, Chief Executive Officer
And
EMPLOYEE
/s/ Christopher R. Seelbach
- -------------------------------------------
Christopher R. Seelbach
PAGE 11 OF 11
INITIAL___________________
<PAGE>
[ERNST & YOUNG LLP LETTERHEAD]
November 8, 1999
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: CallNOW.com, Inc. (the "Company")
Gentlemen:
We have read the letter (the "Company Letter") dated November 8, 1999 from the
Company to the Securities and Exchange Commission.
With respect to the first and second paragraphs of the Company Letter, we are in
agreement with the statements contained therein relative to the termination of
our auditor-client relationship, the absence of reportable disagreements, and
our report on the Company's financial statements.
It should be noted that we have not performed any audit work regarding such
matters subsequent to the date of our report (June 6, 1997) on the Company's
financial statements for the year ended December 31, 1996.
/s/ Ernst & Young LLP
Ernst & Young LLP
Ernst & Young LLP is a member of Ernst & Young International, Ltd.
<PAGE>
November 8, 1999
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Gentlemen:
On March 30, 1999, CallNOW.com, Inc. (the "Company") dismissed Ernst & Young LLP
("E&Y") as the Company's independent public accountants and auditors, a capacity
in which that firm had served for approximately 2 years, and selected Horton
& Company, LLC to replace E&Y in this role. The decision to dismiss the
Company's accountants and auditors was approved by the Company's full Board of
Directors.
During the fiscal year ended December 31, 1996 and the subsequent period through
March 30, 1999, the date on which E&Y was dismissed as the Company's independent
public accountants and auditors, there were no disagreements between the Company
and E&Y on any matter relating to accounting principles or practices, financial
statement disclosure, or auditing scope or procedures, which if not resolved to
E&Y's satisfaction would have caused it to make reference to the subject matter
of disagreement in connection with its report. In addition, E&Y's report on the
Company's financial statements for the fiscal year ended December 31, 1996
contained no adverse opinions or disclaimers of opinion, nor were such reports
qualified as to audit scope or accounting principles.
The Company has authorized E&Y to respond fully to the inquiries of Horton &
Company, LLC. The Company has provided E&Y with a copy of the disclosures
contained in this Letter and has requested that E&Y furnish the Company with a
letter addressed to the Securities and Exchange Commission stating whether it
agrees with the statements made by the Company herein.
CallNOW.com, Inc.
By: /s/ Christopher R. Seelbach
-------------------------------------
Christopher R. Seelbach
Chief Operating Officer and
Acting Chief Financial Officer
<PAGE>
Exhibit 23.4
[HORTON & COMPANY LOGO]
INDEPENDENT AUDITORS' REPORT ON OTHER FINANCIAL
INFORMATION
The Shareholders
CallNOW.com, Inc.
The audited financial statements of the Company and our report thereon is
presented in the preceding section of this report. The financial information in
Schedule II-Valuation and Qualifying Accounts in Exhibit 99 is presented for
purposes of additional analysis and is not a required part of the financial
statements of the Company. Such information has been subjected to the auditing
procedures applied in our audit of the financial statements and, in our opinion,
is fairly stated in all material respects in relation to the financial
statements taken as a whole.
HORTON & COMPANY, L.L.C.
Wayne, New Jersey
April 28, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 9-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1998
<PERIOD-END> SEP-30-1999 SEP-30-1998
<CASH> 846,680 0
<SECURITIES> 0 0
<RECEIVABLES> 62,321 116,120
<ALLOWANCES> 19,000 6,500
<INVENTORY> 0 0
<CURRENT-ASSETS> 909,001 116,120
<PP&E> 1,358,758 445,870
<DEPRECIATION> 325,573 136,288
<TOTAL-ASSETS> 2,700,509 459,478
<CURRENT-LIABILITIES> 1,547,035 2,122,257
<BONDS> 0 0
0 0
0 0
<COMMON> 6,315 3,875
<OTHER-SE> 171,338 1,719,349
<TOTAL-LIABILITY-AND-EQUITY> 2,706,509 459,478
<SALES> 0 0
<TOTAL-REVENUES> 738,353 1,794,595
<CGS> 0 0
<TOTAL-COSTS> 547,361 1,374,153
<OTHER-EXPENSES> 1,978,525 789,820
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 453,609 59,500
<INCOME-PRETAX> (2,241,142) (428,878)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (2,241,142) (428,878)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (2,241,142) (428,878)
<EPS-BASIC> (0.47) (0.11)
<EPS-DILUTED> (0.47) (0.11)
</TABLE>
<PAGE>
CallNOW.com, INC
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO CHARGED BALANCE
BEGINNING COSTS AND TO OTHER AT END OF
OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD
---------- ---------- -------- ---------- ---------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1996
Allowance for doubtful accounts
(deducted from accounts receivable) $ 22,000 $113,000 $ -- $ 12,000 $123,000
-------- -------- ------- -------- --------
YEAR ENDED DECEMBER 31, 1997
Allowance for doubtful accounts
(deducted from accounts receivable) $123,000 $197,109 $ -- $313,609 $ 6,500
-------- -------- ------- -------- --------
YEAR ENDED DECEMBER 31, 1998
Allowance for doubtful accounts
(deducted from accounts receivable) $ 6,500 $ 23,723 $ -- $ 24,223 $ 6,000
-------- -------- ------- -------- --------
</TABLE>
