<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 8, 2000
REGISTRATION NO. 333-88065
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------
AMENDMENT NO. 2 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>
<S> <C> <C>
DELAWARE 4813 87-0360333
(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>
<S> <C>
NEIL P. PARENT, ESQ. LAWRENCE B. FISHER, ESQ.
STAIRS DILLENBECK FINLEY & MERLE ORRICK, HERRINGTON & SUTCLIFFE LLP
330 MADISON AVENUE, SUITE 2900 666 FIFTH AVENUE
NEW YORK, NEW YORK 10017-1005 NEW YORK, NEW YORK 10103
(212) 697-2700 (212) 506-5000
</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
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<TABLE>
<CAPTION>
TITLE OF EACH CLASS
OF SECURITIES TO BE AMOUNT TO
REGISTERED BE REGISTERED
<S> <C>
Units (each consisting of one share of Common Stock, $0.001 par value, and
one Redeemable Warrant exercisable into one share of Common Stock) ...... 4,858,625(2)
Common Stock, $0.001 par value, underlying the Units...................... 4,858,625
Redeemable Warrants ...................................................... 4,858,625
Common Stock, $0.001 par value, underlying the Redeemable Warrants ....... 4,858,625(4)(5)
Representatives' Warrants(7) ............................................. 422,489
Common Stock, $0.001 par value, underlying the Representatives' Warrants.. 422,489(9)
Redeemable Warrants underlying the Representatives' Warrants ............. 422,489(9)
Common Stock, $0.001 par value, underlying the Representatives' Redeemable
Warrants ................................................................ 422,489(4)(5)
Totals ...................................................................
<CAPTION>
TITLE OF EACH CLASS PROPOSED MAXIMUM PROPOSED MAXIMUM
OF SECURITIES TO BE OFFERING PRICE AGGREGATE
REGISTERED PER SHARE OFFERING PRICE (1)
<S> <C> <C>
Units (each consisting of one share of Common Stock, $0.001 par value, and
one Redeemable Warrant exercisable into one share of Common Stock) ...... $ 8.00 $ 38,869,000
Common Stock, $0.001 par value, underlying the Units...................... (3) (3)
Redeemable Warrants ...................................................... (3) (3)
Common Stock, $0.001 par value, underlying the Redeemable Warrants ....... $ 12.00(6) $ 58,303,500
Representatives' Warrants(7) ............................................. $ .0001 $ 42
Common Stock, $0.001 par value, underlying the Representatives' Warrants.. $ 9.60(10) $ 4,055,895
Redeemable Warrants underlying the Representatives' Warrants ............. (11) (11)
Common Stock, $0.001 par value, underlying the Representatives' Redeemable
Warrants ................................................................ $ 12.00 $ 5,069,868
Totals ................................................................... $106,298,305
<CAPTION>
TITLE OF EACH CLASS
OF SECURITIES TO BE AMOUNT OF
REGISTERED REGISTRATION FEE
<S> <C>
Units (each consisting of one share of Common Stock, $0.001 par value, and
one Redeemable Warrant exercisable into one share of Common Stock) ...... $10,262
Common Stock, $0.001 par value, underlying the Units...................... (3)
Redeemable Warrants ...................................................... (3)
Common Stock, $0.001 par value, underlying the Redeemable Warrants ....... $15,392
Representatives' Warrants(7) ............................................. (8)
Common Stock, $0.001 par value, underlying the Representatives' Warrants.. $ 1,071
Redeemable Warrants underlying the Representatives' Warrants ............. (11)
Common Stock, $0.001 par value, underlying the Representatives' Redeemable
Warrants ................................................................ $ 1,339
Totals ................................................................... $28,064(12)
</TABLE>
- --------------------------------------------------------------------------------
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(a).
(2) Includes 633,734 Units which the Underwriters have the option to purchase
to cover over-allotments, if any.
(3) Pursuant to Rule 457(i), no additional registration fee is required for
these Shares of Common Stock or Redeemable Warrants being registered as
part of the Units being offered to the public and sold to the
Underwriter, since no additional consideration is to be paid for them.
(4) Reserved for issuance upon exercise of the Redeemable Warrants.
(5) 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 Warrants.
(6) Exercise price of the Redeemable Warrants.
(7) In connection with the Registrant's sale of the Units, the Registrant is
granting warrants to purchase 422,489 Units to the Representatives of the
several Underwriters.
(8) No fee due pursuant to Rule 457(g).
(9) Reserved for issuance upon exercise of the Representatives' Warrants.
(10) Exercise price of Representatives' Warrants.
(11) Exercise price of the Representatives' Warrants is set forth above for
the Common Stock issuable upon exercise of the Representatives' Warrants.
(12) $13,603.74 of which was 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--FEBRUARY 8, 2000
PROSPECTUS
- --------------------------------------------------------------------------------
4,224,891 UNITS
[CALLNOW.COM, INC. LOGO]
---------------------------------
(Each Unit Consisting of One Share of Common Stock and
One Redeemable Common Stock Purchase Warrant)
---------------------------------
o CallNOW.com is offering 4,000,000 units and some of our existing
stockholders are offering 224,891 shares, which are included
with 224,891 warrants offered by us as part of an additional
224,891 units. We will not receive any of the proceeds from the
sale of the shares by these stockholders, but only from the
warrants which are part of the units.
o We anticipate that the public offering price will be between
$6.00 and $8.00 per unit.
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 February 1, 2000 was $2.50.
o Our trading symbol in the National Quotation Bureau, LLC's Pink
Sheets is CALN. No public market currently exists for the units
or the warrants. We have applied to list the units, common stock
and warrants on the Nasdaq National Market under the symbols
CALNU, CALN and CALNW, respectively.
THE PURCHASE OF OUR SECURITIES INVOLVES A HIGH DEGREE OF RISK. BEFORE
BUYING THE UNITS, CAREFULLY READ THIS PROSPECTUS, ESPECIALLY THE "RISK FACTORS"
BEGINNING ON PAGE 9.
<TABLE>
<CAPTION>
PER UNIT 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 633,734 additional units from us at the
public offering price less underwriting discount and commissions, to cover
over-allotments.
DIRKS & COMPANY, INC. NOLAN SECURITIES CORPORATION
<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 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 the fourth quarter of 1999, we billed an aggregate of
approximately 4,000 customers for using our service. For the fiscal year ended
December 31, 1999, we had revenues of $1.0 million and a loss of $3.1 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 the second quarter of 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 1999, 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 minimum guaranteed payments
in the 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. However, as of
the date of this prospectus, the links which would direct users of Lycos Japan
to our Web site are still being developed. Thus, the implementation of our
contract with Lycos Japan has not yet occurred, and no assurance can be made
when, if ever, such contract will be implemented. These contracts are
non-exclusive.
4
<PAGE>
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.
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 the second quarter of 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. We maintain a Web
site at www.callnow.com. Information on our Web site is not intended to be a
part of this prospectus.
5
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Units offered by us .................................. 4,000,000 units, each unit consisting of one
share of common stock and one redeemable
common stock purchase warrant. The warrant
is exercisable at a price equal to 150% of the
public offering price of the units per share for
a period of forty-eight months commencing
twelve months from the effective date of the
registration statement of which this
prospectus forms a part. We may redeem the
warrants starting eighteen months after such
effective date at $0.10 per warrant, if the
average closing sale price for our common
stock equals or exceeds 200% of the public
offering price of the units for any twenty
trading days within a period of thirty
consecutive trading days ending on the fifth
trading day prior to the date of the notice of
redemption. You may trade the common
stock and warrants separately starting twelve
months after such effective date, unless we
agree with the representatives of the
underwriters that trading may begin sooner.
See "Description of Securities."
Shares offered by selling stockholders
(as part of additional 224,891 units) ............... 224,891 Shares
Warrants offered by us (as part of additional
224,891 units) ...................................... 224,891 Warrants
Total shares outstanding after this offering ......... 10,314,666 Shares (1)
Redeemable common stock purchase
warrants outstanding after this offering ............ 4,224,891 Warrants (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
Unit Symbol (3) ..................................... CALNU
Proposed Nasdaq National Market System
Common Stock Symbol (3) ............................. CALN
</TABLE>
6
<PAGE>
<TABLE>
<S> <C>
Proposed Nasdaq National Market System
Redeemable Common Stock Purchase
Warrant Symbol (3) .................. CALNW
</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, of which options to purchase 1,037,400 shares of
common stock at exercise prices of $2.75 per share have been granted;
o 422,489 shares of common stock issuable upon exercise of the
representatives' warrants at an exercise price of 120% of the public
offering price of the units per share;
o 422,489 shares of common stock issuable upon exercise of 422,489
redeemable common stock purchase warrants issuable upon exercise of the
representatives' warrants at an assumed exercise price of 150% of the
public offering price of the units per share;
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; and
o 4,224,891 shares of common stock issuable upon exercise of the warrants.
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) Excludes 422,489 redeemable common stock purchase warrants issuable upon
exercise of the representatives' warrants.
(3) We filed an application for our units, shares and warrants to be included
for quotation on the Nasdaq National Market System under the symbols
"CALNU", "CALN" and "CALNW", respectively. However, we cannot assure you
that we will be successful in our efforts to list our units, shares and
warrants on the Nasdaq National Market System and may only trade on the
Nasdaq SmallCap Market System, the OTC Bulletin Board or in the National
Quotation Bureau, LLC's Pink Sheets. For discussion of the effects of the
failure to have our units, shares or warrants listed on the Nasdaq
National Market System, see "Risk Factors--Risks Related To This
Offering--Failure To Be Approved For Listing On The Nasdaq National
Market System Or The Absence Of An Active Trading Market For The Common
Stock And Warrants Could Make It Difficult For Investors To Resell Their
Shares And Warrants 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 And
Warrants."
-------------------------
7
<PAGE>
SUMMARY FINANCIAL DATA
The following tables present summary financial data derived from our
financial statements included elsewhere in this prospectus. The statement of
operations data for the year ended December 31, 1995 has 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,
-------------------------------------------------------------------------------
1995 1996 1997 1998 1999
------------- ------------- ------------- ------------- ---------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenues ............... $ 453,273 $1,674,955 $5,010,027 $2,295,202 $ 1,004,636
Loss from operations ......... (253,087) (929,640) (858,771) (550,942) (2,499,257)
Interest expense ............. -- 1,154 58,568 90,436 618,791
Net loss ..................... (253,087) (930,794) (917,339) (641,378) (3,118,048)
Net loss per share ........... (0.08) (0.24) (0.24) (0.17) (0.60)
Common shares ................ 3,055,525 3,875,000 3,875,000 3,875,000 5,157,964
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1999
-------------------------------
ACTUAL PRO FORMA(1)
--------------- -------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash ................................... $ 80,542 $11,383,508
Current assets ......................... 109,598 11,412,564
Current liabilities .................... 2,007,120 181,387
Working capital (deficit) .............. (1,897,522) 11,231,177
Long-term assets ....................... 2,082,507 11,897,511
Total assets ........................... 2,192,105 23,310,075
Long-term liabilities .................. 1,090,867 240,000
Stockholders' equity (deficit) ......... (905,882) 22,888,688
</TABLE>
- ----------
(1) Adjusted for the sale of the units and warrants 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 our units. Each of these risk factors could
adversely affect our business, operating results and financial condition and
the price of our units.
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 $2.3 million in 1998 to approximately $1.0
million in 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 $3.1 million in
1999 and approximately $0.6 million in 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, 1999 and 1998 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 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
9
<PAGE>
earnings due to interest expenses. Any further issuance of equity securities
would likely have a dilutive effect on the holders of our units, common stock
and warrants.
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 January 31, 2000, we had
18 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 1998 and $0.7 million in 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."
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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 OUR FAILURE TO ADAPT TO NEW
TECHNOLOGIES COULD ADVERSELY AFFECT OUR BUSINESS
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 services 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 and
are listed in the following table:
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*
<PAGE>
Malaysia*
Mali
Morocco
Netherlands 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
Zimbabwe
- ----------
* Has formally submitted information to the FCC stating that certain
ReturnCall services violate its laws.
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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.
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,
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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 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 our ReturnCall services depends.
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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 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.
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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.
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.
FAILURE OF INTERNET SERVICE PROVIDERS TO PROVIDE OUR CUSTOMERS WITH ACCESS TO
OUR WEB SITE COULD ADVERSELY AFFECT OUR BUSINESS
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
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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.
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. We are currently qualified to do business
as a foreign corporation in New York.
18
<PAGE>
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 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 employment
agreement, see "Management--Employment and Consulting Agreements."
IF ANY OF OUR CUSTOMERS ACCOUNTS FOR A HIGH PERCENTAGE OF OUR REVENUE, THE LOSS
OF THAT CUSTOMER COULD HARM OUR BUSINESS
For the year ended December 31, 1999, no customer accounted for more than
approximately 14% 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. 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 since April 1999. However, if the concentration of
business of any one customer reoccurs, the loss of that customer could
adversely affect our business.
OUR U.S. PATENT APPLICATION HAS BEEN REJECTED UPON THE FIRST EXAMINATION AND
FAILURE TO OBTAIN A PATENT COULD ADVERSELY AFFECT 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 business process and
software. We have filed a U.S. patent application and an international (PCT)
patent application on our business process and software. In November 1999, the
U.S. Patent and Trademark Office initially rejected our U.S. patent
application. We have contested the rejection by amending the claims of our
application and presenting detailed arguments regarding the patentability of
our business process and software. The procedures established by the U.S.
Patent Laws and the Code of Federal Regulations require that our application be
reconsidered in the light of the amendments and arguments. If we ultimately
fail to obtain a U.S. Patent for our business process and software, our
business may be adversely affected by being unable to stop competitors in the
U.S. from using business processes similar to ours and from developing software
similar to ours. Also, a failure to obtain a U.S. patent may have some
precedential effect in respect of our patent rights in other countries. We may
decide for cost or other reasons not to seek patents in all countries in which
we offer our services. Even if we are successful in obtaining patents in the
U.S. and other countries where we conduct significant business, there is no
assurance that our patents will be valid and enforceable or that our patents
will be of sufficiently broad scope to provide a basis for preventing third
parties from using competing business processes and/or software similar to ours
and thus diverting business from us and causing loss of revenue. Our rights of
copyright in our software are secured under the Berne Convention (a treaty)
without formalities in most commercially important markets for our services,
but those rights may not protect us from development by others of similar
software based on reverse engineering. 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.
19
<PAGE>
FAILURE TO HAVE ADEQUATE PROTECTION FOR OUR TRADE NAME AND SERVICE MARK MAY
ADVERSELY AFFECT OUR BUSINESS
We have not yet applied for registration of our service mark in any of the
countries where we offer our services. Although we believe that our trade name
CALLNOW.COM will be adequately protected in nearly all commercially important
countries without registration pursuant to an express provision of the Paris
Convention (a treaty), the remedies available to us for misappropriation and
use by others of the same or similar name or mark may be diminished by failure
to register our service mark. Uses by others of the same or a similar trade
name or service mark for similar businesses and/or services may attract
customers away from us and result in loss of revenues. Moreover, pursuing
persons who might violate our rights in our trade name and service mark could
be costly and distract management from attending to the operation of our
business.
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.
WE COULD STILL FACE PROBLEMS RELATED TO THE YEAR 2000 ISSUE WHICH COULD BE
DISRUPTIVE TO OUR BUSINESS OPERATIONS
To date, our customers have not reported any problems with our services
nor have we experienced any problems with our suppliers and service providers
as a result of the commencement of the year 2000. We have not experienced any
impairment in our internal operations with the year 2000 issue. Nervertheless,
computer experts have warned that there may still be residual consequences
stemming from the change in centuries and, if these consequences become
widespread, they could result in a decrease in sales of our services, increased
operating expenses and other business interruptions. We have not developed any
specific contingency plan for year 2000 issues.
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, Selling and Registering 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 422,489 units.
These warrants will be exercisable for a period of
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<PAGE>
forty-eight months commencing upon twelve months from the effective date of the
registration statement of which this prospectus forms a part at an exercise
price equal to 120% of the public offering price per unit 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 units, common
stock or warrants 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 units in this offering, assuming you allocate
the entire cost of a unit to the common stock, 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
unit, and assuming that all of the purchase price of such units is allocated to
the common stock contained within the units, if you purchase units in this
offering, you will incur immediate and substantial dilution in net tangible
book value of $4.78 per share of common stock contained in the units from the
price you paid. The exercise prices of all of our 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.
FAILURE TO BE APPROVED FOR LISTING ON THE NASDAQ NATIONAL MARKET SYSTEM OR THE
ABSENCE OF AN ACTIVE TRADING MARKET FOR THE UNITS, COMMON STOCK AND WARRANTS
COULD MAKE IT DIFFICULT FOR INVESTORS TO RESELL THEIR UNITS, SHARES AND
WARRANTS 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 units, common stock and warrants
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 units, common stock or warrants
will develop. Investors may not be able to resell their units, shares or
warrants at or above the public offering price. The public offering price for
our units 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 units 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 UNITS, COMMON STOCK AND
WARRANTS
The trading of our units, common stock and warrants 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 of our
units and common stock 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
21
<PAGE>
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 units, common
stock and warrants 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
units, common stock and warrants 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 units, common stock and warrants and
limited news coverage of us. Ineligibility or delisting may also restrict
investors' interest in our units, common stock and warrants and materially
adversely affect the trading market and prices for our units, common stock and
warrants 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 units, common stock and warrants 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 UNIT PRICE, STOCK PRICE AND WARRANT PRICE ARE LIKELY TO BE VOLATILE AND
THEY MAY DECLINE WHICH COULD RESULT IN SUBSTANTIAL LOSSES FOR OUR STOCKHOLDERS
The trading price of our units, common stock and warrants is likely to be
volatile. The stock market has experienced significant price and volume
fluctuations, and the market prices of technology company stocks, 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 bid price of $7.00 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 units, shares or warrants 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 UNIT PRICE, STOCK PRICE AND WARRANT PRICE
The market price of our units, stock or warrants 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, 5,818,595 shares,
including the 4,224,891 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. The remaining 4,990,743 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 have agreed with the
representatives of the underwriters to use our best efforts to have all of our
officers and directors and
22
<PAGE>
holders of all restricted shares of our common stock, holders of all
outstanding options and holders of all other convertible securities 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 effective date of the
registration statement of which this prospectus forms a part without the prior
written consent of the representatives 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. 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. During the last
twelve months, we sold 691,853 shares of common stock at $2.75 per share. 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. Also, we have agreed
to register 494,672 shares on behalf of existing stockholders within 90 days of
the consummation of this offering, but such shares are subject to a lock-up
agreement for a period of 180 days after the effective date of the registration
statement of which this prospectus forms a part. See "Shares Eligible for
Future Sale" for more information.
YOU CANNOT SELL THE SHARES UNDERLYING THE WARRANTS IF WE DO NOT HAVE AN
EFFECTIVE REGISTRATION STATEMENT
You cannot exercise the warrants and sell the underlying shares unless we
keep a prospectus effective and the shares underlying the warrants are
qualified or exempt in the states in which exercising warrant holders reside.
We have registered these shares and have qualified them in the states where we
plan to sell the units unless the state does not require qualification. We have
also filed an undertaking with the SEC to maintain a current prospectus
relating to these shares until the expiration of the warrants. However, we
cannot assure that we will be able to satisfy this undertaking. The warrants
may be deprived of any value if we fail to do so. The common stock and warrants
are detachable and separately transferable twelve months after the effective
date of the registration statement of which this prospectus forms a part unless
we agree with the representatives of the underwriters that trading may begin
sooner. Purchasers may buy warrants in the aftermarket or may move to
jurisdictions in which the shares underlying the warrants are not so registered
or qualified during the period that the warrants are exercisable. In that
event, we would be unable to issue shares to those persons desiring to exercise
their warrants, and warrant holders would have no choice but to offer to sell
the warrants in a jurisdiction where a sale is permitted or allow them to
expire unexercised.
YOU COULD LOSE YOUR RIGHT TO EXERCISE YOUR WARRANTS IF WE EXERCISE OUR RIGHT TO
REDEEM THE WARRANTS
Under some circumstances, we may redeem all of the warrants at nominal
cost. If you are a warrant holder and we call for redemption, to the extent we
redeem your warrants, you will lose your right to purchase shares pursuant to
your warrants. Furthermore, the threat of redemption could force you to:
o exercise your warrants at a time when it may be disadvantageous for you
to do so;
o sell your warrants at the then current market price when you might
otherwise wish to hold them; or
o accept the redemption price which will be substantially less than the
market value of your warrants at the time of redemption.
See "Description of Securities--Warrants" for the conditions under which we may
redeem the warrants. We will not call the warrants for redemption if a current
prospectus is not available for the exercise of the warrants.
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<PAGE>
USE OF PROCEEDS
The net proceeds to us from the sale of our units and warrants sold in
this offering are estimated to be $24,379,566, assuming an offering price of
$7.00 per unit and $0.10 per warrant for the 224,891 warrants we are selling
together with 224,891 shares being sold by existing stockholders as 224,891
additional units ($28,239,003 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 $1.0 million to upgrade our computer hardware and software;
o approximately $1.3 million to repay convertible debentures;
o approximately $1.0 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 $65,000 will be paid to each of Messrs. Bardenheuer and
Johnson as a one-time salary payment upon consummation of this offering;
o $55,000 will be paid to Mr. Seelbach in payment of a finder's fee in
connection with a prior transaction and accrued unpaid consulting fees and
salary;
o approximately $38,300 will be paid to each of Messrs. Bardenheuer and
Johnson for accrued and unpaid salary;
o $110,000 will be paid to Mr. Bardenheuer in repayment of a loan to us,
including interest;
o $55,000 will be paid to a shareholder that is affiliated with one of our
directors in repayment of a loan to us, including interest;
o the remaining approximately $11.5 million for working capital; including the
hiring of additional personnel.
Pending such uses, the net proceeds will be invested in short-term, interest
bearing securities. See "Risk Factors--Risks Related To This Offering--Our
Management Will Have Broad Discretion In The Use Of Proceeds And It 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.
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<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 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(2) .................................... 4.6875 2.50
Fourth Quarter(2) ................................... 4.00 2.50
Fiscal Year 2000 .......................................
First Quarter (through February 1, 2000)(2) ......... $ 3.75 $ 3.125
</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, $3.00 and $1.75, respectively, for
the fourth quarter and $2.75 and $2.00, respectively, for the first
quarter of 2000 (through February 1, 2000).
On February 1, 2000, the last reported bid price of our common stock in
the National Quotations Bureau LLC's Pink Sheets was $2.50. As of February 1,
2000, there were approximately 222 stockholders of record of our common stock.
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<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 December 31,
1999, and (2) pro forma, adjusted to reflect the sale of the units and warrants
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>
DECEMBER 31, 1999
------------------------------
ACTUAL PRO FORMA
-------------- ---------------
<S> <C> <C>
Total current debt obligations (1) .................................... $ 19,069 $ 19,069
============ ============
Other long-term liabilities (1) ....................................... $ 1,090,867 $ 240,000
------------ ------------
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 ........................................... 4,974,759 28,765,329
Retained earnings (accumulated deficit) .............................. (5,886,956) (5,886,956)
------------ ------------
Total stockholders' equity (deficit) ............................... (905,882) 22,888,688
------------ ------------
Total capitalization ............................................... $ 184,985 $ 23,128,688
============ ============
</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, of which options to purchase 1,037,400 shares of common
stock at exercise prices of $2.75 per share have been granted;
o 422,489 shares of common stock issuable upon exercise of the
representatives' warrants at an exercise price of 120% of the public
offering price of the units per share;
o 422,489 shares of common stock issuable upon exercise of 422,489
redeemable common stock purchase warrants issuable upon exercise of the
representatives' warrants at an assumed exercise price of 150% of the
public offering price of the units per share;
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; and
o 4,224,891 shares of common stock issuable upon exercise of the warrants.
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."
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<PAGE>
DILUTION
Our net tangible book value (deficit) at December 31, 1999 was
$(1,533,639), or $(.24) 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 units and warrants offered hereby at an assumed offering price of $7.00
per unit and $0.10 per warrant for the 224,891 warrants we are selling together
with 224,891 shares being sold by existing stockholders as 224,891 additional
units, and application of net proceeds therefrom, and assuming that all of the
offering price of such units is allocated to the common stock contained within
the units, our pro forma net tangible book value at December 31, 1999 would
have been approximately $22,888,687, or $2.22 per share. This represents an
immediate increase in net tangible book value per share of $2.46 to existing
stockholders and an immediate dilution of $4.69 per share to the investors
purchasing our units 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 unit .............................. $ 7.00
Net tangible book value (deficit) per share before offering ......... $ (0.24)
Increase per share attributable to new investors .................... 2.46
-------
Pro forma net tangible book value per share after offering .......... 2.22
-------
Dilution to new investors ........................................... $ 4.78
=======
</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
contained within the units offered hereby (assuming a public offering price of
$7.00 per unit and assuming that all of the offering price of such units is
allocated to the common stock contained within the units ):
<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% $ 3,845,863 12.1% $ 0.61
New Investors ................. 4,000,000 38.8% 28,022,489 87.9% $ 7.00
--------- ----- ----------- -----
Total ........................ 10,314,666 100.0% $31,868,352 100.0%
========== ===== =========== =====
</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, of which options to purchase 1,037,400 shares of common stock
at exercise prices of $2.75 per share have been granted;
o 422,489 shares of common stock issuable upon exercise of the
representatives' warrants at an exercise price of 120% of the public
offering price of the units per share; and
o 422,489 shares of common stock issuable upon exercise of 422,489 redeemable
common stock purchase warrants issuable upon exercise of the
representatives' warrants at an assumed exercise price of 150% of the
public offering price of the units per share;
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; and
o 4,224,891 shares of common stock issuable upon exercise of the warrants.
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."
27
<PAGE>
SELECTED FINANCIAL DATA
The following selected financial data as of and for the four-year period
ended December 31, 1999 is derived from our audited financial statements. The
selected financial data for the year ended December 31, 1995 is 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. 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 1999
-------------- ------------- --------------- --------------- ---------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales .............................. $ 453,273 $1,674,955 $ 5,010,027 $ 2,295,202 $ 1,004,636
Cost of sales .......................... 395,121 1,276,934 4,293,524 1,681,978 662,160
------------ ---------- ------------ ------------ ------------
Gross profit ........................... 58,152 398,021 716,503 613,224 342,476
------------ ---------- ------------ ------------ ------------
Operating expenses:
Administrative ....................... 230,097 654,009 570,500 518,546 1,104,074
Sales and marketing .................. 77,688 475,432 807,989 438,430 739,695
Technical ............................ -- 178,652 143,134 101,330 294,863
Stock-based compensation ............. -- -- -- -- 480,610
Depreciation and
amortization ........................ 3,454 19,568 53,651 105,860 222,491
------------ ---------- ------------ ------------ ------------
Total operating expenses ............. 311,239 1,327,661 1,575,274 1,164,166 2,841,733
------------ ---------- ------------ ------------ ------------
Loss from operations ................... (253,087) (929,640) (858,771) (550,942) (2,499,257)
Interest expense ....................... -- 1,154 58,568 90,436 618,791
------------ ---------- ------------ ------------ ------------
Net loss ............................... $ (253,087) $ (930,794) $ (917,339) $ (641,378) $ (3,118,048)
============ ========== ============ ============ ============
Net loss per share ..................... $ (0.08) $ (0.24) $ (0.24) $ (0.17) $ (0.60)
============ ========== ============ ============ ============
Common shares ........................... 3,055,525 3,875,000 3,875,000 3,875,000 5,157,964
============ ========== ============ ============ ============
DECEMBER 31,
------------------------------------------------------------------------------------
1995 1996 1997 1998 1999
------------- ---------- ------------ ------------ ------------
(UNAUDITED)
BALANCE SHEET DATA:
Cash ................................... $ 47,849 $ 71,260 $ 107,832 $ 7,565 80,542
Current assets ......................... 259,591 358,843 375,106 130,265 109,598
Current liabilities .................... 200,281 806,912 1,825,485 1,250,301 2,007,120
Working capital (deficit) .............. 59,310 (448,069) (1,450,379) (1,120,036) (1,897,522)
Long-term assets ....................... 40,296 294,714 311,539 549,088 2,082,507
Total assets ........................... 299,887 653,557 686,645 679,353 2,192,105
Long-term liabilities .................. -- 227,433 147,756 1,357,026 1,090,867
Stockholders' equity (deficit) ......... 99,606 (380,788) (1,286,596) (1,927,974) (905,882)
</TABLE>
28
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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.
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 retail 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 implemented our new Internet strategy in September 1998. 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.
As of the date of this prospectus, CallNOW.com is a Web-based provider of
telecommunications services in approximately 200 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 59% of our customers located in Europe, 16% in North
America, 13% in Latin America and 12% in the rest of the world.
In 1999, approximately 75% of our revenue was 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 1,500 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
29
<PAGE>
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.
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>
YEAR ENDED DECEMBER 31,
------------------------------------------------------
1998 % 1999 %
------------- -------- --------------- ---------
<S> <C> <C> <C> <C>
Net sales .............................. $2,295,202 100% $ 1,004,636 100%
Cost of sales .......................... 1,681,978 73% 662,160 66%
---------- --- ------------ ---
Gross profit ........................... 613,224 27% 342,476 34%
Operating expenses:
Administrative ........................ 518,546 23% 1,104,074 110%
Sales and marketing ................... 438,430 19% 739,695 74%
Technical ............................. 101,330 4% 294,863 29%
Stock-based finders' fees ............. -- -- 480,610 48%
Depreciation and amortization ......... 105,860 5% 222,491 22%
---------- --- ------------ ---
Total operating expenses ............ 1,164,166 51% 2,841,733 283%
---------- --- ------------ ---
Loss from operations ................... (550,942) -24% (2,499,257) -249%
Interest expense ....................... (90,436) -4% (618,791) -62%
---------- ---- ------------ ----
Net loss ............................... $ (641,378) -28% $ (3,118,048) -311%
========== === ============ ====
</TABLE>
30
<PAGE>
<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>
Fiscal Year ended December 31, 1999 Compared to Fiscal Year ended December
31, 1998
Revenue decreased $1,290,566, from $2,295,202 for the fiscal year ended
December 31, 1998 to $1,004,636 for the fiscal year ended December 31, 1999.
The decrease in revenue resulted from a shift in focus to selling our services
through the Internet and a corresponding de-emphasis of direct wholesale sales
and agent based retail sales. We ceased marketing of wholesale contracts and
phased out retail customers who did not pay directly by credit cards. Our
revenue from agent based retail customers declined from approximately
$1,268,000 in 1998 to approximately $324,000 in 1999 and our revenue from
wholesale sales declined from approximately $988,000 in 1998 to approximately
$164,000 in 1999. Our Internet based business increased from approximately
$38,000 in 1998 to approximately $516,000 in 1999. As a result, retail revenue
decreased as a percentage of total revenue from 55% in 1998 to 32% in 1999,
wholesale revenue decreased as a percentage of total revenue from 43% in 1998
to 16% in 1999, and Internet revenue increased as a percentage of total revenue
from 2% in 1998 to 51% in 1999.
Cost of revenue decreased $1,019,818, from $1,681,978 for the fiscal year
ended December 31, 1998 to $662,160 for fiscal year ended December 31, 1999
primarily as a result of lower revenue. As a percentage of revenue, these costs
decreased from approximately 73% in 1998 to approximately 66% in 1999. The
decrease in cost as a percentage of revenue in 1999 is primarily a result of a
one time settlement with a carrier for approximately $97,000. This decrease was
partially offset by approximately $40,000 in start up costs associated with the
Internet business. If both one time charges had not occurred, costs of revenue
as a percentage of revenue would have been approximately 72%.
Administrative expenses increased $585,528, from $518,546 for the fiscal
year ended December 31, 1998 to $1,104,074 for the fiscal year ended December
31, 1999. The increase in expenses in 1999 was due primarily to an increase in
use of outside consulting and professional services of approximately $300,000,
a reserve for litigation expense of $100,000, an increase in business insurance
of approximately $65,000, an increase in personnel costs of approximately
$55,000, and an increase in occupancy costs of approximately $50,000. As a
result of these increased administrative expenses, their proportion as a
percentage of total revenue increased from 23% in 1998 to 110% in 1999.
Sales and marketing expense increased $301,265, from $438,430 for the
fiscal year ended December 31, 1998 to $739,695 for the fiscal year ended
December 31, 1999. The increase was attributable to an increase in payroll
expenses of approximately $250,000, a decrease in commissions of approximately
$60,000, an increase in promotional costs attributable to our agreement with
Lycos- Bertelsmann of approximately $60,000 and an increase of approximately
$53,000 in bad debt. As a result of the increases in sales and marketing
expense and a decrease in revenues, sales and marketing expense as a percentage
of total revenue rose from 19% in 1998 to 74% in 1999.
31
<PAGE>
Technical expenses increased $193,533, from $101,330 for the fiscal year
ended December 31, 1998 to $294,863 for the fiscal year ended December 31,
1999. The increase was attributable to an increase in salary expense of
approximately $145,000, and an increase in cost of approximately $40,000 to
maintain the Telephone Directory Web site which was acquired in 1999. These
increases, plus the decrease in revenues, increased technical expenses as a
percentage of total revenue from 4% in 1998 to 29% in 1999.
We issued warrants to purchase 485,465 shares of our common stock in 1999
as finders' fees in connection with the business combination with American
Ostrich Corporation. We took a charge of $480,610 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.
Depreciation and amortization expense increased $116,631, from $105,860
for the fiscal year ended December 31, 1998 to $222,491 for the fiscal year
ended December 31, 1999. These costs increased primarily as a result of higher
amortization costs for our proprietary software.
Interest expense increased approximately $528,355, from $90,436 for the
fiscal year ended December 31, 1998 to $618,791 for the fiscal year ended
December 31, 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 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 issued in June 1999 resulted in an
additional interest charge of $392,750. We had a reduction in interest cost
related to long term debt and trade debt of approximately $27,000.
Our total net loss was $641,378 for the fiscal year ended December 31,
1998 compared to a net loss of $3,118,048 for the fiscal year ended December
31, 1999. We had a loss per share of $0.17 for the fiscal year ended December
31, 1998 compared to loss per share of $.60 for the fiscal year ended December
31, 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 ($1,268,460) increased as a percentage of total
revenue from 41% in 1997 to 55% in 1998 while wholesale traffic revenue
($988,433) decreased from 59% in 1997 to 43% in 1998. Approximately 2% of our
revenue in 1998 was generated from our Internet traffic ($38,309).
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 sales 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
32
<PAGE>
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 were primarily due to a reduction in personnel
because of the decline in revenues 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.
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 December 31, 1999, we
had a working capital deficit of $1,897,522. 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 twelve-month period ended December 31, 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 an outstanding loan in the
original aggregate principal amount of $100,000 of which approximately $7,600
is outstanding as of January 31, 2000. This loan bears interest at a rate of
12% and matures in March 2000. Also, we have a $100,000 loan from our Chief
Executive Officer which is repayable in the amount of $110,000 upon the
consummation of this offering with the proceeds of this offering. In addition,
ROPART Investments LLC, a stockholder that is affiliated with one of our
directors, loaned us $50,000 in January 2000. The loan is repayable in the
amount of $55,000 upon the consummation of this offering with the proceeds of
this offering. See "Use of Proceeds."
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,
33
<PAGE>
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 Cannot Predict Our Future Capital Needs And
We May Not Be Able To Secure Additional Financing."
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.
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.
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 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. Starting 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. We filed
an application for our units, shares and warrants to be included for quotation
on the Nasdaq National Market System under the symbols "CALNU", "CALN" and
"CALNW", respectively. However, we cannot assure you that we will be successful
in our efforts to list our units, shares and warrants on the Nasdaq National
Market System and may only trade on the Nasdaq SmallCap Market System, the OTC
Bulletin Board or in the National Quotation Bureau, LLC's Pink Sheets.
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
35
<PAGE>
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, 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. 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
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$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--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."
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:
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:
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[BAR CHART]
Regional Internet Growth
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.
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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. We anticipate that
the completion of these two new applications will cost approximately $100,000
and that these applications will be in commercial use in the second quarter of
2000.
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 the assets of 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
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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 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. Last year we 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 and 400,000 user sessions per month. We believe that Telephone
Directories on the Web will draw many potential subscribers to our Web site.
Currently, Telephone Directories on the Web is ranked first under
www.directhit.com's search results for telephone directories on the Internet
and is in the top three of the search results on www.google.com's listing of
telephone directories as well. 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
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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.
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.
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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 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 approximately 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 the second quarter of 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 the second quarter of 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.
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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, 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
1,500 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 recently
retained a consultant, Regrafco, S.A., to assist us in identifying affiliates
in Latin America as part of our business development activities. We have
various types of affiliates, such as:
Premier search engines and portals--Last year we 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. However, as of
the date of this prospectus, the links which would direct users of Lycos Japan
to our Web site are still being developed. Thus, the implementation of our
contract with Lycos Japan has not yet occurred, and no assurance can be made
when, if ever, such contract will be implemented. 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
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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.
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, with a currency converter;
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, is 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 on the ground that the
invention set forth in the claims is obvious from the prior art and, therefore,
not patentable. We have contested the rejection by amending the claims of our
application and presenting detailed arguments regarding the patentability of
our business process and software. The procedures established by the U.S.
Patent Laws and the Code of Federal Regulations require that our application be
reconsidered in the light of the amendments and arguments. 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
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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.
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.
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
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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.
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.
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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.
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
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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. The only country that still has a
temporary exemption is Greece and that exemption 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.
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
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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
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--If We Are Not
Permitted By Local Laws To Offer ReturnCall, Our Business Could Be Adversely
Affected."
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.
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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 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
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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 January 31, 2000, we had 18 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 was owed $194,672.40 by
us for "telecommunications services" provided by Viatel. We asserted
counterclaims against Viatel alleging that Viatel engaged in unjust and
unreasonable charges and/or practices in violation of the Communications Act.
We 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. We accrued the full amount of the claim. The matter was
arbitrated and an award was made in favor of us and Viatel. Viatel's claims and
award exceeded ours. The net result is that Viatel can seek a judgment (by
filing a Petition in the New York County Supreme Court) against us for
approximately $98,000 plus interest at 9% from November 19, 1999. Although
Viatel previously tried to obtain such an award, because of procedural errors,
its motion was voluntarily withdrawn without prejudice to file a subsequent
Petition. Viatel has so far not filed a new Petition.
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
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 February 2000, we entered into employment agreements with Messrs.
Bardenheuer and Johnson. Pursuant to the terms of those agreements, Mr.
Bardenheuer continues to be our Chairman and Chief Executive Officer and Mr.
Johnson continues to be our President. Each of the employment agreements is for
a two-year period and may be extended by mutual agreement. Each of the
employment agreements provides Mr. Bardenheuer and Mr. Johnson with an annual
salary of 120,000; provided however, that such salary increases to $180,000,
effective upon consummation of this offering and retroactive to January 1,
2000. In addition, each of Mr. Bardenheuer and Mr. Johnson may receive a bonus
of up to 20% of his salary.
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 February 2000, Mr. Seelbach's employment
agreement was amended to extend the term of the agreement until February 7,
2002.
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
54
<PAGE>
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 certain information with respect to
compensation paid to or earned by our Chief Executive Officer and other
executive officers whose salaries exceed $100,000 (collectively, the "Named
Officers"). For 2000, 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, 2000, and a bonus of up to 20% of their annual
salary. In addition, each will receive a one-time payment of $65,000 upon the
consummation of this offering from the proceeds of this offering. 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 1999 $ 115,000(1) -- -- 300,000 --
Chairman of the Board 1998 $ 98,000(2) -- -- -- --
of Directors and Chief 1997 $ 90,000(3) -- -- -- --
Executive Officer
Warner Johnson, Jr. 1999 $ 115,000(1) -- -- 300,000 --
President 1998 $ 98,000(2) -- -- -- --
1997 $ 90,000(3) -- -- -- --
Christopher Seelbach 1999 $ 60,000(4) -- -- 185,950 $50,000(5)
Chief Operating 1998 -- -- -- 96,875 $60,000(6)
Officer/Acting Chief 1997 -- -- -- --
Financial Officer
Martin Casanova 1999 $ 102,500 -- -- 45,000 --
Chief Technical Officer 1998 60,325 -- -- -- --
1997 75,035 -- -- -- --
</TABLE>
- ----------
(1) $7,500 of such salary was deferred and will be paid out of the net
proceeds from this offering.
(2) $15,500 of such salary was deferred and will be paid out of the net
proceeds from this offering.
(3) Approximately $15,300 of such salary was deferred and will be paid out of
the net proceeds from this offering.
(4) $5,000 of such salary was deferred and will be paid out of the net
proceeds from this offering.
(5) Compensation earned by Mr. Seelbach when he was a consultant to us.
$15,000 of such compensation was deferred and will be paid out of the net
proceeds of this offering.
(6) Compensation earned by Mr. Seelbach when he was a consultant to us.
$35,000 of such compensation, consisting of a finder's fee, has been
deferred and will be paid out of the net proceeds of this offering.
55
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information regarding options granted in
the last fiscal year to the Named Officers.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-------------------------------------
PERCENT OF
NUMBER OF TOTAL POTENTIAL REALIZABLE VALUE AT
SECURITIES OPTIONS ASSUMED ANNUAL RATES OF
UNDERLYING GRANTED TO STOCK PRICE APPRECIATION FOR
OPTIONS EMPLOYEES EXERCISE OR OPTION TERM
GRANTED IN FISCAL BASE PRICE EXPIRATION ------------------------------------
NAME (#) YEAR ($/SH) DATE 0% ($) 5% ($) 10% ($)
- --------------------------- ------------ ----------- ------------ ---------------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Christian Bardenheuer ..... 300,000 25.3% $ 2.75 September 2009 -- $518,838 $1,314,838
Warner Johnson, Jr. ....... 300,000 25.3% $ 2.75 September 2009 -- $518,838 $1,314,838
Christopher Seelbach ...... 96,875 8.2% $ 1.00 March 2004 $22,281 $ 28,437 $ 35,884
31,429 2.7% $ 0.80 March 2004 $10,372 $ 13,237 $ 16,704
870 0.1% $ 0.01 April 2004 $ 861 $ 1,099 $ 1,387
17,183 1.5% $ 1.39 June 2004 $23,369 $ 29,825 $ 37,636
5,000 0.4% $ 0.01 June 2004 $13,700 $ 17,485 $ 22,064
27,273 2.3% $ 2.75 July 2004 -- $ 20,721 $ 45,789
7,320 0.6% $ 2.75 September 2004 -- $ 5,562 $ 12,290
Martin Casanova ........... 45,000 3.8% $ 2.75 September 2009 -- $ 77,826 $ 197,226
</TABLE>
Our Board of Directors has adopted a stock option plan, which has been
approved by our stockholders, 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. See "--1999 Stock Option Plan."
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."
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT FISCAL IN-THE-MONEY OPTIONS
SHARES YEAR-END (#) AT FISCAL YEAR-END ($)(1)
ACQUIRED ON VALUE ----------------------------- ----------------------------
NAME EXERCISE (#) REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------- -------------- ------------- ------------- --------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Christian Bardenheuer ......... -- -- -- 300,000 -- --
Warner Johnson, Jr. ........... -- -- -- 300,000 -- --
Christopher Seelbach .......... -- -- 193,750 89,075 $193,750 59,878
Martin Casanova ............... -- -- -- 45,000 -- --
</TABLE>
- ----------
(1) Based on the difference between the option exercise price and the bid
price of $2.00 on December 31, 1999.
1999 STOCK OPTION PLAN
In September 1999, our Board of Directors adopted the 1999 Stock Option
Plan. The 1999 Plan was subsequently approved by our 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 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.
56
<PAGE>
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 1,037,400 shares of our common stock at
exercise prices of $2.75 per share, have been granted under the 1999 Plan.
57
<PAGE>
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 December 31, 1999, we owed Messrs. Bardenheuer and Johnson an
aggregate of approximately $77,000 for accrued and unpaid salary relating to
1997, 1998 and 1999. In addition, we
58
<PAGE>
owed Mr. Seelbach an aggregate of approximately $55,000 for accrued and unpaid
compensation relating to 1998 and 1999. We intend to pay the foregoing amounts
out of the net proceeds of this offering. For further information, see "Use of
Proceeds."
LOANS FROM OFFICERS
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.
Mr. Bardenheuer, our Chief Executive Officer, loaned us $100,000 in
January 2000. The loan is payable in the amount of $110,000 upon the
consummation of this offering with the proceeds of this offering.
ROPART Investments LLC, a stockholder that is affiliated with one of our
directors, loaned us $50,000 in January 2000. The loan is payable in the amount
of $55,000 upon the consummation of this offering with the proceeds of this
offering.
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, pursuant to our stock option plan. For further discussion of
options we have granted, see "Management--Options Grants In Last Fiscal Year."
59
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following tables set forth certain information, as of February 1, 2000
and as adjusted to reflect the sale of 4,000,000 shares of common stock as part
of the 4,000,000 units 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, and (4) the stockholders who are
selling shares in this offering as part of the 224,891 units (adjusted to
include the sale of their respective shares). 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), (2) ............ 969,539 15.35% 939,539 9.11%
Warner Johnson, Jr. (1), (2), (3) ......... 1,036,477 16.41% 1,006,477 9.76%
Christopher Seelbach (1), (4) ............. 193,750 2.98% 193,750 1.84%
Martin Casanova (1), (5) .................. 30,000 * 30,000 *
Todd A. Goergen (6)
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. (7)
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) (8) .................... 2,455,275 37.72% 2,395,275 22.79%
</TABLE>
60
<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 30,000 shares being sold as part of this offering of units.
(3) 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.
(4) Includes 193,750 shares of common stock which are issuable pursuant to
options exercisable within 60 days.
(5) Restricted shares which become vested in four semi-annual installments
commencing January 28, 2000.
(6) ROPART Investments LLC is the beneficial owner of 90,909 shares of common
stock and Mr. Goergen is a Manager of ROPART Investments LLC. Mr. Goergen
disclaims beneficial ownership of the shares of common stock held by
ROPART Investments LLC.
(7) Includes 126,818 shares being sold as part of this offering of units and
380,454 shares being registered by us for Upper Brook Ltd., but not
included in this offering.
(8) See footnotes 2 through 5 above.
- ----------
<TABLE>
<CAPTION>
SELLING STOCKHOLDERS
-------------------------------------------------------------------------
SHARES NUMBER OF SHARES
BENEFICIALLY SHARES TO BE BENEFICIALLY
NAME AND ADDRESS OF OWNED PRIOR TO SOLD IN OWNED AFTER THE
BENEFICIAL OWNER OFFERING OFFERING OFFERING
- --------------------------------- --------------------------- -------------- --------------------------
NUMBER PERCENTAGE NUMBER PERCENTAGE
------------ ------------ ------------ -----------
<S> <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 3.69%
Eden Capital Fund Limited
18 Upper Brook Street
London W1Y 1PD
England ........................ 38,182 * 9,546 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 *
Christian Bardenheuer
50 Broad Street
New York, NY 10004 ............. 969,539 15.35% 30,000 939,539 9.11%
Warner Johnson, Jr.
50 Broad Street
New York, NY 10004 ............. 1,036,477 16.41% 30,000 1,006,477 9.76%
</TABLE>
- ----------
* less than 1%
61
<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.
WARRANTS
The warrants will be issued in registered form under, governed by, and
subject to the terms of a warrant agreement between Atlas Stock Transfer
Corporation, as warrant agent, and us. We have authorized the issuance of
5,281,114 redeemable common stock purchase warrants, which includes 633,734
warrants comprising part of the units issuable pursuant to the underwriters'
over-allotment option and 422,489 warrants included in the units issuable upon
exercise of the representatives' warrants. We have also reserved an equivalent
number of shares of common stock for issuance upon exercise of these warrants.
Each warrant entitles the registered holder to purchase one share of our
common stock. The exercise period commences twelve months from the effective
date of the registration statement of which this prospectus forms a part and
terminates 48 months thereafter. The warrant exercise price is equal to 150% of
the public offering price of the units per share. The warrant exercise price
and the number of shares issuable upon exercise of the warrants are subject to
adjustment as described below.
Commencing eighteen months from the effective date of the registration
statement of which this prospectus forms a part, we may redeem your warrants at
$0.10 per warrant when the average closing sale price for our common stock
equals or exceeds 200% of the public offering price of the units for any twenty
trading days within a period of thirty consecutive trading days ending on the
fifth trading day prior to the date of the notice of redemption. You will have
the right to exercise your warrants until the close of business on the date
fixed for redemption. If we redeem any of the warrants, then we must redeem all
of the warrants remaining unexercised at the end of the redemption period.
The warrants contain provisions that protect against dilution by
adjustment of the exercise price and the number of shares issuable upon
exercise in some events. These events include, but are not limited to:
o stock dividends;
o stock splits;
o reclassifications;
o mergers; or
o a sale of substantially all of our assets.
We do not intend to issue fractional shares of common stock, but will
round any factional share to the nearest whole share. Holders of warrants will
not possess any rights as a shareholder. The shares of common stock, when
issued upon the exercise of the warrants in accordance with their terms, will
be validly issued, fully paid and non-assessable.
62
<PAGE>
The warrants will be exchangeable and transferable on our books at the
principal office of the warrant agent. Holders may exercise their warrants by
surrendering warrant certificates on or prior to the close of business on ,
2005, unless earlier redeemed as noted above, at the offices of the warrant
agent. A holder must complete and execute the form of "Election to Purchase" on
the reverse side of the warrant certificate and make payment of the full
exercise price for the number of warrants being exercised. The exercise price
must be paid by cash, or by bank check, certified check or money order payable
to the order of the warrant agent. After warrants are exercised they will
become completely void and of no value. If a market develops for the warrants,
the holder may sell the warrants instead of exercising them. There can be no
assurance, however, that a market for the warrants will develop or, if
developed, will be sustained. No amendment adversely affecting warrant holders'
rights may be made without the approval of the holders of a majority of the
then outstanding warrants.
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. However, the consummation of this offering will
accelerate our repayments to four equal monthly installments, provided the
debenture holder has so requested. 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
We have agreed to register 494,672 shares on behalf of existing
stockholders within 90 days of the consummation of this offering, but such
shares are subject to a lock-up agreement of 180 days following the effective
date of the registration statement of which this prospectus forms a part. In
addition, 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.
The holders of the representatives' warrants will have certain demand and
"piggyback" registration rights with respect to the shares of common stock
contained within the units issuable upon
63
<PAGE>
exercise of such representatives' warrants, the warrants contained within the
units exercisable upon exercise of such representatives' warrants, and with
respect to the shares of common stock issuable upon exercise of the warrants
contained within the units issuable upon exercise of such representatives'
warrants. The representatives' warrants contain anti-dilution provisions
providing for automatic adjustments of the exercise price and the number of
units issuable on exercise of the representatives' warrants upon the occurrence
of certain events, including stock dividends, stock splits, mergers,
acquisitions and recapitalizations. 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 our securities, the market and market prices for our securities may be
materially adversely affected, and holders thereof may be unable to sell or
otherwise dispose of their securities. 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
64
<PAGE>
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.
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
units, common stock and warrants on the Nasdaq National Market System under the
symbols "CALNU", "CALN", and "CALNW", respectively.
TRANSFER AGENT
Atlas Stock Transfer Corporation, 5899 South State Street, Murray, Utah
84107, is the Transfer Agent for our common stock.
65
<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 5,818,595 shares, including the 4,224,891
shares offered hereby, will be freely tradable without restriction or further
registration under the Securities Act. The remaining 4,990,743 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. Also, we have agreed to
register 494,672 shares on behalf of existing stockholders within 90 days of
the consummation of this offering, but such shares are subject to a lock-up
agreement of 180 days following the effective date of the registration
statement of which this prospectus forms a part.
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 have agreed with the representatives of the underwriters to use our
best efforts to have all of our officers and directors, all holders of
restricted shares of our common stock, all holders of our options and all
holders of other convertible securities of ours agree not to sell for a period
of 180 days after the effective date of the registration statement of which
this prospectus forms a part without the prior written consent of the
representatives of the underwriters, and to agree to make any sale of our
securities owned by them through the representatives of the underwriters for a
period of twelve months following the effective date of such registration
statement. In addition, we have agreed not to sell or offer for sale any of our
securities for cash at less than the greater of the public offering price of
the units or the then market price of the units for a period of twelve months
following the effective date of such registration statement, except for
pursuant to the exercise of options existing on the date hereof, as adjusted
for stock splits and consolidations, without the prior written consent of the
representatives of the underwriters.
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.
66
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in the underwriting
agreement between ourselves and the underwriters named below, we and the
selling stockholders have agreed to sell an aggregate of 4,224,891 units
(including 224,891 shares of common stock on behalf of the selling stockholders
as part of the units) to the underwriters named below, for whom Dirks &
Company, Inc. and Nolan Securities Corporation are acting as the
representatives, and the underwriters have severally agreed to purchase the
number of units 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 UNITS
- -------------------------------------------- ----------------
<S> <C>
Dirks & Company, Inc. .................
Nolan Securities Corporation ..........
Total ................................. 4,224,891
=========
</TABLE>
The provides that the obligation of the
underwriters to purchase the units is subject to certain conditions. The
underwriters are committed to purchase all of the units, other than those units
covered by the over-allotment option described below, if any are purchased.
The underwriters propose to offer the units 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 unit.
The underwriters may allow, and such dealers may reallow, discounts not in
excess of $ per unit; and the underwriters may allow, and such dealers may
reallow, a concession of not more than $ per unit 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 of the underwriters.
We have also granted to the underwriters, exercisable for 45 days from the
date of this prospectus, an option to purchase up to 633,734 additional units
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 units 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 units.
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 422,489 units. The representatives' warrants
will be exercisable for a period of forty-eight months, commencing twelve
months after the effective date of the registration statement of which this
prospectus forms a part, at an initial exercise price equal to 120% of the
public offering price of the units per share. The representatives' warrants are
not redeemable by us under any circumstances. The representatives' warrants
will contain anti-dilution provisions for appropriate adjustment of the
exercise price and number of units 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
representatives' warrants grant to the holders thereof certain demand and
piggyback registration rights for securities issuable upon exercise thereof.
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
units offered hereby less a $50,000 advance on such expense allowance
previously paid by us to a predecessor of the underwriters. We have also agreed
to pay certain expenses in connection with this offering, including expenses in
connection with qualifying the units offered hereby for sale under the laws of
such states as the Underwriters may designate and the placement of tombstone
advertisements.
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.
67
<PAGE>
We have agreed to grant to Dirks & Company, Inc., one of the
representatives of the underwriters, a right of first refusal for a period of
three years after the effective date of the registration statement of which
this prospectus forms a part for any sale of our securities by us. We have also
agreed to grant Dirks the right to designate for election one person to our
board of directors for a period of five years after such effective date. In the
event Dirks elects not to exercise such right, then it may designate one person
to attend our board of directors meetings. Such person shall be entitled to
attend all such meetings and to receive all notices and other correspondence
and communications sent by us to members of our board of directors. We have
agreed to reimburse designees of Dirks for their out-of-pocket expenses
incurred in connection with their attendance of our board of directors
meetings.
We have agreed with the representatives of the underwriters to use our
best efforts to have all of our officers and directors, all holders of
restricted shares of our common stock, all holders of our options and all
holders of other convertible securities of ours agree not to sell for a period
of 180 days after the effective date of the registration statement of which
this prospectus forms a part without the prior written consent of the
representatives of the underwriters, and to agree to make any sale of our
securities owned by them through the representatives of the underwriters for a
period of twelve months following the effective date of such registration
statement. In addition, we have agreed not to sell or offer for sale any of our
securities for cash at less than the greater of the public offering price of
the units or the then market price of the units for a period of twelve months
following the effective date of such registration statement, except for
pursuant to the exercise of options existing on the date hereof, as adjusted
for stock splits and consolidations, without the prior written consent of the
representatives of the underwriters.
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 units will be
determined by negotiation between us, the selling stockholders and the
representatives of the underwriters. 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 units 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 units or underlying common stock and
warrants. Such price is subject to change as a result of market conditions and
other factors, and the units may not be able to be resold at the offering
price.
During and after this offering, the underwriters may purchase and sell
common stock and warrants 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 units sold in the offering
for their account may be reclaimed by the syndicate if such units are
repurchased by the syndicate in stabilizing or covering transactions. These
activities may stabilize, maintain or otherwise affect the market price of the
units 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 units. 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.
LEGAL MATTERS
The validity of the shares offered hereby will be passed upon by Stairs
Dillenbeck Finley & Merle, New York, New York and Swidler Berlin Shereff
Friedman, LLP has acted as regulatory counsel to us in connection with certain
matters. Certain legal matters in connection with the offering will be passed
upon for the Underwriters by Orrick, Herrington & Sutcliffe LLP, New York, New
York.
68
<PAGE>
EXPERTS
Our financial statements and schedules as of December 31, 1999 and 1998
and for each of the three years in the period ended December 31, 1999, 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.
On March 30, 1999, we dismissed Ernst & Young LLP as our independent
public accountants and auditors, a capacity in which that firm had served for
approximately one and one-half years, and selected Horton & Company, LLC to
replace Ernst & Young in this role. The decision to dismiss our accountants and
auditors was approved by our full Board of Directors.
During the fiscal year ended December 31, 1996 and the subsequent period
through March 30, 1999, the date on which Ernst & Young was dismissed as our
independent public accountants and auditors, there were no disagreements
between us and Ernst & Young on any matter relating to accounting principles or
practices, financial statement disclosure, or auditing scope or procedures,
which if not resolved to Ernst & Young's satisfaction would have caused it to
make reference to the subject matter of disagreement in connection with its
report. In addition, Ernst & Young'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.
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.
69
<PAGE>
CALLNOW.COM, INC. AND SUBSIDIARY
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
------------
<S> <C>
Independent Auditors' Report .......................................... F-2
Consolidated balance sheets as of December 31, 1998 and 1999 .......... F-3
Consolidated statements of operations for the years ended
December 31, 1997, 1998 and 1999 ..................................... F-4
Consolidated statements of stockholders' deficit for the years ended
December 31, 1997, 1998 and 1999 ..................................... F-5
Consolidated statements of cash flows for the years ended
December 31, 1997, 1998 and 1999 ..................................... F-6
Notes to consolidated financial statements ............................ F-7 -- F-20
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
CallNOW.com, Inc. and subsidiary
New York, New York
We have audited the accompanying consolidated balance sheets of CallNOW.com,
Inc. and subsidiary as of December 31, 1998 and 1999, and the related
consolidated statements of operations, stockholders' deficit and cash flows for
each of the three years in the period ended December 31, 1999. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our 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 consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
CallNOW.com, Inc. and subsidiary at December 31, 1998 and 1999, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1999, 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.
February 2, 2000
Wayne, New Jersey
F-2
<PAGE>
CALLNOW.COM, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------
1998 1999
--------------- ---------------
<S> <C> <C>
ASSETS
Current assets:
Cash ........................................................... $ 7,565 $ 80,542
Accounts receivable, net of allowances of $6,000 in 1998,
and $5,000 in 1999 ........................................... 122,700 29,056
------------ ------------
Total current assets .......................................... 130,265 109,598
Property and equipment, net of accumulated depreciation ......... 512,303 1,085,744
Other assets .................................................... 36,785 996,763
------------ ------------
Total assets .................................................. $ 679,353 $ 2,192,105
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Current portion of long-term debt .............................. $ 128,688 $ 19,069
Accounts payable and accrued expenses .......................... 1,034,382 1,988,051
Loan payable-officer ........................................... 87,231 --
------------ ------------
Total current liabilities ..................................... 1,250,301 2,007,120
Long-term debt, net of current portion ......................... 19,069 --
Other long-term liabilities .................................... 1,337,957 1,090,867
------------ ------------
Total liabilities ............................................. 2,607,327 3,097,987
------------ ------------
Stockholders' deficit:
Common stock, $.001 per value
50,000,000 shares authorized
3,875,000 shares issued and outstanding in 1998
6,314,666 shares issued and outstanding in 1999 .............. 3,875 6,315
Additional paid-in capital ...................................... 837,059 4,974,759
Accumulated deficit ............................................. (2,768,908) (5,886,956)
------------ ------------
Total stockholders' deficit ................................... (1,927,974) (905,882)
------------ ------------
Total liabilities and stockholders' deficit ................... $ 679,353 $ 2,192,105
============ ============
</TABLE>
See notes to consolidated financial statements
F-3
<PAGE>
CALLNOW.COM, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------
1997 1998 1999
------------- ------------- ---------------
<S> <C> <C> <C>
Net sales .......................................... $5,010,027 $2,295,202 $ 1,004,636
Cost of sales ...................................... 4,293,524 1,681,978 662,160
---------- ---------- ------------
Gross profit ....................................... 716,503 613,224 342,476
---------- ---------- ------------
Operating expenses:
Administrative .................................... 570,500 518,546 1,104,074
Sales and marketing ............................... 807,989 438,430 739,695
Technical ......................................... 143,134 101,330 294,863
Stock-based finders' fees ......................... -- -- 480,610
Depreciation and amortization ..................... 53,651 105,860 222,491
---------- ---------- ------------
Total operating expenses ......................... 1,575,274 1,164,166 2,841,733
---------- ---------- ------------
Loss from operations ............................... (858,771) (550,942) (2,499,257)
Interest expense ................................... (58,568) (90,436) (618,791)
---------- ---------- ------------
Net loss ........................................... $ (917,339) $ (641,378) $ (3,118,048)
========== ========== ============
Net loss per share ................................. $ (0.24) $ (0.17) $ (0.60)
========== ========== ============
Weighted average common shares outstanding ......... 3,875,000 3,875,000 5,157,964
========== ========== ============
</TABLE>
See notes to consolidated financial statements
F-4
<PAGE>
CALLNOW.COM, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
---------------------- PAID-IN ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT TOTAL
----------- -------- ------------- ---------------- --------------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1997, as
restated for reverse acquisition
accounting .......................... 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)
Shares issued during 1999 ............ 2,439,666 2,440 4,137,700 -- 4,140,140
Net loss ............................. -- -- -- (3,118,048) (3,118,048)
--------- ------ ---------- ------------ ------------
Balance at December 31, 1999 ......... 6,314,666 $6,315 $4,974,759 $ (5,886,956) $ (905,882)
========= ====== ========== ============ ============
</TABLE>
See notes to consolidated financial statements
F-5
<PAGE>
CALLNOW.COM, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------
1997 1998 1999
-------------- -------------- ----------------
<S> <C> <C> <C>
Net loss ................................................ $ (917,339) $ (641,378) $ (3,118,048)
---------- ---------- ------------
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization ........................ 53,651 105,860 222,491
Bad debts ............................................ 197,109 59,458 77,224
Stock-based compensation ............................. 11,531 -- 53,194
Stock-based finders' fees ............................ -- -- 480,610
Interest charges arising from discounts on
convertible debentures .............................. -- -- 552,543
Changes in operating assets and liabilities: .........
Accounts receivable ................................. (176,800) 85,116 16,420
Other assets ........................................ 36,538 (3,081) 13,579
Prepaid advertising ................................. -- -- (342,800)
Accounts payable .................................... 906,593 (549,794) 978,669
Other long-term liabilities ......................... (56,762) 1,137,957 (597,090)
Total adjustments ................................... 971,860 835,516 1,454,840
Net cash provided by (used in) operating
activities ....................................... 54,521 194,138 (1,663,208)
---------- ---------- ------------
Cash flows from investing activities:
Capital expenditures ................................... (168,556) (140,328) (363,432)
Deferred offering costs ................................ -- -- (584,996)
---------- ---------- ------------
Net cash used in investing activities ............. (168,556) (140,328) (948,428)
---------- ---------- ------------
Cash flows from financing activities:
Proceeds from long-term debt financing ............... 100,000 -- --
Principal payments on loan obligations ............... (38,040) (114,203) (128,688)
Proceeds from officer loans (repayments) ............. 88,647 (39,874) (87,231)
Proceeds from issuance of convertible debt ........... -- -- 979,000
Proceeds from issuance of stock ...................... -- -- 1,921,532
---------- ---------- ------------
Net cash provided by (used in) financing
activities ....................................... 150,607 (154,077) 2,684,613
---------- ---------- ------------
Net increase (decrease) in cash ......................... 36,572 (100,267) 72,977
Cash, beginning of period ............................... 71,260 107,832 7,565
---------- ---------- ------------
Cash, end of period ..................................... $ 107,832 $ 7,565 $ 80,542
========== ========== ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid ..................................... $ 32,430 $ 75,193 $ 45,072
========== ========== ============
</TABLE>
See notes to consolidated financial statements
F-6
<PAGE>
CALLNOW.COM, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1998 AND 1999
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) have been
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. Proforma 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, proforma results of
operations for the years ended December 31, 1997, 1998 and 1999, would be no
different than the historical statements of operations presented herewith.
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-sized businesses and
individuals. In addition, the Company has been involved in wholesale
arrangements with accounts in France and Hong Kong.
F-7
<PAGE>
CALLNOW.COM, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1998 AND 1999 (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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. The Company generates business from Europe (approximately 59%),
North America (approximately 16%), Latin America (approximately 13%) and Asia
and the rest of the world (approximately 12%).
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, 1997, 1998 and 1999. 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
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:
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 detail reports
o Automatic monthly invoicing to customers via e-mail
F-8
<PAGE>
CALLNOW.COM, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1998 AND 1999 (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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, 1999, the Company had accounts receivable from two
customers which represented 38% and 15% of the accounts receivable at that
date. At December 31, 1998, the Company had accounts receivable from one
customer which represented 18% of the accounts receivable balance at that date.
During 1999, one customer represented approximately 14% of the Company's
revenues. 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.
GEOGRAPHIC INFORMATION
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-9
<PAGE>
CALLNOW.COM, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1998 AND 1999 (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------
1997 1998 1999
-------- -------- -------
<S> <C> <C> <C>
United States ................................... 3% 4% 6%
Honduras ........................................ 12% 9% 10%
France .......................................... 9% 6% 6%
Germany ......................................... 3% 6% 9%
Austria ......................................... 2% 8% 7%
Other foreign countries (each under 7%) ......... 71% 67% 62%
-- -- --
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>
YEARS ENDED DECEMBER 31,
-------------------------------------
1997 1998 1999
------ ------------- ------------
<S> <C> <C> <C>
Property and equipment purchased ......... $-- $ 340,328 $ 795,932
Long-term liability incurred ............. -- (200,000) (350,000)
Stock issued ............................. -- -- (82,500)
--- ---------- ----------
Capital expenditures ..................... $-- $ 140,328 $ 363,432
=== ========== ==========
</TABLE>
During the year ended December 31, 1999, convertible debentures of
$979,000 were converted into 972,247 shares of the Company's common stock.
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-10
<PAGE>
CALLNOW.COM, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1998 AND 1999 (CONTINUED)
2. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1998 1999
------------ --------------
<S> <C> <C>
Telecommunications equipment ........... $ 132,778 $ 200,223
Software ............................... 541,411 1,239,010
Office furniture and equipment ......... 21,057 51,946
---------- ----------
695,246 1,491,179
Less accumulated depreciation .......... (182,943) (405,435)
---------- ----------
Net property and equipment ............. $ 512,303 $1,085,744
========== ==========
</TABLE>
3. OTHER ASSETS
Other assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1998 1999
--------- -----------
<S> <C> <C>
Deferred offering costs ......... $ -- $584,996
Prepaid advertising ............. -- 342,800
Other ........................... 36,785 68,967
------- --------
$36,785 $996,763
======= ========
</TABLE>
Prepaid advertising costs are amortized as advertising services are
provided. See Note 8.
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,
----------------------
1998 1999
---------- ---------
<S> <C> <C>
Note to a finance company, payable in monthly
installments of $7,750, including principal and
interest through January 2000 .................... $ 94,033 $ 7,673
Note to a finance company, payable in monthly
installments of $3,875, including interest at 12%,
through March 2000 ............................... 53,724 11,396
-------- -------
147,757 19,069
Less current portion ............................... 128,688 19,069
-------- -------
$ 19,069 $ --
======== =======
</TABLE>
F-11
<PAGE>
CALLNOW.COM, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1998 AND 1999 (CONTINUED)
4. LONG-TERM DEBT (CONTINUED)
As of December 31, 1999, maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
- ----------------
<S> <C>
2000 ......... $19,069
=======
</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,
---------------------------
1998 1999
------------- -------------
<S> <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 July 2001. $ 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 during August 1999. 629,203 --
Payable to a trade creditor under a $576,300 credit line. This trade
payable was exchanged for a long-term convertible debenture
during August 1999. 576,297 --
5% convertible debentures. Interest only is payable through March
2000. Thereafter, principal is payable in 30 equal monthly
installments plus interest. -- 1,276,300
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. -- 300,000
---------- ----------
1,405,500 2,016,300
Less: current portion included in accounts payable 67,543 925,433
---------- ----------
$1,337,957 $1,090,867
========== ==========
</TABLE>
In the event that the Company raises a minimum of $5,000,000 in debt or
equity, the holders of the convertible debentures have the right to have its
debt and accumulated interest paid in four equal
F-12
<PAGE>
CALLNOW.COM, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1998 AND 1999 (CONTINUED)
5. OTHER LONG-TERM LIABILITIES (CONTINUED)
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 each creditor's option.
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 year ended
December 31, 1999, the Company recorded a charge to interest expense of $34,208
related to such discount, leaving a balance in the deferred charge of $42,761.
At December 31, 1999, estimated maturities of other long-term liabilities
are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
- ----------------
<S> <C>
2000 ......... $ 925,433
2001 ......... 629,270
2002 ......... 384,097
2003 ......... 77,500
----------
$2,016,300
==========
</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 was repaid
during 1999. Interest and other expenses incurred by the Company in connection
with this loan totaled $26,137, $12,093 and $5,141 for 1997, 1998 and 1999,
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 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 received 10,000 shares of the
Company's common stock in lieu of a $25,000 payment.
F-13
<PAGE>
CALLNOW.COM, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1998 AND 1999 (CONTINUED)
7. STOCKHOLDERS' DEFICIT (CONTINUED)
CONVERTIBLE DEBENTURES
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 year ended December 31, 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 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. In addition, because the debentures are convertible
at a discount to the market price of the Company's stock, there is an
additional discount of $119,750. These discounts were recorded as a charge to
interest expense during the year ended December 31, 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 private
placement transactions which raised a total of $402,597.
OPTIONS GRANTED TO CONSULTANT
Through April 1999, the consultant described in Note 8 was granted options
to purchase 226,049 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 weighed 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 $31,570 for the year ended December 31, 1999. A
summary of options granted to the consultant, are as follows:
F-14
<PAGE>
CALLNOW.COM, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1998 AND 1999 (CONTINUED)
7. STOCKHOLDERS' DEFICIT (CONTINUED)
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
DATE OF DATE OPTIONS EXERCISE
GRANT VESTED GRANTED 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 December 31, 1999 226,049
=======
Options exercisable at
December 31, 1999 ..................... 183,750
-------
Weighed average fair value of
options granted during the year
ended December 31, 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 was subsequently approved 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-15
<PAGE>
CALLNOW.COM, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1998 AND 1999 (CONTINUED)
7. STOCKHOLDERS' DEFICIT (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. During 1999, options to purchase 998,400 shares of the Company's
common stock at exercise prices of $2.75 per share were granted under the 1999
Plan. Such grants 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 year ended December 31, 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
October 1999 ........................ -- 11,400 $ 2.75
December 1999 ....................... -- 29,000 $ 2.75
------ -------
Outstanding at December 31, 1999 ......... 56,776 998,400
====== =======
</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-16
<PAGE>
CALLNOW.COM, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1998 AND 1999 (CONTINUED)
7. STOCKHOLDERS' DEFICIT (CONTINUED)
the vesting period. Compensation cost arising from such grants totaled $21,624
for the year ended December 31, 1999. The Company has adopted the
disclosure-only provisions of Statement of Financial Accounting Standards No.
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 year ended December 31, 1999, would have been revised to
the pro forma amounts shown below.
<TABLE>
<S> <C>
Net loss:
As reported ............. $3,118,048
Pro forma ............... $3,168,460
Loss per share:
As reported ............. $ (0.60)
Pro forma ............... $ (0.61)
</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.
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 year ended December 31, 1999.
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>
2000 .............. $ 56,250 $ 42,503
2001 .............. 56,250 38,983
2002 .............. 18,750 21,575
-------- --------
$131,250 $103,061
======== ========
</TABLE>
Total rental expense for all operating leases totaled $71,068, $77,534 and
$76,854 for the years ended December 31, 1997, 1998 and 1999, 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.
F-17
<PAGE>
CALLNOW.COM, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1998 AND 1999 (CONTINUED)
8. COMMITMENTS AND CONTINGENCIES (CONTINUED)
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.
The Company has accounted for the fair value of the options issued to the
consultant in accordance with 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 7.
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 support and maintenance services.
LEGAL PROCEEDINGS
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 proposed 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. The individual 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 that 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.
During 1998, a telephone carrier which had provided services to the
Company, commenced an arbitration proceeding alleging that it was owed $194,672
for telecommunication services. The full
F-18
<PAGE>
CALLNOW.COM, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1998 AND 1999 (CONTINUED)
8. COMMITMENTS AND CONTINGENCIES (CONTINUED)
amount of the claim had been accrued by the Company. The Company asserted
counterclaims alleging that the carrier had engaged in unjust and unreasonable
charges. In November 1999, the matter was arbitrated. The result of the
arbitration was that the net amount owed to the telephone carrier was reduced
to approximately $98,000. The decrease in the accrual was recorded as a
reduction of cost of sales in 1999.
TELECOMMUNICATION SERVICES
The Company routinely enters into agreements with long distance carriers
to provide telecommunication services to the Company for its customer traffic
at specified rates. Such agreements are typically short-term in duration and
automatically renewable.
ADVERTISING AGREEMENTS
Prepaid advertising costs arise from an agreement entered into in June
1999 with a company that operates as an Internet portal and search engine. The
agreement provides that such company will periodically place banners,
promotional buttons, text links and other hyperlinks from its home pages and
web guides to CallNOWS's Web site. Under the terms of the agreement, such
company guarantees a minimum of 120 million "visits." The agreement specified
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 August 1999.
During the year ended December 31, 1999, the Company received approximately
17.1 million "visits" or 14.3% of the guaranteed total. Therefore, advertising
expense of $57,200, representing 14.3% of the total cost of the agreement, was
recognized.
During May 1999, the Company entered into an agreement with a Japanese
affiliate of the same company that operates as an Internet portal and search
engine 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 over an eighteen-month
period, without interest, commencing 30 days after the effective date. As of
the date of this report, the links which would direct users to CallNOW's Web
site were still being developed, including translation into Japanese.
Therefore, the agreement is not yet effective.
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 or 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 successful completion of the Company's public offering for so long as the
employee is both the Chief Operating Officer and the Acting Chief
F-19
<PAGE>
CALLNOW.COM, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1998 AND 1999 (CONTINUED)
8. COMMITMENTS AND CONTINGENCIES (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. During February 2000, this
term of this agreement was extended through February 2002.
EXECUTIVE COMPENSATION
During February 2000, the Company entered into employment agreements with
its Chairman/Chief Executive Officer and its President. Each of the employment
agreements is for a two-year period and may be extended by mutual agreement.
The agreements provide each of the officers with an annual salary of $120,000;
provided however, that such salaries increase to $180,000, effective upon
consummation of the Company's registration statement and retroactive to January
1, 2000. In addition, each officer may receive a bonus of up to 20% of his
salary. In addition, the officers will receive a payment of $65,000 each upon
completion of the Company's proposed public offering of the registration
statement. Such payments will be recorded as additional compensation in 2000.
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.
ASSET ACQUISITION
During May 1999, the Company acquired the assets of a global, online
telephone directory known as "Telephone Directories on the Web" ("TDW"). TDW
operates as a free web site that enables users to locate international,
national and local telephone numbers. The Company believes that such web site
will draw additional customers to the Company's services. The transaction was
accounted for as an acquisition of assets.
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, 1998 and 1999. Deferred tax assets arising
from net operating loss carryforwards have been reduced to zero through
valuation allowances.
10. SUBSEQUENT EVENTS
During January 2000, the Company borrowed $100,000 from its Chief
Executive Officer. The loan is payable in the amount of $110,000 upon the
completion of the Company's public offering.
F-20
<PAGE>
CALLNOW.COM, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1998 AND 1999 (CONTINUED)
10. SUBSEQUENT EVENTS (CONTINUED)
During January 2000, the Company borrowed $50,000 from a shareholder that
is affiliated with one of the Company's directors. The loan is payable in the
amount of $55,000 upon the completion of the Company's public offering.
During January 2000, the Company entered into an agreement with a
Columbian corporation to provide business development services in Latin
America. The agreement is for a one-year period ending in January 2001.
Compensation for such services consists of options to purchase 50,000 shares of
the Company's common stock at an exercise price of $2.75 per share. Such
options are exercisable at any time within seven years and vest 50% upon
signing of the agreement and 50% six months thereafter.
F-21
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
WE HAVE NOT AUTHORIZED ANY DEALER, SALESPERSON OR OTHER PERSON TO GIVE
ANY INFORMATION OR REPRESENT ANYTHING NOT CONTAINED IN THIS PROSPECTUS. YOU
MUST NOT RELY ON ANY UNAUTHORIZED INFORMATION. THIS PROSPECTUS
DOES NOT OFFER TO SELL OR BUY ANY SHARES IN
ANY JURISDICTION WHERE IT IS UNLAWFUL. THE INFORMATION IN THIS PROSPECTUS IS
CURRENT ONLY
AS OF THE DATE OF THIS PROSPECTUS.
-----------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Prospectus Summary .......................... 3
Risk Factors ................................ 9
Use of Proceeds ............................. 24
Price Range of Our Common Stock ............. 25
Dividend Policy ............................. 26
Capitalization .............................. 26
Dilution .................................... 27
Selected Financial Data ..................... 28
Management's Discussion and Analysis of
Financial Condition and Results of
Operations ............................... 29
Business .................................... 35
Management .................................. 52
Related Party Transactions .................. 58
Principal and Selling Stockholders .......... 60
Description of Securities ................... 62
Shares Eligible for Future Sale ............. 66
Underwriting ................................ 67
Legal Matters ............................... 68
Experts ..................................... 69
Additional Information ...................... 69
Financial Statements ........................ F-1
</TABLE>
-----------------------------------
UNTIL , 2000 (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.
[LOGO]
CALLNOW.COM, INC.
4,224,891 UNITS
(EACH UNIT CONSISTING OF
ONE SHARE OF COMMON STOCK
AND ONE REDEEMABLE COMMON
STOCK PURCHASE WARRANT)
--------------------------------------------
PROSPECTUS
--------------------------------------------
DIRKS & COMPANY, INC.
NOLAN SECURITIES CORPORATION
2000
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<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) ................................ $ 28,064.00
N.A.S.D. Filing Fee (1) .................................... 11,129.83
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 unit.
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 Agreement, including Representative's Warrant
Certificate.
4.6 Form of Warrant Agreement, including Warrant Certificate.**
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.*
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.).
</TABLE>
II-3
<PAGE>
<TABLE>
<S> <C>
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 Forval Telecom,
Inc. and Registrant.*
10.17 1999 Stock Option Plan.*
10.18 Agreement, made and entered into as of September 30, 1999 between Be Free, Inc. and the
Registrant.
10.19 Employment Agreement, dated as of August 9, 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 9, 1999 by and between Christopher R.
Seelbach and the Registrant.*
10.26a Amendment, dated February 7, 2000, to Employment Agreement between Christopher R.
Seelbach and the Registrant.
10.27 Master Services Agreement, made effective October 29, 1999 between Exodus
Communications, Inc. and the Registrant.
10.28 Carrier Service Agreement, entered into as of November 5, 1999, between Equinox
International LLC and the Registrant.
10.29 Employment Agreement, dated February 7, 2000, between Christian Bardenheuer and the
Registrant.
10.30 Employment Agreement, dated February 7, 2000, between Warner R. Johnson, Jr. and the
Registrant.
16 Letters re: Change in Certifying Accountant From Ernst & Young LLP and the Registrant*
21 Subsidiaries.*
23.1 Consent of Horton & Company, L.L.C. (included on page II-7)
23.2 Consent of Stairs Dillenbeck Finley & Merle (included in Exhibit 5.1).
23.3 Independent Auditors' Report on Other Financial Information.
24 Power of Attorney.*
27 Financial Data Schedule for year ended December 31.
</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. 2 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 8th DAY OF FEBRUARY, 2000.
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. 2 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, February 8, 2000
- --------------------------- Chief Executive Officer and Director
Christian Bardenheuer (Principal Executive Officer)
/s/ Christopher R. Seelbach Chief Operating Officer, Acting Chief February 8, 2000
- --------------------------- Financial Officer and Director
Christopher R. Seelbach (Principal Financial and Accounting
Officer)
* President and Director February 8, 2000
---------------------------
Warner R. Johnson, Jr.
* Director February 8, 2000
---------------------------
Edward Cabot
* Director February 8, 2000
---------------------------
Todd A. Goergen
* Director February 8, 2000
---------------------------
Robert S. Tolmach, Jr.
By: /s/ Christian Bardenheuer
-------------------------
Attorney-in-fact
</TABLE>
II-6
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
CallNOW.com, Inc. and Subsidiary
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 February 2, 2000
relating to the consolidated financial statements of CallNOW.com Inc. and
Subsidiary, 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
February 7, 2000
II-7
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- -------- --------------------------------------------------------------------------------------------
<S> <C>
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 Agreement, including Representative's Warrant
Certificate.
4.6 Form of Warrant Agreement, including Warrant Certificate.**
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.*
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.).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ---------- -----------------------------------------------------------------------------------------
<S> <C>
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 Forval Telecom,
Inc. and Registrant.*
10.17 1999 Stock Option Plan.*
10.18 Agreement, made and entered into as of September 30, 1999 between Be Free, Inc. and the
Registrant.
10.19 Employment Agreement, dated as of August 9, 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 9, 1999 by and between Christopher R.
Seelbach and the Registrant.*
10.26a Amendment, dated February 7, 2000, to Employment Agreement between Christopher R.
Seelbach and the Registrant.
10.27 Master Services Agreement, made effective October 29, 1999 between Exodus
Communications, Inc. and the Registrant.
10.28 Carrier Service Agreement, entered into as of November 5, 1999, between Equinox
International LLC and the Registrant.
10.29 Employment Agreement, dated February 7, 2000, between Christian Bardenheuer and the
Registrant.
10.30 Employment Agreement, dated February 7, 2000, between Warner R. Johnson, Jr. and the
Registrant.
16 Letters re: Change in Certifying Accountant From Ernst & Young LLP and the Registrant*
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- -------- -----------------------------------------------------------------------
<S> <C>
21 Subsidiaries.*
23.1 Consent of Horton & Company, L.L.C. (included on page II-8)
23.2 Consent of Stairs Dillenbeck Finley & Merle (included in Exhibit 5.1).
23.3 Independent Auditors' Report on Other Financial Information.
24 Power of Attorney.*
27 Financial Data Schedule for year ended December 31.
</TABLE>
- ----------
* Previously filed
** To be filed by amendment.
<PAGE>
4,224,891 UNITS, EACH UNIT CONSISTING OF
ONE SHARE OF COMMON STOCK AND
ONE REDEEMABLE WARRANT
CALLNOW.COM, INC.
UNDERWRITING AGREEMENT
New York, New York
___________, 2000
DIRKS & COMPANY, INC.
NOLAN SECURITIES CORPORATION
As Representatives of the
Several Underwriters listed
on Schedule A hereto
520 Madison Avenue, 10th Floor
New York, New York 10022
Ladies and Gentlemen:
CallNOW.com, Inc., a Delaware corporation (the "Company"), and the
persons named in Schedule B hereto (the "Selling Stockholders"), confirm their
agreement with Dirks & Company, Inc. ("Dirks"), Nolan Securities Corporation
("Nolan") and each of the several underwriters named in Schedule A hereto
(collectively, the "Underwriters," which term shall also include any underwriter
substituted as hereinafter provided in Section 12) for whom Dirks and Nolan are
acting as representatives (in such capacity, Dirks and Nolan shall be
collectively hereinafter referred to as "you" or the "Representatives"), with
respect to the sale by the Company and the Selling Stockholders, and the
purchase by the Underwriters, acting severally and not jointly, of the
respective number of units (the "Units") set forth in Schedule A hereto. Each
Unit consists of one (1) share of the Company's common stock, $.001 par value
(the "Common Stock") and one (1) redeemable warrant (the "Redeemable Warrants").
The shares of Common Stock issuable upon exercise of the Redeemable Warrants are
hereinafter referred to as the "Warrant Shares." 4,000,000 Units will be issued
and sold by the Company. With respect to the additional 224,891 Units, the
224,891 shares of Common Stock underlying such Units are to sold by the Selling
Stockholders and the 224,891 Redeemable Warrants underlying such Units are to be
sold by the Company. The 4,224,891 Units are collectively hereinafter referred
to as the "Firm Units." Each Selling Stockholder has executed and delivered a
Custody Agreement and a Power of Attorney (collectively, the "Custody Agreement
and Power of Attorney") pursuant to which each Selling Stockholder has placed
his Common Stock in
<PAGE>
custody and appointed the persons designated therein with authority to execute
and deliver this Agreement on behalf of such Selling Stockholder and to take
certain other actions with respect thereto and hereto.
Each Redeemable Warrant is exercisable for one share of Common Stock.
The Common Stock and Redeemable Warrants comprising the Units will be separately
tradeable twelve (12) months after the effective date (the "Effective Date") of
the Registration Statement (as defined herein), or such earlier date as the
Company and the Representatives may agree. The Redeemable Warrants are
exercisable commencing twelve (12) months after the Effective Date. The initial
exercise price of the Redeemable Warrants is $___ per share [150% of the initial
public offering price of the Firm Units per share of common stock], subject to
adjustment. The Redeemable Warrants may be redeemed by the Company, in whole,
and not in part, at a redemption price of ten cents ($.10) per Redeemable
Warrant at any time commencing eighteen (18) months after the Effective Date on
30 days' prior written notice provided that the average closing sales price of
the Common Stock equals or exceeds 200% of the initial public offering price of
the Units (subject to adjustment) for any twenty (20) trading days within a
period of thirty (30) consecutive trading days ending on the fifth day prior to
the date of the notice of redemption, all in accordance with the terms and
conditions of the Warrant Agreement (defined herein).
Upon the Representatives' request, as provided in Section 3(b) of this
Agreement, the Company shall also issue and sell to the Underwriters up to an
additional 633,733 Units for the purpose of covering over-allotments, if any.
Such 633,733 Units are hereinafter collectively referred to as the "Option
Units." The Company also proposes to issue and sell to the Representatives or
their designees warrants (the "Representatives' Warrants"), pursuant to the
representatives' warrant agreement (the "Representatives' Warrant Agreement"),
for the purchase of an additional 422,489 Units. The common stock purchase
warrants issuable upon exercise of the Representatives' Warrants are hereinafter
sometimes referred to herein as the "Representatives' Underlying Warrants." The
shares of Common Stock issuable upon exercise of the Representatives' Warrants
and the shares of Common Stock issuable upon exercise of the Representatives'
Underlying Warrants are hereinafter collectively referred to as the
"Representatives' Shares." The Representatives' Underlying Warrants and the
Representative's Shares are sometimes referred to herein as the
"Representatives' Securities."
The Firm Units, the Option Units, the Representatives' Warrants, the
Representatives' Underlying Warrants, the Representatives' Shares, the
Redeemable Warrants and the Warrant Shares are hereinafter collectively referred
to as the "Securities" and are more fully described in the Registration
Statement and the Prospectus referred to below.
1. Representations and Warranties of the Company. The Company
represents and warrants to, and covenants and agrees with, the Underwriters as
of the date hereof, and as of the Closing Date (hereinafter defined) and each
Option Closing Date (hereinafter defined), if any, as follows:
(a) The Company has prepared and filed with the Securities and Exchange
Commission (the "Commission") a registration statement, and amendments thereto,
on Form S-1 (Registration No. 333-88065), including any related preliminary
prospectus or prospectuses (each a "Preliminary Prospectus"), for the
registration of the Securities, under the Securities Act of 1933, as
2
<PAGE>
amended (the "Act"), which registration statement and amendment or amendments
have been prepared by the Company in conformity with the requirements of the
Act, and the rules and regulations of the Commission under the Act. The Company
will not file any other amendment to such registration statement which the
Representatives shall have objected to in writing after having been furnished
with a copy thereof. Except as the context may otherwise require, such
registration statement, as amended, on file with the Commission at the time it
becomes effective (including the prospectus, financial statements, schedules,
exhibits and all other documents filed as a part thereof or incorporated therein
(including, but not limited to, those documents or that information incorporated
by reference therein) and all information deemed to be a part thereof as of such
time pursuant to paragraph (b) of Rule 430A of the rules and regulations under
the Act), is hereinafter called the "Registration Statement," and the form of
prospectus in the form first filed with the Commission pursuant to Rule 424(b)
of the rules and regulations under the Act is hereinafter called the
"Prospectus." For purposes hereof, "Rules and Regulations" mean the rules and
regulations adopted by the Commission under either the Act or the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), as applicable.
(b) Neither the Commission nor any state regulatory authority has
issued any order preventing or suspending the use of any Preliminary Prospectus,
the Registration Statement or the Prospectus or any part of any thereof and no
proceedings for a stop order suspending the effectiveness of the Registration
Statement or any of the Company's securities have been instituted or are pending
or threatened. Each of the Preliminary Prospectus, the Registration Statement
and the Prospectus, at the time of filing thereof, conformed with the
requirements of the Act and the Rules and Regulations, and none of the
Preliminary Prospectus, the Registration Statement nor the Prospectus, at the
time of filing thereof, contained an untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading; provided, however, that this representation and warranty
does not apply to statements made in reliance upon and in conformity with
written information furnished to the Company with respect to the Underwriters by
or on behalf of the Underwriters or relating to any Selling Stockholder
furnished in writing to the Company by such Selling Stockholder expressly for
use in such Preliminary Prospectus, the Registration Statement or the
Prospectus. The Company has filed all reports, forms or other documents required
to be filed under the Act and the Exchange Act and the respective Rules and
Regulations thereunder, and all such reports, forms or other documents, when so
filed or as subsequently amended, complied in all material respects with the Act
and the Exchange Act and the respective Rules and Regulations thereunder.
(c) When the Registration Statement becomes effective and at all times
subsequent thereto up to the Closing Date and each Option Closing Date, if any,
and during such longer period as the Prospectus may be required to be delivered
in connection with sales by the Underwriters or a dealer, the Registration
Statement and the Prospectus will contain all statements which are required to
be stated therein in accordance with the Act and the Rules and Regulations, and
will conform to the requirements of the Act and the Rules and Regulations; and,
at and through such dates, neither the Registration Statement nor the
Prospectus, nor any amendment or supplement thereto, will contain any 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, in light of the
circumstances in which they were made, not misleading; provided, however, that
this representation
3
<PAGE>
and warranty does not apply to statements made or statements omitted in reliance
upon and in conformity with written information furnished to the Company with
respect to the Underwriters or relating to any Selling Stockholder furnished in
writing to the Company by such Selling Stockholder expressly for use in the
Registration Statement or the Prospectus or any amendment thereof or supplement
thereto.
(d) The Company has been duly organized and is validly existing as a
corporation in good standing under the laws of the jurisdiction of its
incorporation. The Company is duly qualified and licensed and in good standing
as a foreign corporation in each jurisdiction in which its ownership or leasing
of any properties or the character of its operations require such qualification
or licensing. The Company does not own, directly or indirectly, an interest in
any corporation, partnership, trust, joint venture or other business entity. The
Company has all requisite power and authority (corporate and other), and has
obtained any and all necessary authorizations, approvals, orders, licenses,
certificates, franchises and permits of and from all governmental or regulatory
officials and bodies (including, without limitation, those having jurisdiction
over environmental or similar matters), to own or lease its properties and
conduct its business as described in the Prospectus; the Company is and has been
doing business in compliance in with all such authorizations, approvals, orders,
licenses, certificates, franchises and permits and with all federal, state,
local and foreign laws, rules and regulations to which it is subject; and the
Company has not received any notice of proceedings relating to the revocation or
modification of any such authorization, approval, order, license, certificate,
franchise or permit which, singly or in the aggregate, if the subject of an
unfavorable decision, ruling or finding, would materially and adversely affect
the condition, financial or otherwise, or the earnings, prospects, stockholders'
equity, value, operations, properties, business or results of operations of the
Company. The disclosure in the Registration Statement concerning the effects of
federal, state, local and foreign laws, rules and regulations on the Company's
business as currently conducted and as contemplated are correct in all respects
and do not omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances in which
they were made, not misleading.
(e) The Company has a duly authorized, issued and outstanding
capitalization as set forth in the Prospectus under "Capitalization" and
"Description of Securities" and will have the adjusted capitalization set forth
therein on the Closing Date and the Option Closing Date, if any, based upon the
assumptions set forth therein, and the Company is not a party to or bound by any
instrument, agreement or other arrangement providing for it to issue any capital
stock, rights, warrants, options or other securities, except for this Agreement,
the Representatives' Warrant Agreement and the Warrant Agreement (as defined in
Section 1(gg) hereof of this Agreement) and as described in the Prospectus. The
Securities and all other securities issued or issuable by the Company on or
prior to the Closing Date and each Option Closing Date, if any, conform or, when
issued and paid for, will conform, in all respects to the descriptions thereof
contained in the Registration Statement and the Prospectus. All issued and
outstanding securities of the Company have been duly authorized and validly
issued and are fully paid and non-assessable; the holders thereof have no rights
of rescission with respect thereto and are not subject to personal liability by
reason of being such holders; and none of such securities were issued in
violation of the preemptive rights of any holder of any security of the Company
or any similar contractual right granted by the Company. The Securities to be
sold by the Company hereunder and pursuant to the
4
<PAGE>
Representatives' Warrant Agreement and the Warrant Agreement are not and will
not be subject to any preemptive or other similar rights of any stockholder,
have been duly authorized and, when issued, paid for and delivered in accordance
with the terms hereof and thereof, will be validly issued, fully paid and
non-assessable and conform to the descriptions thereof contained in the
Prospectus; the holders thereof will not be subject to any liability solely as
such holders; all corporate action required to be taken for the authorization,
issue and sale of the Securities has been duly and validly taken; and the
certificates representing the Securities, when delivered by the Company, will be
in due and proper form. Upon the issuance and delivery pursuant to the terms
hereof and the Representatives' Warrant Agreement and the Warrant Agreement of
the Securities to be sold by the Company hereunder and thereunder to the
Underwriters, the Underwriters will acquire good and marketable title to such
Securities, free and clear of any lien, charge, claim, encumbrance, pledge,
security interest, defect or other restriction or equity of any kind whatsoever
asserted against the Company or any affiliate (within the meaning of the Rules
and Regulations) of the Company.
(f) The financial statements of the Company and the notes thereto
included in the Registration Statement, each Preliminary Prospectus and the
Prospectus fairly present the financial position, income, changes in cash flow,
changes in stockholders' equity and the results of operations of the Company at
the respective dates and for the respective periods to which they apply. Such
financial statements have been examined by Horton & Company, L.L.C., who are
independent certified public accountants within the meaning of the Act and the
Rules and Regulations, as indicated in their reports filed herewith. Such
financial statements have been prepared in conformity with generally accepted
accounting principles and the Rules and Regulations, consistently applied
throughout the periods involved. There has been no change or development
involving a material adverse prospective change in the condition, financial or
otherwise, or in the earnings, position, prospects, stockholders' equity, value,
operations, properties, business or results of operations of the Company,
whether or not arising in the ordinary course of business, since the date of the
financial statements included in the Registration Statement and the Prospectus;
and the outstanding debt, the property, both tangible and intangible, and the
business of the Company conform in all respects to the descriptions thereof
contained in the Registration Statement and the Prospectus. The financial
information (including, without limitation, any pro forma financial information)
set forth in the Prospectus under the headings "Prospectus Summary,"
"Capitalization," "Selected Financial Data" and "Management's Discussion and
Analysis of Results of Operations and Financial Condition" fairly presents, on
the basis stated in the Prospectus, the information set forth therein and such
financial information has been derived from or compiled on a basis consistent
with that of the audited financial statements included in the Prospectus; and in
the case of pro forma information, if any, the assumptions used in the
preparation thereof are reasonable and the adjustments used therein are
appropriate to give effect to the transactions and circumstances referred to
therein.
(g) The Company (i) has paid all federal, state, local and foreign
taxes for which it is liable, including, but not limited to, withholding taxes
and amounts payable under Chapters 21 through 24 of the Internal Revenue Code of
1986, as amended (the "Code"), and has furnished all information returns it is
required to furnish pursuant to the Code, (ii) has established adequate reserves
for such taxes which are not due and payable, and (iii) does not have any tax
deficiency or claims outstanding, proposed or assessed against it.
5
<PAGE>
(h) No transfer tax, stamp duty or other similar tax is payable by or
on behalf of the Underwriters in connection with (i) the issuance by the Company
of the Securities, (ii) the purchase by the Underwriters of the Securities from
the Company, (iii) the consummation by the Company of any of its obligations
under this Agreement or the Representatives' Warrant Agreement, or (iv) resales
of the Securities in connection with the distribution contemplated hereby.
(i) The Company maintains insurance policies, including, but not
limited to, general liability, property, personal and product liability
insurance, and surety bonds which insure the Company and its employees against
such losses and risks generally insured against by comparable businesses. The
Company (i) has not failed to give notice or present any insurance claim with
respect to any matter, including but not limited to the Company's business,
property or employees, under any insurance policy or surety bond in a due and
timely manner, (ii) does not have any disputes or claims against any underwriter
of such insurance policies or surety bonds, nor has the Company failed to pay
any premiums due and payable thereunder, or (iii) has not failed to comply with
all conditions contained in such insurance policies and surety bonds. There are
no facts or circumstances under any such insurance policy or surety bond which
would relieve any insurer of its obligation to satisfy in full any valid claim
of the Company.
(j) There is no action, suit, proceeding, inquiry, arbitration,
investigation, litigation or governmental proceeding (including, without
limitation, those pertaining to environmental or similar matters), domestic or
foreign, pending or threatened against (or circumstances that may give rise to
the same), or involving the properties or business of, the Company which (i)
questions the validity of the capital stock of the Company, this Agreement, the
Representatives' Warrant Agreement or the Warrant Agreement or of any action
taken or to be taken by the Company pursuant to or in connection with this
Agreement, the Representatives' Warrant Agreement or the Warrant Agreement, (ii)
is required to be disclosed in the Registration Statement which is not so
disclosed (and such proceedings as are summarized in the Registration Statement
are accurately summarized in all respects), or (iii) might materially and
adversely affect the condition, financial or otherwise, earnings, prospects,
stockholders' equity, value, operations, properties, business or results of
operations of the Company.
(k) The Company has full legal right, power and authority to authorize,
issue, deliver and sell the Securities, to enter into this Agreement, the
Representatives' Warrant Agreement and the Warrant Agreement and to consummate
the transactions provided for in such agreements; and each of this Agreement,
the Representatives' Warrant Agreement and the Warrant Agreement have been duly
and properly authorized, executed and delivered by the Company. Each of this
Agreement, the Representatives' Warrant Agreement and the Warrant Agreement
constitutes a legal, valid and binding agreement of the Company, enforceable
against the Company in accordance with its terms. None of the Company's issue
and sale of the Securities, execution or delivery of this Agreement, the
Representatives' Warrant Agreement or the Warrant Agreement, its performance
hereunder and thereunder, its consummation of the transactions contemplated
herein and therein, or the conduct of its business as described in the
Registration Statement and the Prospectus and any amendments or supplements
thereto, conflicts with or will conflict with or results or will result in any
breach or violation of any of the terms or provisions of, or constitutes or will
constitute a default under, or result in the creation or imposition of any lien,
charge, claim,
6
<PAGE>
encumbrance, pledge, security interest, defect or other restriction or equity of
any kind whatsoever upon, any property or assets (tangible or intangible) of the
Company pursuant to the terms of (i) the articles of incorporation or by-laws of
the Company, (ii) any license, contract, indenture, mortgage, lease, deed of
trust, voting trust agreement, stockholders' agreement, note, loan or credit
agreement or other agreement or instrument evidencing an obligation for borrowed
money, or any other agreement or instrument to which the Company is a party or
by which it is or may be bound or to which its properties or assets (tangible or
intangible) are or may be subject, or (iii) any statute, judgment, decree,
order, rule or regulation applicable to the Company of any arbitrator, court,
regulatory body or administrative agency or other governmental agency or body
(including, without limitation, those having jurisdiction over environmental or
similar matters), domestic or foreign, having jurisdiction over the Company or
any of its activities or properties.
(l) No consent, approval, authorization or order of, and no filing
with, any arbitrator, court, regulatory body, administrative agency, government
agency or other body, domestic or foreign, is required for the issuance of the
Securities pursuant to the Prospectus and the Registration Statement, this
Agreement, the Representatives' Warrant Agreement and the Warrant Agreement, the
performance of this Agreement, the Representatives' Warrant Agreement and the
Warrant Agreement and the transactions contemplated hereby and thereby,
including without limitation, any waiver of any preemptive right, first refusal
or other rights that any entity or person may have for the issue and/or sale of
any of the Securities, except such as have been obtained under the Act, state
securities laws and the rules of the National Association of Securities Dealers,
Inc. (the "NASD") in connection with the Underwriters' purchase and distribution
of the Securities.
(m) All executed agreements, contracts or other documents or copies of
executed agreements, contracts or other documents filed as exhibits to the
Registration Statement to which the Company is a party or by which it may be
bound or to which any of its assets, properties or business may be subject have
been duly and validly authorized, executed and delivered by the Company, and
constitute legal, valid and binding agreements of the Company, enforceable
against the Company in accordance with their respective terms. The descriptions
in the Registration Statement of agreements, contracts and other documents are
accurate and fairly present the information required to be shown with respect
thereto by Form S-1; and there are no agreements, contracts or other documents
which are required by the Act to be described in the Registration Statement or
filed as exhibits to the Registration Statement which are not described or filed
as required; and the exhibits which have been filed are complete and correct
copies of the documents of which they purport to be copies.
(n) Subsequent to the respective dates as of which information is set
forth in the Registration Statement and the Prospectus, and except as may
otherwise be indicated or contemplated herein or therein, the Company has not
(i) issued any securities or incurred any liability or obligation, direct or
contingent, for borrowed money, (ii) entered into any transaction other than in
the ordinary course of business, or (iii) declared or paid any dividend or made
any other distribution on or in respect of any class of its capital stock; and,
subsequent to such dates, and except as may otherwise be disclosed in the
Prospectus, there has not been any change in the capital stock, debt (long or
short term) or liabilities of the Company or any material adverse change in the
condition, financial or otherwise, earnings, prospects, stockholders' equity,
value, operations, properties, business or results of operations of the Company.
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(o) No default exists in the due performance and observance of any
term, covenant or condition of any license, contract, indenture, mortgage,
installment sale agreement, lease, deed of trust, voting trust agreement,
partnership agreement, stockholders' agreement, note, loan or credit agreement
or any other agreement or instrument evidencing an obligation for borrowed
money, or any other agreement or instrument to which the Company is a party or
by which the Company is or may be bound or to which the property or assets
(tangible or intangible) of the Company is or may be subject.
(p) The Company has generally enjoyed a satisfactory employer-employee
relationship and the Company is in compliance with all federal, state, local and
foreign laws, rules and regulations respecting employment, employment practices,
terms and conditions of employment and wages and hours. There are no pending
investigations involving the Company by the United States Department of Labor or
any other governmental agency responsible for the enforcement of any federal,
state, local or foreign laws, rules and regulations relating to employment.
There is no unfair labor practice charge or complaint against the Company
pending before the National Labor Relations Board or any strike, picketing,
boycott, dispute, slowdown or stoppage pending or threatened against or
involving the Company, or any predecessor entity, and none has ever occurred. No
representation question exists respecting the employees of the Company, and no
collective bargaining agreement or modification thereof is currently being
negotiated by the Company. No grievance or arbitration proceeding is pending
under any expired or existing collective bargaining agreements of the Company.
No labor dispute with the employees of the Company exists or is imminent.
(q) The Company does not maintain, sponsor or contribute to any program
or arrangement that is an "employee pension benefit plan," an "employee welfare
benefit plan" or a "multiemployer plan," as such terms are defined in Sections
3(2), 3(l) and 3(37), respectively, of the Employee Retirement Income Security
Act of 1974, as amended ("ERISA") ("ERISA Plans"). The Company does not maintain
or contribute, now or at any time previously, to a defined benefit plan, as
defined in Section 3(35) of ERISA. No ERISA Plan (or any trust created
thereunder) has engaged in a "prohibited transaction" within the meaning of
Section 406 of ERISA or Section 4975 of the Code which could subject the Company
to any tax penalty on prohibited transactions and which has not adequately been
corrected. Each ERISA Plan is in compliance with all reporting, disclosure and
other requirements of the Code and ERISA as they relate to any such ERISA Plan.
Determination letters have been received from the Internal Revenue Service with
respect to each ERISA Plan which is intended to comply with Code Section 401(a),
stating that such ERISA Plan and the attendant trust are qualified thereunder.
The Company has never completely or partially withdrawn from a "multiemployer
plan."
(r) Neither the Company nor any of its employees, directors,
stockholders or affiliates (within the meaning of the Rules and Regulations),
has taken or will take, directly or indirectly, any action designed to or which
has constituted or which might be expected to cause or result in, under the
Exchange Act or otherwise, the stabilization or manipulation of the price of any
security of the Company, whether to facilitate the sale or resale of the
Securities or otherwise.
(s) None of the trademarks, trade names, service marks, service names,
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copyrights, patents and patent applications, and none of the licenses and rights
to the foregoing, presently owned or held by the Company are in dispute or are
in conflict with the right of any other person or entity. The Company (i) owns
or has the right to use, free and clear of all liens, charges, claims,
encumbrances, pledges, security interests, defects or other restrictions or
equities of any kind whatsoever, all trademarks, trade names, service marks,
service names, copyrights, patents and patent applications, and licenses and
rights with respect to the foregoing, used in the conduct of its business as now
conducted or proposed to be conducted without infringing upon or otherwise
acting adversely to the right or claimed right of any person, corporation or
other entity under or with respect to any of the foregoing and (ii) is not
obligated or under any liability whatsoever to make any payments by way of
royalties, fees or otherwise to any owner or licensee of, or other claimant to,
any trademark, trade name, service mark, service name, copyright, patent, patent
application, know how, technology or other intangible asset. There is no action,
suit, proceeding, inquiry, arbitration, investigation, litigation or
governmental or other proceeding, domestic or foreign, pending or threatened (or
circumstances that may give rise to the same) against the Company which
challenges the exclusive rights of the Company with respect to any trademarks,
trade names, service marks, service names, copyrights, patents, patent
applications or licenses or rights to the foregoing used in the conduct of its
business, or which challenge the right of the Company to use any technology
presently used or contemplated to be used in the conduct of its business.
(t) The Company owns and has the unrestricted right to use all trade
secrets, know-how (including all unpatented and/or unpatentable proprietary or
confidential information, systems or procedures), inventions, technology,
designs, processes, works of authorship, computer programs and technical data
and information that are material to the development, manufacture, operation and
sale of all products and services sold or proposed to be sold by the Company,
free and clear of and without violating any right, lien, or claim of others,
including, without limitation, former employers of its employees.
(u) The Company has good and marketable title to, or valid and
enforceable leasehold estates in, all items of real and personal property stated
in the Prospectus to be owned or leased by it, free and clear of all liens,
charges, claims, encumbrances, pledges, security interests, defects or other
restrictions or equities of any kind whatsoever, other than liens for taxes not
yet due and payable.
(v) Horton & Company, L.L.C., whose reports are filed with the
Commission as a part of the Registration Statement, are independent certified
public accountants as required by the Act and the Rules and Regulations.
(w) All officers and directors and holders of "restricted" securities
of the Company have executed an agreement (collectively, the "Lock-Up
Agreements") pursuant to which he, she or it has agreed (i) for a period
extending 180 days following the effective date of the Registration Statement,
not to, directly or indirectly, offer, offer to sell, sell, grant an option for
the purchase or sale of, transfer, assign, pledge, hypothecate or otherwise
encumber (whether pursuant to Rule 144 of the Rules and Regulations or
otherwise) any securities issued or issuable by the Company, whether or not
owned by or registered in the name of such persons, or dispose of any interest
therein, without the prior written consent of the Representatives and the
Company, and (ii) for a period extending twelve (12) months following the
Effective Date, that all sales of such
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securities issued by the Company shall be made through the Representatives in
accordance with their customary brokerage policies. The Company will cause its
transfer agent to mark an appropriate legend on the face of stock certificates
representing all of such securities and place "stop transfer" orders on the
Company's stock ledgers.
(x) There are no claims, payments, issuances, arrangements or
understandings, whether oral or written, for services in the nature of a
finder's or origination fee with respect to the sale of the Securities hereunder
or any other arrangements, agreements, understandings, payments or issuances
that may affect the Underwriters' compensation, as determined by the NASD.
(y) The Units, the Common Stock, and the Redeemable Warrants have been
approved for quotation on The Nasdaq National Market.
(z) Neither the Company nor any of its directors, officers,
stockholders, employees, agents or any other person acting on behalf of the
Company has, directly or indirectly, given or agreed to give any money, gift or
similar benefit (other than legal price concessions to customers in the ordinary
course of business) to any customer, supplier, employee or agent of a customer
or supplier, or any official or employee of any governmental agency (domestic or
foreign) or instrumentality of any government (domestic or foreign) or any
political party or candidate for office (domestic or foreign) or any other
person who was, is or may be in a position to help or hinder the business of the
Company (or assist the Company in connection with any actual or proposed
transaction) which (i) might subject the Company or any other such person to any
damage or penalty in any civil, criminal or governmental litigation or
proceeding (domestic or foreign), (ii) if not given in the past, might have had
a material and adverse effect on the condition, financial or otherwise, or the
earnings, business affairs, prospects, stockholders' equity, value, operations,
properties, business or results of operations of the Company, or (iii) if not
continued in the future, might materially and adversely affect the condition,
financial or otherwise, or the earnings, business affairs, prospects,
stockholders' equity, value, operations, properties, business or results of
operations of the Company. The Company's internal accounting controls are
sufficient to cause the Company to comply with the Foreign Corrupt Practices Act
of 1977, as amended.
(aa) The Company confirms as of the date hereof that it is in
compliance with all provisions of Section 1 of Laws of Florida, Chapter 92-198,
An Act Relating to Disclosure of Doing Business with Cuba, and the Company
further agrees that if it or any affiliate commences engaging in business with
the government of Cuba or with any person or affiliate located in Cuba after the
date the Registration Statement becomes or has become effective with the
Commission or with the Florida Department of Banking and Finance (the
"Department"), whichever date is later, or if the information reported or
incorporated by reference in the Prospectus, if any, concerning the Company's,
or any affiliate's, business with Cuba or with any person or affiliate located
in Cuba changes in any material way, the Company will provide the Department
notice of such business or change, as appropriate, in a form acceptable to the
Department.
(bb) Except as set forth in the Prospectus, no officer, director or
stockholder of the Company, and no affiliate or associate (as these terms are
defined in the Rules and Regulations) of any of the foregoing persons or
entities, has or has had, either directly or indirectly, (i) an interest in any
person or entity which (A) furnishes or sells services or products which are
furnished or sold
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<PAGE>
or are proposed to be furnished or sold by the Company, or (B) purchases from or
sells or furnishes to the Company any goods or services, or (ii) a beneficial
interest in any contract or agreement to which the Company is a party or by
which the Company may be bound. Except as set forth in the Prospectus under
"Certain Transactions," there are no existing agreements, arrangements,
understandings or transactions, or proposed agreements, arrangements,
understandings or transactions, between or among the Company and any officer,
director or any person listed in the "Principal Stockholders" section of the
Prospectus or any affiliate or associate of any of the foregoing persons or
entities.
(cc) The minute books of the Company have been made available to the
Underwriters, contain a complete summary of all meetings and actions of the
directors and stockholders of the Company since the time of its incorporation,
and reflect all transactions referred to in such minutes accurately in all
respects.
(dd) Except and to the extent described in the Prospectus, no holder of
any securities of the Company or of any options, warrants or other convertible
or exchangeable securities of the Company has the right to include any
securities issued by the Company in the Registration Statement or any
registration statement to be filed by the Company or to require the Company to
file a registration statement. No person or entity holds any anti-dilution
rights with respect to any securities of the Company.
(ee) Any certificate signed by any officer of the Company and delivered
to the Representatives or to Underwriters' Counsel (as defined in Section 5(d)
herein), shall be deemed a representation and warranty by the Company to the
Underwriters as to the matters covered thereby.
(ff) The Company has as of the effective date of the Registration
Statement (i) entered into employment agreements with Christian Bardenheuer,
Warner R. Johnson, Jr. and Christopher R. Seelbach, in the forms filed as
Exhibits to the Registration Statement on terms and conditions reasonably
satisfactory to the Representatives and (ii) purchased "key-man" life insurance
on Mr. Bardenheuer and Mr. Johnson, of which the Company is the sole
beneficiary, on terms and conditions reasonably satisfactory to the
Representatives.
(gg) The Company has entered into a warrant agreement, substantially in
the form filed as Exhibit __ to the Registration Statement (the "Warrant
Agreement"), with Atlas Stock Transfer Corporation, in form and substance
satisfactory to the Representatives, with respect to the Redeemable Warrants and
providing for the payment of warrant solicitation fees contemplated therein. The
Warrant Agreement has been duly and validly authorized by the Company and,
assuming due execution by the parties thereto other than the Company,
constitutes a valid and legally binding agreement of the Company, enforceable
against the Company in accordance with its terms (except as such enforceability
may be limited by applicable bankruptcy, insolvency, reorganization, moratorium
or other laws of general application relating to or affecting the enforcement of
creditors' rights and the application of equitable principles in any action,
legal or equitable, and except as obligations to indemnify or contribute to
losses may be limited by applicable law).
(hh) The Company has filed a Form 8-A with the Commission providing for
the
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registration under the Exchange Act of the Securities and such Form 8-A has been
declared effective by the Commission.
2. Representations and Warranties of the Selling Stockholders. Each
Selling Stockholder, severally and not jointly, represents, warrants and
covenants to each Underwriter that:
(a) Such Selling Stockholder has full power and authority to enter into
this Agreement and the Custody Agreement and Power of Attorney. All
authorizations and consents necessary for the execution and delivery by such
Selling Stockholder of the Custody Agreement and Power of Attorney, and for the
execution of this Agreement on behalf of such Selling Stockholder, have been
given. Each of the Custody Agreement and Power of Attorney and this Agreement
has been duly authorized, executed and delivered by or on behalf of such Selling
Stockholder and, assuming the due authorization, execution and delivery by the
Representatives and the Company constitutes a valid and binding agreement of
such Selling Stockholder and is enforceable against such Selling Stockholder in
accordance with the terms thereof and hereof subject to bankruptcy, insolvency,
fraudulent transfer, reorganization, moratorium and similar laws of general
applicability relating to or affecting creditors' rights and to general equity
principles and except as rights to indemnity and contribution hereunder may be
limited by applicable law.
(b) Such Selling Stockholder now has, and at the time of delivery
thereof hereunder will have, (i) good and marketable title to the shares of
Common Stock to be sold by such Selling Stockholder hereunder, free and clear of
all liens, encumbrances and claims whatsoever (other than pursuant to the
Custody Agreement and Power of Attorney) and (ii) full legal right and power,
and all authorizations and approvals required by law, to sell, transfer and
deliver such Common Stock to the Underwriters hereunder and to make the
representations, warranties and agreements made by such Selling Stockholder
herein. Upon the delivery of and payment for such Common Stock hereunder, such
Selling Stockholder will deliver good and marketable title thereto, free and
clear of all liens, encumbrances and claims whatsoever.
(c) On the Closing Date or Option Closing Date, as the case may be, all
stock transfer or other taxes (other than income taxes) which are required to be
paid in connection with the sale and transfer of the shares to be sold by such
Selling Stockholder to the several Underwriters hereunder will have been fully
paid or provided for by such Selling Stockholder and all laws imposing such
taxes will have been fully complied with.
(d) The performance of this Agreement and the consummation of the
transactions contemplated hereby will not result in the creation or imposition
of any lien, charge or encumbrance upon any of the assets of such Selling
Stockholder pursuant to the terms or provisions of, or result in a breach or
violation of any of the terms or provisions of, or constitute a default under,
or result in the acceleration of any obligation under, any indenture, mortgage,
deed of trust, voting trust agreement, loan agreement, bond, debenture, note
agreement or other evidence of indebtedness, lease, contract or other agreement
or instrument to which such Selling Stockholder is a party or by which such
Selling Stockholder or any of its property is bound or affected, or under any
ruling, decree, judgment, order, statute, rule or regulation of any court or
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<PAGE>
other governmental agency or body having jurisdiction over such Selling
Stockholder or the property of such Selling Stockholder.
(e) No consent, approval, authorization or order of, or any filing or
declaration with, any court or governmental agency or body is required for the
consummation by such Selling Stockholder of the transactions on its part
contemplated herein and in the Custody Agreement and Power of Attorney, except
such as have been obtained under the Act or the Rules and Regulations and such
as may be required under state securities or Blue Sky laws or the by-laws and
rules of the NASD in connection with the purchase and distribution by the
Underwriters of the Common Stock to be sold by such Selling Stockholder.
(f) Such Selling Stockholder has no knowledge of any material fact or
condition not set forth in the Registration Statement or Prospectus which has
adversely affected, or may have a material adverse effect on the Company's
business, operating results and financial condition, and the sale of the shares
of Common Stock proposed to be sold by such Selling Stockholder is not prompted
by any such knowledge.
(g) All information with respect to such Selling Stockholder contained
in the Registration Statement and the Prospectus (as amended or supplemented, if
the Company shall have filed with the Commission any amendment or supplement
thereto) complied and will comply with all applicable provisions of the Act and
the Rules and Regulations, contains and will contain all statements required to
be stated therein in accordance with the Act and the Rules and Regulations, and
does not and will not contain an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading.
(h) Other than as permitted by the Act and the Rules and Regulations,
such Selling Stockholder has not distributed and will not distribute any
Preliminary Prospectus, the Prospectus or any other offering material in
connection with the offering and sale of the Common Stock. Such Selling
Stockholder has not taken, directly or indirectly, any action designed, or which
might reasonably be expected, to cause or result in, under the Act or otherwise,
or which has caused or resulted in, stabilization or manipulation of the price
of any security of the Company to facilitate the sale or resale of the Common
Stock.
(i) Certificates in negotiable form for the shares of Common Stock to
be sold hereunder by such Selling Stockholder have been placed in custody with
American Stock Transfer & Trust Company (the "Custodian"), for the purpose of
making delivery of such Common Stock under this Agreement, under the Custody
Agreement and Power of Attorney which appoints ____________ as attorney-in-fact
for each Selling Stockholder. Such Selling Stockholder agrees that the shares of
Common Stock represented by the certificates held in custody for him or it under
the Agreement and Power of Attorney are for the benefit of and coupled with and
subject to the interest hereunder of the Custodian, the attorney-in-fact, the
Underwriters, each other Selling Stockholder and the Company, that the
arrangements made by such Selling Stockholder for such custody and the
appointment of the Custodian and the attorney-in-fact by such Selling
Stockholder are irrevocable, and that the obligations of such Selling
Stockholder hereunder shall not be terminated by operation of law, whether by
the death, disability, incapacity or liquidation of any Selling Stockholder or
the occurrence of any other
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<PAGE>
event. If any Selling Stockholder should die, become disabled or incapacitated
or is liquidated or if any other such event should occur before the delivery of
the Common Stock hereunder, certificates for the Common Stock shall be delivered
by the Custodian in accordance with the terms and conditions of this Agreement
and actions taken by the attorney-in-fact and the Custodian pursuant to the
Agreement and Power of Attorney shall be as valid as if such death, liquidation,
incapacity or other event had not occurred, regardless of whether or not the
Custodian or the attorney-in-fact, or either of them, shall have received notice
thereof.
3. Purchase, Sale and Delivery of the Securities.
(a) On the basis of the representations, warranties, covenants and
agreements herein contained, but subject to the terms and conditions herein set
forth, the Company and the Selling Stockholders agree to sell to each
Underwriter, and each Underwriter agrees to purchase from the Company and the
Selling Stockholders, at a price equal to $_____ per Unit [90% of the public
offering price], that number of Firm Units as set forth in Schedule A opposite
the name of such Underwriter, subject to adjustment as the Representatives in
their sole discretion shall make to eliminate any sales or purchases of
fractional shares, plus any additional number of Firm Units which such
Underwriter may become obligated to purchase pursuant to the provisions of
Section 12 hereof.
(b) In addition, on the basis of the representations, warranties,
covenants and agreements herein contained, but subject to the terms and
conditions herein set forth, the Company hereby grants an option to the
Underwriters to purchase all or any part of the Option Units at a price equal to
$______ per Unit [90% of the public offering price]. The option granted hereby
will expire forty-five (45) days after (i) the date the Registration Statement
becomes effective, if the Company has elected not to rely on Rule 430A under the
Rules and Regulations, or (ii) the date of this Agreement if the Company has
elected to rely upon Rule 430A under the Rules and Regulations, and may be
exercised in whole or in part from time to time only for the purpose of covering
over-allotments which may be made in connection with the offering and
distribution of the Firm Units upon notice by the Representatives to the Company
setting forth the number of Option Units as to which the Underwriters are then
exercising the option and the time and date of payment and delivery for any such
Option Units. Any such time and date of delivery (an "Option Closing Date")
shall be determined by the Representatives, but shall not be later than seven
(7) full business days after the exercise of said option, nor in any event prior
to the Closing Date, unless otherwise agreed upon by the Representatives and the
Company. Nothing herein contained shall obligate the Underwriters to exercise
the option granted hereby. No Option Units shall be delivered unless the Firm
Units shall be simultaneously delivered or shall theretofore have been delivered
as herein provided.
(c) Payment of the purchase price for, and delivery of certificates
for, the Firm Units shall be made at the offices of Dirks at 520 Madison Avenue,
10th Floor, New York, New York 10022, or at such other place as shall be agreed
upon by the Representatives and the Company. Such delivery and payment shall be
made at 10:00 a.m. (New York City time) on _________, 2000 or at such other time
and date as shall be agreed upon by the Representatives and the Company but not
less than three (3) nor more than seven (7) full business days after the
effective date of the Registration Statement (such time and date of payment and
delivery being
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<PAGE>
herein called the "Closing Date"). In addition, in the event that any or all of
the Option Units are purchased by the Underwriters, payment of the purchase
price for, and delivery of certificates for, such Option Units shall be made at
the above mentioned office of the Dirks or at such other place as shall be
agreed upon by the Representatives and the Company on each Option Closing Date
as specified in the notice from the Representatives to the Company. Delivery of
the certificates for the Firm Units and the Option Units, if any, shall be made
to the Underwriters against payment by the Underwriters of the purchase price
for the Firm Units and the Option Units, if any, to the order of the Company by
New York Clearing House funds. Certificates for the Firm Units and the Option
Units, if any, shall be in definitive, fully registered form, shall bear no
restrictive legends and shall be in such denominations and registered in such
names as the Underwriters may request in writing at least two (2) business days
prior to the Closing Date or the relevant Option Closing Date, as the case may
be. The certificates for the Firm Units and the Option Units, if any, shall be
made available to the Representatives at such offices or such other place as the
Representatives may designate for inspection, checking and packaging no later
than 9:30 a.m. on the last business day prior to the Closing Date or the
relevant Option Closing Date, as the case may be.
(d) On the Closing Date, the Company shall issue and sell to the
Representatives or their designees the Representatives' Warrants for an
aggregate purchase price of $.0001 per warrant, which Representatives' Warrants
shall entitle the holders thereof to purchase an aggregate of an additional
422,489 Units. The Representatives' Warrants shall be exercisable for a period
of forty-eight (48) months commencing twelve (12) months from the Effective Date
at a price equaling one hundred and twenty percent (120%) of the initial public
offering price of the Units. The Representatives' Underlying Warrants are
identical to the Redeemable Warrants, except they are not redeemable. The
Representatives' Warrant Agreement and the form of the certificates for the
Representatives' Warrant shall be substantially in the form filed as Exhibit
_____ to the Registration Statement. Payment for the Representatives' Warrants
shall be made on the Closing Date.
4. Public Offering of the Units. As soon after the Registration
Statement becomes effective as the Representatives deem advisable, the
Underwriters shall make a public offering of the Firm Units and such of the
Option Units as the Representatives may determine (other than to residents of or
in any jurisdiction in which qualification of the Units is required and has not
become effective) at the price and upon the other terms set forth in the
Prospectus. The Representatives may from time to time increase or decrease the
public offering price after distribution of the Units has been completed to such
extent as the Representatives, in their sole discretion, deem advisable. The
Underwriters may enter into one or more agreements as the Underwriters, in their
sole discretion, deem advisable with one or more broker-dealers who shall act as
dealers in connection with such public offering.
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5. Covenants and Agreements of the Company and the Selling
Stockholders. The Company and the Selling Stockholders covenant and agree,
severally and not jointly, with the Underwriters as follows:
(a) The Company shall use its best efforts to cause the Registration
Statement and any amendments thereto to become effective as promptly as
practicable and will not at any time, whether before or after the effective date
of the Registration Statement, file any amendment to the Registration Statement
or supplement to the Prospectus or file any document under the Act or the
Exchange Act before termination of the offering of the Securities to the public
by the Underwriters of which the Representatives shall not previously have been
advised and furnished with a copy, or to which the Representatives shall have
objected or which is not in compliance with the Act, the Exchange Act and the
Rules and Regulations.
(b) As soon as the Company is advised or obtains knowledge thereof, the
Company will advise the Representatives and confirm the same in writing, (i)
when the Registration Statement, as amended, becomes effective, when any
post-effective amendment to the Registration Statement becomes effective and, if
the provisions of Rule 430A promulgated under the Act will be relied upon, when
the Prospectus has been filed in accordance with said Rule 430A, (ii) of the
issuance by the Commission of any stop order or of the initiation, or the
threatening, of any proceeding the outcome of which may result in the suspension
of the effectiveness of the Registration Statement or any order preventing or
suspending the use of the Preliminary Prospectus or the Prospectus, or any
amendment or supplement thereto, or the institution of any proceedings for that
purpose, (iii) of the issuance by the Commission or by any state securities
commission of any proceedings for the suspension of the qualification of any of
the Securities for offering or sale in any jurisdiction or of the initiation, or
the threatening, of any proceeding for that purpose, (iv) of the receipt of any
comments from the Commission, and (v) of any request by the Commission for any
amendment to the Registration Statement or any amendment or supplement to the
Prospectus or for additional information. If the Commission or any state
securities regulatory authority shall enter a stop order or suspend such
qualification at any time, the Company will make every effort to obtain promptly
the lifting of such order.
(c) The Company shall file the Prospectus (in form and substance
satisfactory to the Representatives) with the Commission, or transmit the
Prospectus by a means reasonably calculated to result in filing the same with
the Commission, pursuant to Rule 424(b)(1) of the Rules and Regulations (or, if
applicable and if consented to by the Representatives, pursuant to Rule
424(b)(4) of the Rules and Regulations) within the time period specified in Rule
424(b)(1) (or, if applicable and if consented to by the Underwriters, Rule
424(b)(4)).
(d) The Company will give the Representatives notice of its intention
to file or prepare any amendment to the Registration Statement (including any
post-effective amendment) or any amendment or supplement to the Prospectus
(including any revised prospectus which the Company proposes for use by the
Representatives in connection with the offering of any of the Securities which
differs from the corresponding prospectus on file at the Commission at the time
the Registration Statement becomes effective, whether or not such revised
prospectus is required to be filed pursuant to Rule 424(b) of the Rules and
Regulations), and will furnish the Representatives
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<PAGE>
with copies of any such amendment or supplement a reasonable amount of time
prior to such proposed filing or use, as the case may be, and will not file any
such amendment or supplement to which the Representatives or Orrick, Herrington
& Sutcliffe LLP, its counsel ("Underwriters' Counsel"), shall object.
(e) The Company shall endeavor in good faith, in cooperation with the
Representatives, at or prior to the time the Registration Statement becomes
effective, to qualify the Securities for offering and sale under the securities
laws of such jurisdictions as the Representatives may designate to permit the
continuance of sales and dealings therein for as long as may be necessary to
complete the distribution contemplated hereby, and shall make such applications,
file such documents and furnish such information as may be required for such
purpose; provided, however, the Company shall not be required to qualify as a
foreign corporation or file a general or limited consent to service of process
in any such jurisdiction. In each jurisdiction where such qualification shall be
effected, the Company will, unless the Representatives agree that such action is
not at the time necessary or advisable, use all reasonable efforts to file and
make such statements or reports at such times as are or may reasonably be
required by the laws of such jurisdiction to continue such qualification.
(f) During the time when a prospectus is required to be delivered under
the Act, the Company shall use all reasonable efforts to comply with all
requirements imposed upon it by the Act, the Exchange Act and the Rules and
Regulations so far as necessary to permit the continuance of sales of or
dealings in the Securities in accordance with the provisions hereof and the
Prospectus, or any amendments or supplements thereto. If, at any time when a
prospectus relating to the Securities is required to be delivered under the Act,
any event shall have occurred as a result of which, in the opinion of counsel
for the Company or Underwriters' Counsel, the Prospectus, as then amended or
supplemented, includes an untrue statement of a material fact or omits to state
a material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances in which they were made,
not misleading, or if it is necessary at any time to amend or supplement the
Prospectus to comply with the Act, the Company will notify the Representatives
promptly and prepare and file with the Commission an appropriate amendment or
supplement in accordance with Section 10 of the Act, each such amendment or
supplement to be satisfactory to Underwriters' Counsel and the Company will
furnish to the Representatives copies of such amendment or supplement as soon as
available and in such quantities as the Representatives may request.
(g) As soon as practicable, but in any event not later than forty five
(45) days after the end of the 12-month period beginning on the day after the
end of the fiscal quarter of the Company during which the effective date of the
Registration Statement occurs (ninety (90) days in the event that the end of
such fiscal quarter is the end of the Company's fiscal year), the Company shall
make generally available to its security holders, in the manner specified in
Rule 158(b) of the Rules and Regulations, and to the Representatives, an
earnings statement which will be in the detail required by, and will otherwise
comply with, the provisions of Section 11(a) of the Act and Rule 158(a) of the
Rules and Regulations, which statement need not be audited unless required by
the Act, covering a period of at least twelve (12) consecutive months after the
effective date of the Registration Statement.
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(h) During a period of seven (7) years after the date hereof, the
Company will furnish to its stockholders, as soon as practicable, annual reports
(including financial statements audited by independent public accountants) and
unaudited quarterly report of earnings and will deliver to the Representatives:
i) concurrently with furnishing such quarterly reports to the
Commission statements of income of the Company for such quarter in the
form furnished to the Company's stockholders and certified by the
Company's principal financial and accounting officer;
ii) concurrently with furnishing such annual reports to its
stockholders, a balance sheet of the Company as at the end of the
preceding fiscal year, together with statements of operations,
stockholders' equity and cash flows of the Company for such fiscal
year, accompanied by a copy of the report thereon of the Company's
independent certified public accountants;
iii) as soon as they are available, copies of all reports
(financial or other) mailed to stockholders;
iv) as soon as they are available, copies of all reports and
financial statements furnished to or filed with the Commission, the
NASD or any securities exchange;
v) every press release and every material news item or article of
interest to the financial community in respect of the Company or its
affairs which was released or prepared by or on behalf of the Company;
and
vi) any additional information of a public nature concerning the
Company (and any future subsidiaries) or its business which the
Representatives may request.
During such seven-year period, if the Company has active subsidiaries,
the foregoing financial statements will be on a consolidated basis to the extent
that the accounts of the Company and its subsidiaries are consolidated, and will
be accompanied by similar financial statements for any significant subsidiary
which is not so consolidated.
(i) The Company will maintain a transfer and warrant agent and, if
necessary under the jurisdiction of incorporation of the Company, a registrar
(which may be the same entity as the transfer agent) for the Units, the Common
Stock and the Redeemable Warrants.
(j) The Company will furnish to the Representatives, without charge and
at such place as the Representatives may designate, copies of each Preliminary
Prospectus, the Registration Statement and any pre-effective or post-effective
amendments thereto (one of which will be signed and will include all financial
statements and exhibits), the Prospectus, and all amendments and supplements
thereto, including any prospectus prepared after the effective date of the
Registration Statement, in each case as soon as available and in such quantities
as the
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Representatives may reasonably request.
(k) On or before the effective date of the Registration Statement, the
Company shall provide the Representatives with originally-executed copies of
duly executed, legally binding and enforceable Lock-Up Agreements which are in
form and substance satisfactory to the Underwriters. On or before the Closing
Date, the Company shall deliver instructions to its transfer agent authorizing
such transfer agent to place appropriate legends on the certificates
representing the securities of the Company subject to the Lock-Up Agreements and
to place appropriate stop transfer orders on the Company's ledgers.
(l) The Company agrees that, for a period of twelve (12) months
commencing on the effective date of the Registration Statement, and except as
contemplated by this Agreement, it and its present and future subsidiaries will
not, without the prior written consent of the Representatives issue, sell,
contract or offer to sell, grant an option for the purchase or sale of, assign,
transfer, pledge, distribute or otherwise dispose of, directly or indirectly,
any securities or any option, right or warrant with respect to any securities
for cash at less than the greater of the initial public offering price of the
Units or the fair market value of such Units, except pursuant to stock options
or Representatives' Warrants issued on the date hereof.
(m) Neither the Company nor any of its officers, directors,
stockholders or affiliates (within the meaning of the Rules and Regulations)
will take, directly or indirectly, any action designed to stabilize or
manipulate the price of any securities of the Company, or which might in the
future reasonably be expected to cause or result in the stabilization or
manipulation of the price of any such securities.
(n) The Company shall apply the net proceeds from the sale of the
Securities offered to the public in the manner, and subject to the conditions,
set forth under "Use of Proceeds" in the Prospectus. No portion of the net
proceeds will be used, directly or indirectly, to acquire any securities issued
by the Company.
(o) The Company shall timely file all such reports, forms or other
documents as may be required (including, but not limited to, any Form SR
required by Rule 463 under the Act) from time to time under the Act, the
Exchange Act, and the Rules and Regulations, and all such reports, forms and
documents will comply as to form and substance with the applicable requirements
under the Act, the Exchange Act and the Rules and Regulations.
(p) The Company shall furnish to the Representatives as early as
practicable prior to each of the date hereof, the Closing Date and each Option
Closing Date, if any, but no later than two (2) full business days prior
thereto, a copy of the latest available unaudited interim financial statements
of the Company (which in no event shall be as of a date more than thirty (30)
days prior to the date hereof, the Closing Date or the relevant Option Closing
Date, as the case may be) which have been read by the Company's independent
public accountants, as stated in their letters to be furnished pursuant to
Section 7(k) hereof.
(q) The Company shall cause the Units, the Common Stock and the
Redeemable Warrants to be quoted on the Nasdaq National Market and, for a period
of seven (7)
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<PAGE>
years from the date hereof, use its best efforts to maintain the Nasdaq National
Market quotation of the Units, the Common Stock and the Redeemable Warrants to
the extent outstanding.
(r) For a period of five (5) years from the Closing Date, the Company
shall at the request of the Representatives, furnish or cause to be furnished to
the Representatives and at the Company's sole expense, (i) daily consolidated
transfer sheets relating to the Units, the Common Stock and the Redeemable
Warrants, and (ii) a list of holders of all of the Company's securities.
(s) For a period of five (5) years from the Closing Date, the Company
shall, at the Company's sole expense, (i) promptly provide the Underwriters upon
any and all requests of the Underwriters, with a "blue sky trading survey" for
secondary sales of the Company's securities, prepared by counsel to the Company,
and (ii) take all necessary and appropriate actions to further qualify the
Company's securities in all jurisdictions of the United States in order to
permit secondary sales of such securities pursuant to the "blue sky" laws of
those jurisdictions, provided that such jurisdictions do not require the Company
to qualify as a foreign corporation.
(t) As soon as practicable, but in no event more than thirty (30) days
after the effective date of the Registration Statement, the Company agrees to
take all necessary and appropriate actions to be included in the Standard and
Poor's Corporation Descriptions and Moody's OTC Manual and to continue such
inclusion for a period of not less than seven (7) years.
(u) Until the completion of the distribution of the Units to the public
and during any period during which a prospectus is required to be delivered, the
Company shall not, without the prior written consent of the Underwriters, issue,
directly or indirectly, any press release or other communication or hold any
press conference with respect to the Company or its activities or the offering
contemplated hereby, other than trade releases issued in the ordinary course of
the Company's business consistent with past practices with respect to the
Company's operations.
(v) For a period of five (5) years after the effective date of the
Registration Statement, the Company shall cause one (1) individual selected by
Dirks, subject to the good faith approval of the Company, to be elected to the
Board of Directors of the Company (the "Board"), if requested by Dirks. In the
event Dirks shall not have designated such individual at the time of any meeting
of the Board or such person has not been elected or is unavailable to serve, the
Company shall notify Dirks of each meeting of the Board. An individual selected
by Dirks shall be permitted to attend all meetings of the Board and to receive
all notices and other correspondence and communications sent by the Company to
members of the Board. The Company shall reimburse Dirks's designee for his or
her out-of-pocket expenses reasonably incurred in connection with his or her
attendance of the Board meetings.
(w) Commencing one year from the date hereof, to pay the Underwriters a
warrant solicitation fee equal to five percent (5%) of the exercise price of the
Redeemable Warrants, payable on the date of the exercise thereof on terms
provided in the Warrant Agreement. The Company will not solicit the exercise of
the Redeemable Warrants through any solicitation agent other than the
Underwriters. The Underwriters will not be entitled to any warrant solicitation
fee unless the Underwriters provides bona fide services in connection with any
warrant solicitation and the investor designates, in writing, that the
Underwriters is entitled to such fee.
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<PAGE>
(x) For a period equal to the lesser of (i) seven (7) years from the
date hereof, and (ii) the sale to the public of the Representatives' Securities,
the Company will not take any action or actions which may prevent or disqualify
the Company's use of Forms SB-2 or S-1 (or other appropriate form) for the
registration under the Act of the Underwriters' Securities.
(y) For a period of twenty four (24) months after the effective date of
the Registration Statement, the Company shall not restate, amend or alter any
term of any written employment, consulting or similar agreement entered into
between the Company and any officer, director or key employee as of the
effective date of the Registration Statement in a manner which is more favorable
to such officer, director or key employee, without the prior written consent of
the Representatives.
(z) The Company will use its best efforts to maintain the effectiveness
of the Registration Statement for a period of five years after the date hereof.
(aa) For a period of three (3) years following the Effective Date, the
Company, any subsidiaries and any affiliates thereof grant a right of first
refusal to Dirks for any sale of securities to be made by the Company, any
affiliates and any subsidiaries.
(bb) For a period of twelve (12) months following the Effective Date,
the Company, any subsidiaries and any affiliates thereof shall not sell or offer
for sale any of their securities for cash at less than the greater of the
initial public offering price of the Units or the then market value of such
Units commencing on the Effective Date and for a period of twelve (12) months
following the Effective Date, except pursuant to options of the Company existing
on the Effective Date, without the written consent of the Representatives, as
adjusted for consolidations and stock splits.
(cc) Each Selling Stockholder agrees to deliver to the Representatives,
on or prior to the Closing Date, a properly completed and executed United States
Treasury Form W-9 (or other applicable form or statement specified by Treasury
Department Regulations in lieu thereof).
(dd) The Selling Stockholders will not, for the 180 day period
following the Effective Date, without the prior written consent of the
Representatives, sell, contract to sell or otherwise dispose of any Units or
components thereof.
(ee) The Selling Stockholders will not, without the prior written
consent of the Representatives, make any bid for or purchase any Units during
the 180 day period following on the Effective Date.
(ff) The Selling Stockholders will make any sale of securities of the
Company owned by them through Dirks during the twelve (12) month period
following the Effective Date.
(gg) As soon as any Selling Stockholder is advised thereof, such
Selling Stockholder will advise the Representatives and confirm such advice in
writing, (1) of receipt by such Selling Stockholder, or by any representative of
such Selling Stockholder, of any
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<PAGE>
communication from the Commission relating to the Registration Statement, the
Prospectus or any Preliminary Prospectus, or any notice or order of the
Commission relating to the Company or any of the Selling Stockholders in
connection with the transactions contemplated by this Agreement and (2) of the
happening of any event during the period from and after the effective date of
this offering that in the judgment of such Selling Stockholder makes any
statement made in the Registration Statement or the Prospectus untrue or that
requires the making of any changes in the Registration Statement or the
Prospectus in order to make the statements therein, in light of the
circumstances in which they were made, not misleading.
6. Payment of Expenses.
(a) The Company and the Selling Stockholders, in such proportions
(aggregating 100%) as they may agree upon themselves, hereby agree to pay (such
payment to be made, at the discretion of the Underwriters, on the Closing Date
and any Option Closing Date (to the extent not paid on the Closing Date or a
previous Option Closing Date)) all expenses and fees (other than fees of
Underwriters' Counsel) incident to the performance of the obligations of the
Company and the Selling Stockholders under this Agreement, the Representatives'
Warrant Agreement and the Warrant Agreement, including, without limitation, (i)
the fees and expenses of accountants and counsel for the Company and the Selling
Stockholders, (ii) all costs and expenses incurred in connection with the
preparation, duplication, printing, (including mailing and handling charges)
filing, delivery and mailing (including the payment of postage, overnight
delivery or courier charges with respect thereto) of the Registration Statement
and the Prospectus and any amendments and supplements thereto and the printing,
mailing (including the payment of postage, overnight delivery or courier charges
with respect thereto) and delivery of this Agreement, the Representatives'
Warrant Agreement, the Warrant Agreement, and agreements with selected dealers,
and related documents, including the cost of all copies thereof and of each
Preliminary Prospectus and of the Prospectus and any amendments thereof or
supplements thereto supplied to the Underwriters and such dealers as the
Underwriters may request, in such quantities as the Underwriters may reasonably
request, (iii) the printing, engraving, issuance and delivery of the Securities,
including transfer taxes, if any, (iv) the qualification of the Securities under
state or foreign securities or "blue sky" laws and determination of the status
of such securities under legal investment laws, including the costs of printing
and mailing the "Preliminary Blue Sky Memorandum," the "Supplemental Blue Sky
Memorandum" and "Legal Investments Survey," if any, and disbursements and fees
of counsel in connection therewith, (v) advertising costs and expenses,
including, but not limited to costs and expenses in connection with "road
shows," information meetings and presentations, bound volumes and prospectus
memorabilia and "tombstone" advertisement expenses, (vi) costs and expenses in
connection with due diligence investigations, including, but not limited to, the
fees of any independent counsel or consultants, (vii) fees and expenses of a
transfer and warrant agent and registrar for the Securities, (viii) applications
for assignments of a rating of the Securities by qualified rating agencies, (ix)
the fees payable to the Commission and the NASD, and (x) the fees and expenses
incurred in connection with the quotation of the Securities on the Nasdaq
National Market and/or any other exchange.
(b) If this Agreement is terminated by the Underwriters in accordance
with the provisions of Section 7, Section 11(a) or Section 13 hereof, the
Company and the Selling Stockholders shall, in such proportions (aggregating
100%) as they may agree among themselves,
22
<PAGE>
reimburse and indemnify the Underwriters for all of their actual out-of-pocket
expenses, including the fees and disbursements of Underwriters' Counsel, less
any amounts already paid pursuant to Section 6(c) hereof.
(c) The Company and the Selling Stockholders further agree that, in
addition to the expenses payable pursuant to Section 6(a) hereof, they will, in
such proportions (aggregating 100%) as they may agree among themselves, pay to
the Underwriters on the Closing Date by certified or bank cashier's check, or,
at the election of the Underwriters, by deduction from the proceeds of the
offering of the Firm Units, a non-accountable expense allowance equal to three
percent (3%) of the gross proceeds received by the Company from the sale of the
Firm Units, fifty thousand dollars ($50,000) of which has been paid to date by
the Company. In the event the Underwriters elect to exercise the over-allotment
option described in Section 3(b) hereof, the Company further agrees to pay to
the Underwriters on each Option Closing Date, by certified or bank cashier's
check, or, at the Underwriters' election, by deduction from the proceeds of the
Option Units purchased on such Option Closing Date, a non-accountable expense
allowance equal to three percent (3%) of the gross proceeds received by the
Company from the sale of such Option Units.
7. Conditions of the Underwriters' Obligations. The obligations of the
Underwriters hereunder shall be subject to the continuing accuracy of the
representations and warranties of the Company and the Selling Stockholders
herein as of the date hereof and as of the Closing Date and each Option Closing
Date, if any, as if they had been made on and as of the Closing Date and each
Option Closing Date, as the case may be; the accuracy on and as of the Closing
Date and each Option Closing Date, if any, of the statements of officers of the
Company made pursuant to the provisions hereof; the performance by the Company
and the Selling Stockholders on and as of the Closing Date and each Option
Closing Date, if any, of their respective covenants and obligations hereunder;
and to the following further conditions:
(a) The Registration Statement shall have become effective not later
than 12:00 p.m., New York time, on the date of this Agreement or such later date
and time as shall be consented to in writing by the Representatives, and, at the
Closing Date and each Option Closing Date, if any, no stop order suspending the
effectiveness of the Registration Statement shall have been issued and no
proceedings for that purpose shall have been instituted or shall be pending or
contemplated by the Commission and any request on the part of the Commission for
additional information shall have been complied with to the reasonable
satisfaction of Underwriters' Counsel. If the Company has elected to rely upon
Rule 430A of the Rules and Regulations, the price of the Units and any
price-related information previously omitted from the effective Registration
Statement pursuant to such Rule 430A shall have been transmitted to the
Commission for filing pursuant to Rule 424(b) of the Rules and Regulations
within the prescribed time period, and prior to the Closing Date the Company
shall have provided evidence satisfactory to the Representatives of such timely
filing, or a post-effective amendment providing such information shall have been
promptly filed and declared effective in accordance with the requirements of
Rule 430A of the Rules and Regulations.
(b) The Representatives shall not have advised the Company that the
Registration Statement, or any amendment thereto, contains an untrue statement
of fact which, in
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<PAGE>
the Representatives' opinion, is material, or omits to state a fact which, in
the Representatives' opinion, is material and is required to be stated therein
or is necessary to make the statements therein, in light of the circumstances in
which they were made not misleading, or that the Prospectus, or any supplement
thereto, contains an untrue statement of fact which, in the Representatives'
opinion, is material, or omits to state a fact which, in the Representatives'
opinion, is material and is required to be stated therein or is necessary to
make the statements therein, in light of the circumstances in which they were
made, not misleading.
(c) On or prior to the Closing Date, the Representatives shall have
received from Underwriters' Counsel such opinion or opinions with respect to the
organization of the Company, the validity of the Securities, the Registration
Statement, the Prospectus and such other related matters as the Representatives
may request and Underwriters' Counsel shall have received such papers and
information as they may request in order to enable them to pass upon such
matters.
(d) The Underwriters shall have received the favorable opinion of
Stairs Dillenbeck Finley & Merle, counsel to the Company and the Selling
Stockholders, dated the Closing Date, addressed to the Underwriters, in form and
substance satisfactory to Underwriters' Counsel, to the effect that:
i) the Company (A) has been duly organized and is a validly
existing corporation in good standing under the laws of its
jurisdiction of incorporation, (B) is duly qualified and licensed and
in good standing as a foreign corporation in each jurisdiction in
which its ownership or leasing of any properties or the character of
its operations requires such qualification or licensing, and (C) has
all requisite power and authority (corporate and other) and has
obtained any and all necessary authorizations, approvals, orders,
licenses, certificates, franchises and permits of and from all
governmental or regulatory officials and bodies (including, without
limitation, those having jurisdiction over environmental or similar
matters), to own or lease its properties and conduct its business as
described in the Prospectus; the Company is and has been doing
business in compliance in with all such authorizations, approvals,
orders, licenses, certificates and permits obtained by it from
governmental or regulatory officials and agencies and all federal,
state, local and foreign laws, rules and regulations to which it is
subject; and the Company has not received any notice of proceedings
relating to the revocation or modification of any such authorization,
approval, order, license, certificate, franchise or permit which,
singly or in the aggregate, if the subject of an unfavorable decision,
ruling or finding, would materially and adversely affect the
condition, financial or otherwise, or the earnings, prospects,
stockholders' equity, value, operations, properties, business or
results of operations of the Company. The disclosure in the
Registration Statement concerning the effects of federal, state, local
and foreign laws, rules and regulations on the Company's business as
currently conducted and as contemplated is correct in all respects and
does not omit to state a material fact required to be stated therein
or necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading;
ii) the Company does not own, directly or indirectly, an interest
in any
24
<PAGE>
corporation, partnership, joint venture, trust or other business
entity;
iii) the Company has a duly authorized, issued and outstanding
capitalization as set forth in the Prospectus, and any amendment or
supplement thereto, under "Capitalization" and "Description of
Securities" and except as set forth in the Prospectus, the Company is
not a party to or bound by any instrument, agreement or other
arrangement providing for it to issue any capital stock, rights,
warrants, options or other securities, except for this Agreement, the
Representatives' Warrant Agreement and the Warrant Agreement and as
described in the Prospectus. The Securities and all other securities
issued or issuable by the Company conform, or when issued and paid
for, will conform, in all respects to the descriptions thereof
contained in the Registration Statement and the Prospectus. All issued
and outstanding securities of the Company have been duly authorized
and validly issued and are fully paid and non-assessable; the holders
thereof have no rights of rescission with respect thereto and are not
subject to personal liability by reason of being such holders; and
none of such securities were issued in violation of the preemptive
rights of any holders of any security of the Company or any similar
contractual right granted by the Company. The Securities to be sold by
the Company hereunder and under the Representatives' Warrant Agreement
and the Warrant Agreement are not and will not be subject to any
preemptive or other similar rights of any stockholder, have been duly
authorized and, when issued, paid for and delivered in accordance with
the terms hereof and thereof, will be validly issued, fully paid and
non-assessable and conform to the descriptions thereof contained in
the Prospectus; the holders thereof will not be subject to any
liability solely as such holders; all corporate action required to be
taken for the authorization, issue and sale of the Securities has been
duly and validly taken; and the certificates representing the
Securities are in due and proper form. The Redeemable Warrants and
Representatives' Warrants constitute valid and binding obligations of
the Company to issue and sell, upon exercise thereof and payment
therefor, the number and type of securities of the Company called for
thereby. Upon the issuance and delivery pursuant to this Agreement,
the Representatives' Warrant Agreement and the Warrant Agreement of
the Securities to be sold by the Company hereunder and thereunder, the
Underwriters will acquire good and marketable title to such
Securities, free and clear of any lien, charge, claim, encumbrance,
pledge, security interest, defect or other restriction or equity of
any kind whatsoever. No transfer tax is payable by or on behalf of the
Underwriters in connection with (A) the issuance by the Company of the
Securities, (B) the sale by the Selling Stockholders of the shares of
Common Stock, (C) the purchase by the Underwriters of the Securities
from the Company and the Selling Stockholders, (D) the consummation by
the Company of any of its obligations under this Agreement, the
Representatives' Warrant Agreement or the Warrant Agreement, or (E)
resales of the Securities in connection with the distribution
contemplated hereby;
iv) the Registration Statement is effective under the Act, and,
if applicable, filing of all pricing information has been timely made
in the appropriate form under Rule 430A, and no stop order suspending
the use of the Preliminary
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<PAGE>
Prospectus, the Registration Statement or the Prospectus or any part
of any thereof or suspending the effectiveness of the Registration
Statement has been issued and no proceedings for that purpose have
been instituted or are pending, threatened or, to the counsel's
knowledge, contemplated under the Act;
v) each of the Preliminary Prospectus, the Registration
Statement, and the Prospectus and any amendments or supplements
thereto (other than the financial statements and schedules and other
financial and statistical data included therein, as to which no
opinion need be rendered) comply as to form in all material respects
with the requirements of the Act and the Rules and Regulations;
vi) (A) there are no agreements, contracts or other documents
required by the Act to be described in the Registration Statement (or
required to be filed under the Exchange Act if upon such filing they
would be incorporated, in whole or in part, by reference therein) and
the Prospectus and filed as exhibits to the Registration Statement
other than those described in the Registration Statement and the
Prospectus and filed as exhibits thereto, and the exhibits which have
been filed are correct copies of the documents of which they purport
to be copies; (B) the descriptions in the Registration Statement and
the Prospectus and any supplement or amendment thereto of agreements,
contracts and other documents to which the Company is a party or by
which it is bound are accurate and fairly represent the information
required to be shown by Form S-1; (C) there is no action, suit,
proceeding, inquiry, arbitration, investigation, litigation or
governmental proceeding (including, without limitation, those
pertaining to environmental or similar matters), domestic or foreign,
pending or threatened against (or circumstances that may give rise to
the same) or involving the properties or business of, the Company
which (I) is required to be disclosed in the Registration Statement
which is not so disclosed (and such proceedings as are summarized in
the Registration Statement are accurately summarized in all respects),
or (II) questions the validity of the capital stock of the Company or
of this Agreement, the Representatives' Warrant Agreement or the
Warrant Agreement or of any action taken or to be taken by the Company
pursuant to or in connection with any of the foregoing; (D) no statute
or regulation or legal or governmental proceeding required to be
described in the Prospectus is not described as required; and (E)
there is no action, suit or proceeding pending or threatened against
or affecting the Company before any court, arbitrator or governmental
body, agency or official (or any basis thereof known to such counsel)
in which there is a reasonable possibility of a decision which may
result in a material adverse change in the condition, financial or
otherwise, or the earnings, prospects, stockholders' equity, value,
operation, properties, business or results of operations of the
Company, which could adversely affect the present or prospective
ability of the Company to perform its obligations under this
Agreement, the Representatives' Warrant Agreement or the Warrant
Agreement or which in any manner draws into question the validity or
enforceability of this Agreement, the Representatives' Warrant
Agreement or the Warrant Agreement;
vii) the Company has full legal right, power and authority to
enter into
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each of this Agreement, the Representatives' Warrant Agreement and the
Warrant Agreement and to consummate the transactions provided for
herein and therein; and each of this Agreement, the Representatives'
Warrant Agreement and the Warrant Agreement has been duly authorized,
executed and delivered by the Company. Each of this Agreement, the
Representatives' Warrant Agreement and the Warrant Agreement, assuming
due authorization, execution and delivery by each other party thereto,
constitutes a legal, valid and binding agreement of the Company,
enforceable against the Company in accordance with its terms (except
as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other laws of general
application relating to or affecting the enforcement of creditors'
rights and the application of equitable principles in any action,
legal or equitable, and except as obligations to indemnify or
contribute to losses may be limited by applicable law). None of the
Company's execution or delivery of this Agreement, the
Representatives' Warrant Agreement and the Warrant Agreement, its
performance hereunder and thereunder, its consummation of the
transactions contemplated herein and therein, or the conduct of its
business as described in the Registration Statement and the Prospectus
and any amendments or supplements thereto, conflicts with or will
conflict with or results or will result in any breach or violation of
any of the terms or provisions of, or constitutes or will constitute a
default under, or result in the creation or imposition of any lien,
charge, claim, encumbrance, pledge, security interest, defect or other
restriction or equity of any kind whatsoever upon, any property or
assets (tangible or intangible) of the Company pursuant to the terms
of (A) the certificate of incorporation or bylaws of the Company, (B)
any license, contract, indenture, mortgage, lease, deed of trust,
voting trust agreement, stockholders' agreement, note, loan or credit
agreement or any other agreement or instrument evidencing an
obligation for borrowed money, or any other agreement or instrument to
which the Company is a party or by which it is or may be bound or to
which its properties or assets (tangible or intangible) are or may be
subject, (C) any statute applicable to the Company or (D) any
judgment, decree, order, rule or regulation applicable to the Company
of any arbitrator, court, regulatory body or administrative agency or
other governmental agency or body (including, without limitation,
those having jurisdiction over environmental or similar matters),
domestic or foreign, having jurisdiction over the Company or any of
their activities or properties;
viii) no consent, approval, authorization or order of, and no
filing with, any arbitrator, court, regulatory body, administrative
agency, government agency or other body, domestic or foreign (other
than such as may be required under "blue sky" laws and the rules of
the NASD, as to which no opinion need be rendered), is required in
connection with the issuance of the Securities pursuant to the
Prospectus, the Registration Statement, this Agreement, the
Representatives' Warrant Agreement and the Warrant Agreement, or the
performance of this Agreement, the Representatives' Warrant Agreement
and the Warrant Agreement and the transactions contemplated hereby and
thereby;
ix) the properties and business of the Company conform to the
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description thereof contained in the Registration Statement and the
Prospectus; and the Company has good and marketable title to, or valid
and enforceable leasehold estates in, all items of real and personal
property stated in the Prospectus to be owned or leased by it, in each
case free and clear of all liens, charges, claims, encumbrances,
pledges, security interests, defects or other restrictions or equities
of any kind whatsoever, other than those referred to in the Prospectus
and liens for taxes not yet due and payable;
x) the Company is not in breach of, or in default under, any term
or provision of any license, contract, indenture, mortgage,
installment sale agreement, lease, deed of trust, voting trust
agreement, stockholders' agreement, partnership agreement, note, loan
or credit agreement or any other agreement or instrument evidencing an
obligation for borrowed money, or any other agreement or instrument to
which the Company is a party or by which it is or may be bound or to
which its property or assets (tangible or intangible) are or may be
subject; and the Company is not in violation of any term or provision
of (A) its certificate of incorporation or by-laws, (B) any
authorization, approval, order, license, certificate, franchise or
permit of any governmental or regulatory official or body, or (C) any
judgement, decree, order, statute, rule or regulation to which it is
subject;
xi) the Units, the Common Stock and the Redeemable Warrants have
been accepted for quotation on the Nasdaq National Market;
xi) the statements in the Prospectus under "Prospectus Summary,"
"Risk Factors," "Business," "Management," "Principal, Selling and
Registering Stockholders," "Related Party Transactions," "Shares
Eligible For Future Sale," and "Description of Securities" have been
reviewed by such counsel, and insofar as they refer to statements of
law, descriptions of statutes, licenses, rules or regulations or legal
conclusions, are correct in all material respects;
xii) the persons listed under the caption "Principal, Selling and
Registering Stockholders" in the Prospectus are the respective
"beneficial owners" (as such phrase is defined in Rule 13d-3 under the
Exchange Act) of the securities set forth opposite their respective
names thereunder as and to the extent set forth therein;
xiv) the Company owns or possess, free and clear of all liens or
encumbrances and right thereto or therein by third parties, the
requisite licenses or other rights to use all trademarks, service
marks, copyrights, service names, tradenames, patents, patent
applications and licenses necessary to conduct its business (including
without limitation any such licenses or rights described in the
Prospectus as being owned or possessed by the Company) and there is no
claim or action by any person pertaining to, or proceeding, pending or
threatened, which challenges the exclusive rights of the Company with
respect to any trademarks, service marks, copyrights, service names,
trade names, patents, patent applications and licenses used in the
conduct of the Company's business (including, without
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limitation, any such licenses or rights described in the Prospectus as
being owned or possessed by the Company);
xv) neither the Company nor any of their respective directors,
officers, stockholders, employees, agents or any other person acting
on behalf of the Company has, directly or indirectly, given or agreed
to give any money, gift or similar benefit (other than legal price
concessions to customers in the ordinary course of business) to any
customer, supplier, employee or agent of a customer or supplier, or
any official or employee of any governmental agency or instrumentality
of any government (domestic or foreign) or any political party or
candidate for office (domestic or foreign) or other person who was, is
or may be in a position to help or hinder the business of the Company
(or assist it in connection with any actual or proposed transaction)
which (A) might subject the Company or any such person to any damage
or penalty in any civil, criminal or governmental litigation or
proceeding (domestic or foreign), (B) if not given in the past, might
have had material and adverse effect on the condition, financial or
otherwise, or the earnings, prospects, stockholders' equity, value,
operations, properties, business or results of operations of the
Company taken as a whole, or (C) if not continued in the future, might
materially and adversely affect the condition, financial or otherwise,
or the earnings, prospects, stockholders' equity, value, operations,
properties, business or results of operations of the Company taken as
a whole;
xvi) there are no claims, payments, issuances, arrangements or
understandings, whether oral or written, for services in the nature of
a finder's or origination fee with respect to the sale of the
Securities hereunder or financial consulting arrangement or any other
arrangements, agreements, understandings, payments or issuances that
may affect the Representatives' compensation, as determined by the
NASD;
xvii) the minute books of the Company contain a complete summary
of all meetings and actions of the directors and stockholders of the
Company since the time of its incorporation and reflect all
transactions referred to in such minutes accurately in all material
respects;
xviii) no person, corporation, trust, partnership, association or
other entity has the right to include and/or register any securities
of the Company in the Registration Statement, require the Company to
file any registration statement or, if filed, to include any security
in such registration statement;
xix) assuming due authorization, execution and delivery by the
parties thereto, the Lock-Up Agreements are legal, valid and binding
obligations of the parties thereto, enforceable against such parties
and any subsequent holder of the securities subject thereto in
accordance with their terms;
xx) except as described in the Prospectus, the Company does not
(A) maintain, sponsor or contribute to an ERISA Plans, (B) maintain or
contribute, now
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or at any time previously, to a defined benefit plan, as defined in
Section 3(35) of ERISA, and (C) has never completely or partially
withdrawn from a "multiemployer plan"; and
xxi) none of the Company or an of its affiliates shall be subject
to the requirements of or shall be deemed an "Investment Company,"
pursuant to and as defined under, respectively, the Investment Company
Act.
with respect to each Selling Stockholder
(a) each Selling Stockholder has the full right, power and
authority to enter into the Underwriting Agreement and the Custody
Agreement and to carry out all the terms and provisions thereof;
(b) the Underwriting Agreement, the Custody Agreement and the
Power-of-Attorney have been duly authorized, executed and delivered by
each Selling Stockholder and, assuming due authorization, execution
and delivery by the Representative and/or Custodian, as applicable,
the Underwriting Agreement, the Custody Agreement and the
Power-of-Attorney are the legal, valid, binding and enforceable
agreements or instruments of such Selling Stockholder, except insofar
as the indemnification and contribution provisions of the Underwriting
Agreement may be limited by public policy concerns and except as
enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting creditors' rights
generally or by general equitable principles;
(c) assuming that (i) the Underwriters have no notice of any
adverse claims with respect to the shares of Common Stock being sold
hereunder by such Selling Stockholder, and (ii) the certificates
representing the Common Stock being sold by such Selling Stockholder
are delivered to the Underwriters duly endorsed or accompanied by a
duly executed assignment separate from certificate in the State of
Delaware, the delivery by such Selling Stockholder to the several
Underwriters of certificates for the shares of Common Stock being sold
hereunder by such Selling Stockholder against payment therefor as
provided herein, will convey good and marketable title to such shares
of Common Stock to the several Underwriters, free and clear of all
"adverse claims"; and
(d) the sale of the Common Stock to the Underwriters by such
Selling Stockholder pursuant to the Underwriting Agreement, the
compliance by such Selling Stockholder with the other provisions of
the Underwriting Agreement and the Custody Agreement, and the
consummation of the other transactions therein contemplated do not (i)
require the consent, approval, authorization, registration or
qualification of or with any governmental authority, except such as
have been obtained and such as may be required under state securities
or blue sky laws, or (ii) conflict with or result in a breach or
violation of any of the terms and provisions of, or constitute a
default under, any statute or, to the knowledge of such counsel, any
indenture, mortgage, deed of trust, lease or other agreement or
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<PAGE>
instrument to which such Selling Stockholder is a party or by which
such Selling Stockholder or any of such Selling Stockholder's
properties are bound or any judgment, decree, order, rule or
regulation of any court or other governmental authority or any
arbitrator applicable to such Selling Stockholder.
Such counsel shall state that such counsel has participated in
conferences with officers and other representatives of the Company and
representatives of the independent public accountants for the Company, at which
conferences such counsel made inquiries of such officers, representatives and
accountants and discussed the contents of the Preliminary Prospectus, the
Registration Statement, the Prospectus and related matters and, although such
counsel is not passing upon and does not assume any responsibility for the
accuracy, completeness or fairness of the statements contained in the
Preliminary Prospectus, the Registration Statement or the Prospectus, on the
basis of the foregoing, no facts have come to the attention of such counsel
which lead them to believe that either the Registration Statement or any
amendment thereto, at the time such Registration Statement or amendment became
effective, or the Preliminary Prospectus or the Prospectus, or any amendment or
supplement thereto, as of the date of the Preliminary Prospectus and the
Prospectus, and as of the date of such opinion, contained any untrue statement
of a material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading (it being understood that
such counsel need express no opinion with respect to the financial statements
and schedules and other financial and statistical data included in the
Preliminary Prospectus, the Registration Statement or the Prospectus, or any
supplements or amendments thereto).
In rendering such opinion, such counsel may rely (a) as to matters
involving the application of laws other than the laws of the United States and
jurisdictions in which they are admitted, to the extent such counsel deems
proper and to the extent specified in such opinion, if at all, upon an opinion
or opinions (in form and substance satisfactory to Underwriters' Counsel) of
other counsel acceptable to Underwriters' Counsel, familiar with the applicable
laws; and (b) as to matters of fact, to the extent they deem proper, on
certificates and written statements of responsible officers of the Company and
certificates or other written statements of officers of departments of
jurisdictions having custody of documents respecting the corporate existence or
good standing of the Company, provided that copies of any such statements or
certificates shall be delivered to Underwriters' Counsel, if requested. Such
opinion shall not state that it is to be governed or qualified by, or that it is
otherwise subject to, any treatise, written policy or other document relating to
legal opinions, including without limitation, the Legal Opinion Accord of the
ABA Section of Business Law (1991) or any comparable state accord. The opinion
of such counsel for the Company shall state that the opinion of any such other
counsel is in form satisfactory to such counsel and that the Underwriters and
they are justified in relying thereon. Such opinion shall also state that
Underwriters' Counsel is entitled to rely thereon.
(e) The Underwriters shall have received the favorable opinion of
__________________, regulatory counsel to the Company, dated the Closing Date,
addressed to the Underwriters, in form and substance satisfactory to
Underwriters' Counsel. In addition, at each Option Closing Date, if any, the
Underwriters shall have received the favorable opinions of Stairs Dillenbeck
Finley & Merle, counsel to the Company, and _______________, regulatory counsel
to the Company, dated the relevant Option Closing Date, addressed to the
Underwriters and in form
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and substance satisfactory to Underwriters' Counsel confirming, as of the Option
Closing Date, the statements made by Stairs Dillenbeck Finley & Merle and
_________________, in their respective opinions delivered at the Closing Date.
(f) On or prior to each of the Closing Date and each Option Closing
Date, if any, Underwriters' Counsel shall have been furnished with such
documents, certificates and opinions as they may reasonably require for the
purpose of enabling them to review or pass upon the matters referred to in
Section 7(c) hereof, or in order to evidence the accuracy, completeness or
satisfaction of any of the representations, warranties or conditions of the
Company or the Stockholders herein contained.
(g) Concurrently with the execution and delivery of this Agreement and
at the Closing Date and, as to the Option Units, the Option Closing Date, there
shall have been furnished to the Representatives an accurate certificate, dated
the date of its delivery, signed by the attorney-in-fact on behalf of each of
the Selling Stockholders, in form and substance satisfactory to the
Representatives, to the effect that the representations and warranties of each
of the Selling Stockholders contained herein are true and correct in all
material respects on and as of the date of such certificate as if made on and as
of the date of such certificate, and each of the covenants and conditions
required herein to be performed or complied with by the Selling Stockholders on
or prior to the date of such certificate has been duly, timely and fully
performed or complied with.
(h) Prior to the Closing Date and each Option Closing Date, if any, (i)
there shall have been no material adverse change or development involving a
prospective adverse change in the condition, financial or otherwise, or the
earnings, stockholders' equity, value, operations, properties, prospects,
business or results of operations of the Company, whether or not in the ordinary
course of business, from the latest dates as of which such matters are set forth
in the Registration Statement and the Prospectus; (ii) there shall have been no
transaction, not in the ordinary course of business, entered into by the Company
from the latest date as of which the financial condition of the Company is set
forth in the Registration Statement and the Prospectus; (iii) the Company shall
not be in default under any provision of any instrument relating to any
outstanding indebtedness; (iv) the Company shall not have issued any securities
(other than the Securities) or declared or paid any dividend or made any
distribution in respect of its capital stock of any class and there shall not
have been any change in the capital stock, debt (long or short term) or
liabilities or obligations of the Company (contingent or otherwise) from the
latest dates as of which such matters are set forth in the Registration
Statement and the Prospectus; (v) no material amount of the assets of the
Company shall have been pledged or mortgaged, except as set forth in the
Registration Statement and the Prospectus; (vi) no action, suit, proceeding,
inquiry, arbitration, investigation, litigation or governmental or other
proceeding, domestic or foreign, shall be pending or threatened (or
circumstances giving rise to same) against the Company or affecting any of its
properties or business before or by any court or federal, state or foreign
commission, board or other administrative agency wherein an unfavorable
decision, ruling or finding may materially and adversely affect the condition,
financial or otherwise, or the earnings, stockholders' equity, value,
operations, properties, business or results of operations of the Company, except
as set forth in the Registration Statement and Prospectus; and (vii) no stop
order shall have been issued under the Act with respect to the Registration
Statement and no proceedings therefor shall have been initiated,
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threatened or contemplated by the Commission.
(i) At the Closing Date and each Option Closing Date, if any, the
Representatives shall have received a certificate of the Company signed by the
principal executive officer and by the chief financial or chief accounting
officer of the Company, dated the Closing Date or the relevant Option Closing
Date, as the case may be, to the effect that each of such persons has carefully
examined the Registration Statement, the Prospectus and this Agreement, and
that:
i) The representations and warranties of the Company in this
Agreement are true and correct, as if made on and as of the Closing
Date or the Option Closing Date, as the case may be, and the Company
has complied with all agreements and covenants and satisfied all
conditions contained in this Agreement on its part to be performed or
satisfied at or prior to such Closing Date or Option Closing Date, as
the case may be;
ii) No stop order suspending the effectiveness of the
Registration Statement or any part thereof has been issued, and no
proceedings for that purpose have been instituted or are pending or,
to the best of each of such person's knowledge, are contemplated or
threatened under the Act;
iii) The Registration Statement and the Prospectus and, if any,
each amendment and each supplement thereto contain all statements and
information required to be included therein, and none of the
Registration Statement, the Prospectus or any amendment or supplement
thereto includes any untrue statement of a material fact or omits to
state any material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances in which
they were made, not misleading and neither the Preliminary Prospectus
nor any supplement thereto included any untrue statement of a material
fact or omitted to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading; and
iv) Subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus, (A) the
Company has not incurred any material liabilities or obligations,
direct or contingent; (B) the Company has not paid or declared any
dividends or other distributions on its capital stock; (C) the Company
has not entered into any transactions not in the ordinary course of
business; (D) there has not been any change in the capital stock or
long-term debt or any increase in the short-term borrowings (other
than any increase in short-term borrowings in the ordinary course of
business) of the Company; (E) the Company has not sustained any
material loss or damage to its property or assets, whether or not
insured; (F) there is no litigation which is pending or threatened (or
circumstances giving rise to same) against the Company or any
affiliate (within the meaning of the Rules and Regulations) of the
foregoing which is required to be set forth in an amended or
supplemented Prospectus which has not been set forth; and (G) there
has occurred no event required to be set forth in an amended or
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supplemented Prospectus which has not been set forth.
References to the Registration Statement and the Prospectus in this Section 7(i)
are to such documents as amended and supplemented at the date of such
certificate.
(f) By the Closing Date, the Underwriters will have received clearance
from the NASD as to the amount of compensation allowable or payable to the
Underwriters, as described in the Registration Statement.
(g) At the time this Agreement is executed, the Underwriters shall have
received a letter, dated such date, addressed to the Underwriters and in form
and substance satisfactory in all respects (including the non-material nature of
the changes or decreases, if any, referred to in clause (iii) below) to the
Underwriters and Underwriters' Counsel, from Horton & Company, L.L.C:
i) confirming that they are independent certified public
accountants with respect to the Company within the meaning of the Act
and the Rules and Regulations;
ii) stating that it is their opinion that the financial
statements and supporting schedules of the Company included in the
Registration Statement comply as to form in all material respects with
the applicable accounting requirements of the Act and the Rules and
Regulations and that the Underwriters may rely upon the opinion of
Horton & Company, L.L.C. with respect to such financial statements and
supporting schedules included in the Registration Statement;
iii) stating that, on the basis of a limited review which
included a reading of the latest unaudited interim financial
statements of the Company, a reading of the latest available minutes
of the stockholders and board of directors and the various committees
of the board of directors of the Company, consultations with officers
and other employees of the Company responsible for financial and
accounting matters and other specified procedures and inquiries,
nothing has come to their attention which would lead them to believe
that (A) the pro forma financial information contained in the
Registration Statement and Prospectus does not company as to form in
all material respects with the applicable accounting requirements of
the Act and the Rules and Regulations or is not fairly presented in
conformity with generally accepted accounting principles applied on
basis consistent with that that of the audited financial statements of
the Company, (B) the unaudited financial statements and supporting
schedules of the Company included in the Registration Statement do not
comply as to form in all material respects with the applicable
accounting requirements of the Act and the Rules and Regulations or
are not fairly presented in conformity with generally accepted
accounting principles applied on a basis consistent with that of the
audited financial statements of the Company included in the
Registration Statement, or (C) at a specified date nor more than five
(5) days prior to the effective date of the Registration Statement,
there has been any change in the capital stock or long-term debt of
the Company, or any
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decrease in the stockholders' equity or net current assets or net
assets of the Company as compared with amounts shown in the ______,
1999 balance sheet included in the Registration Statement, other than
as set forth in or contemplated by the Registration Statement, or, if
there was any change or decrease, setting forth the amount of such
change or decrease, and (C) during the period from ______, 1999 to a
specified date not more than five (5) days prior to the effective date
of the Registration Statement, there was any decrease in net revenues,
net earnings or net earnings per share of Common Stock, in each case
as compared with the corresponding period beginning _______, 1998,
other than as set forth in or contemplated by the Registration
Statement, or, if there was any such decrease, setting forth the
amount of such decrease;
iv) setting forth, at a date not later than five (5) days prior
to the effective date of the Registration Statement, the amount of
liabilities of the Company (including a break-down of commercial paper
and notes payable to banks);
v) stating that they have compared specific dollar amounts,
numbers of shares, percentages of revenues and earnings, statements
and other financial information pertaining to the Company set forth in
the Prospectus, in each case to the extent that such amounts, numbers,
percentages, statements and information may be derived from the
general accounting records, including work sheets, of the Company and
excluding any questions requiring an interpretation by legal counsel,
with the results obtained from the application of specified readings,
inquiries and other appropriate procedures (which procedures do not
constitute an audit in accordance with generally accepted auditing
standards) set forth in the letter and found them to be in agreement;
and
vi) statements as to such other matters incident to the
transaction contemplated hereby as the Underwriters may request.
(h) At the Closing Date and each Option Closing Date, if any, the
Underwriters shall have received from Horton & Company, L.L.C. a letter, dated
as of the Closing Date or the relevant Option Closing Date, as the case may be,
to the effect that (i) it reaffirms the statements made in the letter furnished
pursuant to Section 7(k), (ii) if the Company has elected to rely on Rule 430A
of the Rules and Regulations, to the further effect that Horton & Company,
L.L.C. has carried out procedures as specified in clause (v) of Section 7(k)
hereof with respect to certain amounts, percentages and financial information as
specified by the Underwriters and deemed to be a part of the Registration
Statement pursuant to Rule 430A(b) and have found such amounts, percentages and
financial information to be in agreement with the records specified in such
clause (v).
(i) On each of Closing Date and Option Closing Date, if any, there
shall have been duly tendered to the Representatives the appropriate number of
Securities.
(j) No order suspending the sale of the Securities in any jurisdiction
designated by the Underwriters pursuant to Section 5(e) hereof shall have been
issued on either the Closing
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Date or the Option Closing Date, if any, and no proceedings for that purpose
shall have been instituted or shall be contemplated.
(k) On or before the effective date of the Registration Statement, the
Company shall have executed and delivered to the Representatives the
Representatives' Warrant Agreement, substantially in the form filed as Exhibit
____ to the Registration Statement. On or before the Closing Date, the Company
shall have executed and delivered to the Representatives, the Representatives'
Warrants in such denominations and to such designees as shall have been provided
to the Company.
(l) On or before Closing Date, the Securities shall have been duly
approved for quotation on the Nasdaq National Market, subject to official notice
of issuance.
(m) On or before Closing Date, there shall have been delivered to the
Underwriters all of the Lock-Up Agreements, in form and substance satisfactory
to Underwriters' Counsel.
(n) On or before the effective date of the Registration Statement, the
Company and American Stock Transfer & Trust Company shall have executed and
delivered to the Underwriters the Warrant Agreement, substantially in the form
filed as Exhibit ____ to the Registration Statement.
(o) At least two (2) full business days prior to the date hereof, the
Closing Date and each Option Closing Date, if any, the Company shall have
delivered to the Underwriters the unaudited interim financial statements
required to be so delivered pursuant to Section 5(p) of this Agreement.
If any condition to the Underwriters' obligations hereunder to be
fulfilled prior to or at the Closing Date or at any Option Closing Date, as the
case may be, is not so fulfilled, the Underwriters may terminate this Agreement
or, if the Underwriters so elect, they may waive any such conditions which have
not been fulfilled or extend the time for their fulfillment.
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8. Indemnification
(a) The Company agrees to indemnify and hold harmless each Underwriter
(for purposes of this Section 8, "Underwriter" shall include the officers,
directors, partners, employees, agents and counsel of the Underwriters,
including specifically each person who may be substituted for an Underwriter as
provided in Section 12 hereof), and each person, if any, who controls the
Underwriter ("controlling person") within the meaning of Section 15 of the Act
or Section 20(a) of the Exchange Act, from and against any and all losses,
claims, damages, expenses or liabilities, joint or several (and actions,
proceedings, investigations, inquiries and suits in respect thereof), whatsoever
(including but not limited to any and all costs and expenses whatsoever
reasonably incurred in investigating, preparing or defending against such
action, proceeding, investigation, inquiry or suit, commenced or threatened, or
any claim whatsoever), as such are incurred, to which the Underwriter or such
controlling person may become subject under the Act, the Exchange Act or any
other statute or at common law or otherwise or under the laws of foreign
countries, arising out of or based upon (A) any untrue statement or alleged
untrue statement of a material fact contained (i) in any Preliminary Prospectus,
the Registration Statement or the Prospectus (as from time to time amended and
supplemented); (ii) in any post-effective amendment or amendments or any new
registration statement and prospectus in which is included securities of the
Company issued or issuable upon exercise of the Securities; or (iii) in any
application or other document or written communication (in this Section 8,
collectively referred to as "applications") executed by the Company or based
upon written information furnished by the Company in any jurisdiction in order
to qualify the Securities under the securities laws thereof or filed with the
Commission, any state securities commission or agency, the NASD, Nasdaq or any
securities exchange; (B) the omission or alleged omission therefrom of a
material fact required to be stated therein or necessary to make the statements
therein not misleading (in the case of the Prospectus, in light of the
circumstances in which they were made); or (C) any breach of any representation,
warranty, covenant or agreement of the Company contained herein or in any
certificate by or on behalf of the Company or any of its officers delivered
pursuant hereto, unless, in the case of clause (A) or (B) above, such statement
or omission was made in reliance upon and in conformity with written information
furnished to the Company with respect to any Underwriter by or on behalf of such
Underwriter expressly for use in any Preliminary Prospectus, the Registration
Statement or any Prospectus, or any amendment thereof or supplement thereto, or
in any application, as the case may be. The indemnity agreement in this Section
8(a) shall be in addition to any liability which the Company or any Selling
Stockholder may have at common law or otherwise.
(b) Each Selling Stockholder will indemnify and hold harmless the
Company and the Underwriters, each person, if any, who controls the Company and
the Underwriters within the meaning of Section 15 of the Act or Section 20 of
the Exchange Act, each director of the Company and each officer of the Company
who signs the Registration Statement to the same extent as the foregoing
indemnity from the Company to each Underwriter, but only so far as losses,
claims, liabilities, expenses and damages arise out of or are based on any
untrue statement or omission made in reliance on and in conformity with
information relating to any Selling Stockholder furnished in writing to the
Company or Underwriters by such Selling Stockholder expressly for use in the
Registration Statement, any preliminary prospectus or the Prospectus.
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(c) Each of the Underwriters agree severally, but not jointly, to
indemnify and hold harmless the Selling Stockholders, the Company, each of its
directors and officers who has signed the Registration Statement and each
person, if any, who controls the Company within the meaning of the Act, to the
same extent as the foregoing indemnity from the Selling Stockholders and the
Company to each Underwriter but only with respect to statements or omissions, if
any, made in any Preliminary Prospectus, the Registration Statement or the
Prospectus or any amendment thereof or supplement thereto or in any application
made in reliance upon, and in strict conformity with, written information
furnished to the Company with respect to any Underwriter by such Underwriter
expressly for use in such Preliminary Prospectus, the Registration Statement or
Prospectus or any amendment thereof or supplement thereto or in any such
application, provided that such written information or omissions only pertain to
disclosures in the Preliminary Prospectus, the Registration Statement or the
Prospectus directly relating to the transactions effected by the Underwriter in
connection with the offering contemplated hereby. The Company and the Selling
Stockholders acknowledge that the statements with respect to the public offering
of the Securities set forth under the heading "Underwriting" and the
stabilization legend in the Prospectus have been furnished by the Underwriter
expressly for use therein and constitute the only information furnished in
writing by or on behalf of the Underwriters for inclusion in any Preliminary
Prospectus, the Registration Statement or the Prospectus. The indemnity
agreement in this Section 8(c) shall be in addition to any liability which the
Underwriter may have at common law or otherwise.
(d) Promptly after receipt by an indemnified party under this Section 8
of notice of the commencement of any action, such indemnified party shall, if a
claim in respect thereof is to be made against one or more indemnifying parties
under this Section 8, notify each party against whom indemnification is to be
sought in writing of the commencement thereof (but the failure to so notify an
indemnifying party shall not relieve it from any liability which it may have
under this Section 8 (except to the extent that it has been prejudiced in any
material respect by such failure) or from any liability which it may have
otherwise). In case any such action, investigation, inquiry, suit or proceeding
is brought against any indemnified party, and it notifies an indemnifying party
or parties of the commencement thereof, the indemnifying party or parties will
be entitled to participate therein, and to the extent it or they may elect by
written notice delivered to the indemnified party promptly after receiving the
aforesaid notice from such indemnified party, to assume the defense thereof with
counsel reasonably satisfactory to such indemnified party. Notwithstanding the
foregoing, an indemnified party shall have the right to employ its own counsel
in any such case but the fees and expenses of such counsel shall be at the
expense of such indemnified party unless (i) the employment of such counsel
shall have been authorized in writing by the indemnifying parties in connection
with the defense of such action, investigation, inquiry, suit or proceeding at
the expense of the indemnifying party, (ii) the indemnifying parties shall not
have employed counsel reasonably satisfactory to such indemnified party to have
charge of the defense of such action within a reasonable time after notice of
commencement of the action, or (iii) such indemnified party shall have
reasonably concluded that there may be defenses available to it which are
different from or additional to those available to one or all of the
indemnifying parties (in which event the indemnifying parties shall not have the
right to direct the defense of such action on behalf of the indemnified party or
parties), in any of which events such fees and expenses of one additional
counsel shall be borne by the indemnifying parties. In no event shall the
indemnifying parties be liable for fees and expenses of more than one counsel
(in addition to any local counsel) separate from their own counsel for all
indemnified parties in connection with any one action,
38
<PAGE>
investigation, inquiry, suit or proceeding or separate but similar or related
actions in the same jurisdiction arising out of the same general allegations or
circumstances. An indemnifying party will not, without the prior written consent
of the indemnified parties, settle, compromise or consent to the entry of any
judgment with respect to any pending or threatened claim, action, suit or
proceeding in respect of which indemnification or contribution may be sought
hereunder (whether or not the indemnified parties are actual or potential
parties to such claim or action, investigation, inquiry, suit or proceeding),
unless such settlement, compromise or consent (i) includes an unconditional
release of each indemnified party from all liability arising out of such claim,
action, investigation, suit or proceeding and (ii) does not include a statement
as to or an admission of fault, culpability or a failure to act by or on behalf
of any indemnified party. Anything in this Section 8 to the contrary
notwithstanding, an indemnifying party shall not be liable for any settlement of
any claim or action effected without its written consent.
(e) In order to provide for just and equitable contribution in any case
in which (i) an indemnified party makes a claim for indemnification pursuant to
this Section 8, but it is judicially determined (by the entry of a final
judgment or decree by a court of competent jurisdiction and the expiration of
time to appeal or the denial of the last right of appeal) that such
indemnification may not be enforced in such case notwithstanding the fact that
the express provisions of this Section 8 provide for indemnification in such
case, or (ii) contribution under the Act may be required on the part of any
indemnified party, then each indemnifying party shall contribute to the amount
paid as a result of such losses, claims, damages, expenses or liabilities (or
actions, investigation, inquiry, suit or proceeding in respect thereof) (A) in
such proportion as is appropriate to reflect the relative benefits received by
each of the contributing parties, on the one hand, and the party to be
indemnified, on the other hand, from the offering of the Securities or (B) if
the allocation provided by clause (A) above is not permitted by applicable law,
in such proportion as is appropriate to reflect not only the relative benefits
referred to in clause (A) above but also the relative fault of each of the
contributing parties, on the one hand, and the party to be indemnified, on the
other hand, in connection with the statements or omissions that resulted in such
losses, claims, damages, expenses or liabilities, as well as any other relevant
equitable considerations. In any case where the Company and/or Selling
Stockholders are a contributing party and the Underwriters are the indemnified
party, the relative benefits received by the Company and/or the Selling
Stockholders, on the one hand, and the Underwriters, on the other, shall be
deemed to be in the same proportion as the total net proceeds from the offering
of the Securities (before deducting expenses) bear to the total underwriting
discounts received by the Underwriters hereunder, in each case as set forth in
the table on the cover page of the Prospectus. Relative fault shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Company, the Selling
Stockholders or by the Underwriters, and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
untrue statement or omission. The amount paid by an indemnified party as a
result of the losses, claims, damages, expenses or liabilities (or actions,
investigation, inquiry, suit or proceeding in respect thereof) referred to in
the first (1st) sentence of this Section 8(e) shall be deemed to include any
legal or other expenses reasonably incurred by such indemnified party in
connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 8(e), the Underwriters shall not
be required to contribute any amount in excess of the underwriting discount
applicable to the Securities purchased by the Underwriter hereunder. No person
guilty of fraudulent
39
<PAGE>
misrepresentation (within the meaning of Section 12(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. For purposes of this Section 8(e), the Selling Stockholders,
each person, if any, who controls the Company or the Underwriters within the
meaning of the Act, each officer of the Company who has signed the Registration
Statement and director of the Company shall have the same rights to contribution
as the Selling Stockholders, the Company or the Underwriters, as the case may
be, subject in each case to this Section 8(d). Any party entitled to
contribution will, promptly after receipt of notice of commencement of any
action, investigation, inquiry, suit or proceeding against such party in respect
to which a claim for contribution may be made against another party or parties
under this Section 8(e), notify such party or parties from whom contribution may
be sought, but the omission to so notify such party or parties shall not relieve
the party or parties from whom contribution may be sought from any obligation it
or they may have hereunder or otherwise than under this Section 8(e), or to the
extent that such party or parties were not adversely affected by such omission.
Notwithstanding anything in this Section 8 to the contrary, no party will be
liable for contribution with respect to the settlement of any action,
investigation, inquiry, suit or proceeding effected without its written consent.
The contribution agreement set forth above shall be in addition to any
liabilities which any indemnifying party may have at common law or otherwise.
9. Representations, Warranties, Covenants and Agreements to Survive
Delivery. All representations, warranties, covenants and agreements of the
Company and the Selling Stockholders contained in this Agreement, or contained
in certificates of officers of the Company or certificates of the Selling
Stockholders submitted pursuant hereto, shall be deemed to be representations,
warranties, covenants and agreements at the Closing Date and each Option Closing
Date, if any, and such representations, warranties, covenants and agreements of
the Company, and the respective indemnity and contribution agreements contained
in Section 8 hereof, shall remain operative and in full force and effect
regardless of any investigation made by or on behalf of any Underwriter, the
Company, any controlling person of any Underwriter or the Company, or the
Selling Stockholders, and shall survive the termination of this Agreement or the
issuance and delivery of the Securities to the Underwriters.
10. Effective Date. This Agreement shall become effective at 10:00
a.m., New York City time, on the next full business day following the date
hereof, or at such earlier time after the Registration Statement becomes
effective as the Representatives, in their discretion, shall release the
Securities for sale to the public; provided, however, that the provisions of
Sections 6, 8 and 10 of this Agreement shall at all times be effective. For
purposes of this Section 10, the Securities to be purchased hereunder shall be
deemed to have been so released upon the earlier of dispatch by the
Representatives of telegrams to securities dealers releasing such shares for
offering or the release by the Representatives for publication of the first
newspaper advertisement which is subsequently published relating to the
Securities.
40
<PAGE>
11. Termination.
(a) Subject to Section 11(b) hereof, the Representatives shall have the
right to terminate this Agreement: (i) if any domestic or international event or
act or occurrence has materially adversely disrupted, or in the Representatives'
opinion will in the immediate future materially adversely disrupt, the financial
markets; or (ii) if any material adverse change in the financial markets shall
have occurred; or (iii) if trading generally shall have been suspended or
materially limited on or by, as the case may be, any of the New York Stock
Exchange, the American Stock Exchange, the NASD, the Boston Stock Exchange,
Chicago Board of Trade, the Chicago Board of Options Exchange, the Chicago
Mercantile Exchange, the Commission or any governmental authority having
jurisdiction over such matters; or (iv) if trading of any of the securities of
the Company shall have been suspended, or if any of the securities of the
Company shall have been delisted, on any exchange or in any over-the-counter
market; or (v) if the United States shall have become involved in a war or major
hostilities, or if there shall have been an escalation in an existing war or
major hostilities, or a national emergency shall have been declared in the
United States; or (vi) if a banking moratorium shall have been declared by any
state or federal authority; or (vii) if a moratorium in foreign exchange trading
shall have been declared; or (viii) if the Company shall have sustained a
material or substantial loss by fire, flood, accident, hurricane, earthquake,
theft, sabotage or other calamity or malicious act which, whether or not such
loss shall have been insured, will, in the Representatives' opinion, make it
inadvisable to proceed with the delivery of the Securities; or (ix) if there
shall have been such a material adverse change in the conditions or prospects of
the Company, or if there shall have occurred any outbreak or escalation of
hostilities or any calamity or crisis or there shall have been such a material
adverse change in the general market, political or economic conditions, in the
United States or elsewhere, as in the Representatives' judgment would make it
inadvisable to proceed with the offering, sale and/or delivery of the
Securities.
(b) If this Agreement is terminated by the Representatives in
accordance with the provisions of Section 7 or Section 11(a) hereof, the Company
and the Selling Stockholders shall, in such proportions (aggregating 100%) as
they may agree among upon themselves, promptly reimburse and indemnify the
Underwriters for all their actual out-of-pocket expenses, including the
reasonable fees and disbursements of Underwriters' Counsel, less amounts
previously paid pursuant to Section 6(c) hereof. Notwithstanding any contrary
provision contained in this Agreement, if this Agreement shall not be carried
out within the time specified herein, or any extension thereof granted to the
Representatives, by reason of any failure on the part of the Company to perform
any undertaking or satisfy any condition of this Agreement by it to be performed
or satisfied (including, without limitation, pursuant to Section 7 or Section
13) then, the Company shall promptly reimburse and indemnify the Underwriters
for all of their actual out-of-pocket expenses, including the fees and
disbursements of counsel for the Underwriters (less amounts previously paid
pursuant to Section 6(c) above). In addition, the Company and the Selling
Stockholders shall remain liable for all reasonable "blue sky" counsel fees and
expenses and "blue sky" filing fees. In addition, the Company shall remain
liable for all "blue sky" counsel fees and expenses and "blue sky" filing fees.
Notwithstanding any contrary provision contained in this Agreement, any election
hereunder or any termination of this Agreement (including, without limitation,
pursuant to Sections 7 and 11(a) hereof), and whether or not this Agreement is
otherwise carried out, the provisions of Section 5 and
41
<PAGE>
Section 7 shall not be in any way be affected by such election or termination or
failure to carry out the terms of this Agreement or any part hereof.
12. Substitution of Underwriters. If one or more of the Underwriters
shall fail otherwise than for a reason sufficient to justify the termination of
this Agreement (under the provisions of Section 7, Section 11 or Section 13
hereof) to purchase the Securities which it or they are obligated to purchase on
such date under this Agreement (the "Defaulted Securities"), the Representatives
shall have the right, within 24 hours thereafter, to make arrangement for one or
more of the non-defaulting Underwriters, or any other Underwriters, to purchase
all, but not less than all, of the Defaulted Securities in such amounts as may
be agreed upon and upon the terms herein set forth; if, however, the
Representatives shall not have completed such arrangements within such 24-hour
period, then:
(a) if the number of Defaulted Securities does not exceed 10% of the
total number of Firm Units to be purchased on such date, the non-defaulting
Underwriters shall be obligated to purchase the full amount thereof in the
proportions that their respective underwriting obligations hereunder bear to the
underwriting obligations of all non-defaulting Underwriters, or
(b) if the number of Defaulted Securities exceeds 10% of the total
number of Firm Units, this Agreement shall terminate without liability on the
part of any non-defaulting Underwriters (or, if such default shall occur with
respect to any Option Units to be purchased on an Option Closing Date, the
Underwriters may at the Representatives' option, by notice from the
Representatives to the Company, terminate the Underwriters' obligation to
purchase Option Units from the Company on such date).
No action taken pursuant to this Section shall relieve any defaulting
Underwriter from liability in respect of any default by such Underwriter under
this Agreement. In the event of any such default which does not result in a
termination of this Agreement, the Representatives shall have the right to
postpone the Closing Date for a period not exceeding seven (7) days in order to
effect any required changes in the Registration Statement or Prospectus or in
any other documents or arrangements.
13. Default by the Company and/or Selling Stockholder. If the Company
and/or the Selling Stockholders shall fail at the Closing Date or any Option
Closing Date, as applicable, to sell and deliver the number of Securities which
they are obligated to sell hereunder on such date, then this Agreement shall
terminate (or, if such default shall occur with respect to any Option Units to
be purchased on an Option Closing Date, the Representatives may, at their
option, by notice from the Representatives to the Company, terminate the
Underwriters' obligation to purchase Option Units from the Company on such date)
without any liability on the part of any non-defaulting party other than
pursuant to Section 6, Section 8 and Section 11 hereof. No action taken pursuant
to this Section 13 shall relieve the Company or the Selling Stockholders from
liability, if any, in respect of such default.
14. Notices. All notices and communications hereunder, except as herein
otherwise specifically provided, shall be in writing and shall be deemed to have
been duly given if mailed or transmitted by any standard form of
telecommunication. Notices to the Underwriters
42
<PAGE>
shall be directed to the Representatives at Dirks & Company, Inc., 520 Madison
Avenue, 10th Floor, New York, NY 10038, Attention: Jessy Dirks, with a copy to
Orrick, Herrington & Sutcliffe, 666 Fifth Avenue, New York, New York 10103,
Attention: Lawrence Fisher, Esq. Notices to the Company and/or the Selling
Stockholders shall be directed to the Company at CallNOW.com, Inc., 50 Broad
Street, New York, New York 10004, Attention: Christian Bardenheuer, Chairman and
Chief Executive Officer, with a copy to Stairs Dillenbeck Finley & Merle,
Attention: Ken Drake.
15. Parties. This Agreement shall inure solely to the benefit of, and
shall be binding upon, the Underwriters, the Selling Stockholders, the Company
and the controlling persons, directors and officers referred to in Section 8
hereof, and their respective successors, legal representatives and assigns, and
no other person shall have or be construed to have any legal or equitable right,
remedy or claim under or in respect of or by virtue of this Agreement or any
provisions herein contained. No purchaser of Units from the Underwriters shall
be deemed to be a successor by reason merely of such purchase.
16. Construction. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of New York, without giving
effect to choice of law or conflict of laws principles.
17. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, and all of which
taken together shall be deemed to be one and the same instrument.
18. Entire Agreement; Amendments. This Agreement and the
Representatives' Warrant Agreement constitute the entire agreement of the
parties hereto and supersede all prior written or oral agreements,
understandings and negotiations with respect to the subject matter hereof and
thereof. This Agreement may not be amended except in a writing signed by the
Representatives, the Company and the Selling Stockholders.
43
<PAGE>
If the foregoing correctly sets forth the understanding between the
Underwriters and the Company, please so indicate in the space provided below for
that purpose, whereupon this letter shall constitute a binding agreement between
us.
Very truly yours,
CALLNOW.COM, INC.
By:
----------------------------------
Christian Bardenheuer
Chief Executive Officer
THE SELLING STOCKHOLDERS NAMED ON SCHEDULE B
HERETO
By:
----------------------------------
Attorney-in-Fact
Confirmed and accepted as of
the date first above written.
DIRKS & COMPANY, INC.
NOLAN SECURITIES CORPORATION
Acting on their own behalf and
as the Representatives of the several
Underwriters named on Schedule A
hereto
BY: DIRKS & COMPANY, INC.
By:
---------------------------------
Name:
Title:
44
<PAGE>
Schedule A
- ----------
Underwriters
NAME NUMBER OF UNITS
- ---------------------------------- -------------------------------------------
Dirks & Company, Inc.
Nolan Securities Corporation
Total 4,224,891
---------
45
<PAGE>
Schedule B
- ----------
Selling Stockholders
NAME NUMBER OF SHARES OF COMMON STOCK
- ---------------------------------- -------------------------------------------
Total 224,891
-------
46
<PAGE>
Dirks & Company, Inc.
Nolan Securities Corporation
520 Madison Avenue
10th Floor
New York, NY 10022
Ladies and Gentlemen:
In order to induce Dirks & Company, Inc. and Nolan Securities
Corporation (the "Representatives") and CallNOW.com, Inc. (together with its
predecessors, successors and assigns, the "Company") to enter into an
underwriting agreement with respect to the public offering of the Company's
units, each unit consisting of one share of common stock and one redeemable
common stock purchase warrant, the undersigned hereby agrees that for a period
of 180 days following the effective date of the Company's Registration Statement
for the subject public offering (the "Lock-up Period"), he, she or it will not,
without the prior written consent of the Representatives, directly or
indirectly, issue, offer, agree or offer to sell, sell, grant an option for the
purchase or sale of, transfer, pledge, assign, hypothecate, distribute or
otherwise encumber or dispose of (whether pursuant to Rule 144 of the General
Rules and Regulations under the Securities Act of 1933, as amended, or
otherwise) any shares of common stock of the Company or options, rights,
warrants or other securities convertible into, exchangeable or exercisable for
or evidencing any right to purchase or subscribe for shares of common stock
(whether or not beneficially owned by the undersigned), or any beneficial
interest therein (collectively, the "Securities").
The undersigned hereby further that for a period of twelve (12) months
following the effective date of the Company's Registration Statement for the
subject public offering, he, she or it will make any sale of Securities owned by
them through the Representatives.
In order to enable the aforesaid covenants to be enforced, the
undersigned hereby consents to the placing of legends and/or stop-transfer
orders with the transfer agent of the Company's securities with respect to any
of the Securities registered in the name of the undersigned or beneficially
owned by the undersigned.
Dated: __________________, 2000
------------------------------------
Signature
------------------------------------
Print Name
------------------------------------
Print Address
------------------------------------
Print Social Security Number
or Taxpayer I.D. Number
<PAGE>
- -------------------------------------------------------------------------------
CALLNOW.COM, INC.
AND
DIRKS & COMPANY, INC.
AND
NOLAN SECURITIES CORPORATION
REPRESENTATIVES'
WARRANT AGREEMENT
DATED AS OF __________, 2000
- -------------------------------------------------------------------------------
<PAGE>
REPRESENTATIVES' WARRANT AGREEMENT dated as of ___________,
2000 between CALLNOW.COM, INC., a Delaware corporation (the "Company"), and
DIRKS & COMPANY, INC. and NOLAN SECURITIES CORPORATION (collectively,
hereinafter referred to variously as the "Holder" or "Holders" or the
"Representatives").
W I T N E S S E T H:
WHEREAS, the Company proposes to issue to the Representatives
warrants ("Warrants") to purchase up to an aggregate 422,489 shares of common
stock, $0.001 par value ("Common Stock"), of the Company and/or 422,489
non-redeemable Common Stock purchase warrants of the Company ("Underlying
Warrants"), each Underlying Warrant to purchase one additional share of Common
Stock; and
WHEREAS, the Representatives have agreed pursuant to the
underwriting agreement (the "Underwriting Agreement") dated as of the date
hereof between the Company, certain selling stockholders and the several
Underwriters listed therein to act as the Representatives in connection with the
Company's proposed public offering of up to 4,224,891 units ("Units"),
consisting of an aggregate 4,224,891 shares of Common Stock and 4,224,891
redeemable Common Stock purchase Warrants (the "Public Warrants") at a public
offering price of $___ per unit (the "Public Offering"); and
WHEREAS, the Warrants to be issued pursuant to this Agreement
will be issued on the Closing Date (as such term is defined in the Underwriting
Agreement) by the Company to the Representatives in consideration for, and as
part of the Representatives' compensation in connection with, the
Representatives acting as the Representatives pursuant to the Underwriting
Agreement;
<PAGE>
NOW, THEREFORE, in consideration of the premises, the payment
by the Representatives to the Company of an aggregate forty-two dollars and
twenty-five cents ($42.25), the agreements herein set forth and other good and
valuable consideration, hereby acknowledged, the parties hereto agree as
follows:
1. Grant.
---------
The Representatives (or their designees) are hereby granted
the right to purchase, at any time from ___________, 2001 [twelve months after
the date of this Agreement], until 5:30 P.M., New York time, on ___________,
2005 [five years after the date of this Agreement], up to an aggregate of
422,289 shares of Common Stock and/or 422,289 Underlying Warrants at an initial
exercise price (subject to adjustment as provided in Section 8 hereof) of $____
per share of Common Stock [120% of the public offering price per share of Common
Stock], and $___ per Underlying Warrant [120% of the public offering price per
Underlying Warrant], subject to the terms and conditions of this Agreement. One
Underlying Warrant is exercisable to purchase one additional share of Common
Stock at an initial exercise price of $___ [150% of the public offering price]
from ________, 2001, until 5:30 p.m. New York time on _________, 2005, at which
time the Underlying Warrants shall expire. Except as set forth herein, the
shares of Common Stock and the Underlying Warrants issuable upon exercise of the
Warrants are in all respects identical to the shares of Common Stock and the
Public Warrants being purchased by the Underwriters for resale to the public
pursuant to the terms and provisions of the Underwriting Agreement, and
particularly except that the Underlying Warrants are non-redeemable, and the
Public Warrants are redeemable. The shares of Common Stock and the Underlying
Warrants issuable upon exercise of the Warrants are sometimes hereinafter
referred to collectively as the "Securities."
2. Warrant Certificates.
------------------------
2
<PAGE>
The warrant certificates (the "Warrant Certificates") delivered and to be
delivered pursuant to this Agreement shall be in the form set forth in Exhibit
A, attached hereto and made a part hereof, with such appropriate insertions,
omissions, substitutions, and other variations as required or permitted by this
Agreement.
3. Exercise of Warrant.
-----------------------
3.1 Method of Exercise.
-----------------------
The Warrants initially are exercisable at an aggregate initial
exercise price (subject to adjustment as provided in Section 8 hereof) per share
of Common Stock and per Underlying Warrant set forth in Section 6 hereof payable
by certified or official bank check in New York Clearing House funds, subject to
adjustment as provided in Section 8 hereof. Upon surrender of a Warrant
Certificate with the annexed Form of Election to Purchase duly executed,
together with payment of the Exercise Price (as hereinafter defined) for the
shares of Common Stock and/or the Underlying Warrants purchased at the Company's
principal executive offices in New York (presently located at 50 Broad Street,
New York, New York 10004-2307) the registered holder of a Warrant Certificate
("Holder" or "Holders") shall be entitled to receive a certificate or
certificates for the shares of Common Stock so purchased and a certificate or
certificates for the Underlying Warrants so purchased. The purchase rights
represented by each Warrant Certificate are exercisable at the option of the
Holder thereof, in whole or in part (but not as to fractional shares of the
Common Stock and Underlying Warrants underlying the Warrants). In the event the
Company redeems all of the Public Warrants (other than the Underlying Warrants
underlying the Warrants, which are not redeemable), then the Warrants may only
be exercised if such exercise is accompanied by the simultaneous exercise of the
Underlying Warrant(s) underlying the Warrants being so exercised. Warrants may
be exercised to purchase all or part of the shares of Common Stock together with
an equal or unequal number
3
<PAGE>
of the Underlying Warrants represented thereby. In the case of the purchase of
less than all the shares of Common Stock and/or the Underlying Warrants
purchasable under any Warrant Certificate, the Company shall
cancel said Warrant Certificate upon the surrender thereof and shall execute and
deliver a new Warrant Certificate of like tenor for the balance of the shares of
Common Stock and Underlying Warrants purchasable thereunder.
3.2 Exercise by Surrender of Warrant.
-------------------------------------
In addition to the method of payment set forth in Section 3.1
and in lieu of any cash payment required thereunder, the Holder(s) of the
Warrants shall have the right at any time and from time to time to exercise the
Warrants in full or in part by surrendering the Warrant Certificate in the
manner specified in Section 3.1 hereof. The number of shares of Common Stock to
be issued pursuant to this Section 3.2 shall be equal to the difference between
(a) the number of shares of Common Stock in respect of which the Warrants are
exercised and (b) a fraction, the numerator of which shall be the number of
shares of Common Stock in respect of which the Warrants are exercised multiplied
by the Exercise Price and the denominator of which shall be the Market Price (as
defined in Section 3.3 hereof) of the shares of Common Stock. The number of
Underlying Warrants to be issued pursuant to this Section 3.2 shall be equal to
the difference between (a) the number of Underlying Warrants in respect of which
the Warrants are exercised and (b) a fraction, the numerator of which shall be
the number of Underlying Warrants in respect of which the Warrants are exercised
multiplied by the Exercise Price and the denominator of which shall be the
Market Price (as defined in Section 3.3 hereof) of the Underlying Warrants.
Solely for the purposes of this paragraph, Market Price shall be calculated
either (i) on the date on which the form of election attached hereto is deemed
to have been sent to the Company pursuant to Section 14 hereof ("Notice Date")
or (ii) as the average of the
4
<PAGE>
Market Prices for each of the five trading days preceding the Notice Date,
whichever of (i) or (ii) is greater.
5
<PAGE>
3.3 Definition of Market Price.
-------------------------------
As used herein, the phrase "Market Price" at any date shall be
deemed to be (i) when referring to the Common Stock, the last reported sale
price, or, in case no such reported sale takes place on such day, the average of
the last reported sale prices for the last three (3) trading days, in either
case as officially reported by the principal securities exchange on which the
Common Stock is listed or admitted to trading or by the Nasdaq SmallCap Market
("Nasdaq SmallCap") or by the National Association of Securities Dealers
Automated Quotation System ("Nasdaq"), or, if the Common Stock is not listed or
admitted to trading on any national securities exchange or quoted by Nasdaq, the
average closing bid price as furnished by the National Association of Securities
Dealers, Inc. ("NASD") through Nasdaq or similar organization if Nasdaq is no
longer reporting such information, or if the Common Stock is not quoted on
Nasdaq, as determined in good faith (using customary valuation methods) by
resolution of the members of the Board of Directors of the Company, based on the
best information available to it or (ii) when referring to a Underlying Warrant,
the last reported sales price, or, in the case no such reported sale takes place
on such day, the average of the last reported sale prices for the last three (3)
trading days, in either case as officially reported by the principal securities
exchange on which the Underlying Warrants are listed or admitted to trading or
by Nasdaq, or, if the Underlying Warrants are not listed or admitted to trading
on any national securities exchange or quoted by Nasdaq, the average closing bid
price as furnished by the NASD through Nasdaq or similar organization if Nasdaq
is no longer reporting such information, or if the Underlying Warrants are not
quoted on Nasdaq or are no longer outstanding, the Market Price of a Underlying
Warrant shall equal the difference between the Market Price of the Common Stock
and the Exercise Price of the Underlying Warrant.
6
<PAGE>
4. Issuance of Certificates.
----------------------------
Upon the exercise of the Warrants, the issuance of certificates for shares of
Common Stock and Underlying Warrants and/or other securities, properties or
rights underlying such Warrants and, upon the exercise of the Underlying
Warrants, the issuance of certificates for shares of Common Stock and/or other
securities, properties or rights underlying such Underlying Warrants shall be
made forthwith (and in any event within five (5) business days thereafter)
without charge to the Holder thereof including, without limitation, any tax
which may be payable in respect of the issuance thereof, and such certificates
shall (subject to the provisions of Sections 5 and 7 hereof) be issued in the
name of, or in such names as may be directed by, the Holder thereof; provided,
however, that the Company shall not be required to pay any tax which may be
payable in respect of any transfer involved in the issuance and delivery of any
such certificates in a name other than that of the Holder, and the Company shall
not be required to issue or deliver such certificates unless or until the person
or persons requesting the issuance thereof shall have paid to the Company the
amount of such tax or shall have established to the satisfaction of the Company
that such tax has been paid.
The Warrant Certificates and the certificates representing the
shares of Common Stock and the Underlying Warrants underlying the Warrants and
the shares of Common Stock underlying the Underlying Warrants (and/or other
securities, property or rights issuable upon the exercise of the Warrants or the
Underlying Warrants) shall be executed on behalf of the Company by the manual or
facsimile signature of the then Chairman or Vice Chairman of the Board of
Directors or President or Vice President of the Company. Warrant Certificates
shall be dated the date of execution by the Company upon initial issuance,
division, exchange, substitution or transfer. Certificates representing the
shares of Common Stock and Underlying Warrants, and the shares of Common Stock
underlying each Underlying Warrant (and/or other securities, property or rights
7
<PAGE>
issuable upon exercise of the Warrants) shall be dated as of the Notice Date
(regardless of when executed or delivered) and dividend bearing securities so
issued shall accrue dividends from the Notice Date.
5. Restriction On Transfer of Warrants.
---------------------------------------
The Holder of a Warrant Certificate, by its acceptance thereof, covenants and
agrees that the Warrants are being acquired as an investment and not with a view
to the distribution thereof; that the Warrants may not be sold, transferred,
assigned, hypothecated or otherwise disposed of, in whole or in part, for a
period of one (1) year from the date hereof, except to officers of the
Representatives.
6. Exercise Price.
------------------
6.1 Initial and Adjusted Exercise Price.
----------------------------------------
Except as otherwise provided in Section 8 hereof, the initial
exercise price of each Warrant shall be $____ per share of Common Stock and $___
per Underlying Warrant. The adjusted exercise price shall be the price which
shall result from time to time from any and all adjustments of the initial
exercise price in accordance with the provisions of Section 8 hereof. Any
transfer of a Warrant shall constitute an automatic transfer and assignment of
the registration rights set forth in Section 7 hereof with respect to the
Securities or other securities, properties or rights underlying the Warrants.
6.2 Exercise Price.
-------------------
The term "Exercise Price" herein shall mean the initial
exercise price or the adjusted exercise price, depending upon the context or
unless otherwise specified.
8
<PAGE>
7. Registration Rights.
-----------------------
7.1 Registration Under the Securities Act of 1933.
-------------------------------------------------
The Warrants, the shares of Common Stock and Underlying
Warrants, or other securities issuable upon exercise of the Warrants, or other
securities issuable upon exercise of the Underlying Warrants (collectively, the
"Warrant Securities") have been registered under the Securities Act of 1933, as
amended (the "Act") pursuant to the Company's Registration Statement on Form S-1
(Registration No. 333-88065) (the "Registration Statement"). All of the
representations and warranties of the Company contained in the Underwriting
Agreement relating to the Registration Statement, the Preliminary Prospectus and
Prospectus (as such terms are defined in the Underwriting Agreement) and made as
of the dates provided therein, are incorporated by reference herein. The Company
agrees and covenants promptly to file post-effective amendments to such
Registration Statement as may be necessary in order to maintain its
effectiveness and otherwise to take such action as may be necessary to maintain
the effectiveness of the Registration Statement as long as any Warrants are
outstanding. In the event that, for any reason, whatsoever, the Company shall
fail to maintain the effectiveness of the Registration Statement, the
certificates representing the Warrant Securities shall bear the following
legend:
The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended
("Act"), and may not be offered or sold except pursuant to (i)
an effective registration statement under the Act, (ii) to the
extent applicable, Rule 144 under the Act (or any similar rule
under such Act relating to the disposition of securities), or
(iii) an opinion of counsel, if such opinion shall be
reasonably satisfactory to counsel to the issuer, that an
exemption from registration under such Act is available.
9
<PAGE>
7.2 Piggyback Registration.
---------------------------
If, at any time commencing after the date hereof and expiring
seven (7) years thereafter, the Company proposes to register any of its
securities under the Act (other than pursuant to Form S-4, Form S-8 or a
comparable registration statement) it will give written notice by registered
mail, at least thirty (30) days prior to the filing of each such registration
statement, to the Representatives and to all other Holders of the Warrants
and/or the Warrant Securities of its intention to do so. If the Representatives
or other Holders of the Warrants and/or Warrant Securities notify the Company
within twenty (20) business days after receipt of any such notice of its or
their desire to include any such securities in such proposed registration
statement, the Company shall afford the Representatives and such Holders of the
Warrants and/or Warrant Securities the opportunity to have any such Warrant
Securities registered under such registration statement.
Notwithstanding the provisions of this Section 7.2, the
Company shall have the right at any time after it shall have given written
notice pursuant to this Section 7.2 (irrespective of whether a written request
for inclusion of any such securities shall have been made) to elect not to file
any such proposed registration statement, or to withdraw the same after the
filing but prior to the effective date thereof.
7.3 Demand Registration.
------------------------
(a) At any time commencing after the date hereof and expiring
five (5) years thereafter, the Holders of the Warrants and/or Warrant Securities
representing a "Majority" (as hereinafter defined) of such securities (assuming
the exercise of all of the Warrants) shall have the right (which right is in
addition to the registration rights under Section 7.2 hereof), exercisable by
written notice to the Company, to have the Company prepare and file with the
10
<PAGE>
Securities and Exchange Commission (the "Commission"), on one occasion, a
registration statement and such other documents, including a prospectus, as may
be necessary in the opinion of both counsel for the Company and counsel for the
Representatives and Holders, in order to comply with the provisions of the Act,
so as to permit a public offering and sale of their respective Warrant
Securities for nine (9) consecutive months by such Holders and any other Holders
of the Warrants and/or Warrant Securities who notify the Company within ten (10)
days after receiving notice from the Company of such request.
(b) The Company covenants and agrees to give written notice of
any registration request under this Section 7.3 by any Holder or Holders to all
other registered Holders of the Warrants and the Warrant Securities within ten
(10) days from the date of the receipt of any such registration request.
(c) Notwithstanding anything to the contrary contained herein,
if the Company shall not have filed a registration statement for the Warrant
Securities within the time period specified in Section 7.4(a) hereof pursuant to
the written notice specified in Section 7.3(a) of a Majority of the Holders of
the Warrants and/or Warrant Securities, the Company may, at its option, upon the
written notice of election of a Majority of the Holders of the Warrants and/or
Warrant Securities requesting such registration, repurchase (i) any and all
Warrant Securities of such Holders at the higher of the Market Price per share
of Common Stock and per Underlying Warrant, determined as of (x) the date of the
notice sent pursuant to Section 7.3(a) or (y) the expiration of the period
specified in Section 7.4(a) and (ii) any and all Warrants of such Holders at
such Market Price less the Exercise Price of such Warrant. Such repurchase shall
be in immediately available funds and shall close within two (2) days after the
later of (i) the expiration of the period specified in Section 7.4(a) or (ii)
the delivery of the written notice of election specified in this Section 7.3(c).
11
<PAGE>
7.4 Covenants of the Company With Respect to Registration.
----------------------------------------------------------
In connection with any registration under Section 7.2 or 7.3
hereof, the Company covenants and agrees as follows:
(a) The Company shall use its best efforts to file a
registration statement within thirty (30) days of receipt of any demand
therefor, shall use its best efforts to have any registration statements
declared effective at the earliest possible time, and shall furnish
each Holder desiring to sell Warrant Securities such number of prospectuses as
shall reasonably be requested.
(b) The Company shall pay all costs (excluding fees and
expenses of Holder(s)' counsel and any underwriting or selling commissions),
fees and expenses in connection with all registration statements filed pursuant
to Sections 7.2 and 7.3(a) hereof including, without limitation, the Company's
legal and accounting fees, printing expenses, blue sky fees and expenses.
(c) The Company will take all necessary action which may be
required in qualifying or registering the Warrant Securities included in a
registration statement for offering and sale under the securities or blue sky
laws of such states as reasonably are requested by the Holder(s), provided that
the Company shall not be obligated to execute or file any general consent to
service of process or to qualify as a foreign corporation to do business under
the laws of any such jurisdiction.
(d) The Company shall indemnify the Holder(s) of the Warrant
Securities to be sold pursuant to any registration statement and each person, if
any, who controls such Holders within the meaning of Section 15 of the Act or
Section 20(a) of the Securities Exchange Act of 1934, as amended ("Exchange
Act"), against all loss, claim, damage, expense or liability (including all
expenses reasonably incurred in investigating, preparing or defending against
any
12
<PAGE>
claim whatsoever) to which any of them may become subject under the Act, the
Exchange Act or otherwise, arising from such registration statement but only to
the same extent and with the same effect as the provisions pursuant to which the
Company has agreed to indemnify each of the Underwriters contained in Section 8
of the Underwriting Agreement.
(e) The Holder(s) of the Warrant Securities to be sold
pursuant to a registration statement, and their successors and assigns, shall
severally, and not jointly, indemnify the Company, its officers and directors
and each person, if any, who controls the Company within the meaning of Section
15 of the Act or Section 20(a) of the Exchange Act, against all loss, claim,
damage, expense or liability (including all expenses reasonably incurred in
investigating, preparing or defending against any claim whatsoever) to which
they may become subject under the Act, the Exchange Act or otherwise, arising
from information furnished by or on behalf of such Holders, or their successors
or assigns, for specific inclusion in such registration statement to the same
extent and with the same effect as the provisions contained in Section 8 of the
Underwriting Agreement pursuant to which the Underwriters have agreed to
indemnify the Company.
(f) Nothing contained in this Agreement shall be construed as
requiring the Holder(s) to exercise their Warrants prior to the initial filing
of any registration statement or the effectiveness thereof.
(g) The Company shall not permit the inclusion of any
securities other than the Warrant Securities to be included in any registration
statement filed pursuant to Section 7.3 hereof, or permit any other registration
statement to be or remain effective during the effectiveness of a registration
statement filed pursuant to Section 7.3 hereof (other than (i) shelf
registrations effective prior thereto and (ii) registrations on Form S-4 or
S-8), without the prior
13
<PAGE>
written consent of the Holders of the Warrants and Warrant Securities
representing a Majority of such securities.
(h) The Company shall furnish to each Holder participating in
the offering and to each underwriter, if any, a signed counterpart, addressed to
such Holder or underwriter, of (i) an opinion of counsel to the Company, dated
the effective date of such registration statement (and, if such registration
includes an underwritten public offering, an opinion dated the date of the
closing under the underwriting agreement) relating to the due incorporation of
the Company, the validity of the shares being issued, the due execution and
delivery of the underwriting agreement and Rule 10b-5, and (ii) if such
registration includes an underwritten public offering, a "cold comfort" letter
dated the effective date of such registration statement and a letter dated the
date of the closing under the underwriting agreement signed by the independent
public accountants who have issued a report on the Company's financial
statements included in such registration statement, covering substantially the
same matters with respect to such registration statement (and the prospectus
included therein) and, with respect to events subsequent to the date of such
financial statements, as are customarily covered in accountants' letters
delivered to underwriters in underwritten public offerings of securities.
(i) The Company shall as soon as practicable after the
effective date of the registration statement, and in any event within 15 months
thereafter, make "generally available to its security holders" (within the
meaning of Rule 158 under the Act) an earnings statement (which need not be
audited) complying with Section 11(a) of the Act and covering a period of at
least 12 consecutive months beginning after the effective date of the
registration statement.
(j) The Company shall deliver promptly to each Holder
participating in the offering requesting the correspondence and memoranda
described below and to the managing underwriters, copies of all correspondence
between the Commission and the Company, its
14
<PAGE>
counsel or auditors and all memoranda relating to discussions with the
Commission or its staff with respect to the registration statement and permit
each Holder and underwriter to do such investigation, upon reasonable advance
notice, with respect to information contained in or omitted from the
registration statement as it deems reasonably necessary to comply with
applicable securities laws or rules of the NASD. Such investigation shall
include access to books, records and properties and opportunities to discuss the
business of the Company with its officers and independent auditors, all to such
reasonable extent and at such reasonable times and as often as any such Holder
or underwriter shall reasonably request.
(k) The Company shall enter into an underwriting agreement with
the managing underwriters selected for such underwriting by Holders holding a
Majority of the Warrant Securities requested pursuant to Section 7.3(a) to be
included in such underwriting, which may be the Representatives. Such agreement
shall be reasonably satisfactory in form and substance to the Company, each
Holder and such managing underwriter(s), and shall contain such representations,
warranties and covenants by the Company and such other terms as are customarily
contained in agreements of that type used by the managing underwriter(s). The
Holders shall be parties to any underwriting agreement relating to an
underwritten sale of their Warrant Securities whether pursuant to Section 7.2 or
Section 7.3(a) and may, at their option, require that any or all of the
representations, warranties and covenants of the Company to or for the benefit
of such underwriter(s) shall also be made to and for the benefit of such
Holders. Such Holders shall not be required to make any representations or
warranties to or agreements with the Company or the underwriter(s) except as
they may relate to such Holders and their intended methods of distribution.
(l) For purposes of this Agreement, the term "Majority" in
reference to the Holders of Warrants or Warrant Securities, shall mean in excess
of fifty percent (50%) of the
15
<PAGE>
then outstanding Warrants or Warrant Securities that (i) are not held by the
Company, an affiliate, officer, creditor, employee or agent thereof or any of
their respective affiliates, members of their family, persons acting as nominees
or in conjunction therewith and (ii) have not been resold to the public pursuant
to a registration statement filed with the Commission under the Act.
8. Adjustments to Exercise Price and Number of Securities.
---------------------------------------------------------
8.1 Subdivision and Combination.
-------------------------------
In case the Company shall at any time subdivide or combine the
outstanding shares of Common Stock, the Exercise Price shall forthwith be
proportionately decreased in the case of subdivision or increased in the case of
combination.
8.2 Stock Dividends and Distributions.
--------------------------------------
In case the Company shall pay a dividend in, or make a
distribution of, shares of Common Stock or of the Company's capital stock
convertible into Common Stock, the Exercise Price shall forthwith be
proportionately decreased. An adjustment made pursuant to this Section 8.2 shall
be made as of the record date for the subject stock dividend or distribution.
8.3 Adjustment in Number of Securities.
---------------------------------------
Upon each adjustment of the Exercise Price pursuant to the
provisions of this Section 8, the number of Warrant Securities issuable upon the
exercise at the adjusted exercise price of each Warrant shall be adjusted to the
nearest full amount by multiplying a number equal to the Exercise Price in
effect immediately prior to such adjustment by the number of Warrant Securities
issuable upon exercise of the Warrants immediately prior to such adjustment and
dividing the product so obtained by the adjusted Exercise Price.
16
<PAGE>
8.4 Definition of Common Stock.
-------------------------------
For the purpose of this Agreement, the term "Common Stock"
shall mean (i) the class of stock designated as Common Stock in the Certificate
of Incorporation of the Company as may be amended as of the date hereof, or (ii)
any other class of stock resulting from successive changes or reclassifications
of such Common Stock consisting solely of changes in par value, or from par
value to no par value, or from no par value to par value.
8.5 Merger or Consolidation.
----------------------------
In case of any consolidation of the Company with, or merger of
the Company with, or merger of the Company into, another corporation (other than
a consolidation or merger which does not result in any reclassification or
change of the outstanding Common Stock), the corporation formed by such
consolidation or merger shall execute and deliver to the Holder a supplemental
warrant agreement providing that the holder of each Warrant then outstanding or
to be outstanding shall have the right thereafter (until the expiration of such
Warrant) to receive, upon exercise of such Warrant, the kind and amount of
shares of stock and other securities and property receivable upon such
consolidation or merger, by a holder of the number of securities of the Company
for which such Warrant might have been exercised immediately prior to such
consolidation, merger, sale or transfer. Such supplemental warrant agreement
shall provide for adjustments which shall be identical to the adjustments
provided in Section 8. The above provision of this subsection shall similarly
apply to successive consolidations or mergers.
8.6 No Adjustment of Exercise Price in Certain Cases.
-----------------------------------------------------
No adjustment of the Exercise Price shall be made if the
amount of said adjustment shall be less than two (2) cents per Warrant Security,
provided, however, that in such case any adjustment that would otherwise be
required then to be made shall be carried forward and shall be made at the time
of and together with the next subsequent adjustment which,
17
<PAGE>
together with any adjustment so carried forward, shall amount to at least two
(2) cents per Warrant Security.
9. Exchange and Replacement of Warrant Certificates.
----------------------------------------------------
Each Warrant Certificate is exchangeable without expense, upon
the surrender thereof by the registered Holder at the principal executive office
of the Company, for a new Warrant Certificate of like tenor and date
representing in the aggregate the right to purchase the same number of Warrant
Securities in such denominations as shall be designated by the Holder thereof at
the time of such surrender.
Upon receipt by the Company of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of any Warrant
Certificate, and, in case of loss, theft or destruction, of indemnity or
security reasonably satisfactory to it, and reimbursement to the Company of all
reasonable expenses incidental thereto, and upon surrender and cancellation of
the Warrants, if mutilated, the Company will make and deliver a new Warrant
Certificate of like tenor, in lieu thereof.
10. Elimination of Fractional Interests.
----------------------------------------
The Company shall not be required to issue certificates representing fractions
of shares of Common Stock or Underlying Warrants upon the exercise of the
Warrants, nor shall it be required to issue scrip or pay cash in lieu of
fractional interests, it being the intent of the parties that all fractional
interests shall be eliminated by rounding any fraction up to the nearest whole
number of shares of Common Stock or Underlying Warrants or other securities,
properties or rights.
11. Reservation and Listing of Securities.
-----------------------------------------
The Company shall at all times reserve and keep available out of its authorized
shares of Common Stock, solely for the purpose of issuance upon the exercise of
the Warrants and the
18
<PAGE>
Underlying Warrants, such number of shares of Common Stock or other securities,
properties or rights as shall be issuable upon the exercise thereof. The Company
covenants and agrees that, upon exercise of the Warrants and payment of the
Exercise Price therefor, all shares of Common Stock, Underlying Warrants and
other securities issuable upon such exercise shall be duly and validly issued,
fully paid, non-assessable and not subject to the preemptive rights of any
stockholder. The Company further covenants and agrees that upon exercise of the
Underlying Warrants underlying the Warrants and payment of the respective
Underlying Warrant exercise price therefor, all shares of Common Stock and other
securities issuable upon such exercises shall be duly and validly issued, fully
paid, non-assessable and not subject to the preemptive rights of any
stockholder. As long as the Warrants shall be outstanding, the Company shall use
its best efforts to cause all shares of Common Stock issuable upon the exercise
of the Warrants and Underlying Warrants and all Underlying Warrants underlying
the Warrants to be listed (subject to official notice of issuance) on all
securities exchanges on which the Common Stock or the Public Warrants issued to
the public in connection herewith may then be listed and/or quoted on Nasdaq
SmallCap or Nasdaq.
12. Notices to Warrant Holders.
-------------------------------
Nothing contained in this Agreement shall be construed as
conferring upon the Holders the right to vote or to consent or to receive notice
as a stockholder in respect of any meetings of stockholders for the election of
directors or any other matter, or as having any rights whatsoever as a
stockholder of the Company. If, however, at any time prior to the expiration of
the Warrants and their exercise, any of the following events shall occur:
(a) the Company shall take a record of the holders of its
shares of Common Stock for the purpose of entitling them to receive a dividend
or distribution payable otherwise than in cash, or a cash dividend or
distribution payable otherwise than out of current or retained
19
<PAGE>
earnings or capital surplus (in accordance with applicable law), as indicated by
the accounting treatment of such dividend or distribution on the books of the
Company; or
(b) the Company shall offer to all the holders of its Common
Stock any additional shares of capital stock of the Company or securities
convertible into or exchangeable for shares of capital stock of the Company, or
any option, right or warrant to subscribe therefor; or
(c) a dissolution, liquidation or winding up of the Company
(other than in connection with a consolidation or merger) or a sale of all or
substantially all of its property, assets and business as an entirety shall be
proposed;
then, in any one or more of said events, the Company shall give written notice
of such event at least fifteen (15) days prior to the date fixed as a record
date or the date of closing the transfer books for the determination of the
stockholders entitled to such dividend, distribution, convertible or
exchangeable securities or subscription rights, or entitled to vote on such
proposed dissolution, liquidation, winding up or sale. Such notice shall specify
such record date or the date of closing the transfer books, as the case may be.
Failure to give such notice or any defect therein shall not affect the validity
of any action taken in connection with the declaration or payment of any such
dividend, or the issuance of any convertible or exchangeable securities, or
subscription rights, options or warrants, or any proposed dissolution,
liquidation, winding up or sale.
13. Underlying Warrants.
------------------------
The form of the certificate representing Underlying Warrants
(and the form of election to purchase shares of Common Stock upon the exercise
of Underlying Warrants and the form of assignment printed on the reverse
thereof) shall be substantially as set forth in Exhibit "A" to the Warrant
Agreement dated as of the date hereof by and between the Company and Atlas Stock
Transfer Corporation (the "Underlying Warrant Agreement"). Each Underlying
20
<PAGE>
Warrant issuable upon exercise of the Warrants shall evidence the right to
initially purchase a fully paid and non-assessable share of Common Stock at an
initial purchase price of $__ per share [150% of the public offering price per
share of Common Stock] from ____, 2001 [one year after the effective date of the
offering] until 5:30 p.m. New York time on ________, 2005 [five years after the
effective date of the offering] at which time the Underlying Warrants, unless
the exercise period has been extended, shall expire. The exercise price of the
Underlying Warrants and the number of shares of Common Stock issuable upon the
exercise of the Underlying Warrants are subject to adjustment, whether or not
the Warrants have been exercised and the Underlying Warrants have been issued,
in the manner and upon the occurrence of the events set forth in Section 8 of
the Underlying Warrant Agreement, which is hereby incorporated herein by
reference and made a part hereof as if set forth in its entirety herein. Subject
to the provisions of this Agreement and upon issuance of the Underlying Warrants
underlying the Warrants, each registered holder of such Underlying Warrant shall
have the right to purchase from the Company (and the Company shall issue to such
registered holders) up to the number of fully paid and non-assessable shares of
Common Stock (subject to adjustment as provided herein and in the Underlying
Warrant Agreement), free and clear of all preemptive rights of stockholders,
provided that such registered holder complies with the terms governing exercise
of the Underlying Warrants set forth in the Underlying Warrant Agreement, and
pays the applicable exercise price, determined in accordance with the terms of
the Underlying Warrant Agreement. Upon exercise of the Underlying Warrants, the
Company shall forthwith issue to the registered holder of any such Underlying
Warrants in his name or in such name as may be directed by him, certificates for
the number of shares of Common Stock so purchased. Except as otherwise provided
in this Agreement, the Underlying Warrants underlying the Warrants shall be
governed in all respects by the terms of the Underlying Warrant Agreement. The
Underlying Warrants
21
<PAGE>
shall be transferable in the manner provided in the Underlying Warrant
Agreement, and upon any such transfer, a new Underlying Warrant Certificate
shall be issued promptly to the transferee. The Company covenants to, and agrees
with, the Holder(s) that without the prior written consent of the Holder(s),
which will not be unreasonably withheld, the Underlying Warrant Agreement will
not be modified, amended, canceled, altered or superseded, and that the Company
will send to each Holder, irrespective of whether or not the Warrants have been
exercised, any and all notices required by the Underlying Warrant Agreement to
be sent to holders of Underlying Warrants.
14. Notices.
------------
All notices, requests, consents and other communications
hereunder shall be in writing and shall be deemed to have been duly made and
sent when delivered, or mailed by registered or certified mail, return receipt
requested or by FedEx or other recognized overnight courier:
(a) If to the registered Holder of the Warrants, to the
address of such Holder as shown on the books of the Company; or
(b) If to the Company, to the address set forth in Section 3
hereof or to such other address as the Company may designate by notice to the
Holders.
15. Supplements and Amendments.
-------------------------------
The Company and the Representatives may from time to time
supplement or amend this Agreement without the approval of any Holders of
Warrant Certificates (other than the Representatives) in order to cure any
ambiguity, to correct or supplement any provision contained herein which may be
defective or inconsistent with any provisions herein, or to make any other
provisions in regard to matters or questions arising hereunder which the Company
and the Representatives may deem necessary or desirable and which the Company
and the
22
<PAGE>
Representatives deem shall not adversely affect the interests of the
Holders of Warrant Certificates.
16. Successors.
---------------
All the covenants and provisions of this Agreement shall be
binding upon and inure to the benefit of the Company, the Holders and their
respective successors and assigns hereunder.
17. Termination.
----------------
This Agreement shall terminate at the close of business on
_______, 2007. Notwithstanding the foregoing, the indemnification provisions of
Section 7 shall survive such termination until the close of business on _____,
2013.
18. Governing Law; Submission to Jurisdiction.
----------------------------------------------
This Agreement and each Warrant Certificate issued hereunder
shall be deemed to be a contract made under the laws of the State of New York
and for all purposes shall be construed in accordance with the laws of said
State without giving effect to the rules of said State governing the conflicts
of laws.
The Company, the Representatives and the Holders hereby agree
that any action, proceeding or claim against it arising out of, or relating in
any way to, this Agreement shall be brought and enforced in the courts of the
State of New York or of the United States of America for the Southern District
of New York, and irrevocably submits to such jurisdiction, which jurisdiction
shall be exclusive. The Company, the Representatives and the Holders hereby
irrevocably waive any objection to such exclusive jurisdiction or inconvenient
forum. Any such process or summons to be served upon any of the Company, the
Representatives and the Holders (at the option of the party bringing such
action, proceeding or claim) may be served by transmitting a copy thereof, by
registered or certified mail, return receipt requested, postage
23
<PAGE>
prepaid, addressed to it at the address set forth in Section 14 hereof.
Such mailing shall be deemed personal service and shall be legal and
binding upon the party so served in any action, proceeding or claim. The
Company, the Representatives and the Holders agree that the prevailing
party(ies) in any such action or proceeding shall be entitled to recover from
the other party(ies) all of its/their reasonable legal costs and expenses
relating to such action or proceeding and/or incurred in connection with the
preparation therefore.
19. Entire Agreement; Modification.
-----------------------------------
This Agreement (including the Underwriting Agreement and the
Underlying Warrant Agreement to the extent portions thereof are referred to
herein) contains the entire understanding between the parties hereto with
respect to the subject matter hereof and may not be modified or amended except
by a writing duly signed by the party against whom enforcement of the
modification or amendment is sought.
20. Severability.
-----------------
If any provision of this Agreement shall be held to be invalid
or unenforceable, such invalidity or unenforceability shall not affect any other
provision of this Agreement.
21. Captions.
-------------
The caption headings of the Sections of this Agreement are for
convenience of reference only and are not intended, nor should they be construed
as, a part of this Agreement and shall be given no substantive effect.
22. Benefits of this Agreement.
------------------------------
Nothing in this Agreement shall be construed to give to any
person or corporation other than the Company and the Representatives and any
other registered Holder(s) of the Warrant Certificates or Warrant Securities any
legal or equitable right, remedy or claim under this Agreement; and this
Agreement shall be for the sole benefit of the Company and the
24
<PAGE>
Representatives and any other registered Holders of Warrant Certificates or
Warrant Securities.
23. Counterparts.
-----------------
This Agreement may be executed in any number of counterparts
and each of such counterparts shall for all purposes be deemed to be an
original, and such counterparts shall together constitute but one and the same
instrument.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed, as of the day and year first above written.
CALLNOW.COM, INC.
By:
--------------------------
Name:
Title:
Attest:
- ----------------------------------
Secretary
DIRKS & COMPANY, INC
By:
--------------------------
Name:
Title:
NOLAN SECURITIES CORPORATION
By:
--------------------------
Name:
Title:
<PAGE>
EXHIBIT A
[FORM OF WARRANT CERTIFICATE]
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE OTHER SECURITIES ISSUABLE
UPON EXERCISE THEREOF MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO (i) AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, (ii) TO THE
EXTENT APPLICABLE, RULE 144 UNDER SUCH ACT (OR ANY SIMILAR RULE UNDER SUCH ACT
RELATING TO THE DISPOSITION OF SECURITIES), OR (iii) AN OPINION OF COUNSEL, IF
SUCH OPINION SHALL BE REASONABLY SATISFACTORY TO COUNSEL FOR THE ISSUER, THAT AN
EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS AVAILABLE.
THE TRANSFER OR EXCHANGE OF THE WARRANTS REPRESENTED BY THIS CERTIFICATE IS
RESTRICTED IN ACCORDANCE WITH THE WARRANT AGREEMENT REFERRED TO HEREIN.
EXERCISABLE ON OR BEFORE
5:30 P.M., NEW YORK TIME, ____, 2005
No. W-
Warrants to Purchase __ shares
of Common Stock and/or
_____ Underlying Warrants
WARRANT CERTIFICATE
This Warrant Certificate certifies that __________________, or
registered assigns, is the registered holder of ___________ Warrants to purchase
initially, at any time from ______, 2001 until 5:30 p.m. New York time on
______, 2005 ("Expiration Date"), up to __________ fully-paid and non-assessable
shares of common stock, $0.001 par value ("Common Stock"), of CALLNOW.COM, INC.,
a Delaware corporation (the "Company"), and ___ Underlying Warrants of the
Company (one Underlying Warrant entitling the owner to purchase one fully-paid
and non-assessable share of Common Stock) at the initial exercise price, subject
to adjustment in certain events (the "Exercise Price"), of $_____ per share of
Common Stock and $_______ per Underlying Warrant upon surrender of this Warrant
Certificate and payment of the Exercise Price at an office or agency of the
Company, but subject to the conditions set forth herein and in the warrant
agreement dated as of ______, 2000 between the Company and DIRKS & COMPANY, INC.
and NOLAN SECURITIES CORPORATION (the "Warrant Agreement"). Payment of the
Exercise Price shall be made by certified or official bank check in New York
Clearing House funds payable to the order of the Company or by surrender of this
Warrant Certificate.
<PAGE>
No Warrant may be exercised after 5:30 p.m., New York time, on
the Expiration Date, at which time all Warrants evidenced hereby, unless
exercised prior thereto, hereby shall thereafter be void.
The Warrants evidenced by this Warrant Certificate are part of
a duly authorized issue of Warrants issued pursuant to the Warrant Agreement,
which Warrant Agreement is hereby incorporated by reference in and made a part
of this instrument and is hereby referred to for a description of the rights,
limitation of rights, obligations, duties and immunities thereunder of the
Company and the holders (the words "holders" or "holder" meaning the registered
holders or registered holder) of the Warrants.
The Warrant Agreement provides that upon the occurrence of
certain events the Exercise Price and the type and/or number of the Company's
securities issuable thereupon may, subject to certain conditions, be adjusted.
In such event, the Company will, at the request of the holder, issue a new
Warrant Certificate evidencing the adjustment in the Exercise Price and the
number and/or type of securities issuable upon the exercise of the Warrants;
provided, however, that the failure of the Company to issue such new Warrant
Certificates shall not in any way change, alter, or otherwise impair, the rights
of the holder as set forth in the Warrant Agreement.
Upon due presentment for registration of transfer of this
Warrant Certificate at an office or agency of the Company, a new Warrant
Certificate or Warrant Certificates of like tenor and evidencing in the
aggregate a like number of Warrants shall be issued to the transferee(s) in
exchange for this Warrant Certificate, subject to the limitations provided
herein and in the Warrant Agreement, without any charge except for any tax or
other governmental charge imposed in connection with such transfer.
Upon the exercise of less than all of the Warrants evidenced
by this Certificate, the Company shall forthwith issue to the holder hereof a
new Warrant Certificate representing such number of unexercised Warrants.
The Company may deem and treat the registered holder(s) hereof
as the absolute owner(s) of this Warrant Certificate (notwithstanding any
notation of ownership or other writing hereon made by anyone), for the purpose
of any exercise hereof, and of any distribution to the holder(s) hereof, and for
all other purposes, and the Company shall not be affected by any notice to the
contrary.
All terms used in this Warrant Certificate which are defined
in the Warrant Agreement shall have the meanings assigned to them in the Warrant
Agreement.
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant
Certificate to be duly executed under its corporate seal.
Dated as of ______, 2000
CALLNOW.COM, INC.
By: ________________________________
Name:
Title:
<PAGE>
[FORM OF ELECTION TO PURCHASE PURSUANT TO SECTION 3.1]
The undersigned hereby irrevocably elects to exercise the
right, represented by this Warrant Certificate, to purchase:
o __________________ shares of Common Stock;
o __________________ Underlying Warrants;
o __________________ shares of Common Stock together with an equal
number of Underlying Warrants; or
o __________________ shares of Common Stock together with
o __________________ Underlying Warrants.
and herewith tenders in payment for such securities a certified or official bank
check payable in New York Clearing House Funds to the order of CallNOW.com, Inc.
in the amount of $_______________________, all in accordance with the terms of
Section 3.1 of the Representatives' Warrant Agreement dated as of ______, 2000
between CallNOW.com, Inc. and Dirks & Company, Inc and Nolan Securities
Corporation. The undersigned requests that a certificate for such securities be
registered in the name of whose address is ___________________ and that such
Certificate be delivered to whose address is _______________________.
Dated:
Signature ____________________________
(Signature must conform in
all respects to name of
holder as specified on the
face of the Warrant
Certificate.)
___________________________________
(Insert Social Security or Other Identifying Number
of Holder)
<PAGE>
[FORM OF ELECTION TO PURCHASE PURSUANT TO SECTION 3.2]
The undersigned hereby irrevocably elects to exercise the
right, represented by this Warrant Certificate, to purchase:
o __________________ shares of Common Stock;
o __________________ Underlying Warrants;
o __________________ shares of Common Stock together with an equal
number of Underlying Warrants; or
o __________________ shares of Common Stock together with
o __________________ Underlying Warrants.
and herewith tenders in payment for such securities ________ Warrants all in
accordance with the terms of Section 3.2 of the Representatives' Warrant
Agreement dated as of ______, 2000 between CallNOW.com, Inc. and Dirks &
Company, Inc and Nolan Securities Corporation. The undersigned requests that a
certificate for such securities be registered in the name of _____________ whose
address is______________and that such Certificate be delivered to ____________
whose address is ________________.
Dated:
Signature ___________________________
(Signature must conform in
all respects to name of
holder as specified on the
face of the Warrant
Certificate.)
_____________________________________
(Insert Social Security or Other Identifying Number
of Holder)
<PAGE>
[FORM OF ASSIGNMENT]
(To be executed by the registered holder if such holder
desires to transfer the Warrant Certificate.)
FOR VALUE RECEIVED ___________________________ hereby
sells, assigns and transfers unto
(Please print name and address of transferee)
this Warrant Certificate, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint _______________ Attorney, to
transfer the within Warrant Certificate on the books of the within-named
Company, with full power of substitution.
Dated: Signature: __________________________
(Signature must conform in
all respects to name of
holder as specified on the
face of the Warrant
Certificate.)
Insert Social Security or Other Identifying Number
of Assignee)
<PAGE>
CONSULTING AGREEMENT
Agreement dated as of November 30, 1998, between Guibert Englebienne
("Englebienne") and Axiom Communications Group, Inc., a New York Corporation
(the "Company").
WHEREAS, Englebienne is a consultant for the Company; and
WHEREAS, the Company is compensating Englebienne from time to time;
NOW THEREFORE, the parties hereto agree as follows:
1. Acknowledgement. Englebienne understands and acknowledges that:
(a) The Company is engaged in a continuous program of research, design,
development, production, publishing, marketing and servicing with respect to its
business;
(b) Englebienne's consultancy creates a relationship of confidence and
trust between Englebienne and the Company with respect to certain information
applicable to the business of the Company or the business of any client,
customer, or business partner of the Company, which may be made known to
Englebienne by the Company or by any client, customer, or business partner of
the Company, or learned by Englebienne during his period of employment.
(c) The Company possesses and will continue to possess information that
has been created, discovered or may be assigned or otherwise conveyed to the
Company, which information has commercial value in the Business in which the
Company is engaged and is treated by the Company as confidential.
(d) As used herein, the period of Englebienne employment includes any
time during which Englebienne is retained by the Company as a consultant
pursuant to the terms of this Agreement.
2. Commitment to Company. During the period of Englebienne's consultancy
with the Company, Englebienne will devote all of his business time, energy and
attention to the business
<PAGE>
and affairs of the Company and is reasonably necessary to fulfill his
obligations hereunder.
3. Work for Hire. Englebienne acknowledges that all right, title and
interest he obtains in all works of authorship, designs, computer programs,
copyrights and copyright applications, inventions, discoveries, developments,
know-how, systems, processes, formulae, patent and patent applications, trade
secrets, new products, internal reports and memoranda, strategies, and marketing
plans conceived, devised, developed, written, reduced to practice, or otherwise
created or obtained by Englebienne pursuant to this consultancy agreement for
the Company (the "Intellectual Property") are regarded as "works for hire."
Englebienne hereby transfers and assigns to the Company all right, title, and
interest to the Intellectual Property. Promptly after Englebienne obtains
knowledge of any Intellectual Property, he will disclose it to the Company. Upon
request of the Company, Englebienne will execute and deliver all documents or
instruments and take all other action as to the Company may deem reasonably
necessary to transfer all right, title, and interest in any Intellectual
Property to the Company; to vest in the Company good, valid and marketable title
such Intellectual Property; to perfect, by registration or otherwise, trademark,
copyright and patent protection of the company with respect to such Intellectual
Property; and otherwise to protect the Company's trade secrets and proprietary
interest in such Intellectual Property.
4. Documentation.In the event of the termination of Englebienne's
consultancy herein for any reason, Englebienne will deliver to the Company all
documents, notes, drawings, blueprints, formulae, specifications, computer
programs, data and other materials of any nature pertaining to any Intellectual
Property covered by the sale of Technology Agreement and this agreement or to
Englebienne's work with the Company, and will not take any of the foregoing or
any reproduction of any of the foregoing that is embodied in a tangible medium
of expression.
<PAGE>
5. Confidentiality. At all times, both during Englebienne's consultancy with
the Company and after its termination, Englebienne will keep in strict
confidence and will not disclose any confidential or proprietary information
relating to the business of the Company, or any client, customer, or business
partner of the Company, to any person or entity, or make use of any such
confidential or proprietary information for my own purpose or for the benefit of
any person or entity, except as may be necessary in the ordinary course of
performing the duties as an employee of the Company.
6. Restrictive Covenant. Englebienne hereby acknowledges and recognizes his
possession of confidential information and highly competitive nature of the
business of the Company. Accordingly, Englebinne hereby agrees that he will not,
during the period of this agreement, and as long as Axiom is not in breach
hereunder (i) directly or indirectly engage in any Competitive Business (as
defined below), whether such engagement shall be as an employer, officer,
director, owner, employee, partner or other participant, (ii) assist others in
engaging in any Competitive Business in the manner described in the Company or
its affiliates or subsidiaries to terminate their employment with the Company or
such affiliate or subsidiary or engage in any Competitive Business. "Competitive
Business" means and includes the business of providing telecommunications
services.
Englebienne understands that the foregoing obligation is not meant to
prevent him from earning a living or fostering his career. It does intend,
however, to prevent any Competitive Business from gaining any unfair advantage
from Englebienne's knowledge of confidential information.
7. Other Agreements. Englebienne represents and warrants that his execution
and delivery of this Agreement and performance of all the terms of this
Agreement do not and will not breach any agreement to keep in confidence
proprietary information acquired by him in confidence or trust. Englebienne has
not entered into and shall not enter into any agreement, either written or oral,
in
<PAGE>
conflict with this Agreement. Englebienne represents that he has not brought
and will not bring with him to the Company or use at the Company any materials
or documents of an employer or a former employer that are not generally
available to the public, unless express written authorization from such employer
for their possession and use has been obtained. Englebienne also understands
that he is not to breach any obligation of confidentiality that he has to any
employer or former employer and agrees to fulfill all such obligations during
the period of his affiliation with the Company.
8. Obligations. Englebienne will consult for the Company for a period of two
(2) years from the date of this agreement or until May 1, 2000, whichever is
later (the "Term"). During the Term, the parties agree to use the following
procedures and timetable.
(a) The Company will send via facsimile transmission, telephone, beeper
or email (collectively referred to herein as, "Acceptable Channels") a request
to Englebienne relating to (i) the correction of a defect in the Software (as
the term is defined in the Sale of Technology Agreement signed between Axiom and
Englebienne), (ii) the maintenance of the Software, (iii) the improvement or
enhancement of the Software, (iv) the expansion of the Software, and/or (v) any
other task relating to the Software (collectively referred to herein as
"Tasks"). In the event that there is no response within one-half hour, Axiom
shall send another request via an alternate mode of Acceptable Channels.
(b) Within 45 minutes of sending through Acceptable Channels a Task,
Monday through Friday, between the hours of 9 a.m. to 5 p.m. New York time,
Englebienne will acknowledge receipt of said Task using any of the Acceptable
Channels (the "Acknowledgement").
(c) Within (1) business day (business day is defined as working week
days excluding US banking holidays) Englebienne will make all reasonable efforts
to forward to Axiom a completion schedule (the "Completion Schedule") in
accordance with the following guidelines:
<PAGE>
Level 1 Task
------------
A function or subsystem of the Software is defective and severely
restricts the ability of the company to perform its activities.
Englebienne will provide corrective action or a permanent solution
within two (2) business days from the date of Acknowledgement, or as
soon thereafter as reasonably feasible in light of the complexity and
the impact of the problem on the Company's business.
Level 2 Task
------------
A function or subsystem of the Software is defective but normal
activities may be performed by using an alternative solution.
Englebienne will provide corrective action or a solution within three
(3) business days from the date of Acknowledgement, or as soon
thereafter as reasonably feasible.
Level 3 Task
------------
Any task that is not a level 1 Task or level 2 Task will be completed
within fifteen (15) business days, taking into account the priority of
other Tasks already assigned to Englebienne and taking into
consideration the fact that Englebienne can set aside up to eight (8)
hours a week to complete the Manuals (as defined below). When
Englebienne submits the Completion Schedule, he should take into
account the scheduled completion date for prior submitted level 3 Tasks
whose scheduled completion dates have been shifted due to a
reprioritization of level 3 Tasks
Level 4 Task
------------
Anytime Englebienne is not working on a Level 1 through 3 Task, he will
work on the completion of the Manuals (as the term is defined in
paragraph 9 herein) or on the addendum's to be completed Manuals, to
ensure that the Manuals are fully updated and provide detailed
explanations for all enhancements, additions, changes made to the
Software during the term. Such Manuals shall be deemed up to date if
they contain all such items as of thirty (30) days prior to delivery of
the Manuals. If the Company does not respond to Englebienne's
Completion Schedule within six (6) hours of its submission, it will be
deemed accepted by the Company
<PAGE>
9. Manuals. Englebienne acknowledges that part of the compensation paid to
him by the Company from March, 1997 through February, 1998 was to develop an
Administrative System Manual detailing every aspect of the billing system,
corporate database in SQL, and rate and customer accounts tables. Englebienne
agrees and understands that he must complete the following manuals (the
"Manuals") by the dates specified.
(a) On or before November 1, 1998, and English version Software Manual
(the "Software Manual") reasonably understandable by an entry level programmer
or engineer and setting forth in detail, every aspect of the Software through
October 1, 1998.
(b) On or before January 1, 1989, an Administrative System Manual, (the
"Software Manual", detailing the modifications up to 30 days prior to January 1,
1999;
(c) Englebienne agrees to keep the manuals fully updated by the 1st day
of every quarter (i.e, January 1, April 1, June 1, September 1) through the Term
of this agreement.
(d) If the completion or updating of either Manual is delayed, at any
time, by more than 30 (thirty) days, Englebienne's compensation under this
agreement will be withheld until the Manual(s) is/are completed.
10. Technical Support. Englebienne will provide electronic mail and voice
mail support to the Company to respond to any questions regarding the Software.
Englebienne will receive, and respond via acceptable channels) to, such
questions Monday through Friday (excluding National Argentina Holidays) from
9:00 a.m. to 5:00 p.m., New York time. There is no limit to the number of such
questions. Englebienne agrees to respond to all such questions within 45 minutes
(excluding weekends and national Argentine holidays) after Englebienne's receipt
of the same. Furthermore,
<PAGE>
Englebienne agrees to make reasonable efforts to notify the Company of any
technology upgrades or new technologies that may enhance or in anyway improve
the software, and in the event the Company should purchase such software or
technologies, Englebienne agrees to install said software or technologies,
pursuant to paragraph 8 (c) herein.
11. Fees and Costs.
(a) For services provided during the Term, the Company agrees to pay
Englebienne the sum of $5,000.00 per month.
(b) Englebienne's compensation hereunder is based upon an estimated 40
hours per week required to perform the services hereunder and in completing the
Manuals. The parties agree that completion of the Manuals will encompass the
equivalent of one full working day per week.
(c) Notwithstanding anything to the contrary herein, Englebienne shall
be entitled to take 60 days unpaid vacation at his own expense and at his own
discretion. During such vacations and at all other times, the Company agrees to
make available to Englebienne at the Company's expense, international call back
services to enable Englebienne to respond to emergencies and Englebienne agrees
to provide a telephone number or other means of communication, at the Company's
expense, so the Company can reach Englebienne while on vacation. Englebienne
agress to give the Company no less than 45 days written notice of vacations or
holidays. Englebienne further agrees not to take more than thirty (30)
consecutive days, holidays or vacation;
(d) The Company may terminate this agreement within 15 days notice if
Englebinenne defaults on any of his obligations herein and fails to cure such
default within 10 days of Company's notice of default to Englebienne. In the
event of early termination of Englebienne's agreement herein, the parties herein
will have no further obligations to each other, except as set forth in the Sale
of Technology Agreement.
<PAGE>
12. Survivability. Paragraphs 1-7 and 13 & 14 of this Agreement will survive
the expiration or any termination of this Agreement.
13. Warranty Disclaimer. Englebienne will use all reasonable commercial
efforts to provide the maintenance and consulting services requested by the
Company under this Agreement in a professional and workmanlike manner, but
Englebienne cannot guarantee that every enhancement or modification requested by
the Company, that is beyond the basic functions of the Software, will be
completed. Englebienne warrants that for a period of twelve (12) months from May
1, 2000, the Software's enhancement and changes made during the Term of this
agreement, are free of defects in programming and operation, shall function, if
applicable, as generally set forth in Schedule A attached hereto, and are
merchantable and fit for the sale, provisioning, invoicing and charging of
communication services on-line.
In the event that the Software's enhancements made during the Term of this
agreement fail to perform in accordance with this warranty, the Company shall
inform Englebienne of such fact and Englebienne shall provide such programming,
design, and installation services as may be necessary to correct such errors,
free of charge. In the event that the Software and Englebienne will return all
monthly payments made up to the date the Software is returned, and neither party
will have any further obligation to the other party.
14. Limitation of Liability. The Company agrees that Englebienne's liability
under this Agreement is limited to the fees paid hereunder by the Company. IN NO
EVENT SHALL ENGLEBIENNE BE LIABLE TO THE COMPANY FOR COSTS OF PROCUREMENT OF
SUBSTITUTE GOODS OR SERVICES, OR FOR ANY LOSS OR INJURY TO EARNINGS, PROFITS OR
GOODWILL, OR FOR INCIDENTAL, SPECIAL, INDIRECT OR CONSEQUENTIAL DAMAGES SUFFERED
BY THE COMPANY CAUSED DIRECTLY OR INDIRECTLY BY ANY
<PAGE>
BREACH OF THIS AGREEMENT OR THE PROVISION OF ANY MATERIALS OR SERVICES
HEREUNDER. THIS LIMITATION SHALL APPLY EVEN IF ENGLEBIENNE KNOWS OR HAS BEEN
ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
15. General Provisions.
15.1 This Agreement shall be governed by and interpreted under the laws of
the State of New York without regard to its conflict of laws provisions.
15.2 Any dispute arising out of or relating to this Agreement shall be
resolved pursuant to the rules of the American Arbitration Association in New
York City. 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.
15.3 No modification of this Agreement, nor any waiver of any rights, shall
be effective unless assented to in writing to the party to be charged.
15.4 The waiver of any breach or default shall not constitute a waiver of
any other right hereunder or any subsequent breach of default.
15.5 Any required notices shall be given in writing, and shall be delivered
personally, electronically or by mail. Notices shall be deemed served when
personally delivered or, if delivery is by mail, five (5) days after being post
marked or, if delivery is electronically, when a response is received from the
recipient. Notices should be sent to:
If to Buyer:
Christian Bardenheuer
C/o Axiom Communications Group, Inc.
50 Broad Street
Suite 501
New York, New York 10004
<PAGE>
If to Seller:
Guibert Englebienne
Av. Colon 3366, 7th Floor
Mar del PLATA 7600
Argentina
15.6 Neither party shall be liable for any loss, damage, delay or penalty
resulting from acts of God or other causes beyond such party's reasonable
control.
15.7 This Agreement constitutes the entire and exclusive agreement between
the parties hereto with respect to the subject matter hereof.
15.8 Neither this Agreement nor any rights under this Agreement may be
assigned or otherwise transferred by the Company or Englebienne, in whole or in
part, whether voluntarily or by operation of law, including by way of sale of
assets, merger or consolidation, without the prior written consent of
Englebienne, which consent will not be unreasonably withheld, except that
Englebienne may assign his rights hereunder to a corporation or limited
liability company in which he holds a controlling interest.
This Agreement is accepted and made effective as of the date first written
above.
AXIOM, INC.
By: s/ Christian Bardenheuer By: s/ Warner Johnson
----------------------------- -----------------------------
Christian Bardenheuer Warner Johnson
s/ Guilbert 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 hrs.)
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 an regular telephone line to connect with the
credit card bureau currently in use by the Company. PCHub
currently verifies cards form 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 form 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 ad 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
table 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
<PAGE>
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 communications switch and corporate database that is being
used by the Company stores all the information relating to the
customer's account number, password, return numbers and credit
limits on text files and tables. This enables customers to have
immediate access to the call back 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 updated 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 20 US$ 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.
<PAGE>
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>
STANDARD FORM OF OFFICE LEASE
THE REAL ESTATE BOARD OF NEW YORK, INC.
3/1/90
AGREEMENT OF LEASE, made as of this 25th day of March 1999, between FIFTY BROAD
STREET, INC. AND FIFTY NEW STREET, INC., New York corporations having their
principal places of business c/o Cushman & Wakefield, Inc., 100 Wall Street, New
York, New York 10005 party of the first part, hereinafter referred to as OWNER,
and Axiom Communications Group, Inc., a New York corporation party of the second
part, hereinafter referred to as TENANT,
WITNESSETH: Owner hereby leases to Tenant and Tenant hereby hires from Owner
Room 520 in the building known as 50 Broad Street in the Borough of Manhattan,
City of New York, for the term of (or until such term shall sooner cease and
expire as hereinafter provided) to commence on the First day of May nineteen
hundred and ninety nine (1999) and to end on the thirtieth day of April two
thousand and two (2002) both dates inclusive, at an annual rate of fifty six
thousand, two hundred and fifty and no cents ($56,250.00).
which Tenant agrees to pay in lawful money of the United States which shall be
legal tender in payment of all debts and dues, public and private, at the time
of payment, in equal monthly installments in advance on the first day of each
month during said term, at the office of Owner or such other place as Owner may
designate, without any set off or deduction whatsoever, except that Tenant shall
pay the first monthly installment(s) on the execution hereof (unless this lease
be a renewal).
In the event that, at the commencement of the term of this lease, or
thereafter, Tenant shall be in default in the payment of rent to Owner pursuant
to the terms of another lease with Owner or with Owner's predecessor in
interest, Owner may at Owner's option and without notice to Tenant add the
amount of such arrears to any monthly installment of rent payable hereunder and
the same shall be payable to Owner as additional rent.
The parties hereto, for themselves, their heirs, distributees,
executors, administrators, legal representatives, successors and assigns, hereby
covenant as follows:
RENT OCCUPANCY
1. Tenant shall pay the rent as above and hereinafter provided.
2. Tenant shall use and occupy demised premises for executive offices
for Tenant's use and for no other purpose.
<PAGE>
TENANT ALTERATIONS:
3. Tenant shall make no changes in or to the demised premises of any
nature without the Owner's prior written consent. Subject to the
prior written consent of Owner, and to the provisions of this
article, Tenant at Tenant's expense, may make alterations,
installations, additions or improvements which are non-structural
and which do not affect utility services or plumbing and electrical
lines, in or to the interior of the demised premises by using
contractors or mechanics first approved by Owner. Tenant shall,
before making any alterations, additions, installations or
improvements, at its expense, obtain all permits, approvals and
certificates required by an governmental or quasi-governmental
bodies and (upon completion) certificates of final approval thereof
and shall deliver promptly duplicates of all such permits,
approvals and certificates to Owner and Tenant agrees to carry and
will cause Tenant's contractors and subcontractors to carry such
workman's compensation, general liability, personal and property
damage insurance as Owner may require. If any mechanic's lien is
filed against the demised premises, or the building of which the
same forms a part, for work claimed to have been done for, or
materials furnished to, Tenant, whether or not done pursuant to
this article, the same shall be discharged by Tenant within thirty
days thereafter at Tenant's expense, by filing the bond required by
law. All fixtures and all paneling, partitions, railings and like
installations, installed in the premises at any time, either by
Tenant or by Owner in Tenant's behalf, shall, upon installation,
become the property of Owner and shall remain upon and be
surrendered with the demised premises unless Owner, by notice to
Tenant no later than twenty days prior to the date fixed as the
termination of this lease, elects to relinquish Owner's right
thereto and to have them removed by Tenant, in which event the same
shall be removed from the premises by Tenant prior to the
expiration of the lease, at Tenant's expense. Nothing in this
Article shall be construed to give Owner title to or to prevent
Tenant's removal of trade fixtures, moveable office furniture and
equipment, but upon removal of any such from the premises or upon
removal of other installations as may be required by Owner, Tenant
shall immediately and at its expense, repair and restore the
premises to the condition existing prior to installation and repair
any damage to the demised premises or the building due to such
removal. All property permitted or required to be removed, by
Tenant at the end of the term remaining in the premises after
Tenant's removal shall be deemed abandoned and may, at the election
of Owner, either be retained as Owner's property or may be removed
from the premises by Owner at Tenant's expense.
MAINTENANCE AND REPAIRS
4. Tenant shall, throughout the term of this lease, take good care of
the demised premises and the fixtures and appurtenances therein.
Tenant shall be responsible for all damage or injury to the demise
premises or any other part of the building and the systems and
equipment thereof, whether requiring structural or nonstructural
repairs caused by or resulting from carelessness, omission, neglect
or improper conduct of Tenant, Tenant's subtenants, agents,
employees, invitees or licensees, or approvals and certificates to
Owner and Tenants agrees to carry and will cause Tenant's
contractors and sub-contractors to carry such workman's
compensation, general liability, personal and property damage
insurance as Owner may require which arise out of any work, labor,
service or equipment done for or supplied to Tenant or any
subtenant or arising out of the installation, use or operation of
the property or equipment of Tenant or any subtenant. Tenant shall
also repair all damage to the building and the demised premises
caused by the moving of Tenant's fixtures, furniture and equipment.
Tenant shall promptly make, at Tenant's expense, all repairs in and
to the demised premises for which Tenant is responsible, using only
the contractor for the trade or trades in question, selected from a
list of at least two contractors per trade submitted by Owner. Any
other repairs in or to the building or the facilities and systems
thereof for which Tenant is responsible shall be performed by Owner
at Tenant's expense. Owner shall maintain in good working order and
repair the
<PAGE>
exterior and the structural portions of the building, including the
structural portions of its demised premises, and the public
portions of the building interior and the building plumbing,
electrical, heating and ventilating systems (to the extent such
systems presently exist) serving the demised premises. Tenant
agrees to give prompt notice of any defective condition in the
premises for which Owner may be responsible hereunder. There shall
be no allowance to Tenant for diminution of rental value and no
liability on the part of Owner by reason of inconvenience,
annoyance or injury to business arising from Owner or others making
repairs, alterations, additions or improvements in or to any
portion of the building or the demised premises or in and to the
fixtures, appurtenances or equipment thereof. It is specifically
agreed that Tenant shall not be entitled to any setoff or reduction
of rent by reason of any failure of Owner to comply with the
covenants of this or any other article of this Lease. Tenant agrees
that Tenant's sole remedy at law in such instance will be by way of
an action for damages for breach of contract. The provisions of
this Article 4 shall not apply in the case of fire or other
casualty which are dealt with in Article 9 hereof.
WINDOW CLEANING:
5. Tenant will not clean nor require, permit, suffer or allow any
window in the demised premises to be cleaned from outside in
violation of Section 202 of the Labor Law or any other applicable
law or of the Rules of the Board of Standards and Appeals, or of
any other Board or body having or asserting jurisdiction.
REQUIREMENT OF LAW, FIRE INSURANCE, FLOOR LOADS:
6. Prior to the commencement of the lease term, if Tenant is then in
possession, and all times thereafter, Tenant, at Tenant's sole cost
and expense, shall promptly comply with all present and future
laws, orders and regulations of all state, federal, municipal and
local governments, departments, commissions and boards and any
direction of any public officer pursuant to law, and all orders,
rules and regulations of the New York Board of Fire Underwriters,
Insurance Services Office, or any similar body which shall impose
any violation, order or duty upon Owner or Tenant with respect to
the demised premises, whether or not arising out of Tenant's use or
manner of use thereof, (including Tenant's permitted use) or, with
respect to the building if arising out of Tenant's use or manner of
use of the premises or the building (including the use permitted
under the lease). Nothing herein shall require Tenant to make
structural repairs or alterations unless Tenant has, by its manner
of use of the demised premises or method of operation therein,
violated any such laws, ordinances, orders, rules, regulations or
requirements with respect thereto. Tenant may, after securing Owner
to Owner's satisfaction against all damages, interest, penalties
and expenses, including, but not limited to, reasonable attorney's
fees, by cash deposit or by surety bond in an amount and in a
company satisfactory to Owner, contest and appeal any such laws,
ordinances, orders, rules, regulations or requirements provided
same is done with all reasonable promptness and provided such
appeal shall not subject Owner to prosecution for a criminal
offense or constitute a default under any lease or mortgage under
which Owner may be obligated, or cause the demised premises or any
part thereof to be condemned or vacated. Tenant shall not do or
permit any act or thing to be done in or to the premises which is
contrary to law, or which will invalidate or be in conflict with
public liability, fire or other policies of insurance at any time
carried by or for the benefit of Owner with respect to the demised
premises or the building of which the demised premises form a part,
or which shall or might subject Owner to any liability or
responsibility to any person or for property damage. Tenant shall
not keep anything in the demise premises except as now or hereafter
permitted by the Fire Department, Board of Fire Underwriters, Fire
Insurance Rating Organization or other authority having
jurisdiction, and then only in such manner and such quantity so as
not to increase the rate for fire insurance applicable to the
building, nor use the premises in a manner which will increase the
insurance rate for the building or any property located therein
over that in effect prior to the commencement of Tenant's
occupancy. Tenant shall pay all costs, expenses, fines, penalties,
or damages, which may be imposed upon Owner by reason of Tenant's
<PAGE>
failure to comply with the provisions of this article and if by
reason of such failure the fire insurance rate shall, at the
beginning of this lease or at any time thereafter, be higher than
it otherwise would be, then Tenant shall reimburse Owner, as
additional rent hereunder, for that portion of all fire insurance
premiums thereafter paid by Owner which shall have been charged
because of such failure by Tenant. In any action or proceeding
wherein Owner and Tenant are parties, a schedule or "make-up" of
rate for the building or demised premises issued by the New York
Fire Insurance Exchange, or other body making fire insurance rates
applicable to said premises shall be conclusive evidence of the
facts therein stated and of the several items and charges in the
fire insurance rates then applicable to said premises. Tenant shall
not place a load upon any floor of the demised premises exceeding
the floor load per square foot area which is designed to carry and
which is allowed by law. Owner reserves the right to prescribe the
weight and position of all safes, business machines and mechanical
equipment. Such installations shall be placed and maintained by
Tenant, at Tenant's expense, in settings sufficient, in Owner's
judgement, to absorb and prevent vibration, noise and annoyance.
SUBORDINATION:
7. This lease is subject and subordinate to all ground or underlying
leases and to all mortgages which may now or hereafter affect such
leases or the real property of which demised premises are a part
and to all renewals, modifications, consolidations, replacements
and extensions of any such underlying leases and mortgages. This
clause shall be self-operative and no further instrument of
subordination shall be required by any ground or underlying lessor
or by any mortgagee, affecting any lease or the real property of
which the demised premises are a part. In confirmation of such
subordination. Tenant shall execute promptly any certificate that
owner may request.
PROPERTY--LOSS, DAMAGE, REIMBURSEMENT, INDEMNITY:
8. Owner or its agents shall not be liable for any damage to property
of Tenant or of others entrusted to employees of the building, nor
for loss, of or damage to any property of Tenant by theft or
otherwise, nor for any injury or damage to persons or property
resulting from any cause of whatsoever nature, unless caused by or
due to the negligence of Owner, its agents, servants or employees.
Owner or its agents will not be liable for any such damage caused
by other tenants or persons in; upon or about said building or
caused by operations in construction of any private, public or
quasi public work. I at any time any windows of the demised
premises are temporarily closed, darkened or bricked up (or
permanently closed, darkened or bricked up, if required by law) for
any reason whatsoever including, but not limited to Owner's own
acts, Owner shall not be liable for any damage Tenant may sustain
thereby and Tenant shall not be entitled to any compensation
therefore nor abatement or dimunition of rent nor shall the same
release Tenant from its obligations hereunder nor constitute an
eviction. Tenant shall indemnify and save harmless Owner against
and from all liabilities, obligations, damages, penalties, claims,
costs and expenses for which Owner shall not be reimbursed by
insurance, including reasonable attorneys fees, paid, suffered or
incurred as a result of any breach by Tenant, Tenant's agents,
contractors, employees, invitees, or licenses, of any covenant or
condition of this lease, or the carelessness, negligence or
improper conduct of the Tenant. Tenant's agents, contractors,
employees, invitees or licensees. Tenant's liability under this
lease extends to the acts and omissions of any sub-tenant, and any
agent, contractor, employee, invitee or licensee of any sub-tenant.
In case any action or proceeding is brought against Owner by reason
of any such claim. Tenant, upon written notice from Owner, will, at
Tenant's expense, resist or defend such action or proceeding by
counsel approved by Owner in writing, such approval not to be
unreasonably withheld.
<PAGE>
DESTRUCTION, FIRE AND OTHER CASUALTY:
9. (a) If the demised premises or any part thereof shall be damaged by
fire or other casualty, Tenant shall give immediate notice thereof
to Owner and this lease shall continue in full force and effect
except as hereinafter set forth. (b) If the demised premises are
partially damaged or rendered partially unusable by fire or other
casualty, the damages thereto shall be repaired by and at the
expense of Owner and the rent, until such repair shall be
substantially completed, shall be apportioned from the day
following the casualty according the part of the premises which is
usable. (c) If the demised premises are totally damaged or rendered
wholly unusable by fire or other casualty, then the rent shall be
proportionately paid up to the time of the casualty and thenceforth
shall cease until the date when the premises shall have been
repaired and restored by Owner, subject to Owner's right to elect
not to restore the same as hereinafter provided. (d) If the demised
premises are rendered wholly unusable or (whether or not the
demised premises are damaged in whole or in part) if the building
shall be so damaged that Owner shall decide to demolish it or to
rebuild it, then, in any of such events, Owner may elect to
terminate this lease by written notice to Tenant, given within 90
days after such fire or casualty, specifying a date for the
expiration of the lease, which date shall not be more than 60 days
after the giving of such notice, and upon the date specified in
such notice the term of this lease shall expire as fully and
completely as if such date were the date set forth above for the
termination of this lease and Tenant shall forthwith quit surrender
and vacate the premises without prejudice however, to Landlord's
rights and remedies against Tenant under the lease provisions in
effect prior to such termination, and any rent owing shall be paid
up to such date and an payments of rent made by Tenant which were
on account of any period subsequent to such date shall be returned
to Tenant. Unless Owner shall serve a termination notice as
provided for herein, Owner shall make the repairs and restorations
under the conditions of (b) and (c) hereof, with all reasonable
expedition, subject to delays due to adjustment of insurance
claims, labor troubles and causes beyond Owner's control. After any
such casualty, Tenant shall cooperate with Owner's restoration by
removing from the premises as promptly as reasonably possible, all
of Tenant's salvageable inventory and movable equipment, furniture,
and other property. Tenant's liability for rent shall resume five
(5) days after written notice from Owner that the premises are
substantially ready for Tenant's occupancy. (e) Nothing contained
herein above shall relieve Tenant from liability that may exist as
a result of damage from fire or other casualty. Notwithstanding the
foregoing, each party shall look first to any insurance in its
favor before making any claim against the other party for recovery
for loss or damage resulting from fire or other casualty, and to
the extent that such insurance is in force and collectible and to
the extent permitted by law. Owner and Tenant each hereby releases
and waives all right of recovery against the other or any one
claiming through or under each of them by way of subrogation or
otherwise. The foregoing release and waiver shall be in force only
if both releasors' insurance policies contain a clause providing
that such a release or waiver shall not invalidate the insurance.
If, and to the extent, that such waiver can be obtained only by the
payment of additional premiums, then the party benefiting from the
waiver shall pay such premium within ten days after written demand
or shall be deemed to have agreed that the party obtaining
insurance coverage shall be free of any further obligation under
the provisions hereof with respect to waiver of subrogation. Tenant
acknowledges that Owner will not carry insurance on Tenant's
furniture and/or furnishings or any fixtures or equipment,
improvements, or appurtenances removable by Tenant and agrees that
Owner will not be obligated to repair any damage thereto or replace
the same. (f) Tenant hereby waives the provisions of Section 227 of
the Real Property Law and agrees that the provisions of this
article shall govern and control in lieu thereof.
EMINENT DOMAIN:
10. If the whole or any part of the demised premises shall be acquired
or condemned by Eminent Domain for any public or quasi public use
or purpose, then and in that event, the term of this lease shall
cease and
<PAGE>
terminate from the date of title vesting in such proceeding and
Tenant shall have no claim for the waive of any unexpired term of
said lease and assigns to Owner, Tenant's entire interest in any
such award.
ASSIGNMENT, MORTGAGE, ETC.:
11. Tenant, for itself, its heirs, distributees, executors,
administrators, legal representatives, successors and assigns,
expressly covenants that it shall not assign, mortgage or encumber
this agreement, nor underlet, or suffer or permit the demised
premises or any part thereof to be used by others, without the
prior written consent of Owner in each instance. Transfer of the
majority of the stock of a corporate Tenant shall be deemed an
assignment. If this lease be assigned, or if the demised premises
or any party thereof be underlet or occupied by anybody other than
Tenant, Owner may, after default by Tenant, collect rent from the
assignee, under-tenant or occupant, and apply the net amount
collected to the rent herein reserved, but no such assignment,
underletting, occupancy or collection shall be deemed a waiver of
this covenant, or the acceptance of the assignee, under-tenant or
occupant as Tenant, or a release of Tenant from the further
performance by Tenant of covenants on the part of Tenant herein
contained. The consent by Owner to an assignment or underletting
shall not in any wise be construed to relieve Tenant from obtaining
the express consent in writing of Owner to any further assignment
or underletting.
ELECTRIC CURRENT:
12. Rates and conditions in respect to submetering or rent inclusion,
as the case may be, to be added in RIDER attached hereto. Tenant
covenants and agrees that all times its use of electric current
shall not exceed the capacity of existing feeders to the building
or the risers or wiring installation and Tenant may not use any
electrical equipment which, in Owner's opinion, reasonably
exercised, will overload such installations or interfere with the
use thereof by other tenants of the building. The change at any
time of the character of electric service shall in no wise make
Owner liable or responsible to Tenant, for any loss, damages or
expenses which Tenant may sustain.
ACCESS TO PREMISES:
13. Owner or Owner's agents shall have the right (but shall not be
obligated) to enter the demised premises in any emergency at any
time, and, at other reasonable times, to examine the same and to
make such repairs, replacements and improvements as Owner may deem
necessary and reasonably desirable to the demised premises or to
any other portion of the building or which Owner may elect to
perform. Tenant shall permit Owner to use and maintain and replace
pipes and conduits in and through the demised premises and to erect
new pipes and conduits in and through the demised premises within
the walls, floor, or ceiling. Owner may, during the progress of any
work in the demised premises, take all necessary materials and
equipment into said premises without the same constituting an
eviction nor shall the Tenant be entitled to any abatement of rent
while such work is in progress nor to any damages by reason of loss
or interruption of business or otherwise. Throughout the term
hereof Owner shall have the right to enter the demised premises at
reasonable hours for the purpose of showing the same to prospective
purchasers or mortgagees of the building, and during the last six
months of the term for the purpose of showing the same to
prospective tenants. If Tenant is not present to open and permit an
entry into the premises. Owner or Owner's agents may enter the same
whenever such entry may be necessary or permissible by master key
or forcibly and provided reasonable care is exercised to safeguard
Tenant's property, such entry shall not render Owner or its agents
liable therefor, nor in any event shall the obligations of Tenant
hereunder be affected. If during the last month of the term Tenant
shall have removed all or subsequently all of Tenant's property
therefrom Owner may immediately enter, alter, renovate or
redecorate the demised premises without limitation or abatement of
rent, or incurring liability to Tenant for any compensation and
such act shall have no effect on this lease or Tenant's obligations
hereunder.
<PAGE>
VAULT, VAULT SPACE, AREA:
14. No Vaults, vault space or area, whether or not enclosed or covered,
not within the property line of the building is leased hereunder,
anything contained in or indicated on any sketch, blue print or
plan, or anything contained elsewhere in this lease to the contrary
notwithstanding. Owner makes no representation as to the location
of the property line of the building. All vaults and vault space
and all such areas not within the property line of the building,
which Tenant may be permitted to use and/or occupy, is to be used
and/or occupied under a revocable license, and if any such license
be revoked, or if the amount of such space or area be diminished or
required by any federal, state or municipal authority or public
utility, Owner shall not be subject to any liability nor shall
Tenant be entitled to any compensation or diminution or abatement
of rent, nor shall such revocation, diminution or requisition be
deemed constructive or actual eviction. Any tax, fee or charge of
municipal authorities for such vault or area shall be paid by
Tenant.
OCCUPANCY:
15. Tenant will not at any time use or occupy the demised premises in
violation of the certificate of occupancy issued for the building
of which the demise premises are a part. Tenant has inspected the
premises and accepts them as is, subject to the riders annexed
hereto with respect to Owner's work, if any. In any event, Owner
makes no representation as to the condition of the premises and
Tenant agrees to accept the same subject to violations, whether or
not of record.
BANKRUPTCY:
16. (a) Anything elsewhere in this lease to the contrary
notwithstanding, this lease may be cancelled by Owner by the
sending of a written notice to Tenant within a reasonable time
after the happening of any one or more of the following events: (1)
the commencement of a case in bankruptcy or under the laws of any
state naming Tenant as the debtor: or (2) the making by Tenant of
an assignment or any other arrangement for the benefit of creditors
under any state statute. Neither Tenant nor any person claiming
through or under Tenant, or by reason of any statute or order of
court, shall thereafter be entitled to possession of the premises
demised but shall forthwith quit and surrender the premises. If
this lease shall be assigned in accordance with its terms, the
provisions of this Article 16 shall be applicable only to the party
then owning Tenant's interest in this lease.
(b) it is stipulated and agreed that in the event of the
termination of this lease pursuant to (a) hereof, Owner shall
forthwith, notwithstanding any other provisions of this lease to
the contrary, be entitled to recover from Tenant as and for
liquidated damages an amount equal to the difference between the
rent reserved hereunder for the enexpired portion of the term
demised and the fair and reasonable rental value of the demised
premises for the same period. In the computation of such damages
the difference between any installment of rent becoming due
hereunder after the date of termination and the fair and reasonable
rental value of the demised premises for the period for which such
installment was payable shall be discounted to the date of
termination at the rate of four percent (4%) per annum. If such
premises or any part thereof, be relet by the Owner for the
unexpired term of said lease, or any part thereof, before
presentation of proof of such liquidated damages to any court,
commission or tribunal, the amount of rent reserved upon such
reletting shall be deemed to be the fair and reasonable rental
value for the part or the whole of the premises so re-let during
the term of the re-letting. Nothing herein contained shall limit or
prejudice the right of the Owner to prove for and obtain as
liquidated damages by reason of such termination, an amount equal
to the maximum allowed by any statute or rule of law in effect at
the time when, and governing the proceedings in which, such damages
are to be proved, whether or not such amount be greater, equal to,
or less than the amount of the difference referred to above.
<PAGE>
DEFAULT:
17. If Tenant defaults in fulfilling any of the covenants of this lease
other than the covenants for the payment of rent or additional
rent; or if the demised premises become vacant or deserted: or if
any execution or attachment shall be issued against Tenant or any
of Tenant's property whereupon the demised premises shall be taken
or occupied by someone other than Tenant: or if this lease be
rejected under Section 235 of Title 11 of the U.S. Code
(bankruptcy code): or if Tenant shall fail to move into or take
possession of the premises within fifteen (15) days after the
commencement of the term of this lease, then, in any one or more
of such events, upon Owner serving a written five (5) days notice
upon Tenant specifying the nature of said default and upon the
expiration of said five (5) days. If Tenant shall have failed to
comply with or remedy such default, or if the said default or
omission complained of shall be of a nature that the same cannot
be completely cured or remedied within said five (5) day period,
and if Tenant shall not have diligently commenced curing such
default within such five (5) day period, and shall not thereafter
with reasonable diligence and in good faith, proceed to remedy or
cure such default, then Owner may serve a written three (3) days'
notice of cancellation of this lease upon Tenant, and upon the
expiration of said three (3) days this lease and the term
thereunder shall end and expire as full and completely as if the
expiration of such three (3) day period were the day herein
definitely fixed for the end and expiration of this lease and
the term thereof and Tenant shall then quit and surrender the
demised premises to Owner but Tenant shall remain liable as
hereinafter provided.
(2) If the notice provide for in (1) hereof shall have been given, and
the term shall expire as aforesaid: or if Tenant shall make default
in the payment of the rent reserved herein or any item of
additional rent herein mentioned or any part of either or in making
any other payment herein required; then and in any such events
Owner may without notice, re-enter the demised premises either by
force or otherwise, and dispossess Tenant by summary proceedings or
otherwise, and the legal representative of Tenant or other occupant
of demised premises and remove their effects and hold the premises
as if this lease had not been made, and Tenant hereby waives the
service of notice of intention to re-enter or to institute legal
proceedings to that end. If Tenant shall make default hereunder
prior to the date fixed as the commencement of any renewal or
extension of this lease. Owner may cancel and terminate such
renewal or extension agreement by written notice.
REMEDIES OF OWNER AND WAIVER OF REDEMPTION:
18. In case of any such default, re-entry, expiration and/or dispossess
by summary proceedings or otherwise, (a) the rent shall become due
thereupon and be paid up to the time of such re-entry, dispossess
and/or expiration, (b) Owner may re-elect the premises or any part
or parts thereof, either in the name of Owner or otherwise, for a
term or terms, which may at Owner's option be less than or exceed
the period which would otherwise have constituted the balance of
the term of this lease and may grant concessions or free rent or
charge a higher rental than that in this lease, and/or (c) Tenant
or the legal representatives of Tenant shall also pay Owner as
liquidated damages for the failure of Tenant to observe and perform
said Tenant's covenants herein contained, any deficiency between
the rent hereby reserved and/or covenanted to be paid and the net
amount, if any, of the rents collected on account of the lease or
leases of the demised premises for each month of the period which
would otherwise have constituted the balance of the term of this
lease. The failure of Owner to re-let the premises or any part or
parts thereof shall not release or affect Tenant's liability for
damages. In computing such liquidated damages there shall be added
to the said deficiency such expenses as Owner may incur in
connection with re-letting, such as legal expenses, attorneys'
fees, brokerage, advertising and for keeping the demised premises
in good order or for preparing the same for re-letting. Any such
liquidated damages shall be paid in monthly installments by Tenant
on the rent day specified in this lease and any suit brought to
collect the amount of the deficiency for any month shall not
prejudice in any way the rights of Owner to collect the
<PAGE>
deficiency for any subsequent month by a similar proceeding. Owner,
in putting the demised premises in good order or preparing the same
for re-rental may, at Owner's option, make such alterations,
repairs, replacements, and/or decorations in the demised premised
as Owner. In Owner's sole judgement, considers advisable and
necessary for the purpose of re-letting the demised premises; and
the making of such alternations, repairs, replacements, and/or
decorations shall not operate or be construed to release Tenant
from liability hereunder as aforesaid. Owner shall in no event be
liable in any way whatsoever for failure to re-let the demised
premises, or in the event that the demised premises are re-let, for
failure to collect the rent thereof under such re-letting, and in
no event shall Tenant be entitled to receive any excess, if any, of
such net rents collected over the sums payable by Tenant to Owner
hereunder. In the event of a breach or threatened breach by Tenant
of any of the covenants or provisions hereof, Owner shall have the
right of injunction and the right to invoke any remedy, in law or
in equity as if re-entry: summary proceedings and other remedies
were not herein provided for. Mention in this lease of any
particular remedy, shall not preclude Owner from any other remedy
in law or in equity. Tenant hereby expressly waives any and all
rights of redemption granted by or under any present or future laws
in the event of Tenant being evicted or dispossessed for any cause,
or in the event of Owner obtaining possession of demised premises,
by reason of the violation by Tenant of any of the covenants and
conditions of this lease, or otherwise.
FEES AND EXPENSE
19. If Tenant shall default in the observance or performance of any
term or covenant on Tenant's part to be observed or performed under
or by virtue of any of the terms or provisions in any article of
this lease, then, unless otherwise provided elsewhere in this
lease, Owner may immediately or at any time thereafter and without
notice perform the obligation of Tenant thereunder. If Owner, in
connection with the foregoing or I connection with any default by
Tenant in the covenant to pay rent hereunder, makes any
expenditures or incurs any obligations for the payment of money,
including but not limited to attorney's fees, in instituting,
prosecuting or defending any action or proceeding, then Tenant will
reimburse Owner for such sums so paid or obligations incurred with
interest and costs. The foregoing expenses incurred by reason of
Tenant's default shall be deemed to be additional rent hereunder
and shall be paid by Tenant to Owner within five (5) days of
rendition of any bill or statement to Tenant therefor. If Tenant's
lease term shall have expired at the time of making of such
expenditures or incurring of such obligations, such sums shall be
recoverable by Owner as damages.
BUILDING ALTERATIONS AND MANAGEMENT:
20. Owner shall have the right at any time without the same
constituting an eviction and without incurring liability to Tenant
therefor to change the arrangement and/or location of public
entrances, passageways, doors, doorways, corridors, elevators,
stairs, toilets, or other public parts of the building and to
change the name, number or designation by which the building may be
known. There shall be no allowance to Tenant for diminution of
rental value and no liability on the part of Owner by reason of
inconvenience, annoyance or injury to business arising from Owner
or other Tenants making any repairs in the building or any such
alterations, additions and improvements. Furthermore, Tenant shall
not have any claim against Owner by reason of Owner's imposition of
such controls of the manner of access to the building by Tenant's
social or business visitors as the Owner may deem necessary for the
security of the building and its occupants.
NO REPRESENTATIONS BY OWNER:
21. Neither Owner nor Owner's agents have made any representations or
promises with respect to the physical condition of the building,
the land upon which it is erected or the demised premises, the
rents, leases,
<PAGE>
expenses of operation or any other matter or thing affecting or
related to the premises except as herein expressly set forth and no
rights, easements or licenses are acquired by Tenant by implication
or otherwise except as expressly set forth in the provisions of
this lease. Tenant has inspected the building and the demised
premises and is thoroughly acquainted with their condition and
agrees to take the same "as is" and acknowledges that the taking of
possession of the demised premises by Tenant shall be conclusive
evidence that the said premises and the building of which the same
form a part were in good and satisfactory condition at the time
such possession was so taken, except as to latent defects. All
understandings and agreements hereto made between the parties
hereto are merged in this contract, which alone fully and
completely expresses the agreement between Owner and Tenant and any
executory agreement hereafter made shall be ineffective to change,
modify, discharge or effect an abandonment of it in whole or in
part, unless such executory agreement is in writing and signed by
the party against whom enforcement of the change, modification,
discharge or abandonment is sought.
END OF TERM
22. Upon the expiration or other termination of the term of this lease,
Tenant shall quit and surrender to Owner the demised premises,
broom clean, in good order and condition, ordinary wear and damages
which Tenant is not required to repair as provided elsewhere in
this lease excepted, and Tenant shall remove all its property.
Tenant's obligation to observe or perform this covenant shall
survive the expiration or other termination of this lease. If the
last day of the term of this lease or any renewal thereof, falls on
Sunday, this lease shall expire at noon on the preceding Saturday
unless it be a legal holiday in which case it shall expire at noon
on the preceding business day.
QUIET ENJOYMENT
23. Owner covenants and agrees with Tenant that upon Tenant paying the
rent and additional rent and observing and performing all the
terms, covenants and conditions, on Tenant's part to be observed
and performed, Tenant may peaceably and quietly enjoy the premises
hereby demised, subject, nevertheless, to the terms and conditions
of this lease including, but not limited to, Article 31 hereof and
to the ground leases, underlying leases and mortgages hereinbefore
mentioned.
FAILURE TO GIVE POSSESSION
24. If owner is unable to give possession of the demised premises on
the date of the commencement of the term hereof, because of the
holding- over or retention of possession of any tenant, undertenant
or occupants or if the demised premises are located in a building
being constructed, because such building has not been sufficiently
completed to make the premises ready for occupancy or because of
the fact that a certificate of occupancy has not been procured or
for any other reason. Owner shall not be subject to any liability
for failure to give possession on said date and the validity of the
lease shall not be impaired under such circumstances, nor shall the
same be construed in any wise to extend the term of this lease, but
the rent payable hereunder shall be abated (provided Tenant is not
responsible for Owner's inability to obtain possession) until after
Owner shall have given Tenant written notice that the premises are
substantially ready for Tenant's occupancy. If permission is given
to Tenant to enter into the possession of the demised premises or
to occupy premises other than the demised premises prior to the
date specified as the commencement of the term of this lease.
Tenant covenants and agrees that such occupancy shall be deemed to
be under all the terms, covenants, conditions and provisions of
this lease, except as to the covenant to pay rent. The provisions
of this article are intended to constitute "an express provision to
the contrary" within the meaning of Section 223- a of the New York
Real Property Law.
<PAGE>
NO WAIVER
25. The failure of Owner to seek redress for violation of, or to insist
upon the strict performance of any covenant or condition of this
lease or of any of the Rules or Regulations, set forth or hereafter
adopted by Owner, shall not prevent a subsequent act which would
have originally constituted a violation from having all the force
and effect of an original violation. The receipt by Owner of rent
with knowledge of the breach of any covenant of this lease shall
not be deemed a waiver of such breach and no provision of this
lease shall be deemed to have been waived by Owner unless such
waiver be in writing signed by Owner. No payment by Tenant or
receipt by Owner of a lesser amount than the monthly rent herein
stipulated shall be deemed to be other than on account of the
earliest stipulated rent, nor shall any endorsement or statement of
any check or any letter accompanying any check or payment as rent
be deemed an accord and satisfaction, and Owner may accept such
check or payment without prejudice to Owner's right to recover the
balance of such rent or pursue any other remedy in this lease
provided. No act or thing done by Owner or Owner's agents during
the term hereby demised shall be deemed an acceptance of a
surrender of said premises, and no agreement to accept such
surrender shall be valid unless in writing signed by Owner. No
employee of Owner or Owner's agent shall have any power to accept
the keys of said premises prior to the termination of the lease and
the delivery of keys to any such agent or employee shall not
operate as a termination of the lease or a surrender of the
premises.
WAIVER OF TRIAL BY JURY:
26. It is mutually agreed by and between Owner and Tenant that the
respective parties hereto shall and they hereby do waive trial by
jury in any action, proceeding or counterclaim brought by either of
the parties hereto against the other (except for personal injury or
property damage) on any matters whatsoever arising out of or in any
way connected with this lease, the relationship of Owner and
Tenant, Tenant's use of our occupancy of said premises, and any
emergency statutory or any other statutory remedy. It is further
mutually agreed that in the event Owner commences any summary
proceeding for possession of the premises, Tenant will not
interpose any counterclaim of whatever nature or description in any
such proceeding including a counterclaim under Article 4.
INABILITY TO PERFORM
27. This Lease and the obligation of Tenant to pay rent hereunder and
perform all of the other covenants and agreements hereunder on part
of Tenant to be performed shall in no wise be affected, impaired or
excused because Owner is unable to fulfill any of its obligations
under this lease or to supply or is delayed in supplying any
service expressly or impliedly to be supplied or is unable to make,
or is delayed in making any repair, additions, alterations or
decorations or is unable to supply or is delayed in supplying any
equipment or fixtures if Owner is prevented or delayed from so
doing by reason of strike or labor troubles or any cause whatsoever
including, but not limited to, government preemption in connection
with a National Emergency or by reason of any rule, order or
regulation of any department or subdivision thereof of any
government agency or by reason of the conditions of supply and
demand which have been or are affected by war or other emergency.
BILLS AND NOTICES
28. Except as otherwise in this lease provided, a bill, statement,
notice or communication which Owner may desire or be required to
give to Tenant, shall be deemed sufficiently given or rendered if,
in writing, delivered to Tenant personally or sent by registered or
certified mail addressed to Tenant at the building of which the
demised premises form a part or at the last known residence address
or business address of
<PAGE>
Tenant or left at any of the aforesaid premises addressed to
Tenant, and the time of the rendition of such bill or statement and
of the giving of such notice or communication shall be deemed to be
the time when the same is delivered to Tenant, mailed or left at
the premises as herein provided. Any notice by Tenant to Owner must
be served by registered or certified mail addressed to Owner at the
address first hereinabove given or at such other address as Owner
shall designate by written notice.
SERVICES PROVIDED BY OWNERS
29. As long as Tenant is not in default under any of the covenants of
this lease, Owner shall provide; (a) necessary elevator facilities
on business days from 8 a.m. to 6 p.m. and on Saturdays from 8 a.m.
to 1 p.m. and have one elevator subject to call at all other times;
(b) heat to the demised premises when and as required by law, on
business days from 8 a.m. to 6 p.m. and on Saturdays from 8 a.m. to
1 p.m.; (c) water for ordinary lavatory purposes, but if Tenant
uses or consumes water for any other purposes or in unusual
quantities (of which fact Owner shall be the sole judge). Owner may
install a water meter at Tenant's expense which Tenant shall
thereafter maintain at Tenant's expense in good working order and
repair to register such water consumption and Tenant shall pay for
water consumed as shown on said meter as additional rent as and
when bills are rendered; (d) cleaning service for the demised
premises on business days at Owner's expense provided that the same
are kept in order by Tenant. If, however, said premises are to be
kept clean by Tenant, it shall be done at Tenant's sole expense, in
a manner satisfactory to Owner and no one other than persons
approved by Owner shall be permitted to enter said premises or the
building of which they are a part for such purpose. Tenant shall
pay Owner the cost of removal of any of Tenant's refuse and rubbish
from the building; (e) If the demised premises are serviced by
Owner's air conditioning/cooling and ventilating system, air
conditioning/cooling will be furnished to tenant from May 15th
through September 30th on business days (Mondays through Fridays,
holidays excepted) from 8 a.m. to 6 p.m., and ventilation will be
furnished on business days during the aforesaid hours except when
air conditioning/cooling is being furnished as aforesaid. If Tenant
requires air conditioning/cooling or ventilation for more extended
hours or on Saturdays, Sundays or on holidays, as defined under
Owner's contract with Operating Engineers Local 94-94A, Owner will
furnish the same at Tenant's expense. RIDER to be added in respect
to rates and conditions for such additional service; (f) Owner
reserves the right to stop services of the heating, elevators,
plumbing, air-conditioning, power systems or cleaning or other
services, if any, when necessary by reason of accident or for
repairs, alterations, replacements or improvements necessary or
desirable in the judgement of Owner for as long as may be
reasonably required by reason thereof. If the building of which the
demised premises are a part supplies manually operated elevator
service. Owner at any time may substitute automatic-control
elevator service and upon ten days' written notice to Tenant,
proceed with alterations necessary therefor without in any wise
affecting this lease or the obligation of Tenant hereunder. The
same shall be done with a minimum of inconvenience to Tenant and
Owner shall pursue the alteration with due diligence.
CAPTIONS
30. The Captions are inserted only as a matter of convenience and for
reference and in no way define, limit or describe the scope of this
lease nor the intent of any provisions thereof.
DEFINITIONS
31. The term "office", or "offices", wherever used in this lease, shall
not be construed to mean premises used as a store or stores, for
the sale or display, at any time of goods, wares or merchandise, of
any kind, or as a restaurant, shop, booth, bootblack or other
stand, barber shop, or for other similar purposes or for
manufacturing. The term "Owner" means a landlord or lessor, and as
used in this lease means only the owner, or the mortgagee in
possession, for the time being of the land and building (or the
owner of a lease
<PAGE>
of the building or of the land and the building) of which the
demised premises form a part, so that in the event of any sale or
sales of said land and building or of said lease, or in the event
of a lease of said building, or of the land and building, the said
Owner shall be and hereby is entirely freed and relieved of all
covenants and obligation of Owner hereunder, and it shall be deemed
and construed without further agreement between the parties or
their successors in interest, or between the parties and the
purchaser, at any such sale, or the said lessee of the building, or
of the land and building, that the purchaser or the lessee of the
building has assumed and agreed to carry out any and all covenants
and obligations of Owner, hereunder. The words "re-enter" and
"re-entry" as used in this lease are not restricted to their
technical legal meaning. The term "business days" as used in this
lease shall exclude Saturdays (except such portion thereof as is
covered by specific hours in Article 29 hereof). Sundays and all
days observed by the State or Federal Government as legal holidays
and those designated as holidays by the applicable building service
union employees service contract or by the applicable Operating
Engineers contract with respect to HVAC service.
ADJACENT EXCAVATION--SHARING
32. If an excavation shall be made upon land adjacent to the demised
premises, or shall be authorized to be made, Tenant shall afford to
the person causing or authorized to cause such excavation, license
to enter upon the demised premises for the purpose of doing such
work as said person shall deem necessary to preserve the wall or
the building of which demised premises form a part from injury or
damage and to support the same by proper foundations without any
claim for damages or indemnity against Owner, or diminution or
abatement of rent.
RULES AND REGULATIONS
33. Tenant and Tenant's servants, employees, agents, visitors, and
licenses shall observe faithfully, and comply strictly with, the
Rules and Regulations and such other and further reasonable Rules
and Regulations as Owner and Owner's agents may from time to time
adopt. Notice of any additional rules or regulations shall be given
in such manner as Owner may elect. In case Tenant disputes the
reasonableness of any additional Rule or Regulation hereafter made
or adopted by Owner or Owner's agents, the parties hereto agree to
submit the question of the reasonableness of such Rule or
Regulation for decision to the New York office of the American
Arbitration Association, whose determination shall be final and
conclusive upon the parties hereto. The right to dispute the
reasonableness of any additional Rule or Regulation upon Tenant's
part shall be deemed waived unless the same shall be asserted by
service of a notice, in writing upon Owner within (10) days after
the giving of notice thereof. Nothing in this lease contained shall
be construed to impose upon Owner any duty or obligation to enforce
the Rules and Regulations or terms, covenants or conditions in any
other lease, as against any other tenant and Owner shall not be
liable to Tenant for violation of the same by any other tenant, its
servants, employees, agents, visitors or licensees.
SECURITY
34. Tenant has deposited with Owner the sum of $4,687.50 as security
for the faithful performance and observance by Tenant of the terms,
provisions and conditions of this lease; it is agreed that in the
event Tenant defaults in respect of any of the terms, provisions
and conditions of this lease, including, but not limited to, the
payment of rent and additional rent, Owner may use, apply or retain
the whole or any part of the security so deposited to the extent
required for the payment of any rent and additional rent or any
other sum as to which Tenant is in default or for any sum which
Owner may expend or may be required to expend by reason of Tenant's
default in respect of any of the terms, covenants and conditions of
this lease, including but not limited to, any damages or deficiency
in the re-letting of the premises, whether such damages or
deficiency accrued before or after summary proceedings or other
re-entry by Owner. In the event that Tenant shall fully and
faithfully comply with all terms, provisions, convenants,
<PAGE>
conditions of this lease, the security shall be returned to Tenant
after the date fixed as the end of the Lease and after delivery of
entire possession of the demised premises to Owner. In the event of
a sale of the land and building or leasing of the building, of
which the demised premises form a part, Owner shall have the right
to transfer the security to the vendee or lessee and Owner shall
thereupon be released by Tenant from all liability for the return
of such security; and Tenant agrees to look to the new Owner solely
for the return of said security; and it is agreed that the
provisions hereof shall apply to every transfer or assignment made
of the security to a new Owner. Tenant further covenants that it
will not assign or encumber or attempt to assign or encumber the
monies deposited herein as security and that neither Owner nor its
successors or assigns shall be bound by any such assignments,
encumbrance, attempted assignment or attempted encumbrance.
<PAGE>
ESTOPPEL CERTIFICATE
35. Tenant, at any time, and from time to time, upon at least 10 days'
prior notice by Owner, shall execute, acknowledge and deliver to
Owner, and/or to any other person, firm or corporation specified by
Owner, a statement certifying that this Lease is unmodified and in
full force and effect (or, if there have been modifications, that
the same is in full force and effect as modified and stating the
modifications), stating the dates to which the rent and additional
rent have been paid, and stating whether or not there exists any
default by Owner under this Lease, and, if so, specifying each such
default.
SUCCESSORS AND ASSIGNS:
36. The covenants, conditions and agreements contained in this lease
shall bind and inure to the benefit of Owner and Tenant and their
respective heirs, distributees, executors, administrators,
successors, and except as otherwise provided in this lease, their
assigns.
Articles 37 through 42 inclusive are attached hereto and form a part hereof.
In Witness Whereof, Owner and Tenant have respectively signed and sealed this
lease as of the day and year first above written. THIS AGREEMENT IS BEING
FORWARDED FOR YOUR APPROVAL AND EXECUTION ON THE UNDERSTANDING THAT IT SHALL NOT
BECOME EFFECTIVE UNTIL IT IS ACCEPTED BY THE LANDLORD AND ITS COUNSEL AND
EXECUTED BY THE LANDLORD.
FIFTY BROAD STREET, INC. AND
FIFTY NEW STREET, INC.
/s/ Alexander
- ----------------------------- -----------------------------
Secretary President
AXIOM COMMUNICATIONS GROUP, INC.
Witness for Tenant:
/s/ Ch. Baudenheuer
- ----------------------------- -----------------------------
Secretary President
ACKNOWLEDGEMENTS
CORPORATE OWNER
STATE OF NEW YORK,
County of
On this day of , 19 , before me
personally came
to me known, who being by me duly sworn, did depose and say that
<PAGE>
he resides in
that he is the of
the corporation described in which executed the foregoing instrument, as OWNER;
that he knows the seal of said corporation; that the seal affixed to said
instrument is such corporate seal; that it was so affixed by order of the Board
of Directors of said corporation, and the he signed his name thereto by like
order.
-------------------------------------------
CORPORATE TENANT
STATE OF NEW YORK,
County of
On this 14th day of April, 1999, before me personally came
Christian Bardenheuer to me known, who being by me duly sworn, did depose and
say that he resides in NY that he is the President of Axiom Communications
the corporation described in which executed the foregoing instrument, as TENANT;
that he knows the seal of said corporation; that the seal affixed to said
instrument is such corporate seal; that it was so affixed by order of the Board
of Directors of said corporation, and the he signed his name thereto by like
order.
/S/Teresa Panetta
-------------------------------------------
TERESA PANETTA
Notary Public, State of New York
No. 4838623
Qualified in New York County
Commission Expires Oct. 31, 1999
INDIVIDUAL TENANT
STATE OF NEW YORK
County of
On this day of , 19 , before me
personally came
to me known, and known to me to be the individual described in and who, as
OWNER, executed the foregoing instrument and acknowledged to me that he executed
the same.
-------------------------------------------
INDIVIDUAL TENANT
STATE OF NEW YORK
County of
On this day of , 19 , before me
<PAGE>
personally came
to me known, and known to me to be the individual described in and who, as
TENANT, executed the foregoing instrument and acknowledged to me that he
executed the same.
-------------------------------------------
<PAGE>
STANDARD FORM OF OFFICE LEASE
THE REAL ESTATE BOARD OF NEW YORK, INC.
3/1/90
AGREEMENT OF LEASE, made as of this 25th day of March 1999, between FIFTY BROAD
STREET, INC. AND FIFTY NEW STREET, INC., New York corporations having their
principal places of business c/o Cushman & Wakefield, Inc., 100 Wall Street, New
York, New York 10005 party of the first part, hereinafter referred to as OWNER,
and Axiom Communications Group, Inc., a New York corporation party of the second
part, hereinafter referred to as TENANT,
WITNESSETH: Owner hereby leases to Tenant and Tenant hereby hires from Owner
Room 501 in the building known as 50 Broad Street in the Borough of Manhattan,
City of New York, for the term of (or until such term shall sooner cease and
expire as hereinafter provided) to commence on the First day of April nineteen
hundred and ninety nine (1999) and to end on the thirtieth day of April two
thousand and two (2002) both dates inclusive, at an annual rate of thirty two
thousand two hundred eighty seven dollars and 50/cents $32,287.50
which Tenant agrees to pay in lawful money of the United States which shall be
legal tender in payment of all debts and dues, public and private, at the time
of payment, in equal monthly installments in advance on the first day of each
month during said term, at the office of Owner or such other place as Owner may
designate, without any set off or deduction whatsoever, except that Tenant shall
pay the first monthly installment(s) on the execution hereof (unless this lease
be a renewal).
In the event that, at the commencement of the term of this lease, or
thereafter, Tenant shall be in default in the payment of rent to Owner pursuant
to the terms of another lease with Owner or with Owner's predecessor in
interest, Owner may at Owner's option and without notice to Tenant add the
amount of such arrears to any monthly installment of rent payable hereunder and
the same shall be payable to Owner as additional rent.
The parties hereto, for themselves, their heirs, distributees,
executors, administrators, legal representatives, successors and assigns, hereby
covenant as follows:
RENT OCCUPANCY
1. Tenant shall pay the rent as above and hereinafter provided.
2. Tenant shall use and occupy demised premises for executive offices
for Tenant's use and for no other purpose.
<PAGE>
TENANT ALTERATIONS:
3. Tenant shall make no changes in or to the demised premises of any
nature without the Owner's prior written consent. Subject to the
prior written consent of Owner, and to the provisions of this
article, Tenant at Tenant's expense, may make alterations,
installations, additions or improvements which are non-structural
and which do not affect utility services or plumbing and electrical
lines, in or to the interior of the demised premises by using
contractors or mechanics first approved by Owner. Tenant shall,
before making any alterations, additions, installations or
improvements, at its expense, obtain all permits, approvals and
certificates required by an governmental or quasi-governmental
bodies and (upon completion) certificates of final approval thereof
and shall deliver promptly duplicates of all such permits,
approvals and certificates to Owner and Tenant agrees to carry and
will cause Tenant's contractors and subcontractors to carry such
workman's compensation, general liability, personal and property
damage insurance as Owner may require. If any mechanic's lien is
filed against the demised premises, or the building of which the
same forms a part, for work claimed to have been done for, or
materials furnished to, Tenant, whether or not done pursuant to
this article, the same shall be discharged by Tenant within thirty
days thereafter at Tenant's expense, by filing the bond required by
law. All fixtures and all paneling, partitions, railings and like
installations, installed in the premises at any time, either by
Tenant or by Owner in Tenant's behalf, shall, upon installation,
become the property of Owner and shall remain upon and be
surrendered with the demised premises unless Owner, by notice to
Tenant no later than twenty days prior to the date fixed as the
termination of this lease, elects to relinquish Owner's right
thereto and to have them removed by Tenant, in which event the same
shall be removed from the premises by Tenant prior to the
expiration of the lease, at Tenant's expense. Nothing in this
Article shall be construed to give Owner title to or to prevent
Tenant's removal of trade fixtures, moveable office furniture and
equipment, but upon removal of any such from the premises or upon
removal of other installations as may be required by Owner, Tenant
shall immediately and at its expense, repair and restore the
premises to the condition existing prior to installation and repair
any damage to the demised premises or the building due to such
removal. All property permitted or required to be removed, by
Tenant at the end of the term remaining in the premises after
Tenant's removal shall be deemed abandoned and may, at the election
of Owner, either be retained as Owner's property or may be removed
from the premises by Owner at Tenant's expense.
MAINTENANCE AND REPAIRS
4. Tenant shall, throughout the term of this lease, take good care of
the demised premises and the fixtures and appurtenances therein.
Tenant shall be responsible for all damage or injury to the demise
premises or any other part of the building and the systems and
equipment thereof, whether requiring structural or nonstructural
repairs caused by or resulting from carelessness, omission, neglect
or improper conduct of Tenant, Tenant's subtenants, agents,
employees, invitees or licensees, or approvals and certificates to
Owner and Tenants agrees to carry and will cause Tenant's
contractors and sub-contractors to carry such workman's
compensation, general liability, personal and property damage
insurance as Owner may require which arise out of any work, labor,
service or equipment done for or supplied to Tenant or any
subtenant or arising out of the installation, use or operation of
the property or equipment of Tenant or any subtenant. Tenant shall
also repair all damage to the building and the demised premises
caused by the moving of Tenant's fixtures, furniture and equipment.
Tenant shall promptly make, at Tenant's expense, all repairs in and
to the demised premises for which Tenant is responsible, using only
the contractor for the trade or trades in question, selected from a
list of at least two contractors per trade submitted by Owner. Any
other repairs in or to the building or the facilities and systems
thereof for which Tenant is responsible shall be performed by Owner
at Tenant's expense. Owner shall maintain in good working order and
repair the
<PAGE>
exterior and the structural portions of the building, including the
structural portions of its demised premises, and the public
portions of the building interior and the building plumbing,
electrical, heating and ventilating systems (to the extent such
systems presently exist) serving the demised premises. Tenant
agrees to give prompt notice of any defective condition in the
premises for which Owner may be responsible hereunder. There shall
be no allowance to Tenant for diminution of rental value and no
liability on the part of Owner by reason of inconvenience,
annoyance or injury to business arising from Owner or others making
repairs, alterations, additions or improvements in or to any
portion of the building or the demised premises or in and to the
fixtures, appurtenances or equipment thereof. It is specifically
agreed that Tenant shall not be entitled to any setoff or reduction
of rent by reason of any failure of Owner to comply with the
covenants of this or any other article of this Lease. Tenant agrees
that Tenant's sole remedy at law in such instance will be by way of
an action for damages for breach of contract. The provisions of
this Article 4 shall not apply in the case of fire or other
casualty which are dealt with in Article 9 hereof.
WINDOW CLEANING:
5. Tenant will not clean nor require, permit, suffer or allow any
window in the demised premises to be cleaned from outside in
violation of Section 202 of the Labor Law or any other applicable
law or of the Rules of the Board of Standards and Appeals, or of
any other Board or body having or asserting jurisdiction.
REQUIREMENT OF LAW, FIRE INSURANCE, FLOOR LOADS:
6. Prior to the commencement of the lease term, if Tenant is then in
possession, and all times thereafter, Tenant, at Tenant's sole cost
and expense, shall promptly comply with all present and future
laws, orders and regulations of all state, federal, municipal and
local governments, departments, commissions and boards and any
direction of any public officer pursuant to law, and all orders,
rules and regulations of the New York Board of Fire Underwriters,
Insurance Services Office, or any similar body which shall impose
any violation, order or duty upon Owner or Tenant with respect to
the demised premises, whether or not arising out of Tenant's use or
manner of use thereof, (including Tenant's permitted use) or, with
respect to the building if arising out of Tenant's use or manner of
use of the premises or the building (including the use permitted
under the lease). Nothing herein shall require Tenant to make
structural repairs or alterations unless Tenant has, by its manner
of use of the demised premises or method of operation therein,
violated any such laws, ordinances, orders, rules, regulations or
requirements with respect thereto. Tenant may, after securing Owner
to Owner's satisfaction against all damages, interest, penalties
and expenses, including, but not limited to, reasonable attorney's
fees, by cash deposit or by surety bond in an amount and in a
company satisfactory to Owner, contest and appeal any such laws,
ordinances, orders, rules, regulations or requirements provided
same is done with all reasonable promptness and provided such
appeal shall not subject Owner to prosecution for a criminal
offense or constitute a default under any lease or mortgage under
which Owner may be obligated, or cause the demised premises or any
part thereof to be condemned or vacated. Tenant shall not do or
permit any act or thing to be done in or to the premises which is
contrary to law, or which will invalidate or be in conflict with
public liability, fire or other policies of insurance at any time
carried by or for the benefit of Owner with respect to the demised
premises or the building of which the demised premises form a part,
or which shall or might subject Owner to any liability or
responsibility to any person or for property damage. Tenant shall
not keep anything in the demise premises except as now or hereafter
permitted by the Fire Department, Board of Fire Underwriters, Fire
Insurance Rating Organization or other authority having
jurisdiction, and then only in such manner and such quantity so as
not to increase the rate for fire insurance applicable to the
building, nor use the premises in a manner which will increase the
insurance rate for the building or any property located therein
over that in effect prior to the commencement of Tenant's
occupancy. Tenant shall pay all costs, expenses, fines, penalties,
or damages, which may be imposed upon Owner by reason of Tenant's
<PAGE>
failure to comply with the provisions of this article and if by
reason of such failure the fire insurance rate shall, at the
beginning of this lease or at any time thereafter, be higher than
it otherwise would be, then Tenant shall reimburse Owner, as
additional rent hereunder, for that portion of all fire insurance
premiums thereafter paid by Owner which shall have been charged
because of such failure by Tenant. In any action or proceeding
wherein Owner and Tenant are parties, a schedule or "make-up" of
rate for the building or demised premises issued by the New York
Fire Insurance Exchange, or other body making fire insurance rates
applicable to said premises shall be conclusive evidence of the
facts therein stated and of the several items and charges in the
fire insurance rates then applicable to said premises. Tenant shall
not place a load upon any floor of the demised premises exceeding
the floor load per square foot area which is designed to carry and
which is allowed by law. Owner reserves the right to prescribe the
weight and position of all safes, business machines and mechanical
equipment. Such installations shall be placed and maintained by
Tenant, at Tenant's expense, in settings sufficient, in Owner's
judgement, to absorb and prevent vibration, noise and annoyance.
SUBORDINATION:
7. This lease is subject and subordinate to all ground or underlying
leases and to all mortgages which may now or hereafter affect such
leases or the real property of which demised premises are a part
and to all renewals, modifications, consolidations, replacements
and extensions of any such underlying leases and mortgages. This
clause shall be self-operative and no further instrument of
subordination shall be required by any ground or underlying lessor
or by any mortgagee, affecting any lease or the real property of
which the demised premises are a part. In confirmation of such
subordination. Tenant shall execute promptly any certificate that
owner may request.
PROPERTY--LOSS, DAMAGE, REIMBURSEMENT, INDEMNITY:
8. Owner or its agents shall not be liable for any damage to property
of Tenant or of others entrusted to employees of the building, nor
for loss, of or damage to any property of Tenant by theft or
otherwise, nor for any injury or damage to persons or property
resulting from any cause of whatsoever nature, unless caused by or
due to the negligence of Owner, its agents, servants or employees.
Owner or its agents will not be liable for any such damage caused
by other tenants or persons in; upon or about said building or
caused by operations in construction of any private, public or
quasi public work. At any time any windows of the demised
premises are temporarily closed, darkened or bricked up (or
permanently closed, darkened or bricked up, if required by law) for
any reason whatsoever including, but not limited to Owner's own
acts, Owner shall not be liable for any damage Tenant may sustain
thereby and Tenant shall not be entitled to any compensation
therefore nor abatement or dimunition of rent nor shall the same
release Tenant from its obligations hereunder nor constitute an
eviction. Tenant shall indemnify and save harmless Owner against
and from all liabilities, obligations, damages, penalties, claims,
costs and expenses for which Owner shall not be reimbursed by
insurance, including reasonable attorneys fees, paid, suffered or
incurred as a result of any breach by Tenant, Tenant's agents,
contractors, employees, invitees, or licenses, of any covenant or
condition of this lease, or the carelessness, negligence or
improper conduct of the Tenant. Tenant's agents, contractors,
employees, invitees or licensees. Tenant's liability under this
lease extends to the acts and omissions of any sub-tenant, and any
agent, contractor, employee, invitee or licensee of any sub-tenant.
In case any action or proceeding is brought against Owner by reason
of any such claim. Tenant, upon written notice from Owner, will, at
Tenant's expense, resist or defend such action or proceeding by
counsel approved by Owner in writing, such approval not to be
unreasonably withheld.
<PAGE>
DESTRUCTION, FIRE AND OTHER CASUALTY:
9. (a) If the demised premises or any part thereof shall be damaged by
fire or other casualty, Tenant shall give immediate notice thereof
to Owner and this lease shall continue in full force and effect
except as hereinafter set forth. (b) If the demised premises are
partially damaged or rendered partially unusable by fire or other
casualty, the damages thereto shall be repaired by and at the
expense of Owner and the rent, until such repair shall be
substantially completed, shall be apportioned from the day
following the casualty according the part of the premises which is
usable. (c) If the demised premises are totally damaged or rendered
wholly unusable by fire or other casualty, then the rent shall be
proportionately paid up to the time of the casualty and thenceforth
shall cease until the date when the premises shall have been
repaired and restored by Owner, subject to Owner's right to elect
not to restore the same as hereinafter provided. (d) If the demised
premises are rendered wholly unusable or (whether or not the
demised premises are damaged in whole or in part) if the building
shall be so damaged that Owner shall decide to demolish it or to
rebuild it, then, in any of such events, Owner may elect to
terminate this lease by written notice to Tenant, given within 90
days after such fire or casualty, specifying a date for the
expiration of the lease, which date shall not be more than 60 days
after the giving of such notice, and upon the date specified in
such notice the term of this lease shall expire as fully and
completely as if such date were the date set forth above for the
termination of this lease and Tenant shall forthwith quit surrender
and vacate the premises without prejudice however, to Landlord's
rights and remedies against Tenant under the lease provisions in
effect prior to such termination, and any rent owing shall be paid
up to such date and an payments of rent made by Tenant which were
on account of any period subsequent to such date shall be returned
to Tenant. Unless Owner shall serve a termination notice as
provided for herein, Owner shall make the repairs and restorations
under the conditions of (b) and (c) hereof, with all reasonable
expedition, subject to delays due to adjustment of insurance
claims, labor troubles and causes beyond Owner's control. After any
such casualty, Tenant shall cooperate with Owner's restoration by
removing from the premises as promptly as reasonably possible, all
of Tenant's salvageable inventory and movable equipment, furniture,
and other property. Tenant's liability for rent shall resume five
(5) days after written notice from Owner that the premises are
substantially ready for Tenant's occupancy. (e) Nothing contained
herein above shall relieve Tenant from liability that may exist as
a result of damage from fire or other casualty. Notwithstanding the
foregoing, each party shall look first to any insurance in its
favor before making any claim against the other party for recovery
for loss or damage resulting from fire or other casualty, and to
the extent that such insurance is in force and collectible and to
the extent permitted by law. Owner and Tenant each hereby releases
and waives all right of recovery against the other or any one
claiming through or under each of them by way of subrogation or
otherwise. The foregoing release and waiver shall be in force only
if both releasors' insurance policies contain a clause providing
that such a release or waiver shall not invalidate the insurance.
If, and to the extent, that such waiver can be obtained only by the
payment of additional premiums, then the party benefiting from the
waiver shall pay such premium within ten days after written demand
or shall be deemed to have agreed that the party obtaining
insurance coverage shall be free of any further obligation under
the provisions hereof with respect to waiver of subrogation. Tenant
acknowledges that Owner will not carry insurance on Tenant's
furniture and/or furnishings or any fixtures or equipment,
improvements, or appurtenances removable by Tenant and agrees that
Owner will not be obligated to repair any damage thereto or replace
the same. (f) Tenant hereby waives the provisions of Section 227 of
the Real Property Law and agrees that the provisions of this
article shall govern and control in lieu thereof.
EMINENT DOMAIN:
10. If the whole or any part of the demised premises shall be acquired
or condemned by Eminent Domain for any public or quasi public use
or purpose, then and in that event, the term of this lease shall
cease and
<PAGE>
terminate from the date of title vesting in such proceeding and
Tenant shall have no claim for the waive of any unexpired term of
said lease and assigns to Owner, Tenant's entire interest in any
such award.
ASSIGNMENT, MORTGAGE, ETC.:
11. Tenant, for itself, its heirs, distributees, executors,
administrators, legal representatives, successors and assigns,
expressly covenants that it shall not assign, mortgage or encumber
this agreement, nor underlet, or suffer or permit the demised
premises or any part thereof to be used by others, without the
prior written consent of Owner in each instance. Transfer of the
majority of the stock of a corporate Tenant shall be deemed an
assignment. If this lease be assigned, or if the demised premises
or any party thereof be underlet or occupied by anybody other than
Tenant, Owner may, after default by Tenant, collect rent from the
assignee, under-tenant or occupant, and apply the net amount
collected to the rent herein reserved, but no such assignment,
underletting, occupancy or collection shall be deemed a waiver of
this covenant, or the acceptance of the assignee, under-tenant or
occupant as Tenant, or a release of Tenant from the further
performance by Tenant of covenants on the part of Tenant herein
contained. The consent by Owner to an assignment or underletting
shall not in any wise be construed to relieve Tenant from obtaining
the express consent in writing of Owner to any further assignment
or underletting.
ELECTRIC CURRENT:
12. Rates and conditions in respect to submetering or rent inclusion,
as the case may be, to be added in RIDER attached hereto. Tenant
covenants and agrees that all times its use of electric current
shall not exceed the capacity of existing feeders to the building
or the risers or wiring installation and Tenant may not use any
electrical equipment which, in Owner's opinion, reasonably
exercised, will overload such installations or interfere with the
use thereof by other tenants of the building. The change at any
time of the character of electric service shall in no wise make
Owner liable or responsible to Tenant, for any loss, damages or
expenses which Tenant may sustain.
ACCESS TO PREMISES:
13. Owner or Owner's agents shall have the right (but shall not be
obligated) to enter the demised premises in any emergency at any
time, and, at other reasonable times, to examine the same and to
make such repairs, replacements and improvements as Owner may deem
necessary and reasonably desirable to the demised premises or to
any other portion of the building or which Owner may elect to
perform. Tenant shall permit Owner to use and maintain and replace
pipes and conduits in and through the demised premises and to erect
new pipes and conduits in and through the demised premises within
the walls, floor, or ceiling. Owner may, during the progress of any
work in the demised premises, take all necessary materials and
equipment into said premises without the same constituting an
eviction nor shall the Tenant be entitled to any abatement of rent
while such work is in progress nor to any damages by reason of loss
or interruption of business or otherwise. Throughout the term
hereof Owner shall have the right to enter the demised premises at
reasonable hours for the purpose of showing the same to prospective
purchasers or mortgagees of the building, and during the last six
months of the term for the purpose of showing the same to
prospective tenants. If Tenant is not present to open and permit an
entry into the premises. Owner or Owner's agents may enter the same
whenever such entry may be necessary or permissible by master key
or forcibly and provided reasonable care is exercised to safeguard
Tenant's property, such entry shall not render Owner or its agents
liable therefor, nor in any event shall the obligations of Tenant
hereunder be affected. If during the last month of the term Tenant
shall have removed all or subsequently all of Tenant's property
therefrom Owner may immediately enter, alter, renovate or
redecorate the demised premises without limitation or abatement of
rent, or incurring liability to Tenant for any compensation and
such act shall have no effect on this lease or Tenant's obligations
hereunder.
<PAGE>
VAULT, VAULT SPACE, AREA:
14. No Vaults, vault space or area, whether or not enclosed or covered,
not within the property line of the building is leased hereunder,
anything contained in or indicated on any sketch, blue print or
plan, or anything contained elsewhere in this lease to the contrary
notwithstanding. Owner makes no representation as to the location
of the property line of the building. All vaults and vault space
and all such areas not within the property line of the building,
which Tenant may be permitted to use and/or occupy, is to be used
and/or occupied under a revocable license, and if any such license
be revoked, or if the amount of such space or area be diminished or
required by any federal, state or municipal authority or public
utility, Owner shall not be subject to any liability nor shall
Tenant be entitled to any compensation or diminution or abatement
of rent, nor shall such revocation, diminution or requisition be
deemed constructive or actual eviction. Any tax, fee or charge of
municipal authorities for such vault or area shall be paid by
Tenant.
OCCUPANCY:
15. Tenant will not at any time use or occupy the demised premises in
violation of the certificate of occupancy issued for the building
of which the demise premises are a part. Tenant has inspected the
premises and accepts them as is, subject to the riders annexed
hereto with respect to Owner's work, if any. In any event, Owner
makes no representation as to the condition of the premises and
Tenant agrees to accept the same subject to violations, whether or
not of record.
BANKRUPTCY:
16. (a) Anything elsewhere in this lease to the contrary
notwithstanding, this lease may be cancelled by Owner by the
sending of a written notice to Tenant within a reasonable time
after the happening of any one or more of the following events: (1)
the commencement of a case in bankruptcy or under the laws of any
state naming Tenant as the debtor: or (2) the making by Tenant of
an assignment or any other arrangement for the benefit of creditors
under any state statute. Neither Tenant nor any person claiming
through or under Tenant, or by reason of any statute or order of
court, shall thereafter be entitled to possession of the premises
demised but shall forthwith quit and surrender the premises. If
this lease shall be assigned in accordance with its terms, the
provisions of this Article 16 shall be applicable only to the party
then owning Tenant's interest in this lease.
(b) it is stipulated and agreed that in the event of the
termination of this lease pursuant to (a) hereof, Owner shall
forthwith, notwithstanding any other provisions of this lease to
the contrary, be entitled to recover from Tenant as and for
liquidated damages an amount equal to the difference between the
rent reserved hereunder for the enexpired portion of the term
demised and the fair and reasonable rental value of the demised
premises for the same period. In the computation of such damages
the difference between any installment of rent becoming due
hereunder after the date of termination and the fair and reasonable
rental value of the demised premises for the period for which such
installment was payable shall be discounted to the date of
termination at the rate of four percent (4%) per annum. If such
premises or any part thereof, be relet by the Owner for the
unexpired term of said lease, or any part thereof, before
presentation of proof of such liquidated damages to any court,
commission or tribunal, the amount of rent reserved upon such
reletting shall be deemed to be the fair and reasonable rental
value for the part or the whole of the premises so re-let during
the term of the re-letting. Nothing herein contained shall limit or
prejudice the right of the Owner to prove for and obtain as
liquidated damages by reason of such termination, an amount equal
to the maximum allowed by any statute or rule of law in effect at
the time when, and governing the proceedings in which, such damages
are to be proved, whether or not such amount be greater, equal to,
or less than the amount of the difference referred to above.
<PAGE>
DEFAULT:
17. If Tenant defaults in fulfilling any of the covenants of this lease
other than the covenants for the payment of rent or additional
rent; or if the demised premises become vacant or deserted: or if
any execution or attachment shall be issued against Tenant or any
of Tenant's property whereupon the demised premises shall be taken
or occupied by someone other than Tenant: or if this lease be
rejected under ss.235 of Title 11 of the U.S. Code (bankruptcy
code): or if Tenant shall fail to move into or take possession of
the premises within fifteen (15) days after the commencement of the
term of this lease, then, in any one or more of such events, upon
Owner serving a written five (5) days notice upon Tenant specifying
the nature of said default and upon the expiration of said five (5)
days. If Tenant shall have failed to comply with or remedy such
default, or if the said default or omission complained of shall be
of a nature that the same cannot be completely cured or remedied
within said five (5) day period, and if Tenant shall not have
diligently commenced curing such default within such five (5) day
period, and shall not thereafter with reasonable diligence and in
good faith, proceed to remedy or cure such default, then Owner may
serve a written three (3) days' notice of cancellation of this
lease upon Tenant, and upon the expiration of said three (3) days
this lease and the term thereunder shall end and expire as fully
and completely as if the expiration of such three (3) day period
were the day herein definitely fixed for the end and expiration of
this lease and the term thereof and Tenant shall then quit and
surrender the demised premises to Owner but Tenant shall remain
liable as hereinafter provided.
(2) If the notice provide for in (1) hereof shall have been given, and
the term shall expire as aforesaid: or if Tenant shall make default
in the payment of the rent reserved herein or any item of
additional rent herein mentioned or any part of either or in making
any other payment herein required; then and in any such events
Owner may without notice, re-enter the demised premises either by
force or otherwise, and dispossess Tenant by summary proceedings or
otherwise, and the legal representative of Tenant or other occupant
of demised premises and remove their effects and hold the premises
as if this lease had not been made, and Tenant hereby waives the
service of notice of intention to re-enter or to institute legal
proceedings to that end. If Tenant shall make default hereunder
prior to the date fixed as the commencement of any renewal or
extension of this lease. Owner may cancel and terminate such
renewal or extension agreement by written notice.
REMEDIES OF OWNER AND WAIVER OF REDEMPTION:
18. In case of any such default, re-entry, expiration and/or dispossess
by summary proceedings or otherwise, (a) the rent shall become due
thereupon and be paid up to the time of such re-entry, dispossess
and/or expiration, (b) Owner may re-elect the premises or any part
or parts thereof, either in the name of Owner or otherwise, for a
term or terms, which may at Owner's option be less than or exceed
the period which would otherwise have constituted the balance of
the term of this lease and may grant concessions or free rent or
charge a higher rental than that in this lease, and/or (c) Tenant
or the legal representatives of Tenant shall also pay Owner as
liquidated damages for the failure of Tenant to observe and perform
said Tenant's covenants herein contained, any deficiency between
the rent hereby reserved and/or covenanted to be paid and the net
amount, if any, of the rents collected on account of the lease or
leases of the demised premises for each month of the period which
would otherwise have constituted the balance of the term of this
lease. The failure of Owner to re-let the premises or any part or
parts thereof shall not release or affect Tenant's liability for
damages. In computing such liquidated damages there shall be added
to the said deficiency such expenses as Owner may incur in
connection with re-letting, such as legal expenses, attorneys'
fees, brokerage, advertising and for keeping the demised premises
in good order or for preparing the same for re-letting. Any such
liquidated damages shall be paid in monthly installments by Tenant
on the rent day specified in this lease and any suit brought to
collect the amount of the deficiency for any month shall not
prejudice in any way the rights of Owner to collect the
<PAGE>
deficiency for any subsequent month by a similar proceeding. Owner,
in putting the demised premises in good order or preparing the same
for re-rental may, at Owner's option, make such alterations,
repairs, replacements, and/or decorations in the demised premised
as Owner. In Owner's sole judgement, considers advisable and
necessary for the purpose of re-letting the demised premises; and
the making of such alternations, repairs, replacements, and/or
decorations shall not operate or be construed to release Tenant
from liability hereunder as aforesaid. Owner shall in no event be
liable in any way whatsoever for failure to re-let the demised
premises, or in the event that the demised premises are re-let, for
failure to collect the rent thereof under such re-letting, and in
no event shall Tenant be entitled to receive any excess, if any, of
such net rents collected over the sums payable by Tenant to Owner
hereunder. In the event of a breach or threatened breach by Tenant
of any of the covenants or provisions hereof, Owner shall have the
right of injunction and the right to invoke any remedy, in law or
in equity as if re-entry: summary proceedings and other remedies
were not herein provided for. Mention in this lease of any
particular remedy, shall not preclude Owner from any other remedy
in law or in equity. Tenant hereby expressly waives any and all
rights of redemption granted by or under any present or future laws
in the event of Tenant being evicted or dispossessed for any cause,
or in the event of Owner obtaining possession of demised premises,
by reason of the violation by Tenant of any of the covenants and
conditions of this lease, or otherwise.
FEES AND EXPENSE
19. If Tenant shall default in the observance or performance of any
term or covenant on Tenant's part to be observed or performed under
or by virtue of any of the terms or provisions in any article of
this lease, then, unless otherwise provided elsewhere in this
lease, Owner may immediately or at any time thereafter and without
notice perform the obligation of Tenant thereunder. If Owner, in
connection with the foregoing or I connection with any default by
Tenant in the covenant to pay rent hereunder, makes any
expenditures or incurs any obligations for the payment of money,
including but not limited to attorney's fees, in instituting,
prosecuting or defending any action or proceeding, then Tenant will
reimburse Owner for such sums so paid or obligations incurred with
interest and costs. The foregoing expenses incurred by reason of
Tenant's default shall be deemed to be additional rent hereunder
and shall be paid by Tenant to Owner within five (5) days of
rendition of any bill or statement to Tenant therefor. If Tenant's
lease term shall have expired at the time of making of such
expenditures or incurring of such obligations, such sums shall be
recoverable by Owner as damages.
BUILDING ALTERATIONS AND MANAGEMENT:
20. Owner shall have the right at any time without the same
constituting an eviction and without incurring liability to Tenant
therefor to change the arrangement and/or location of public
entrances, passageways, doors, doorways, corridors, elevators,
stairs, toilets, or other public parts of the building and to
change the name, number or designation by which the building may be
known. There shall be no allowance to Tenant for diminution of
rental value and no liability on the part of Owner by reason of
inconvenience, annoyance or injury to business arising from Owner
or other Tenants making any repairs in the building or any such
alterations, additions and improvements. Furthermore, Tenant shall
not have any claim against Owner by reason of Owner's imposition of
such controls of the manner of access to the building by Tenant's
social or business visitors as the Owner may deem necessary for the
security of the building and its occupants.
NO REPRESENTATIONS BY OWNER:
21. Neither Owner nor Owner's agents have made any representations or
promises with respect to the physical condition of the building,
the land upon which it is erected or the demised premises, the
rents, leases,
<PAGE>
expenses of operation or any other matter or thing affecting
or related to the premises except as herein expressly set
forth and no rights, easements or licenses are acquired by Tenant
by implication or otherwise except as expressly set forth in the
provisions of this lease. Tenant has inspected the building and the
demised premises and is thoroughly acquainted with their condition
and agrees to take the same "as is" and acknowledges that the
taking of possession of the demised premises by Tenant shall be
conclusive evidence that the said premises and the building of
which the same form a part were in good and satisfactory condition
at the time such possession was so taken, except as to latent
defects. All understandings and agreements hereto made between the
parties hereto are merged in this contract, which alone fully and
completely expresses the agreement between Owner and Tenant and any
executory agreement hereafter made shall be ineffective to change,
modify, discharge or effect an abandonment of it in whole or in
part, unless such executory agreement is in writing and signed by
the party against whom enforcement of the change, modification,
discharge or abandonment is sought.
END OF TERM
22. Upon the expiration or other termination of the term of this lease,
Tenant shall quit and surrender to Owner the demised premises,
broom clean, in good order and condition, ordinary wear and damages
which Tenant is not required to repair as provided elsewhere in
this lease excepted, and Tenant shall remove all its property.
Tenant's obligation to observe or perform this covenant shall
survive the expiration or other termination of this lease. If the
last day of the term of this lease or any renewal thereof, falls on
Sunday, this lease shall expire at noon on the preceding Saturday
unless it be a legal holiday in which case it shall expire at noon
on the preceding business day.
QUIET ENJOYMENT
23. Owner covenants and agrees with Tenant that upon Tenant paying the
rent and additional rent and observing and performing all the
terms, covenants and conditions, on Tenant's part to be observed
and performed, Tenant may peaceably and quietly enjoy the premises
hereby demised, subject, nevertheless, to the terms and conditions
of this lease including, but not limited to, Article 31 hereof and
to the ground leases, underlying leases and mortgages hereinbefore
mentioned.
FAILURE TO GIVE POSSESSION
24. If owner is unable to give possession of the demised premises on
the date of the commencement of the term hereof, because of the
holding- over or retention of possession of any tenant, undertenant
or occupants or if the demised premises are located in a building
being constructed, because such building has not been sufficiently
completed to make the premises ready for occupancy or because of
the fact that a certificate of occupancy has not been procured or
for any other reason. Owner shall not be subject to any liability
for failure to give possession on said date and the validity of the
lease shall not be impaired under such circumstances, nor shall the
same be construed in any wise to extend the term of this lease, but
the rent payable hereunder shall be abated (provided Tenant is not
responsible for Owner's inability to obtain possession) until after
Owner shall have given Tenant written notice that the premises are
substantially ready for Tenant's occupancy. If permission is given
to Tenant to enter into the possession of the demised premises or
to occupy premises other than the demised premises prior to the
date specified as the commencement of the term of this lease.
Tenant covenants and agrees that such occupancy shall be deemed to
be under all the terms, covenants, conditions and provisions of
this lease, except as to the covenant to pay rent. The provisions
of this article are intended to constitute "an express provision to
the contrary" within the meaning of Section 223- a of the New York
Real Property Law.
<PAGE>
NO WAIVER
25. The failure of Owner to seek redress for violation of, or to insist
upon the strict performance of any covenant or condition of this
lease or of any of the Rules or Regulations, set forth or hereafter
adopted by Owner, shall not prevent a subsequent act which would
have originally constituted a violation from having all the force
and effect of an original violation. The receipt by Owner of rent
with knowledge of the breach of any covenant of this lease shall
not be deemed a waiver of such breach and no provision of this
lease shall be deemed to have been waived by Owner unless such
waiver be in writing signed by Owner. No payment by Tenant or
receipt by Owner of a lesser amount than the monthly rent herein
stipulated shall be deemed to be other than on account of the
earliest stipulated rent, nor shall any endorsement or statement of
any check or any letter accompanying any check or payment as rent
be deemed an accord and satisfaction, and Owner may accept such
check or payment without prejudice to Owner's right to recover the
balance of such rent or pursue any other remedy in this lease
provided. No act or thing done by Owner or Owner's agents during
the term hereby demised shall be deemed an acceptance of a
surrender of said premises, and no agreement to accept such
surrender shall be valid unless in writing signed by Owner. No
employee of Owner or Owner's agent shall have any power to accept
the keys of said premises prior to the termination of the lease and
the delivery of keys to any such agent or employee shall not
operate as a termination of the lease or a surrender of the
premises.
WAIVER OF TRIAL BY JURY:
26. It is mutually agreed by and between Owner and Tenant that the
respective parties hereto shall and they hereby do waive trial by
jury in any action, proceeding or counterclaim brought by either of
the parties hereto against the other (except for personal injury or
property damage) on any matters whatsoever arising out of or in any
way connected with this lease, the relationship of Owner and
Tenant, Tenant's use of our occupancy of said premises, and any
emergency statutory or any other statutory remedy. It is further
mutually agreed that in the event Owner commences any summary
proceeding for possession of the premises, Tenant will not
interpose any counterclaim of whatever nature or description in any
such proceeding including a counterclaim under Article 4.
INABILITY TO PERFORM
27. This Lease and the obligation of Tenant to pay rent hereunder and
perform all of the other covenants and agreements hereunder on part
of Tenant to be performed shall in no wise be affected, impaired or
excused because Owner is unable to fulfill any of its obligations
under this lease or to supply or is delayed in supplying any
service expressly or impliedly to be supplied or is unable to make,
or is delayed in making any repair, additions, alterations or
decorations or is unable to supply or is delayed in supplying any
equipment or fixtures if Owner is prevented or delayed from so
doing by reason of strike or labor troubles or any cause whatsoever
including, but not limited to, government preemption in connection
with a National Emergency or by reason of any rule, order or
regulation of any department or subdivision thereof of any
government agency or by reason of the conditions of supply and
demand which have been or are affected by war or other emergency.
BILLS AND NOTICES
28. Except as otherwise in this lease provided, a bill, statement,
notice or communication which Owner may desire or be required to
give to Tenant, shall be deemed sufficiently given or rendered if,
in writing, delivered to Tenant personally or sent by registered or
certified mail addressed to Tenant at the building of which the
demised premises form a part or at the last known residence address
or business address of
<PAGE>
Tenant or left at any of the aforesaid premises addressed to
Tenant, and the time of the rendition of such bill or statement and
of the giving of such notice or communication shall be deemed to be
the time when the same is delivered to Tenant, mailed or left at
the premises as herein provided. Any notice by Tenant to Owner must
be served by registered or certified mail addressed to Owner at the
address first hereinabove given or at such other address as Owner
shall designate by written notice.
SERVICES PROVIDED BY OWNERS
29. As long as Tenant is not in default under any of the covenants of
this lease, Owner shall provide; (a) necessary elevator facilities
on business days from 8 a.m. to 6 p.m. and on Saturdays from 8 a.m.
to 1 p.m. and have one elevator subject to call at all other times;
(b) heat to the demised premises when and as required by law, on
business days from 8 a.m. to 6 p.m. and on Saturdays from 8 a.m. to
1 p.m.; (c) water for ordinary lavatory purposes, but if Tenant
uses or consumes water for any other purposes or in unusual
quantities (of which fact Owner shall be the sole judge). Owner may
install a water meter at Tenant's expense which Tenant shall
thereafter maintain at Tenant's expense in good working order and
repair to register such water consumption and Tenant shall pay for
water consumed as shown on said meter as additional rent as and
when bills are rendered; (d) cleaning service for the demised
premises on business days at Owner's expense provided that the same
are kept in order by Tenant. If, however, said premises are to be
kept clean by Tenant, it shall be done at Tenant's sole expense, in
a manner satisfactory to Owner and no one other than persons
approved by Owner shall be permitted to enter said premises or the
building of which they are a part for such purpose. Tenant shall
pay Owner the cost of removal of any of Tenant's refuse and rubbish
from the building; (e) If the demised premises are serviced by
Owner's air conditioning/cooling and ventilating system, air
conditioning/cooling will be furnished to tenant from May 15th
through September 30th on business days (Mondays through Fridays,
holidays excepted) from 8 a.m. to 6 p.m., and ventilation will be
furnished on business days during the aforesaid hours except when
air conditioning/cooling is being furnished as aforesaid. If Tenant
requires air conditioning/cooling or ventilation for more extended
hours or on Saturdays, Sundays or on holidays, as defined under
Owner's contract with Operating Engineers Local 94-94A, Owner will
furnish the same at Tenant's expense. RIDER to be added in respect
to rates and conditions for such additional service; (f) Owner
reserves the right to stop services of the heating, elevators,
plumbing, air-conditioning, power systems or cleaning or other
services, if any, when necessary by reason of accident or for
repairs, alterations, replacements or improvements necessary or
desirable in the judgement of Owner for as long as may be
reasonably required by reason thereof. If the building of which the
demised premises are a part supplies manually operated elevator
service. Owner at any time may substitute automatic-control
elevator service and upon ten days' written notice to Tenant,
proceed with alterations necessary therefor without in any wise
affecting this lease or the obligation of Tenant hereunder. The
same shall be done with a minimum of inconvenience to Tenant and
Owner shall pursue the alteration with due diligence.
CAPTIONS
30. The Captions are inserted only as a matter of convenience and for
reference and in no way define, limit or describe the scope of this
lease nor the intent of any provisions thereof.
DEFINITIONS
31. The term "office", or "offices", wherever used in this lease, shall
not be construed to mean premises used as a store or stores, for
the sale or display, at any time of goods, wares or merchandise, of
any kind, or as a restaurant, shop, booth, bootblack or other
stand, barber shop, or for other similar purposes or for
manufacturing. The term "Owner" means a landlord or lessor, and as
used in this lease means only the owner, or the mortgagee in
possession, for the time being of the land and building (or the
owner of a lease
<PAGE>
of the building or of the land and the building) of which the
demised premises form a part, so that in the event of any sale or
sales of said land and building or of said lease, or in the event
of a lease of said building, or of the land and building, the said
Owner shall be and hereby is entirely freed and relieved of all
covenants and obligation of Owner hereunder, and it shall be deemed
and construed without further agreement between the parties or
their successors in interest, or between the parties and the
purchaser, at any such sale, or the said lessee of the building, or
of the land and building, that the purchaser or the lessee of the
building has assumed and agreed to carry out any and all covenants
and obligations of Owner, hereunder. The words "re-enter" and
"re-entry" as used in this lease are not restricted to their
technical legal meaning. The term "business days" as used in this
lease shall exclude Saturdays (except such portion thereof as is
covered by specific hours in Article 29 hereof). Sundays and all
days observed by the State or Federal Government as legal holidays
and those designated as holidays by the applicable building service
union employees service contract or by the applicable Operating
Engineers contract with respect to HVAC service.
ADJACENT EXCAVATION--SHARING
32. If an excavation shall be made upon land adjacent to the demised
premises, or shall be authorized to be made, Tenant shall afford to
the person causing or authorized to cause such excavation, license
to enter upon the demised premises for the purpose of doing such
work as said person shall deem necessary to preserve the wall or
the building of which demised premises form a part from injury or
damage and to support the same by proper foundations without any
claim for damages or indemnity against Owner, or diminution or
abatement of rent.
RULES AND REGULATIONS
33. Tenant and Tenant's servants, employees, agents, visitors, and
licenses shall observe faithfully, and comply strictly with, the
Rules and Regulations and such other and further reasonable Rules
and Regulations as Owner and Owner's agents may from time to time
adopt. Notice of any additional rules or regulations shall be given
in such manner as Owner may elect. In case Tenant disputes the
reasonableness of any additional Rule or Regulation hereafter made
or adopted by Owner or Owner's agents, the parties hereto agree to
submit the question of the reasonableness of such Rule or
Regulation for decision to the New York office of the American
Arbitration Association, whose determination shall be final and
conclusive upon the parties hereto. The right to dispute the
reasonableness of any additional Rule or Regulation upon Tenant's
part shall be deemed waived unless the same shall be asserted by
service of a notice, in writing upon Owner within (10) days after
the giving of notice thereof. Nothing in this lease contained shall
be construed to impose upon Owner any duty or obligation to enforce
the Rules and Regulations or terms, covenants or conditions in any
other lease, as against any other tenant and Owner shall not be
liable to Tenant for violation of the same by any other tenant, its
servants, employees, agents, visitors or licensees.
SECURITY
34. Tenant has deposited with Owner the sum of $2,690.63 as security
for the faithful performance and observance by Tenant of the terms,
provisions and conditions of this lease; it is agreed that in the
event Tenant defaults in respect of any of the terms, provisions
and conditions of this lease, including, but not limited to, the
payment of rent and additional rent, Owner may use, apply or retain
the whole or any part of the security so deposited to the extent
required for the payment of any rent and additional rent or any
other sum as to which Tenant is in default or for any sum which
Owner may expend or may be required to expend by reason of Tenant's
default in respect of any of the terms, covenants and conditions of
this lease, including but not limited to, any damages or deficiency
in the re-letting of the premises, whether such damages or
deficiency accrued before or after summary proceedings or other
re-entry by Owner. In the event that Tenant shall fully and
faithfully comply with all of the terms, provisions, covenants and
<PAGE>
conditions of this lease, the security shall be returned to Tenant
after the date fixed as the end of the Lease and after delivery of
entire possession of the demised premises to Owner. In the event of
a sale of the land and building or leasing of the building, of
which the demised premises form a part, Owner shall have the right
to transfer the security to the vendee or lessee and Owner shall
thereupon be released by Tenant from all liability for the return
of such security; and Tenant agrees to look to the new Owner solely
for the return of said security; and it is agreed that the
provisions hereof shall apply to every transfer or assignment made
of the security to a new Owner. Tenant further covenants that it
will not assign or encumber or attempt to assign or encumber the
monies deposited herein as security and that neither Owner nor its
successors or assigns shall be bound by any such assignments,
encumbrance, attempted assignment or attempted encumbrance.
<PAGE>
ESTOPPEL CERTIFICATE
35. Tenant, at any time, and from time to time, upon at least 10 days'
prior notice by Owner, shall execute, acknowledge and deliver to
Owner, and/or to any other person, firm or corporation specified by
Owner, a statement certifying that this Lease is unmodified and in
full force and effect (or, if there have been modifications, that
the same is in full force and effect as modified and stating the
modifications), stating the dates to which the rent and additional
rent have been paid, and stating whether or not there exists any
default by Owner under this Lease, and, if so, specifying each such
default.
SUCCESSORS AND ASSIGNS:
36. The covenants, conditions and agreements contained in this lease
shall bind and inure to the benefit of Owner and Tenant and their
respective heirs, distributees, executors, administrators,
successors, and except as otherwise provided in this lease, their
assigns.
Articles 37 through 41 inclusive are attached hereto and form a part hereof.
In Witness Whereof, Owner and Tenant have respectively signed and sealed this
lease as of the day and year first above written. THIS AGREEMENT IS BEING
FORWARDED FOR YOUR APPROVAL AND EXECUTION ON THE UNDERSTANDING THAT IT SHALL NOT
BECOME EFFECTIVE UNTIL IT IS ACCEPTED BY THE LANDLORD AND ITS COUNSEL AND
EXECUTED BY THE LANDLORD.
FIFTY BROAD STREET, INC. AND
FIFTY NEW STREET, INC.
/s/ Alexander
- ----------------------------- -----------------------------
Secretary President
AXIOM COMMUNICATIONS GROUP, INC.
Witness for Tenant:
/S/ Ch. Baudenheuer
- ----------------------------- -----------------------------
Secretary President
ACKNOWLEDGEMENTS
CORPORATE OWNER
STATE OF NEW YORK,
County of
On this day of , 19 , before me
personally came
to me known, who being by me duly sworn, did depose and say that
<PAGE>
he resides in
that he is the of
the corporation described in which executed the foregoing instrument, as OWNER;
that he knows the seal of said corporation; that the seal affixed to said
instrument is such corporate seal; that it was so affixed by order of the Board
of Directors of said corporation, and the he signed his name thereto by like
order.
-------------------------------------------
CORPORATE TENANT
STATE OF NEW YORK,
County of
On this 14th day of April, 1999, before me personally came
Christian Bardenheuer to me known, who being by me duly sworn, did depose and
say that he resides in NY that he is the President of Axiom Communications
the corporation described in which executed the foregoing instrument, as TENANT;
the he knows the seal of said corporation; that the seal affixed to said
instrument is such corporate seal; that it was so affixed by order of the Board
of Directors of said corporation, and the he signed his name thereto by like
order.
/S/Teresa Panetta
-------------------------------------------
TERESA PANETTA
Notary Public, State of New York
No. 4838623
Qualified in New York County
Commission Expires Oct. 31, 1999
INDIVIDUAL TENANT
STATE OF NEW YORK
County of
On this day of , 19 , before me
personally came
to me known, and known to me to be the individual described in and who, as
OWNER, executed the foregoing instrument and acknowledged to me that he executed
the same.
-------------------------------------------
INDIVIDUAL TENANT
STATE OF NEW YORK
County of
On this day of , 19 , before me
<PAGE>
personally came
to me known, and known to me to be the individual described in and who, as
TENANT, executed the foregoing instrument and acknowledged to me that he
executed the same.
-------------------------------------------
<PAGE>
INTERNATIONAL CARRIER VOICE
SERVICE AGREEMENT
SERVICE ORDER
Customer Account Number: 1740 Service Order Number: 194001
Date of Order: 10/2/97
Customer: Axiom Communications Group Inc.
Address: 50 Broad Street
City: New York State: NY Zip: 10004
Primary Account Contact: Charles Smith Phone No: (212) 686-2000
Fax No: (212) 686-3807
Technical Contact: Martin Casanova Phone No: ( ) Fax No: ( )
Billing Contact: John Mecham Phone No: ( ) Fax No: ( )
Billing Address, if different from above:
Requested Service Commencement Date: Immediately DSI Quantity:
Anticipated Monthly Usage: $ Minimum Monthly Commitment: $
(Attached a Traffic Forecast Form) (See attached Minimum Commitment
Schedule, if applicable)
Credit Terns:
Minimum Port Usage (average): 100,000 minutes/DSI
Deficiency Surcharge: [ ] per minute Ramp-up: 2 months
Special Notes/Terms:
This International Carrier Voice Service Agreement (the "Agreement") is made and
entered into as of the date below when fully executed by and between FaciliCom
International, L.L.C.; a Delaware corporation; with its principal office at 1401
New York Avenue, NW, 8th Floor, Washington DC 20005 ("FCI"); and the above named
Customer.
1. The Service shall be provided for a term (the "Term") as set forth
herein, starting on the Service Commencement Date and continuing until
expiration of the Term; unless sooner terminated pr remewed om
accprdamce wotj the "Terms and Conditions" of International Carrier
Voice Service Agreement (Appendix A).
2. This order is subject to credit approval. Customer hereby accepts FCI's
initial and continuing credit approval procedures and policies and
authorizes FCI and its designees to investigate Customer credit
worthiness. All information will be held in the strictest confidence.
3. This Agreement shall inclue this Service Order and the following
Appendices, attached hereto:
A: Terms and Conditions
B: Rate Schedules
IN WITNESS WHEREOF; each of the parties hereto have caused this Agreement to be
executed by their respective officials duly authorized on the day and year first
above written
CUSTOMER: Axiiom Communications Group Inc. FACILICOM INTERNATIONAL, L.L.C.
By: /S/ Charles Smith By: /S/ Jeffrey Gizy
------------------------------------- ----------------------------
Name: Charles Smith Name: Jeffrey Gizy
Title: General Manager Title: Executive Vice President
Effective Date: October 14,1997
Sales Rep/Agent Name (print)
Mary Rice Initials M
<PAGE>
FACILICOM INTERNATIONAL L.L.C.
International Carrier Voice Service Agreement
Appendix A. Terms and Conditions
1. PROVISION OF SERVICE
1.1 Service Order. By executing the Service Order to Which these Terms and
Conditions are attached, FCI agrees to provide, and Customer agrees to
purchase, switched International telecommunications services and other
associated services (collectively "Service"), pursuant to the Terms and
Conditions set forth in this Appendix A and in any attachments
incorporated and made a part of this Agreement.
1.2 Term of Service. This Agreement shall be effective and the parties'
obligations shall commence on the Effective Date of this Agreement as
set forth on the Service Order and shall continue for a period of one
year ("initial term") from Service Commencement Date, which is the date
that the circuits(s) are first made available to Customer for Service,
unless sooner terminated in accordance with the provisions of this
Agreement.
1.3 Automatic Renewal. Services shall be automatically renewed at
expiration of the initial term for a one (1) year period ("Subsequent
Term"), unless terminated by either party giving the other party
written notice of intent not to renew at least sixty (60) days prior to
expiration of the initial or any subsequent term. Each Subsequent Term
shall automatically renew, unless sooner terminated in accordance with
the provisions of this Agreement, for a one (1) year period upon
expiration of the preceding Subsequent Term. Each Subsequent Term that
is renewed shall be subject to such Terms and Conditions as FCI may
then be offering, or willing to offer, to potential Customers.
1.4 Circuit Availability. FCI shall use its best efforts to make the
circuits(s) available to Customer for Service within thirty (30) days
of the Effective Date of this Agreement. If FCI does not make the
circuit(s) available to Customer within (30) days of the Effective
Date, and such delay is not requested or caused by Customer, Customer
may cancel this Agreement without liability upon written notice to FCI
prior to Service Commencement Date. If Customer cancels this Agreement
or any separate Service Order to this Agreement prior to Service
Commencement Date except as provided herein, Customer will be charged
for the non-recoverable portions of expenditures or liabilities
incurred expressly on behalf of Customer by FCI. Traffic must start
within forty five (45) days of Service Commencement Date, or FCI may
cancel all circuit(s) interconnection upon five (5) days advance
written notice, without any liability or obligation whatsoever.
1.5 Interconnection. Customer is responsible for arranging and the expense
of installing and operating the interconnection between Customer's
network and the FCI network at FCI's Point of Presence in compliance
with FCI's network interface procedures. At Customer's request, FCI
will coordinate interconnection and bill Customer for installation and
operation of Interconnection. Non-usage charges include recurring and
non-recurring elements. The recurring element is a monthly
non-discriminatory charge relevant to customer's use of local serving
arrangement with local exchange company. Non-recurring elements consist
of an Installation charge of $250,000 per DS-1 plus any third party
charges which may be billed to FCI relative to Customer's interconnect
request. Third party interconnect charges billed to FCI are passed
directly on to Customer and may be subject to adjustment from time to
time. Customer's obligation to accept and pay for non-usage sensitive
charges as describe herein shall be binding.
<PAGE>
1.6 Switchless Reseller. The Switchless Resale Customer is responsible for
direct negotiation, contracting and provisioning of service with local
exchange carrier (LEC) and/or FCI's designated switching services
provider.
1.7 FCI's Access. FCI reserves the right, but not the obligation, to make
such tests and inspections as necessary to determine that the
requirements regarding equipment and interconnection are being met in
the Installation, operation and maintenance of Customer equipment and
wiring. It is FCIs intention that such tests and Inspections will not
normally result in Service interruptions or defects. If any such test
or inspection is of the sort that it could jeopardize any service or
require the interruption of all or any portion of the Service, FCI
shall so notify Customer in writing at least four (4) business days
before such tests or inspection. FCI shall give Customer as much
advance notice of emergency tests and inspections as is practically and
reasonably possible under the circumstances.
2. PAYMENT FOR SERVICE
2.1 Rates.
2.1.1 Payment for Service, applicable to all calls received by FCI from
Customer, shall be determined by the destination and duration of the
calls at the per minute rates listed in Appendix B. FCI, at its sole
discretion and upon seven (7) days advance written notice, may modify
its rates as it deems necessary. In the event there is any legislation
affecting rates and the changes are to be implemented in less than (7)
days, then Customer shall be responsible for any additional charges
based on the changes in rates. FCI shall notify Customer promptly of
any such changes.
2.1.2 In the event FCI notifies Customer of an increase in its rates pursuant
to Section 2.1.1, Customer, upon written notice to FCI prior to the
effective date of such increase, may cancel that portion of the Service
affected without liability, except to pay for all charges due FCI at
the time of cancellation. Minimum Commitment requirements, if
applicable, shall be amended as necessary for cancellation pursuant to
this Section 2.1.2
2.2 Volume Discount Minimum Commitment. Beginning with the first full
calendar month following Service Commencement Date or other ramp-up
period as may be agreed, Customer shall maintain a monthly Volume
Discount Minimum Commitment ("Minimum Commitment") level if any is so
specified on the Service Order and/or any relevant Service Schedule.
If, in any month, Customer fails to obtain the required monthly
minimum, for any reason other than an interruption or impairment of
Service not caused, directly or indirectly by Customer, Customer shall
pay FCI the difference between the Customer's Minimum Commitment and
Customer's actual monthly invoiced amount (the "Deficiency Charge").
Such payment shall be due at the same time payment is due for Service
provided to Customer, or in the case of cancellation or termination of
this Agreement, Immediately, in an amount equal to Customer's Minimum
Commitment that would have become due for the unexpired portion of the
Term. If Minimum Commitment is in minutes, the Deficiency Charge shall
be determined by multiplying the shortfall by the average rate per
minute for the prior month. If Minimum Commitment is country-specific,
the applicable rate for each country specified shall be used in
determining minimum monthly commitment amounts.
2.3 Minimum Port Usage. Beginning with the next full calendar month
following a sixty (60) day Ramp-Up Period from Service Commencement
Date, Customer will maintain a monthly average loading of traffic per
DS-1 level interconnection as indicated on the Service Order.
<PAGE>
2.4 Invoices. Following Service Commencement Date, FCI will bill Customer
monthly for Services rendered during the prior month. Any applicable
non-recurring and/or recurring charges not related to monthly usage
will be listed separately. Invoices will include a minimum, countries
called, number of calls, total duration of calls in minutes and amount
charged per country. Call Detail Records (CDR) will be made and
retained by FCI and will be available monthly at no charge at
Customer's request. Specialized billing formats and frequency as
Customer may request will be considered and charged on an individual
case basis.
2.5 Taxes. All charges set forth in Appendix B for the Services provided
pursuant to this Agreement are exclusive of sales, use, excise or
privilege taxes or tax-like charges, fees or similar liabilities.
Customer will pay all applicable sales, use, excise, privilege or
similar taxes, except any taxes or tax related surcharges determined by
FCI's income, net worth, franchise or property (which shall be borne
solely by FCI) (hereinafter referred to as "Taxes"). In the event that
Customer provides FCI with a direct payment permit, sale or resale
exemption certificate, sales tax exemption certificate or other
applicable exemption certificate, FCI will not invoice the taxes
covered by the exemption certificate(s). If and for so long as such
exemption certificate is applicable to the Services provided.
2.6 Present Terms
2.6.1 Due Date. Bills are due and payable upon receipt. Payments not received
within thirty days of invoice date are considered past due.
2.6.2 Late Payment. A delinquency charge (liquidated damages) of one and
one-half percent (1.5%) per month or the maximum lawful rate under
applicable state law, whichever is less, will accrue upon any unpaid
balance commencing thirty (30) days after the date of the bill.
Customer acknowledges that such delinquency charge is reasonable under
all the circumstances existing as of the date hereof. Acceptance by FCI
of any late payment or delinquency charge shall in no event constitute
a retrieval by FCI of Customer's default, nor shall such acceptance
prevent FCI from exercising any or all other rights or remedies that it
may have. Notwithstanding the foregoing, FCI shall not charge Customer
late fees on amounts disputed in good faith by Customer unless disputed
amounts resolved in favor of FCI remain unpaid pursuant to Section 2.8.
2.6.3 Collection. In the event FCI employs the services of a collection
agency or attorneys for collection of charges due under this Agreement,
Customer shall be liable for all costs of collection and legal
proceedings including reasonable attorney's fees and costs incurred by
FCI in prosecuting such proceedings and any appeals therefrom.
2.7 Manner of Payment. All payments by Customer hereunder shall be (i) made
in U.S. dollars; (ii) made by check drawn from currently available
funds; or by wire transfer, as determined by FCI; (iii) subject to a
$25.00 return check charge; (iv) duly identified as relating to the
Service subscribed to' and (v) made payable and delivered to the name
and address designated on the invoice or such other name and/or
location as FCI may direct in writing from time to time subject to the
notice requirements of Section15.
2.8 Billing Disputes.
2.8.1 If Customer in good faith disputes any portion of any FCI invoice,
Customer shall submit to FCI, within 30 days following the date of the
invoice, full payment of the undisputed portion of the invoice and
written documentation identifying and substantiating the disputed
amount. If Customer
<PAGE>
does not report a dispute within the 30 day period, Customer shall have
waived its dispute rights for that invoice. FCI and Customer agree to
use their respective best efforts to resolve any disputes within
fifteen (15) days after FCI receives written notice of the dispute from
customer. Any disputed amounts resolved in favor of the Customer shall
be credited to the Customer's account on the next invoice following
resolution of the dispute. Any disputed amounts determined to be
payable to FCI shall be due within ten (10) days of the resolution of
the dispute.
2.8.2 Any dispute arising out of or relating to this Agreement which has not
been resolved by the good faith efforts of the parties, will be settled
by binding arbitration conducted expeditiously in accordance with the
commercial Arbitration Rules of the American Arbitration Association
("AAA Rules"), as amended by this Agreement and judgment upon the award
rendered by the arbitrator(s) may be entered by any court with
jurisdiction. The location of the arbitration shall be Washington, D.C.
The cost of the arbitration, including the fees and expenses of the
arbitrator(s), shall be shared equally by the parties unless the
arbitration award provides otherwise. Each party shall bear the cost of
preparing and presenting its case. The arbitrator(s) are not empowered
to award damages in excess of compensatory damages and each Party
irrevocably waives any damages in excess of compensatory damages.
2.9 Allowance for Interruptions. Following Service Commencement Date, if
Customer reports an interruption of Service ("Interruption"), customer
shall receive credit for service billed for but not provided. Credit to
Customer shall not apply, however, in the event any interruption is
caused or contributed to, directly or indirectly, by any act or
omission of Customer or its customers, affiliates, agents
representatives, invitees or licensees. In addition, no credit
allowances will be made for (i) Interruptions during any period which
FCI or its agents are denied access to the premises where access lines
associated with Customer's Services are terminated, or (ii) due to the
failure of power, equipment, systems or services not provided by FCI.
For the purposes of this paragraph, an Interruption reporting period
begins when Customer reports an interruption and ends upon the earlier
to occur of (i) Customer's resumption of use of the Service, and (ii)
when Service is operative again. If Customer elects to use another
means of communication during the interruption reporting period,
Customer must pay the charges for the alternate service used.
3 SECURITY
3.1 FCI's obligation to provide Service under this Agreement is contingent
upon credit approval by FCI and Customer's acceptance of FCI's initial
and continuing credit approval procedures and policies. A cash deposit
and/or irrevocable letter of credit or other form of security in form
and amount acceptable to FCI shall be paid prior to commencement of
Service, or, if after Service Commencement Date, within 48 hours
following FCI's request. After Service Commencement, a deposit or
additional deposit may also be required in form and amount acceptable
to FCI if Customer's financial circumstances or payment history
warrants or in light of Customer's actual usage when compared to
projected usage levels upon which any initial security or assurance
requirement was based.
3.2 If Service has been canceled or discontinued for any of the reasons set
forth in this Agreement, Customer's deposit shall be applied to all
charges and other amounts then due FCI, including any late fees and
cancellation charges applicable to the Service offering received by
Customer. FCI agrees to refund the excess portion of the deposit, if
any, within (30) days following final settlement of Customer's account.
The refunding or crediting of Customer's deposit in no way relieves
Customer from complying with all terms and provisions contained in this
Agreement or from tendering payments when due.
<PAGE>
4. SUSPENSION, TERMINATION AND REINSTITUTION OF SERVICE
4.1 Suspension of Service. FCI may suspend Service to Customer without any
liability or obligation to Customer if (a) Customer fails to make any
past due payment required hereunder within forty-eight (48) hours
following Customer's receipt of written notice of nonpayment from FCI.
Traffic limitations may be placed on Customer during notice period.;
(b) FCI suspends its provision of other Service to Customer, for any of
the reasons stated herein, pursuant to any separate Service Order by
Customer; (c) FCI is required to take emergency steps to protect
against the loss of communications services, property damage, or
personal injury; or (d) breach by Customer of any other material
obligation under this Agreement and failure to cure such breach within
ten (10) days of written notice from FCI.
4.2 Termination of Service.
4.2.1 FCI reserves the right to terminated this Agreement without liability
for any of the following; (a) Customer's failure to make any payment
required to be made hereunder within forty-eight (48) hours after
suspension of Service by FCI; (b) Customer's failure to cure any other
violation of its obligations hereunder, within ten (10) days of
receiving written notice of such violation from FCI; (c) repeated
violations by Customer of its obligations hereunder (of which Customer
has been notified in writing); (d) FCI terminates its provision of
other service to Customer, for any of the foregoing reasons, pursuant
to any separate Service Order by Customer; (e) Customer's insolvency,
corporate reorganization, arrangement with creditors, receivership,
dissolution or institution of bankruptcy proceedings by or against
Customer; (f) Customer has failed or neglected to tender any additional
or required security deposit within forty-eight (48) hours of written
notice by FCI; (g) Customer's assignment or attempted assignment of the
Agreement or any interest therein, except as permitted by Section 8
hereof, (h) a final order by a government entity with appropriate
jurisdiction that a Service or the relationship hereunder is contrary
to law or regulation; (i) in the event Customer uses the Service for
any unlawful, unauthorized or fraudulent purpose and (j) Customer's
uses is, or is expected to, adversely affect FCI's facilities or
service to other customers. In the event that FCI terminates Service
pursuant to this Section 4.2.1, Customer shall be liable for all unpaid
charges due FCI at the time of termination, including an amount equal
to Customer's Monthly Minimum Commitment, if applicable, for the
unexpired portion of the Term.
4.2.2 After Service Commencement Date. Customer may terminate this Agreement
upon sixty (60) days advance written notice, which such termination
shall not relieve Customer of the obligation to pay all charges due FCI
for services provided including an amount equal to Customer's Minimum
Commitment, if applicable, for the unexpired portion of the Term.
Customer may terminate this Agreement prior to Service Commencement
Date subject to the provisions of Section 1.4.
4.3 Reinstitution of Service. If Customer seeks reinstitution of Service
following denial of Service by FCI, Customer shall pay to FCI, prior to
the time Service is reinstated (i) all accrued and unpaid charges, and
(ii) a deposit pursuant to Section 3. If Customer fails to make the
required payments by a date determined by and acceptable to FCI,
Customer will be deemed to have canceled the Service suspended
effective as of the date of suspension. Such cancellation shall not
relieve Customer of payment of all charges due FCI for services
provided and any unexpired portion of Customer's Minimum Commitment, if
applicable.
5. WARRANTY
<PAGE>
5.1 FCI will use reasonable efforts under the circumstances to maintain its
overall network quality. The quality of Service provided hereunder
shall be consistent with other common carrier industry standards,
government regulations and sound business practices. FCI MAKES NO OTHER
REPRESENTATIONS OR WARRANTIES ABOUT THE SERVICE PROVIDED HEREUNDER,
EXPRESS OR IMPLIED, BY OPERATION OF LAW OR IN FACT, INCLUDING BUT NOT
LIMITED TO ANY WARRANTY OF MERCHANTABILTY OR FITNESS FOR A PARTICULAR
PURPOSE.
6. LIABILITY; GENERAL INDEMNITY
6.1 In no even shall either Party or its officers, directors, employees and
agents be liable to the other Party for any special indirect,
incidental, consequential or exemplary damages, including without
limitation loss of revenue, loss of profits, loss of Customers, clients
or goodwill arising in any manner from this Agreement and the
performance or nonperformance of business hereunder.
6.2 The liability of FCI with respect to the installation (including delays
thereof), provision, termination, maintenance, repair, interruption or
restoration of any service or facilities offered under this Agreement,
shall not exceed an amount equal to the charge applicable under this
Agreement to the period during which services were affected. For those
services with monthly recurring charges, the liability of FCI is
limited to an amount equal to the proportionate monthly recurring
charges for the period during which service was affected subject to the
limitations set forth in this Agreement.
6.3 In the event that any third party asserts a claim or right to or in any
way arising out of the availability, use or operation of the Service or
the Service Facilities, or otherwise out of this Agreement or out of
such third party's relation to Customer or Customer's relation to FCI;
Customer shall indemnify and hold FCI and its officers, directors,
employees and agents harmless against any and all claims, losses,
demands, liabilities, costs and expenses of whatsoever nature,
including attorney's fees, relating to or in any way arising out of the
asserted claim or right.
6.4 Customer shall indemnify and hold FCI harmless from all costs,
expenses, claims or actions arising out of unauthorized use of
Customer's telephone facilities, including placement of calls through
the Customer's equipment which are transmitted or carried over the
network. FCI shall cooperate with Customer in undertaking reasonable
efforts to prevent fraudulent telephone calls. Customer shall be liable
for all charges for Service billed by FCI whether or not unauthorized
calls comprise a portion of the Service. FCI reserves the right to take
immediate action (without notice to Customer) that is reasonably
necessary to prevent fraudulent calls from taking place, including
without limitation, denying or terminating Service to or from specific
locations.
7. FORCE MAJEURE
7.1 No failure or omission by either Party to carry out or observe any of
the non-monetary Terms and Conditions of this Agreement shall give rise
to any claim against such Party or be deemed to be a breach of this
Agreement if such failure or omission arises from any cause beyond the
control of that Party. Neither party shall be liable to the other Party
for any losses or damages either direct, indirect, consequential, or
otherwise sustained by reason of any failure in or breakdown of the
communications systems or facilities herein provided for, or for any
interruption of the Service, whether caused by act of God, insurrection
or civil disorder, war or military operations, national or local
emergency, acts or omissions of any government authority or third
party, industrial disputes, fire, lightning, explosion, inclement
weather, or other causes beyond the control of either Party
<PAGE>
8. ASSIGNMENT
8.1 This Agreement shall not be assigned or transferred by either Party
without the prior written consent of the other Party, which shall not
be unreasonably withheld or delayed. Notwithstanding the foregoing,
either Party may, without the other's consent, make an assignment to a
successor, affiliate, subsidiary, or to an entity controlling or under
the same control as such a Party. In the event of any such assignment,
the successor shall undertake in writing to the other the performance
and liability for the obligations, duties, and interests to which it is
accountable as a succeeding party to this Agreement, and the
predecessor Party shall thereafter be relieved of such obligations,
duties, and interests except for matters arising out of events
occurring prior to the date of such undertaking.
9. GOVERNMENT APPROVALS
9.1 All agreements, covenants, undertakings and obligations herein made or
assumed by the Parties hereto are subject to the obtaining and
continuance of all necessary governmental licenses, consents, permits,
authorizations and approvals. Each Party shall use its best efforts to
obtain and to have continued in effect all such licenses, consents,
permits, authorizations, and approvals relating to such Party's
operations.
10. CONFIDENTIALITY
10.1 Since each Party may have access to the other Party's confidential,
sensitive, and/or proprietary information including, without
limitation, financial information, rates, supply and service
information, technical data and specifications, marketing information,
customer and personnel information, and dialing patters ("Proprietary
Information"), therefore, during the Term and thereafter, neither Party
shall disclose any terms of this Agreement, including pricing, or
Proprietary Information of the other Party except as required by law.
Any disclosure hereof required by legal process shall only be made
after providing the non-disclosing party with notice thereof in order
to permit the non-disclosing party to seek an appropriate protective
order of exemption. Proprietary Information shall remain the property
of the disclosing Party. A Party receiving Proprietary Information
shall: (i) use or reproduce such information only when necessary to
perform this Agreement, (ii) provide at least the same care to avoid
disclosure or unauthorized use of such information as it provides to
protect its own Proprietary Information, (iii) limit access to such
information to its employees or agents who need such information to
perform this Agreement, and (iv) return or destroy all such
information, including copies, after the need for it has expired, upon
request of the disclosing Party, or upon termination of this Agreement.
Because of the unique nature of Proprietary Information, a breach of
this paragraph may cause irreparable harm for which monetary damages
may be inadequate compensation. Accordingly, in addition to other
available remedies, a Party may seek injunctive relief to enforce this
paragraph.
11. INTELLECTUAL PROPERTY RIGHTS
11.1 The Parties agree that trademarks, inventions, patents, copyrights,
registered designs, service marks, trade names and all other
intellectual property shall remain in the ownership of the person or
party originating the same and nothing herein shall confer or be deemed
to confer on either Party expressly, implied or otherwise, any rights
or licenses in the intellectual property of the other.
12. AMENDMENT
12.1 This Agreement, together will all Attachments and Exhibits, may be
amended, modified or amplified only by written agreement signed by
authorized representatives of both Parties.
<PAGE>
13. WAIVER OF TERMS
13.1 No waiver by either party of any provision of this Agreement shall be
binding unless expressly confirmed in writing. Further, any such waiver
shall relate only to such particular matter, non compliance or breach
as it expressly relates to and shall not apply to any subsequent or
other matter, non-compliance or breach.
14. GOVERNING LAW AND FORUM
14.1 The existence, validity, construction, operation and effect of this
Agreement shall be determined in accordance with and be governed by the
laws of the District of Columbia. Customer agrees that any action or
proceeding arising out of this Agreement shall be brought and
maintained in the District of Columbia, and hereby consents to the
jurisdiction of courts located in the District of Columbia.
15. NOTICES
15.1 Except as other wise provided in this Agreement, its schedules and
attachments, all notices required or permitted hereunder shall be in
writing and shall be deemed given upon delivery if dispatched by (i)
registered or certified mail, postage pre-paid, return receipt
requested (ii) by overnight courier or by hand delivery (iii) by
facsimile and confirmation by letter. Notice given by facsimile shall
be deemed given when transmitted provided that the sender shall have
received a transmission report indicating successful transmission of
all of the pages of the notice to the correct facsimile number and has
sent a confirmation copy of the notice by first-class pre-paid mail,
except that if the transmission of such facsimile does not occur on a
normal business day within normal business hours at the place to which
it is addressed, the notice shall be deemed given on the next following
business day. For these purposes business day shall ,mean any day other
than Saturday, Sunday or public holiday and "business hours" shall mean
9:00 a.m. to 5:30 p.m. in a business day. Either Party may change its
address, phone or other notice information by giving written notice in
accordance herein. Notices will be addressed to the other Party as
follows:
If to FaciliCom International, L.L.C: to FCI's principal place of
business and facsimile number, as specified in the Service Order,
Attention: Contract Administration.
If to Customer: to Customer's principal place of business and facsimile
number, as specified in the Service Order, Attention Legal Department.
16. MISCELLANEOUS
16.1 No Third Party Beneficiary. The provisions of this Agreement are for
the benefit only of the parties hereto, and no third party may seek to
enforce or benefit from those provisions.
16.2 No Partnership Or Agency Relationship. The relationship between FCI and
Customer shall not be that of partners or agents of one another, and
nothing contained in this Agreement shall be deemed to constitute a
partnership or agency agreement between them. Neither party shall have
the authority to assume or create any obligation on behalf of, in the
name of, or binding upon the other party.
16.3 Successors and Assigns. This Agreement shall be binding upon and inure
to the benefit of each party's successors and permitted Assignees.
<PAGE>
16.4 Headings. The titles in the headings of paragraphs are intended for
organization and convenience only and do not apply in the
interpretation of any of the Agreement terms.
16.5 Survival of Terms. The terms and provisions contained in this Agreement
that by their sense and context are intended to survive the performance
thereof by the Parties hereto shall so survive the completion of
performance and termination of this Agreement, including, without
limitation, provisions for indemnification, confidentiality and the
making of any and all payments due hereunder.
16.6 Rule of Construction. No rule of construction requiring interpretation
against the drafting party hereof shall apply in the interpretation of
this Agreement.
17. ENTIRE AGREEMENT
17.1 This Agreement, together with all attachments incorporated herein
specifically by reference, represents the entire understanding of the
Parties with respect to the subject matter hereof and all other
agreements (written or oral) between the Parties relating to the
Service shall be superseded by this Agreement.
<PAGE>
FaciliCom International L.L.C.
International Carrier Voice Service Agreement
Appendix A. Terms and Conditions
ADDENDUM
2.3 Addition to Minimum Port Usage.
Monthly Minimum Usage per activated DS-1 is 100,000 minutes. After a ramp up
period of two (2) months, if a DS-1 circuit experiences a minimum shortfall over
two consecutive months, FCI may provide Customer with written notice of such
fact and of FCI's intent to disconnect the under-minimum circuit if the minimum
is not attained by the month following the date the notice is received.
<PAGE>
UNITED STATES
/
TAX EXEMPTION CERTIFICATE
THE UNDERSIGNED CLAIMS exemption from the taxes imposed on charges billed or to
be billed the undersigned for communication services in accordance with United
States Internal Revenue Code Section 4253 and any state or other codes that may
apply to the taxation of communication services.
THE UNDERSIGNED AGREES to notify FACILICOM INTERNATIONAL, L.L.C. in writing when
the bases for tax exemption indicated above changes or ceases to exist.
THE UNDERSIGNED UNDERSTANDS that the fraudulent use of this certificate will
subject all guilty parties to criminal penalties resulting in fines or
imprisonment.
Billing Name of Account Signature of Authorized Representative
Axiom Communications /S/
- ------------------------------- -----------------------------------
Title: General Manager
Date: 9/25/97
<PAGE>
[LOGO] SERVICE ORDER
THIS AGREEMENT is made and entered into as of 9/30/99 (the "Agreement Date") by
and between Be Free, Inc. ("Be Free"), having its principal place of business at
154 Crane Meadow Road, Suite 100, Marlborough, Massachusetts 01752, and
CallNOW.com Inc. ("Merchant"), having its principal place of business at _50
Broad St., NY, NY 10004. In consideration of the mutual covenants and conditions
contained in this Service Order and in Be Free's Terms of Service in the form
attached hereto (collectively the "Agreement"), and intending to be legally
bound hereby, the parties mutually agree as follows:
- --------------------------------------------------------------------------------
PART A - BFAST SERVICES
- --------------------------------------------------------------------------------
1. BFAST(SM) SERVICES
1.1 Be Free and Merchant agree to the BFAST Services set forth in Part C of
this Service Order and the BFAST fees set forth below.
1.2 Merchant agrees to pay Be Free a BFAST Implementation Fee of $2,500 upon
execution of this Agreement and $2,500 upon Program Launch.
1.3 Merchant agrees to pay Be Free a BFAST Service Fee equal to the greater of:
(a) 2% of monthly Net Sales generated each month through the Affiliate
Sales Channel (for purposes of this Section, Net Sales shall be defined as
gross sales less shipping charges, taxes and returns); or
(b) a minimum BFAST Service Fee of $2000 each month after Program
Launch.
- --------------------------------------------------------------------------------
PART B - OPTIONAL SERVICES
- --------------------------------------------------------------------------------
1. BFAST AUTO-MERCHANDISING SERVICES DECLINED [X] ACCEPTED [_]
1.1 Provided that Merchant has initialed or checked "Accepted" above, Be Free
and Merchant agree to the Auto-Merchandising Services set forth in Part C
of this Service Order and the Auto-Merchandising fees set forth below.
1.2 Merchant agrees to pay Be Free an Auto-Merchandising Implementation Fee of
$1,500 upon Program Launch.
1.3 Merchant agrees to pay Be Free each month an Auto-Merchandising Service Fee
of $0.50 per one thousand Impressions served via BFAST Auto-Merchandising
Services.
2. OPEN AFFILIATE OUTREACH & FASTAPP SERVICES DECLINED [_] ACCEPTED [X]
2.1 Provided that Merchant has initialed or checked "Accepted" above and is
participating in the Be Free FastApp program, Be Free and Merchant agree to
the Open Affiliate Outreach and FastApp Services set forth in Part C of
this Service Order.
2.2 Open Affiliate Outreach & FastApp Service Fees are included in the BFAST
Service Fee set forth above at no additional charge.
3. AFFILIATE COMMISSION PAYMENT SERVICES DECLINED [_] ACCEPTED [X]
3.1 Provided that Merchant has initialed or checked "Accepted" above and has
transferred to Be Free amounts owed to Affiliates by Merchant for
BFAST-monitored transactions, Be Free and Merchant agree to the Affiliate
Commission Payment Services set forth in Part C of this Service Order and
the Affiliate Commission Payment fees set forth below.
3.2 Merchant agrees to pay Be Free each month an Affiliate Commission Payment
Service Fee of $1.00 plus actual postage costs for each check distributed.
4. AFFILIATE SUPPORT SERVICES
ONLY LEVEL I &
LEVEL I SUPPORT LEVEL II SUPPORT
DECLINED [_] ACCEPTED [X] ACCEPTED [_]
4.1 Provided that Merchant has initialed or checked "Accepted" above, Be Free
and Merchant agree to the applicable Affiliate Support Services set forth
in Part C of this Service Order and the applicable Affiliate Support fees
set forth below.
4.2 Merchant agrees to pay Be Free each month after Program Launch a Level I
Affiliate Support Service Fee of $1.00 per Affiliate per month for the
first six months, and $0.50 per Affiliate per month for all subsequent
months.
4.3 Merchant agrees to pay Be Free each month after Program Launch a Level II
Affiliate Support Service Fee of $2,000 per month.
5. AFFILIATE APPLICATION REVIEW SERVICES DECLINED [X] ACCEPTED [_]
5.1 Provided that Merchant has initialed or checked "Accepted" above, Be Free
and Merchant agree to the Affiliate Application Review Services set forth
in Part C of this Service Order and the Affiliate Application Review fees
set forth below.
5.2 Merchant agrees to pay Be Free each month an Affiliate Application Review
Service Fee of $4.00 per Affiliate application reviewed.
6. IMAGE HOSTING & SERVING SERVICES DECLINED [X] ACCEPTED [_]
6.1 Provided that Merchant has initialed or checked "Accepted" above, Be Free
and Merchant agree to the Image Hosting & Serving Services set forth in
Part C of this Service Order and the Image Hosting fees set forth below.
6.2 Merchant agrees to pay Be Free each month an Image Hosting & Serving
Service Fee of $0.35 per one thousand Impressions served.
<PAGE>
[LOGO] SERVICE ORDER
- --------------------------------------------------------------------------------
PART C - SERVICE DESCRIPTIONS
- --------------------------------------------------------------------------------
1. CERTAIN DEFINITIONS.
1.1 "AFFILIATE" shall mean the person or entity that displays Merchant's
products, services and/or promotions on its Internet site in exchange for
receiving remuneration from Merchant for such display.
1.2 "AFFILIATE SITE" shall mean the Affiliate's Internet site or sites which
display products, services, and/or promotions provided by Merchant.
1.3 "AFFILIATE SALES CHANNEL" shall mean Merchant's group of Affiliates and
related Affiliate Sites.
1.4 "END USER" shall mean a person or entity who visits the Affiliate Site.
1.5 "TAG" shall mean a form of HTML information display code that causes a
browser to generate a request to the BFAST Service Bureau to display a text or
graphic Link.
1.6 "LINK" shall mean a listing or display of merchandise or services offered by
Merchant on an Affiliate Site. Links will typically result in the display of an
invisible graphic (in the case of a text Link) or a product graphic (in the case
of a graphic Link) resulting from a request to the BFAST Service Bureau.
1.7 "IMPRESSION" shall mean each occurrence that a text or graphic Link is
served.
1.8 "END USER CLICKTHROUGH" shall mean the event caused by an End User clicking
or otherwise activating a Link. Typically, this will result a request to the
BFAST Service Bureau resulting in the link to and display of a page on the
Merchant's Internet site.
1.9 "PROGRAM LAUNCH" shall mean the first date upon which Merchant receives a
BFAST Affiliate application.
2. BFAST SERVICES.
2.1 BFAST (Be Free Affiliate Serving Technologysm) is a set of technologies and
methods, accessible by Merchant and Affiliates through Internet connections to
Be Free servers (the "BFAST Service Bureau"). BFAST Services (a) enable Merchant
to establish and manage an Affiliate Sales Channel including the terms and
conditions of its relationship with Affiliates; (b) connect End Users from
Affiliate Sites to the Merchant's Internet site for the purpose of purchasing
goods or services from the Merchant; and (c) measure and report the related
activity.
2.2 The BFAST Service Bureau provides Affiliate Sales Channel transactional
services which (a) respond to the request resulting from a text Tags by serving
an invisible pixel; (b) respond to the request resulting from a graphical Tags
by directing the request to Merchant's servers to serve a graphic; (c) respond
to End User Clickthroughs by directing End Users from the Affiliate Site to the
Merchant's Internet site; and (c) track and report Impressions, End User
Clickthroughs and sales (or other services offered by Merchant).
2.3 Affiliates access the BFAST Service Bureau via an Internet browser-based
interface (reporting.net). Reporting.net is a Merchant-branded Internet site,
through which Affiliates may (a) generate Tags to be used in the Affiliate Site;
(b) modify Affiliate account data; and (c) access Affiliate activity reports and
productivity techniques.
2.4 Merchant accesses the BFAST Service Bureau via a Merchant graphical user
interface (GUI). Through the GUI, Merchant may (a) approve Affiliate
applications; (b) approve Affiliate commission voucher data; (c) add or remove
Tags available to Affiliates on reporting.net; (d) modify Affiliate profiles;
(e) access Affiliate Sales Channel reports; (f) download certain Affiliate Sales
Channel data; and (g) initiate up to 10,000 Affiliate-targeted broadcast e-mails
(the "Standard Level") per calendar month (Merchant may initiate up to a maximum
of 30,000 Affiliate-targeted broadcast e-mails each calendar month for an Excess
E-mail Fee of $0.10 per e-mail over the Standard Level). Merchant is hereby
granted a non-exclusive, non-transferable license to use the Merchant GUI
software for use with the Affiliate Sales Channel activities anticipated by this
Agreement during the Term or any Additional Terms. Such license includes all
related software and documentation delivered to Merchant.
2.5 BFAST implementation shall include the installation of the Merchant GUI and
assistance with the initial setup of (a) the Merchant's profile and security
configuration; (b) the Merchant's Affiliate application form; (c) the Affiliate
commission structure (including commission rates, payment frequency and minimum
payment levels); (e) the reporting.net site configuration; and (f) the Catalog
and Transaction Files. Initial BFAST training is provided at Be Free's
facilities for up to four Merchant employees.
2.6 BFAST Merchant support shall be provided by an assigned Client Development
Manager (CDM) and is available Mondays through Fridays from 8:30 am to 5:30 pm
ET.
The CDM will provide support services including (a) project coordination for
implementation and training; (b) ongoing coordination of any necessary Be Free
resources; (c) technical issue resolution and trouble-shooting; (d)
communication and support for product enhancements; (e) Affiliate Sales Channel
analyses; and (f) communication of Affiliate Sales Channel best practices tips
and techniques.
3. BFAST AUTO-MERCHANDISING SERVICES. Auto-Merchandising enables Merchant,
rather than Affiliates, to control the Links that are served on Affiliate Sites.
Through Auto-Merchandising Tags, Merchant may automate Link generation based on
Merchant-identified criteria such as Affiliate content category, End User
browser or operating system, and/or date and time of day. BFAST
Auto-Merchandising Services may not be available until September 30, 1999.
4. OPEN AFFILIATE OUTREACH & FASTAPP SERVICES. Open Affiliate Outreach Services
include initiatives to expand the Affiliate Sales Channel through Be Free
sponsored Affiliate recruitment programs. Affiliates recruited by Be Free on
behalf of Merchant may be provided the option of joining other Be Free
customers' affiliate sales channels through FastApp, a consolidated Be
Free-branded on-line Affiliate application form and, if requested by the
Affiliate, through direct solicitation by Be Free.
5. AFFILIATE COMMISSION PAYMENT SERVICES. Affiliate Commission Payment Services
include Be Free's printing and mailing of Merchant-branded Affiliate commission
checks based upon commission periods and commission amounts approved by merchant
in the Merchant GUI. Such services shall be provided by the end of each calendar
month provided that funds have been received by Be Free by the twentieth of that
month. Commission payments will be mailed by the end of the following month for
funds received after the twentieth. A transaction log will be provided to
Merchant for audit purposes. Merchant agrees to reimburse Be Free for bank fees
associated with Merchant-requested stop payment orders.
6. AFFILIATE SUPPORT SERVICES
6.1 Level I Affiliate Support includes the following technical and marketing
support services including (a) assisting potential Affiliates with application
completion; (b) assisting Affiliates with link generation; (c) assisting
Affiliates with the resolution of broken links; (d) logging all emails and
tracking known Affiliate issues; (e) responding to Affiliate e-mails within one
business day; (f) developing a set of Affiliate frequently asked questions
(FAQs) and an answer data base; (g) escalating Affiliate issues to the
appropriate contacts in Merchant's organization; (h) notifying Affiliates of
product enhancements; (i) corresponding with inactive Affiliates to remind them
of how to set up links; (j) providing Merchant with monthly summaries of
outstanding and resolved issues and statistics including type and frequency; (k)
assisting with the interpretation of Affiliate reports; (l) responding to
Affiliate requests to assist with improving sales (or other services offered by
Merchant); and (m) an increase of the Standard Level of Affiliate-targeted
broadcast e-mails to 20,000 per calendar month.
6.2 Level II Affiliate Support is a marketing enhancement service that includes
corresponding with the top 250 sites (based on revenue generated through the
Affiliate Sales Channel) to (a) notify them of Merchant developed promotions
such as seasonal offerings, new Affiliate offerings and new product offerings;
(b) recommend sales enhancement techniques and best selling methods; and (c)
ensure that they understand and use Affiliate generated reports to maximize
their traffic and sales. Level II Affiliate Support also includes an increase of
the Standard Level of Affiliate-targeted broadcast e-mails to 30,000 per
calendar month.
7. AFFILIATE APPLICATION REVIEW SERVICES. Affiliate Application Review Services
include (a) reviewing Affiliate applications for completeness and communicating
any omitted information; (b) reviewing Affiliate Site (at the time of the
Affiliate application) for appropriateness based on written Merchant guidelines;
(c) approving or rejecting application based on written Merchant guidelines; (d)
corresponding with Affiliate applicants to inform them of acceptance or
rejection; (e) providing Merchant with monthly summaries of number of
applications reviewed, approved and rejected and the most common reasons for
rejection.
8. IMAGE HOSTING & SERVING SERVICES. Image Hosting Services include the hosting
of Merchant graphic files on Be Free Service Bureau and serving such files in
response to Impression requests. Each calendar month, the average size of
graphic files served may not exceed 15 kilobytes per file. The size of any
single graphic file hosted or served by may not exceed 35 kilobytes.
AGREED AND ACCEPTED BY BE FREE: AGREED AND ACCEPTED BY MERCHANT:
By: /s/Pamela C. Verrill By: /s/Warner R. Johnson, Jr.
------------------------------- -------------------------
Name: Pamela C. Verrill Name: Warner R. Johnson
------------------------------ ------------------------
Title: Director Business Affairs Title: President
------------------------------ ------------------------
Date: September 30, 1999 Date: September 30, 1999
------------------------------ ------------------------
<PAGE>
[LOGO] TERMS OF SERVICE
1. TERM AND TERMINATION.
1.1 This Agreement will begin on the Agreement Date and end one year from the
Program Launch ("Term"). The Agreement will automatically renew for additional
one year periods ("Additional Terms") unless terminated in writing by either
party before 90 days prior to the end of the Term or Additional Terms.
1.2 Provided that a party is not in default of any payment or other material
breach, that party may terminate this Agreement upon 60 days written notice (the
"Notice Period") upon any material breach or default of a provision of this
Agreement by the other party. Any termination under this section shall become
effective at the end of the Notice Period unless the party in violation cures
the material breach or default, or has commenced reasonable efforts to cure the
breach or default within such period.
1.3 Upon expiration or termination of this Agreement, neither party shall have
any obligation to the other party to compensate them for damages of any kind,
including loss of actual or expected income. Sections 1.3, 3.3, 5, 6, 7.4, 7.5
and 7.6 shall survive the termination or expiration of this Agreement.
2. BE FREE OBLIGATIONS.
2.1 Be Free represents and warrants that (a) all licensed software is free from
material defects; (b) all services provided hereunder shall, in all material
respects, be performed in a workmanlike manner and in accordance with
specifications; and (c) any software used by Be Free to perform its obligations
hereunder shall record, store, process and present calendar dates falling on or
after January 1, 2000 in substantially the same manner and with substantially
the same degree of performance and functionality as prior to that date.
2.2 The BFAST Service Bureau shall respond to Impression and End User
Clickthrough requests at a rate not greater than the expected peak request rate
with a first-byte latency of less than ninety-five hundredths (0.95) of a
second, as measured at its router nearest its Internet point of presence (the
"Be Free Performance Obligation"). Due to the complexity of the Internet, the
variability of user hardware and software capabilities and the provision of
services to End Users by various providers, Be Free does not guarantee
end-to-end response times or transmission rates.
2.3 For purposes of Section 1.2, a material breach of the Be Free Performance
Obligation shall be a failure to provide those obligations for 72 consecutive
hours.
2.4 Should Be Free fail to provide services in accordance with the Be Free
Performance Obligation for greater than 60 minutes during any calendar day,
whether consecutive or non-consecutive, Be Free shall discount BFAST Service
Fees for that calendar day by 5%.
3. MERCHANT OBLIGATIONS.
3.1 Merchant shall provide Be Free, on a regular basis, with a file that
accurately reflects the merchandise available on the Merchant's Internet site
("Catalog File"). Merchant shall (a) accept and record a transaction identifier
for each End User Clickthrough passed from the BFAST Service Bureau; and (b)
provide Be Free, not less than once each business day, with a file that includes
sales (or other services offered by Merchant) orders, returns or refunds, and
the related transaction identifier ("Transaction File"). The Catalog and
Transaction Files shall be formatted in accordance with Be Free's specifications
and provided via a Be Free approved method.
3.2 Provided that BFAST Service Fees are based on sales or other transactional
data maintained by Merchant, Merchant shall, upon written request and during
normal business hours (but not more frequently than once each calendar year),
provide access to accounting records to an independent accounting firm chosen
and compensated by Be Free, for purposes of an audit. Such accounting firm shall
be required to sign an agreement protecting Merchant's confidential information
and shall only be authorized to report on the fairness of the Merchant's
Transaction File for the period requested. Be Free shall bear the costs of the
auditor unless it is determined by the auditor that there was an error in the
Transaction File resulting in a 5% or greater underpayment of BFAST Service Fees
in any calendar quarter period. In such event, Merchant shall bear the
reasonable costs of the audit for the period requested.
3.3 Unless otherwise specified, Merchant agrees to pay Be Free invoices within
30 days of the invoice date. At Be Free's discretion, any late amounts may be
subject to a 1.5% fee each month. Service fees are invoiced by Be Free for
calendar monthly periods. Fixed and minimum service fees will be invoiced at the
beginning of each calendar month (and pro-rated for the first and last months of
service). Amounts exceeding minimum service fees will be invoiced in the
subsequent month. Merchant shall be responsible for all taxes related to the
transactions contemplated hereunder (except any income taxes of Be Free).
4. INDEMNIFICATION.
4.1 Be Free shall, at its expense, indemnify, defend and hold Merchant harmless
from any and all damages and costs (including reasonable attorneys' fees)
incurred by Merchant arising out of any claim that the services provided by Be
Free hereunder infringe any patent, copyright, trademark, trade secret or other
proprietary right, provided that Merchant (a) promptly notifies Be Free in
writing of any such claim; (b) gives Be Free full control of the defense and
settlement of any such claim; and (c) cooperates with Be Free, at Be Free's
expense, in defending or settling such claims.
4.2 Each party hereby indemnifies and holds the other party harmless from and
against any and all liabilities relating to any claim or demand by the other
party's employees, agents, and consultants.
5. OWNERSHIP.
5.1 Notwithstanding any other provision in this Agreement, Be Free and Merchant
shall be the sole and exclusive owners of their respective intellectual
property, including, without limitation, technology, trademarks, service marks,
trade names, patents, copyrights, trade secrets and confidential information.
Neither party shall use the intellectual property of the other without the prior
written permission of the owner.
5.2 Notwithstanding any other provision in this Agreement, Be Free shall be the
sole and exclusive owner of its technology, including BFAST and its
configuration for Merchant.
5.3 Except for Affiliate names and addresses obtained by Be Free through the
Open Affiliate Outreach & FastApp Services, Merchant shall be the sole and
exclusive owner of specific names, addresses, transactional data and other
personal identifying information of Affiliates and End Users, and shall treat
such information as confidential business information. Be Free shall have the
right to use general demographic and non-personally-identifying information of
End Users, provided however, that any such use does not identify Merchant as the
source of any such data.
6. CONFIDENTIALITY.
6.1 Each party acknowledges that during the Term or any Additional Terms of this
Agreement, it may obtain access to trade secrets and confidential business
information of the other party. A trade secret generally consists of valuable,
secret information or ideas that a party collects or uses in order to keep its
competitive edge. Trade secrets include, without limitation, system designs,
program materials (including source and object code and any documentation which
has not been publicly distributed or disclosed), operating processes, equipment
design, product specifications, and any other proprietary technology.
Confidential business information consists of all other competitively sensitive
information kept in confidence by a party and includes, without limitation,
contract terms, selling and pricing information and procedures.
6.2 Each party agrees not to use or disclose any trade secrets or confidential
business information of the other party, except as may be necessary to employees
of a party who have a specific need to know in order to coordinate the operation
of the Affiliate Sales Channel and, specifically, shall not disclose any trade
secret or confidential business information at any time to any third party
without the prior express written permission of the owner of such trade secret
or confidential business information. These restrictions do not apply to (a) any
information that is or becomes generally available to the public; (b) any
information properly obtained from a completely independent source; or (c) any
information that may be necessary to establish or assert rights hereunder, or as
may be required by law or governmental regulations or authority.
6.3 Merchant, for itself and its employees, agents, and consultants, agrees not
to attempt in any manner to enter into, decompile or reverse-engineer the source
code of Be Free's software or to allow any other individual(s) or entity(ies) to
do or attempt to do so.
7. MISCELLANEOUS.
7.1 During the Term or any Additional Terms of this Agreement, Be Free shall be
the sole provider of affiliate serving technology to Merchant.
7.2 The parties agree to announce this Agreement shortly after the its
execution. Each party shall have the right to approve the other party's
announcement before it is made public, which approval shall not unreasonably be
withheld.
7.3 This Agreement is not assignable by either party, except that either party
may assign this Agreement in the event of its merger or acquisition, and then
only to the merged or acquiring company.
7.4 It is expressly agreed that, in the event of any breach or purported breach
of this Agreement, the remedy shall be limited to an action at law for money
damages, if any were actually suffered, and exclude consequential and incidental
damages. All rights shall be deemed to be cumulative and the waiver a breach of
any provision of this Agreement shall not operate or be construed as a waiver of
any subsequent breach.
7.5 Neither party shall be liable to the other party for any delay or default
hereunder to the extent due to any cause beyond its reasonable control, if such
party notifies the other of the cause and the expected duration of such delay or
default. All such obligations shall return to full force and effect upon the
termination of such cause. A "cause beyond the reasonable control" includes any
act of God, act of any government authority, industrial dispute, fire,
explosion, accident, power failure, flood, riot or declared or undeclared war.
7.6 This Agreement is the entire agreement between the parties regarding its
subject matter, supersedes any other agreements or understandings between them,
and may only be amended by a writing signed by both parties. A party's waiver
of, or failure to enforce, any right hereunder on one occasion shall not be
deemed a waiver of any other right on the same occasion or the same right on any
other occasion. If a court having competent jurisdiction declares any provision
of this Agreement invalid or unenforceable, the remainder of this Agreement
shall continue in full force and effect. This Agreement shall be construed and
governed according to the laws of Commonwealth of Massachusetts applicable to
contracts made, and fully performed, in Massachusetts.
<PAGE>
EMPLOYMENT AGREEMENT
AGREEMENT, dated as of the 9th day of August , 1999 between
CallNOW.com, Inc., a Delaware corporation (the "Corporation"), and Ann K. McShea
(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 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 Vice President, Customer Service
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, within the context of
available funds, but not be limited to, the following:
a. Organize and manage the customer service function for the
company with the objective of having one day response to
e-mails consistently by December 1, same day response by
January 1 and two hour response for 35% of e-mails by March
31, 2000 for e-mails received by 3PM.
b. Staff up to provide 24/7 coverage no later than May 1, 2000.
c. Develop procedures and training manuals by September 1 for
new customer service associates
d. Evaluate and recommend a new e-mail system by January 1,
2000, and have it installed by April 1 with the objective of
making the handling of e-mails more automated, more
efficient, and more manageable.
e. In conjunction with Hernan, John, a new hire or a consultant
develop a data warehousing approach to track and identify
customer usage and billing amounts and changes (March 31,
2000); characteristics of customers useful for our promotion,
and for use in targeted advertising
f. Set up an outbound calling/e-mail function to promote our
service to our current customers, answer questions, develop a
better understanding our customers and how we can increase
calls and revenues in total and by customer.
g. Contribute to the overall management of the company
h. Other tasks that will be mutually agreed upon.
3) COMPENSATION. As the Employee's entire compensation for all services
rendered to the Corporation hereunder, the Employee shall receive such
compensation as
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specified below:
a. Base Salary: The Corporation shall pay the Employee a base
yearly salary $120,000
b. Annual Bonus: The Employee will be eligible for an annual
bonus of up to 20% of base salary split between a 6 month
date and 1year date.
c. Option Plan: Employee shall receive an options to purchase
33,000 shares of the Corporation's stock at $2.75 a share
pursuant to the Corporation's Stock Option Plan. The first
11,000 shares will be available to be purchased 12 months
after the date of this agreement. 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 11,000 shares of stock at $2.75
a share (collectively, all options are referred to herein as
the "Options"). Unless exercised, the Options shall expire on
the earlier of termination of the Employee's employment with
the Corporation or ten (10) years from the date hereof. The
parties agree that the granting of Options herein do not
impact the Employees status as an employee of the
Corporation.
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) BUSINESS STANDARDS. The Employee shall perform all duties under this
Agreement in accordance with the highest standards of industry practice as
may from time to time be applicable during the term hereof.
7) BENEFITS. The Employee shall have the option to participate in and
contribute to the Corporations health insurance and disability plan, as
these may be provided by Management.
8) VACATIONS. The Employee shall be entitled to three (3) weeks paid vacation
at such reasonable times as shall be approved by Management.
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9) 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. By and in consideration for the compensation and benefits to
be provided by the Corporation hereunder, the Employee agrees
that, during a period commencing on the date hereof and
ending three (3) years following the date upon which the
Employee shall cease to be an employee of the Corporation and
its affiliates (the "Restricted Period"), the Employee shall
not , directly or indirectly, (1) engage in any elements of
the Business, or otherwise compete with the Corporation, for
the Employees own account, and (2) render any services to any
person, corporation, partnership or other entity engaged in
an element of the Business;
b. During and after the Restricted Period, the Employee shall
keep secret and retain in strictest confidence, and shall not
use for Employee's 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.
c. During the Restrictive Period, Employee shall not make
duplicate copies of the Corporation's office keys or provide
access to any of the Corporation's information to a third
party (particularly database information) without the prior
written consent of the Corporation.
d. The Employee also covenants that she 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 her control.
e. The Employee acknowledges and agrees that any breach by her
of any of the provisions of Section 9 would result in
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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 her as
the result of any transactions constituting a breach of the
restrictive covenants.
10) ILLNESS; COMPENSATION CONTINUATION. The Employee is authorized to take up-to
six (6) 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.
11) TERM AND TERMINATION.
a. The term of this Agreement shall commence on the date hereof
and shall expire on the last day of the twelfth 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.
b. Notwithstanding the termination of this Agreement, the
parties shall be required to carry out any provisions hereof
which contemplate performance by them subsequent to such
termination, and such termination shall not affect any
liability or other obligation which shall have accrued prior
to such termination, including, without limitation, any
liability for loss or damage on account of default.
c. Upon the termination of the Employee's employment hereunder
for any reason whatsoever other than unlawful conduct, the
Corporation nevertheless may pay to the Employee or, in the
event of the Employee's death or mental incompetence, to the
Employee's personal representative, compensation in respect
of services rendered during the term of this Agreement, in
such amounts as shall be determined by the Board of
Directors.
12) 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.
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13) MISCELLANEOUS.
a. This Agreement sets 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.
b. No amendments or additions to this Agreement 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 this Agreement 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/ Chris Seelbach
------------------------
Title: COO
Ann K. McShea
By: s/ Ann McShea
------------------------
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Amendment dated February 7, 2000 to Employment Agreement with Christopher R.
Seelbach dated November 9, 1999.
This Amendment extends the term of the subject Employment Agreement until
February 7, 2002.
COMPANY CallNOW.com, Inc.
By: s/ Christian Bardenheuer
--------------------------------
Name: Christian Bardenheuer, Chief Executive Officer
And
EMPLOYEE
s/ Christopher R. Seelbach
- -----------------------------------
Christopher R. Seelbach
<PAGE>
EXODUS COMMUNICATIONS, INC.
MASTER SERVICES AGREEMENT
THIS MASTER SERVICES AGREEMENT (the "Agreement") between Exodus Communications,
Inc. ("Exodus") and CallNOW.com ("Customer") is made effective as of date
indicated below the Customer signature on the initial Order Form submitted by
Customer and accepted by Exodus.
1. OVERVIEW.
1.1 General. This Agreement states the terms and conditions by which Exodus
will deliver and Customer will receive any or all of the services provided by
Exodus, including facilities, bandwidth, managed services and professional
services. If Customer purchases any equipment from Exodus (as indicated in the
Order Form(s) described below), the terms and conditions by which Customer
purchases and Exodus sells such equipment are stated in Addendum A attached
hereto. Only this Section 1.1 and Addendum A shall apply to the purchase and
sale of equipment. The specific services and/or products to be provided
hereunder are identified in the Order Form(s) submitted by Customer and accepted
by Exodus and described in detail in the Specification Sheets and Statements of
Work attached to each Order Form. Each Order Form (with the attached
Specification Sheet(s) and Statement(s) of Work) submitted, accepted and
executed by both parties is hereby incorporated by reference into this
Agreement. This Agreement is intended to cover any and all Services ordered by
Customer and provided by Exodus. In the event that any terms set forth herein
apply specifically to a service not ordered by Customer, such terms shall not
apply to Customer.
1.2 Definitions.
(a) "Customer Area" means that portion(s) of the Internet Data Center(s)
made available to Customer for the placement of Customer Equipment and/or Exodus
Supplied Equipment and use of the Service(s).
(b) "Customer Equipment" means the Customer's computer hardware, not
including stored data, and other tangible equipment placed by Customer in the
Customer Area. The Customer Equipment shall be identified on Exodus' standard
customer equipment list completed and delivered by Customer to Exodus, as
amended in writing from time to time by Customer.
(c) "Customer Registration Form" means the list that contains the names and
contact information (e.g. pager, email and telephone numbers) of Customer and
the individuals authorized by Customer to enter the Internet Data Center(s) and
Customer Area, as delivered by Customer to Exodus and amended in writing from
time to time by Customer.
(d) "Customer Technology" means Customer's proprietary technology, including
Customer's Internet operations design, content, software tools, hardware
designs, algorithms, software (in source and object forms), user interface
designs, architecture, class libraries, objects and documentation (both printed
and electronic), know-how, trade secrets and any related intellectual property
rights throughout the world (whether owned by Customer or licensed to Customer
from a third party) and also including any derivatives, improvements,
enhancements or extensions of Customer Technology conceived, reduced to
practice, or developed during the term of this Agreement by Customer.
(e) "Exodus Supplied Equipment" means the computer hardware, software and
other tangible equipment and intangible computer code contained therein to be
provided by Exodus for use by Customer as set forth on the Order Form(s).
(f) "Exodus Technology" means Exodus' proprietary technology, including
Exodus Services, software tools, hardware designs, algorithms, software (in
source and object forms), user interface designs, architecture, class libraries,
objects and documentation (both printed and electronic), network designs,
know-how, trade secrets and any related intellectual property rights throughout
the world (whether owned by Exodus or licensed to Exodus from a third party) and
also including any derivatives, improvements, enhancements or extensions of
Exodus Technology conceived, reduced to practice, or developed during the term
of this Agreement by either party that are not uniquely applicable to Customer
or that have general applicability in the art.
(g) "Initial Term" means the minimum term for which Exodus will provide the
Service(s) to Customer, as indicated on the Order Form(s). Except as otherwise
expressly provided in this Agreement, Exodus is obligated to provide and
Customer is obligated to pay for each Service through its Initial Term and any
Renewal Term.
(h) "Internet Data Center(s)" means any of the facilities used by Exodus to
provide the Service(s).
(i) "Professional Services" means any non-standard professional or
consulting service provided by Exodus to Customer as more fully described in a
Statement of Work.
(j) "Renewal Term" means any service term following the Initial Term, as
specified in Section 2.2.
(k) "Representatives" mean the individuals identified in writing on the
Customer Registration Form and authorized by Customer to enter the Internet Data
Center(s) and the Customer Area.
(l) "Rules and Regulations" means the Exodus general rules and regulations
governing Customer's use of Services, including, but not limited to, online
conduct, and the obligations of Customer and its Representatives in the Internet
Data Centers.
(m) "Service(s)" means the specific service(s) provided by Exodus as
described on the Order Form(s).
(n) "Service Commencement Date" means the date Exodus will begin providing
the Service(s) to Customer, as indicated in a Notice of Service Commencement
delivered by Exodus to Customer.
(o) "Service Level Warranty" is described and defined in Section 5.2 below.
(p) "Specification Sheet" means the detailed description for each Service,
other than Professional Services, ordered by Customer that is attached to an
Order Form(s).
(q) "Statement of Work" means the detailed description(s) of the
Professional Services attached to (an) Order Form(s).
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(r) "Work" means any tangible deliverable provided by Exodus to Customer as
described in the Statement of Work for any Professional Service.
2. DELIVERY OF SERVICES; TERMS; FEES.
2.1 Delivery of Services.
(a) General. By submitting an Order Form, Customer agrees to take and pay
for, and, by accepting the Order Form, Exodus agrees to provide, the Service(s)
during the Initial Term and for any Renewal Term, as specified in paragraph
2.2(b) below.
(b) Delivery of Supplemental Services. The purpose of this provision is to
enable Exodus to provide Customer with certain limited services and equipment
needed by Customer on a "one-off" or emergency basis ("Supplemental Services")
where such services are not included within the scope of the Services as
described in the Specification Sheets and/or Statement of Work. Supplemental
Service may include, as an example, a request from Customer to Exodus via
telephone that Exodus immediately replace a problem Customer server with an
Exodus server for a temporary period of time. Exodus shall notify Customer of
the fees for any Supplemental Services requested by Customer and obtain
Customer's approval prior to providing such services. In the event Exodus
reasonably determines that Supplemental Services are required on an emergency
basis, Exodus may provide such services without the consent of Customer,
thereafter provide notice of the services to Customer and bill Customer a
reasonable fee for such services. Customer agrees to pay Exodus the fees charged
by Exodus for Supplemental Services. Customer will be charged for Supplemental
Services in the invoice issued the month following delivery of the services.
Exodus will use commercially reasonable efforts to provide Supplemental
Services, provided that Exodus has no obligation to determine the need for or
provide Supplemental Services. All Supplemental Services provided pursuant to
this paragraph 2.1(b) are provided on an "as-is" basis and exclude warranties of
any kind, whether express or implied.
2.2 Term.
(a) Term Commencement. The term for each Service will commence on the
Service Commencement Date indicated in the Notice of Service Commencement
delivered by Exodus to Customer when Exodus begins providing each Service to
Customer.
(b) Renewal Term(s). Each Service will continue automatically for additional
terms equal to the Initial Term ("Renewal Term") unless Customer notifies Exodus
in writing at least thirty (30) days prior to the end of the Initial Term or a
Renewal Term, as applicable, that it has elected to terminate such Service, in
which case such Service shall terminate at the end of such term. The termination
of any Service will not affect Customer's obligations to pay for other
Service(s). Notwithstanding the foregoing, Exodus may change or increase the
prices it charges Customer for any Service at any time after the Initial Term
effective thirty (30) days after providing notice to Customer. This paragraph
2.2(b) does not apply to Exodus Supplied Equipment which is only provided for
the Initial Term.
3. FEES AND PAYMENT TERMS.
3.1 Fees and Expenses. Customer will pay all fees due according to the prices
and terms listed in the Order Form(s). The prices listed in the Order Form(s)
will remain in effect during the Initial Term indicated in the Order Form(s) and
will continue thereafter, unless modified in accordance with Section 2.2.
Customer also agrees to reimburse Exodus for actual out-of-pocket reasonable
expenses incurred in providing Professional Services to Customer.
3.2 Payment Terms. On the Service Commencement Date for each Service, Customer
will be billed an amount equal to all non-recurring charges indicated in the
Order Form and the monthly recurring charges for the first month of the term.
Monthly recurring charges for all other months will be billed in advance of the
provision of Services. All other charges for Services received and expenses
incurred for Professional Services during a month (e.g., bandwidth usage fees,
travel expenses) will be billed at the end of the month in which the Services
were provided. Payment for all fees is due upon receipt of each Exodus invoice.
All payments will be made in the United States in U.S. dollars.
3.3 Late Payments. Any payment not received within thirty (30) days of the
invoice date will accrue interest at a rate of one and one-half percent (1 1/2%)
per month, or the highest rate allowed by applicable law, whichever is lower. If
Customer is delinquent in its payments, Exodus may, upon written notice to
Customer, modify the payment terms to require full payment before the provision
of all Services and Exodus Supplied Equipment or require other assurances to
secure Customer's payment obligations hereunder.
3.4 Taxes. All fees charged by Exodus for Services are exclusive of all taxes
and similar fees now in force or enacted in the future imposed on the
transaction and/or the delivery of Services, all of which Customer will be
responsible for and will pay in full, except for taxes based on Exodus' net
income.
4. CONFIDENTIAL INFORMATION; INTELLECTUAL PROPERTY OWNERSHIP; LICENSE GRANTS.
4.1 Confidential Information.
(a) Nondisclosure of Confidential Information. Each party acknowledges that
it will have access to certain confidential information of the other party
concerning the other party's business, plans, customers, technology, and
products, and other information held in confidence by the other party
("Confidential Information"). Confidential Information will include all
information in tangible or intangible form that is marked or designated as
confidential or that, under the circumstances of its disclosure, should be
considered confidential. Confidential Information will also include, but not be
limited to, Exodus Technology, Customer Technology, and the terms and conditions
of this Agreement. Each party agrees that it will not use in any way, for its
own account or the account of any third party, except as expressly permitted by,
or required to achieve the purposes of, this Agreement, nor disclose to any
third party (except as required by law or to that party's attorneys, accountants
and other advisors as reasonably necessary), any of the other party's
Confidential Information and will take reasonable precautions to protect the
confidentiality of such information, at least as stringent as it takes to
protect its own Confidential Information.
(b) Exceptions. Information will not be deemed Confidential Information
hereunder if such information: (i) is known to the receiving party prior to
receipt from the disclosing party directly or indirectly from a source other
than one having an obligation of confidentiality to the disclosing party; (ii)
becomes known
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(independently of disclosure by the disclosing party) to the receiving party
directly or indirectly from a source other than one having an obligation of
confidentiality to the disclosing party; (iii) becomes publicly known or
otherwise ceases to be secret or confidential, except through a breach of this
Agreement by the receiving party; or (iv) is independently developed by the
receiving party. The receiving party may disclose Confidential Information
pursuant to the requirements of a governmental agency or by operation of law,
provided that it gives the disclosing party reasonable prior written notice
sufficient to permit the disclosing party to contest such disclosure.
4.2 Intellectual Property.
(a) Ownership. Except for the rights expressly granted herein and the
assignment expressly made in paragraph 4.4(a), this Agreement does not transfer
from Exodus to Customer any Exodus Technology, and all right, title and interest
in and to Exodus Technology will remain solely with Exodus. Except for the
rights expressly granted herein, this Agreement does not transfer from Customer
to Exodus any Customer Technology, and all right, title and interest in and to
Customer Technology will remain solely with Customer. Exodus and Customer each
agrees that it will not, directly or indirectly, reverse engineer, decompile,
disassemble or otherwise attempt to derive source code or other trade secrets
from the other party.
(b) General Skills and Knowledge. Notwithstanding anything to the contrary
in this Agreement, Exodus will not be prohibited or enjoined at any time by
Customer from utilizing any skills or knowledge of a general nature acquired
during the course of providing the Services, including, without limitation,
information publicly known or available or that could reasonably be acquired in
similar work performed for another customer of Exodus.
4.3 License Grants.
(a) By Exodus. Exodus hereby grants to Client a nonexclusive, royalty-free
license, during the term of this Agreement, to use the Exodus Technology solely
for purposes of using the Service(s). Customer shall have no right to use the
Exodus Technology for any purpose other than using the Service(s).
(b) By Customer. Customer agrees that if, in the course of performing the
Service(s), it is necessary for Exodus to access Customer Equipment and use
Customer Technology, Exodus is hereby granted and shall have a nonexclusive,
royalty-free license, during the term of this Agreement, to use the Customer
Technology solely for the purposes of delivering the Service(s) to Customer.
Exodus shall have no right to use the Customer Technology for any purpose other
than providing the Service(s).
4.4 Professional Services; Assignments and License.
(a) Assignment of Work. Effective at the time Exodus receives full and final
payment for the Professional Service, Exodus assigns to Customer all right,
title and interest, including all intellectual property rights, in the Work,
provided, however, that such assignment does not include the Exodus Technology.
(b) License Grant. Commencing at the time Exodus receives full and final
payment for the Work, Exodus grants to Customer a non-exclusive,
non-transferable, royalty free, perpetual license to use the Exodus Technology
incorporated into the Work solely in connection with the use of the Work as a
whole. To the extent that Customer or its employees or contractors participate
in the creation or development of Exodus Technology, Customer, on behalf of
itself and its employees and contractors, hereby assigns to Exodus all right,
title and interest, including all intellectual property rights in, the Exodus
Technology.
5. EXODUS REPRESENTATIONS AND WARRANTIES.
5.1 General.
(a) Authority and Performance of Exodus. Exodus represents and warrants that
(i) it has the legal right to enter into this Agreement and perform its
obligations hereunder, and (ii) the performance of its obligations and delivery
of the Services to Customer will not violate any applicable U.S. laws or
regulations, including OSHA requirements, or cause a breach of any agreements
with any third parties. In the event of a breach of the warranties set forth in
this paragraph 5.1(a), Customer's sole remedy is termination pursuant to Section
10 of the Agreement.
(b) Year 2000 Performance Compliance. Exodus warrants that none of the
computer hardware and software systems and equipment incorporated into or
utilized in the delivery of the Services contains any date dependent routines or
logic which will fail to operate correctly after December 31, 1999, by reason of
such date dependence; provided, however, that no representation or warranty is
made as to the adequacy of any Customer or third party service provider hardware
or software used in connection with the Services. In the event of any breach of
the warranties under this paragraph 5.1(b), Customer's sole remedy is
termination pursuant to Section 10 of the Agreement.
5.2. Service Level Warranty. In the event that Customer experiences any of the
service performance issues defined in this Section 5.2 as a result of Exodus'
failure to provide bandwidth or facility services, Exodus will, upon Customer's
request in accordance with paragraph 5.2(d) below, credit Customer's account as
described below (the "Service Level Warranty"). The Service Level Warranty shall
not apply to any services other than bandwidth and facility services, and, shall
not apply to performance issues (i) caused by factors outside of Exodus'
reasonable control; (ii) that resulted from any actions or inactions of Customer
or any third parties; or (iii) that resulted from Customer's equipment and/or
third party equipment (not within the sole control of Exodus).
(a) Service Warranty Definitions. For purposes of this Agreement, the
following definitions shall apply only to the Services (not including
Professional Services).
(i) "Downtime" shall mean sustained packet loss in excess of fifty
percent (50%) within Exodus' U.S. network for fifteen (15) consecutive minutes
due to the failure of Exodus to provide Service(s) for such period. Downtime
shall not include any packet loss or network unavailability during Exodus'
scheduled maintenance of the Internet Data Centers, network and Service(s), as
described in the Rules and Regulations.
(ii) "Excess Latency" shall mean transmission latency in excess of one
hundred twenty (120) milliseconds round trip time between any two points within
Exodus' U.S. network.
(iii) "Excess Packet Loss" shall mean packet loss in excess of one
percent (1%) between any two points within Exodus' U.S. network.
(iv) "Performance Problem" shall mean Excess Packet Loss and/or Excess
Latency.
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(v) "Service Credit" shall mean an amount equal to the pro-rata monthly
recurring connectivity charges (i.e., all monthly recurring bandwidth-related
charges) for one (1) day of Service.
(b) Downtime Periods. In the event Customer experiences Downtime, Customer
shall be eligible to receive from Exodus a Service Credit for each Downtime
period. Examples: If Customer experiences one Downtime period, it shall be
eligible to receive one Service Credit. If Customer experiences two Downtime
periods, either from a single event or multiple events, it shall be eligible to
receive two Service Credits.
(c) Performance Problem; Packet Loss and Latency. In the event that Exodus
discovers or is notified by Customer that Customer is experiencing a Performance
Problem, Exodus will take all actions necessary to determine the source of the
Performance Problem.
(i) Time to Discover Source of Performance Problem; Notification of
Customer. Within two (2) hours of discovering or receiving notice of the
Performance Problem, Exodus will determine whether the source of the Performance
Problem is limited to the Customer Equipment and the Exodus equipment connecting
the Customer Equipment to the Exodus LAN. If Exodus determines that the Customer
Equipment and Exodus connection are not the source of the Performance Problem,
Exodus will determine the source of the Performance Problem within an additional
two (2) hour period. In any event, Exodus will notify Customer of the source of
the Performance Problem within sixty (60) minutes of identifying the source.
(ii) Remedy of Packet Loss and Latency. If the source of the
Performance Problem is within the sole control of Exodus, Exodus will remedy the
Performance Problem within two (2) hours of determining the source of the
Performance Problem. If the source of and remedy to the Performance Problem
reside outside of the Exodus LAN or WAN, Exodus will use commercially reasonable
efforts to notify the party(ies) responsible for the source of the Performance
Problem and cooperate with it (them) to resolve such problem as soon as
possible.
(iii) Failure to Determine Source and/or Remedy. In the event that
Exodus (A) is unable to determine the source of the Performance Problem within
the time periods described in subsection (i) above and/or; (B) Exodus is the
sole source of the Performance Problem and is unable to remedy such Performance
Problem within the time period described in subsection (ii) above, Exodus will
deliver a Service Credit to Customer for each two (2) hour period in excess of
the time periods for identification and resolution described above.
(d) Customer Must Request Service Credit. In order to receive any of the
Service Credits described in this Section 5.2, Customer must notify Exodus
within seven (7) days from the time Customer becomes eligible to receive a
Service Credit. Failure to comply with this requirement will forfeit Customer's
right to receive a Service Credit.
(e) Remedies Shall Not Be Cumulative; Maximum Service Credit. The aggregate
maximum number of Service Credits to be issued by Exodus to Customer for any and
all Downtime periods and Performance Problems that occur in a single calendar
month shall not exceed seven (7) Service Credits. A Service Credit shall be
issued in the Exodus invoice in the month following the Downtime or Performance
Problem, unless the Service Credit is due in Customer's final month of Service.
In such case, a refund for the dollar value of the Service Credit will be mailed
to Customer. Customer shall also be eligible to receive a pro-rata refund for
(i) Downtime periods and Performance Problems for which Customer does not
receive a Service Credit and (ii) any Services Exodus does not deliver to
Customer for which Customer has paid.
(f) Termination Option for Chronic Problems. Customer may terminate this
Agreement for cause and without penalty by notifying Exodus within five (5) days
following the end of a calendar month in the event either of the following
occurs: (i) Customer experiences more than fifteen (15) Downtime periods
resulting from three (3) or more nonconsecutive Downtime events during the
calendar month; or (ii) Customer experiences more than eight (8) consecutive
hours of Downtime due to any single event. Such termination will be effective
thirty (30) days after receipt of such notice by Exodus.
(g) THE SERVICE LEVEL WARRANTY SET FORTH IN THIS SECTION 5.2 SHALL ONLY
APPLY TO THE BANDWIDTH AND FACILITIES SERVICE(S) PROVIDED BY EXODUS AND, DOES
NOT APPLY TO (I) ANY PROFESSIONAL SERVICES; (II) ANY SUPPLEMENTAL SERVICES; AND
(III) ANY SERVICE(S) THAT EXPRESSLY EXCLUDE THIS SERVICE LEVEL WARRANTY (AS
STATED IN THE SPECIFICATION SHEETS FOR SUCH SERVICES). THIS SECTION 5.2 STATES
CUSTOMER'S SOLE AND EXCLUSIVE REMEDY FOR ANY FAILURE BY EXODUS TO PROVIDE
SERVICE(S).
5.3 Service Performance Warranty. Exodus warrants that it will perform the
Services in a manner consistent with industry standards reasonably applicable to
the performance thereof.
5.4 Selection of Exodus Supplied Equipment; Manufacturer Warranty. Customer
acknowledges that is has selected the Exodus Supplied Equipment and disclaims
any statements made by Exodus. Except with respect to any express warranties for
Service(s) related to Exodus Supplied Equipment, Customer acknowledges and
agrees that its use and possession of the Exodus Supplied Equipment by Customer
shall be subject to and controlled by the terms of any manufacturer's or, if
appropriate, supplier's warranty, and Customer agrees to look solely to the
manufacturer or, if appropriate, supplier with respect to all mechanical,
service and other claims, and the right to enforce all warranties made by said
manufacturer are hereby, to the extent Exodus has the right, assigned to
Customer solely for the Initial Term.
5.5 No Other Warranty. EXCEPT FOR THE EXPRESS WARRANTIES SET FORTH IN THIS
SECTION 5, THE SERVICES ARE PROVIDED ON AN "AS IS" BASIS, AND CUSTOMER'S USE OF
THE SERVICES IS AT ITS OWN RISK. EXODUS DOES NOT MAKE, AND HEREBY DISCLAIMS, ANY
AND ALL OTHER EXPRESS AND/OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO,
WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, NONINFRINGEMENT
AND TITLE, AND ANY WARRANTIES ARISING FROM A COURSE OF DEALING, USAGE, OR TRADE
PRACTICE. EXODUS DOES NOT WARRANT THAT THE SERVICES WILL BE UNINTERRUPTED,
ERROR-FREE, OR COMPLETELY SECURE.
5.6 Disclaimer of Actions Caused by and/or Under the Control of Third Parties.
EXODUS DOES NOT AND CANNOT CONTROL THE FLOW OF DATA TO OR FROM EXODUS' NETWORK
AND OTHER PORTIONS OF THE INTERNET. SUCH FLOW DEPENDS IN LARGE PART ON THE
PERFORMANCE OF INTERNET SERVICES PROVIDED OR CONTROLLED BY THIRD PARTIES. AT
TIMES, ACTIONS OR INACTIONS OF SUCH THIRD PARTIES CAN IMPAIR OR DISRUPT
CUSTOMER'S CONNECTIONS TO THE INTERNET (OR PORTIONS THEREOF). ALTHOUGH EXODUS
WILL USE COMMERCIALLY REASONABLE EFFORTS TO TAKE ALL ACTIONS IT DEEMS
APPROPRIATE TO REMEDY AND AVOID SUCH EVENTS, EXODUS CANNOT GUARANTEE THAT SUCH
EVENTS WILL NOT OCCUR. ACCORDINGLY, EXODUS DISCLAIMS ANY AND ALL LIABILITY
RESULTING FROM OR RELATED TO SUCH EVENTS.
6. CUSTOMER OBLIGATIONS.
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6.1 Warranties of Customer.
(a) General. Customer represents and warrants that (i) it has the legal
right and authority, and will continue to own or maintain the legal right and
authority, during the term of this Agreement, to place and use any Customer
Equipment as contemplated under this Agreement; (ii) the performance of its
obligations and use of the Services (by Customer, its customers and users) will
not violate any applicable laws, regulations or the Rules and Regulations or
cause a breach of any agreements with any third parties or unreasonably
interfere with other Exodus customers' use of Exodus services, and (iii) all
equipment, materials and other tangible items placed by Customer at Internet
Data Centers will be used in compliance with all applicable manufacturer
specifications.
(b) Breach of Warranties. In the event of any breach of any of the foregoing
warranties, in addition to any other remedies available at law or in equity,
Exodus will have the right, in its sole reasonable discretion, to suspend
immediately any related Services if deemed reasonably necessary by Exodus to
prevent any harm to Exodus and its business. Exodus will provide notice and
opportunity to cure if practicable depending on the nature of the breach. Once
cured, Exodus will promptly restore the Service(s).
6.2 Compliance with Law and Rules and Regulations. Customer agrees that it
will use the Service(s) only for lawful purposes and in accordance with this
Agreement. Customer will comply at all times with all applicable laws and
regulations and the Rules and Regulations, as updated by Exodus from time to
time. The Rules and Regulations are incorporated herein and made a part hereof
by this reference. Exodus may change the Rules and Regulations upon fifteen (15)
days' notice to Customer, which notice may be provided by posting such new Rules
and Regulations at the Exodus Web site www.exodus.net. Customer agrees that it
has received, read and understands the current version of the Rules and
Regulations. The Rules and Regulations contain restrictions on Customer's and
Customer's users' online conduct (including prohibitions against unsolicited
commercial email) and contain financial penalties for violations of such
restrictions. Customer agrees to comply with such restrictions and, in the event
of a failure to comply, Customer agrees to pay the financial penalties in
accordance with the Rules and Regulations. Customer acknowledges that Exodus
exercises no control whatsoever over the content of the information passing
through Customer's site(s) and that it is the sole responsibility of Customer to
ensure that the information it and its users transmit and receive complies with
all applicable laws and regulations and the Rules and Regulations.
6.3 Access and Security. Except with the advanced written consent of Exodus,
Customer's access to the Internet Data Centers will be limited solely to the
Representatives. Representatives may only access the Customer Area and are
prohibited from accessing other areas of the Internet Data Center(s) unless
accompanied by an authorized Exodus representative.
6.4 Restrictions on Use of Services. Customer shall not, without the prior
written consent of Exodus (which may be withheld in its sole discretion), resell
the Services to any third parties or connect Customer Equipment directly to
anything other than the Exodus network, equipment and facilities.
6.5 Relocation of Customer Equipment. In the event that it becomes necessary
to relocate the Customer Equipment to another Customer Area within the New
Jersey Internet Data Center operated by Exodus, Customer will cooperate in good
faith with Exodus to facilitate such relocation, provided that such relocation
is based on reasonable business needs of Exodus (including the needs of other
Exodus customers), the expansion of the space requirements of Customer or
otherwise. Exodus shall be solely responsible for any costs and expenses
incurred by Exodus and Customer in connection with any such relocation and will
use commercially reasonable efforts, in cooperation with Customer, to minimize
and avoid any interruption to the Services, including providing temporary mirror
equipment.
6.6 Exodus Supplied Equipment.
(a) Delivery and Term. On or prior to the Service Commencement Date, Exodus
shall deliver to Customer, at the designated Customer Area, the Exodus Supplied
Equipment. Customer shall have the right to use the Exodus Supplied Equipment
for the Initial Term set forth in the Order Form and any additional period
agreed to in writing by Exodus. Customer shall not remove any Exodus Supplied
Equipment from the Customer Area(s) without the prior written consent of Exodus.
(b) Title. The Exodus Supplied Equipment shall always remain the personal
property of Exodus. Customer shall have no right or interest in or to the Exodus
Supplied Equipment except as provided in this Agreement and the applicable Order
Form and shall hold the Exodus Supplied Equipment subject and subordinate to the
rights of Exodus. Customer agrees to execute UCC financing statements as and
when requested by Exodus and hereby appoints Exodus as its attorney-in-fact to
execute such financing statements on behalf of Customer. Customer will, at its
own expense, keep the Exodus Supplied Equipment free and clear from any liens or
encumbrances of any kind (except any caused by Exodus) and will indemnify and
hold Exodus harmless from and against any loss or expense caused by Customer's
failure to do so. Customer shall give Exodus immediate written notice of any
attachment or judicial process affecting the Exodus Supplied Equipment or
Exodus' ownership. Customer will not remove, alter or destroy any labels on the
Exodus Supplied Equipment stating that it is the property of Exodus and shall
allow the inspection of the Exodus Supplied Equipment at any time.
(c) Use, Maintenance and Repair. Customer will, at its own expense, keep the
Exodus Supplied Equipment in good repair, appearance and condition, other than
normal wear and tear, and, if not included in the Services, shall obtain, pay
for and keep in effect through the Initial Term a hardware and software
maintenance agreement with the manufacturer or other party acceptable to Exodus.
All parts furnished in connection with such repair and maintenance shall be
manufacturer authorized parts and shall immediately become components of the
Exodus Supplied Equipment and the property of Exodus. Customer shall use the
Exodus Supplied Equipment in compliance with the manufacturer's or supplier's
suggested guidelines.
(d) Upgrades and Additions. Customer may affix or install any accessory,
addition, upgrade, equipment or device on to the Exodus Supplied Equipment
(other than electronic data) ("Additions") provided that such Additions (i) can
be removed without causing material damage to the Exodus Supplied Equipment;
(ii) do not reduce the value of the Exodus Supplied Equipment and (iii) are
obtained from or approved in writing by Exodus and are not subject to the
interest of any third party other than Exodus. Any other Additions may not be
installed without Exodus' prior written consent. At the end of the Initial Term,
Customer shall remove any Additions which (i)
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were not provided by Exodus and (ii) are readily removable without causing
material damage or impairment of the intended function, use, or value of the
Exodus Supplied Equipment, and restore the Exodus Supplied Equipment to its
original configuration. Any Additions, which are not so removable, will become
the property of Exodus (lien free).
7. INSURANCE.
7.1 Exodus Minimum Levels. Exodus agrees to keep in full force and effect
during the term of this Agreement: (i) comprehensive general liability insurance
in an amount not less than $2 million per occurrence for bodily injury and
property damage and (ii) workers' compensation insurance in an amount not less
than that required by applicable law. Exodus agrees that it will ensure and be
solely responsible for ensuring that its contractors and subcontractors maintain
insurance coverage at levels no less than those required by applicable law and
customary in Exodus' and its agents' industries.
7.2 Customer Minimum Levels. In order to provide customers with physical
access to facilities operated by Exodus and equipment owned by third parties,
Exodus is required by its insurers to ensure that each Exodus customer maintains
adequate insurance coverage. Customer agrees to keep in full force and effect
during the term of this Agreement: (i) comprehensive general liability insurance
in an amount not less than $1 million per occurrence for bodily injury and
property damage and (ii) workers compensation insurance in an amount not less
than that required by applicable law. Customer agrees that it will ensure and be
solely responsible for ensuring that its agents (including contractors and
subcontractors) maintain insurance coverage at levels no less than those
required by applicable law and customary in Customer's and its agents'
industries.
7.3 Certificates of Insurance; Notification to Exodus of Decreases in
Insurance Coverage Amounts. Prior to installation of any Customer Equipment in
the Customer Area, Customer will (i) deliver to Exodus certificates of insurance
which evidence the minimum levels of insurance set forth above; and (ii)will
notify Exodus of any decreases in the insurance coverage amount as set forth
above in Section 7.2 of this Agreement.
8. LIMITATIONS OF LIABILITY.
8.1 Personal Injury. EACH REPRESENTATIVE AND ANY OTHER PERSON VISITING AN
INTERNET DATA CENTER DOES SO AT ITS OWN RISK. EXODUS ASSUMES NO LIABILITY
WHATSOEVER FOR ANY HARM TO SUCH PERSONS RESULTING FROM ANY CAUSE OTHER THAN THE
NEGLIGENCE OR WILLFUL MISCONDUCT OF EXODUS.
8.2 Damage to Customer Equipment. EXODUS ASSUMES NO LIABILITY FOR ANY DAMAGE
TO, OR LOSS OF, ANY CUSTOMER EQUIPMENT RESULTING FROM ANY CAUSE OTHER THAN THE
NEGLIGENCE OR WILLFUL MISCONDUCT OF EXODUS. TO THE EXTENT EXODUS IS LIABLE FOR
ANY DAMAGE TO, OR LOSS OF, CUSTOMER EQUIPMENT FOR ANY REASON, SUCH LIABILITY
WILL BE LIMITED SOLELY TO THE THEN-CURRENT REPLACEMENT VALUE OF THE CUSTOMER
EQUIPMENT, EXCLUDING LOST DATA , SOFTWARE AND FIRMWARE.
8.3. CONSEQUENTIAL DAMAGES WAIVER. EXCEPT FOR A BREACH OF SECTION 4.1
("CONFIDENTIAL INFORMATION") OF THIS AGREEMENT, IN NO EVENT WILL EITHER PARTY BE
LIABLE OR RESPONSIBLE TO THE OTHER FOR ANY TYPE OF INCIDENTAL, PUNITIVE,
INDIRECT OR CONSEQUENTIAL DAMAGES, INCLUDING, BUT NOT LIMITED TO, LOST REVENUE,
LOST PROFITS, REPLACEMENT GOODS, LOSS OF TECHNOLOGY, RIGHTS OR SERVICES, LOSS OF
DATA, OR INTERRUPTION OR LOSS OF USE OF SERVICE OR EQUIPMENT, EVEN IF ADVISED OF
THE POSSIBILITY OF SUCH DAMAGES, WHETHER ARISING UNDER THEORY OF CONTRACT, TORT
(INCLUDING NEGLIGENCE), STRICT LIABILITY OR OTHERWISE.
8.4. Basis of the Bargain; Failure of Essential Purpose. The parties
acknowledge that Exodus has set its prices and entered into this Agreement in
reliance upon the limitations of liability and the disclaimers of warranties and
damages set forth herein, and that the same form an essential basis of the
bargain between the parties. The parties agree that the limitations and
exclusions of liability and disclaimers specified in this Agreement will survive
and apply even if found to have failed of their essential purpose.
9. INDEMNIFICATION.
9.1. Indemnification. Each party will indemnify, defend and hold the other
harmless from and against any and all costs, liabilities, losses, and expenses
(including, but not limited to, reasonable attorneys' fees) (collectively,
"Losses") resulting from any claim, suit, action, or proceeding (each, an
"Action") brought by any third party against the other or its affiliates
alleging (i) the infringement or misappropriation of any intellectual property
right relating to the delivery or use of the Service(s) (but excluding any
infringement contributorily caused by the other party); (ii) personal injury
caused by the negligence or willful misconduct of the other party; and (iii) any
violation of or failure to comply with the Rules and Regulations. Customer will
indemnify, defend and hold Exodus, its affiliates and customers harmless from
and against any and all Losses resulting from or arising out of any Action
brought against Exodus, its affiliates or customers alleging any damage or
destruction to the Customer Area, the Internet Data Centers, Exodus equipment or
other customer equipment caused by Customer, its Representative(s) or designees.
9.2 Notice. Each party's indemnification obligations hereunder shall be
subject to (i) receiving prompt written notice of the existence of any Action;
(ii) being able to, at its option, control the defense of such Action; (iii)
permitting the indemnified party to participate in the defense of any Action;
and (iv) receiving full cooperation of the indemnified party in the defense
thereof.
10. TERMINATION.
10.1. Termination For Cause. Either party may terminate this Agreement if: (i)
the other party breaches any material term or condition of this Agreement and
fails to cure such breach within thirty (30) days after receipt of written
notice of the same, except in the case of failure to pay fees, which must be
cured within five (5) days after receipt of written notice from Exodus; (ii) the
other party becomes the subject of a voluntary petition in bankruptcy or any
voluntary proceeding relating to insolvency, receivership, liquidation, or
composition for the benefit of creditors; or (iii) the other party becomes the
subject of an involuntary petition in bankruptcy or any involuntary proceeding
relating to insolvency, receivership, liquidation, or composition for the
benefit of creditors, if such petition or proceeding is not dismissed within
sixty (60) days of filing. Customer may also terminate this Agreement in
accordance with the terms set forth in paragraph 5.2(f) ("Termination Option For
Chronic Problems") of this Agreement.
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10.2 No Liability for Termination. Neither party will be liable to the other
for any termination or expiration of any Service or this Agreement in accordance
with its terms.
10.3. Effect of Termination. Upon the effective date of termination of this
Agreement:
(a) Exodus will immediately cease providing the Service(s);
(b) any and all payment obligations of Customer under this Agreement for
Service(s) provided through the date of termination will immediately become due;
(c) within thirty (30) days of such termination, each party will return all
Confidential Information of the other party in its possession and will not make
or retain any copies of such Confidential Information except as required to
comply with any applicable legal or accounting record keeping requirement; and
(d) within five (5) days of such termination Customer shall (i) remove from
the Internet Data Centers all Customer Equipment (excluding any Exodus Supplied
Equipment) and any other Customer property; (ii) deliver or make available all
Exodus Supplied Equipment to an authorized representative of Exodus, and (iii)
return the Customer Area to Exodus in the same condition as it was on the
Service Commencement Date for the Customer Area, normal wear and tear excepted.
If Customer does not remove the Customer Equipment and its other property within
such five-day period, Exodus will have the option to (i) move any and all such
property to secure storage and charge Customer for the cost of such removal and
storage, and/or (ii) liquidate the property in any reasonable manner.
10.4. Customer Equipment as Security. In the event that Customer fails to pay
Exodus all undisputed amounts owed Exodus under this Agreement when due,
Customer agrees that, upon delivery of written notice to Customer, Exodus may
(i) restrict Customer's physical access to the Customer Area and Equipment;
and/or (ii) take possession of any Customer Equipment and store it, at
Customer's expense, until taken in full or partial satisfaction of any lien or
judgment, all without being liable to prosecution or for damages.
10.5. Survival. The following provisions will survive any expiration or
termination of the Agreement: Sections 3, 4.1, 4.2, 4.4, 5.5, 6.6(d), 8, 9, 10
and 11 (excluding 11.2).
11. MISCELLANEOUS PROVISIONS.
11.1 Force Majeure. Except for the obligation to make payments, neither party
will be liable for any failure or delay in its performance under this Agreement
due to any cause beyond its reasonable control, including acts of war, acts of
God, earthquake, flood, embargo, riot, sabotage, labor shortage or dispute,
governmental act or failure of the Internet (not resulting from the actions or
inactions of Exodus), provided that the delayed party: (a) gives the other party
prompt notice of such cause, and (b) uses its reasonable commercial efforts to
promptly correct such failure or delay in performance. If Exodus is unable to
provide Service(s) for a period of thirty (30) consecutive days as a result of a
continuing force majeure event, Customer may cancel the Service(s).
11.2 No Lease; Agreement Subordinate to Master Lease. This Agreement is a
services agreement and is not intended to and will not constitute a lease of any
real property. Customer acknowledges and agrees that (i) it has been granted
only a license to occupy the Customer Area and use the Internet Date Centers and
any equipment provided by Exodus in accordance with this Agreement; (ii)
Customer has not been granted any real property interest in the Customer Area or
Internet Data Centers; (iii) Customer has no rights as a tenant or otherwise
under any real property or landlord/tenant laws, regulations, or ordinances;
(iv) this Agreement, to the extent it involves the use of space leased by
Exodus, shall be subordinate to any lease between Exodus and its landlord(s);
and (v) the expiration or termination of any such lease shall terminate this
Agreement as to such property subject to Customer retaining any rights or claims
it may have against Exodus arising from the expiration or termination of such
lease. Customer hereby waives and releases any claims or rights to make a claim
that it may have against the landlord(s) under any lease by Exodus with respect
to any equipment or property of Customers' located in the premises demised to
Exodus by such landlord(s).
11.3 Marketing. Customer agrees that during the term of this Agreement Exodus
may publicly refer to Customer, orally and in writing, as a Customer of Exodus.
Any other reference to Customer by Exodus requires the written consent of
Customer.
11.4 Government Regulations. Customer will not export, re-export, transfer, or
make available, whether directly or indirectly, any regulated item or
information to anyone outside the U.S. in connection with this Agreement without
first complying with all export control laws and regulations which may be
imposed by the U.S. Government and any country or organization of nations within
whose jurisdiction Customer operates or does business.
11.5. Non-Solicitation. During the Term of this Agreement and continuing
through the first anniversary of the termination of this Agreement, Customer
agrees that it will not, and will ensure that its affiliates do not, directly or
indirectly, solicit or attempt to solicit for employment any persons employed by
Exodus or contracted by Exodus to provide Services to Customer.
11.6. No Third Party Beneficiaries. Exodus and Customer agree that, except as
otherwise expressly provided in this Agreement, there shall be no third party
beneficiaries to this Agreement, including but not limited to the insurance
providers for either party or the customers of Customer.
11.7. Governing Law; Dispute Resolution. This Agreement is made under and will
be governed by and construed in accordance with the laws of the State of
California (except that body of law controlling conflicts of law) and
specifically excluding from application to this Agreement that law known as the
United Nations Convention on the International Sale of Goods. The parties will
endeavor to settle amicably by mutual discussions any disputes, differences, or
claims whatsoever related to this Agreement. Failing such amicable settlement,
any controversy, claim, or dispute arising under or relating to this Agreement,
including the existence, validity, interpretation, performance, termination or
breach thereof, shall finally be settled by arbitration in accordance with the
Arbitration Rules (and if Customer is a non-U.S. entity, the International
Arbitration Rules) of the American Arbitration Association ("AAA"). There will
be three (3) arbitrators (the "Arbitration Tribunal"), the first of which will
be appointed by the claimant in its notice of arbitration, the second of which
will be appointed by the respondent within thirty (30) days of the appointment
of the first arbitrator and the third of which will be jointly appointed by the
party-appointed arbitrators within thirty (30) days thereafter. The language of
the arbitration shall be English. The Arbitration Tribunal
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<PAGE>
will not have the authority to award punitive damages to either party. Each
party shall bear its own expenses, but the parties will share equally the
expenses of the Arbitration Tribunal and the AAA. This Agreement will be
enforceable, and any arbitration award will be final, and judgment thereon may
be entered in any court of competent jurisdiction. The arbitration will be held
in San Francisco, California, USA. Notwithstanding the foregoing, claims for
preliminary injunctive relief, other pre-judgment remedies, and claims for
Customer's failure to pay for Services in accordance with this Agreement may be
brought in a state or federal court in the United States with jurisdiction over
the subject matter and parties.
11.8. Severability; Waiver. In the event any provision of this Agreement is
held by a tribunal of competent jurisdiction to be contrary to the law, the
remaining provisions of this Agreement will remain in full force and effect. The
waiver of any breach or default of this Agreement will not constitute a waiver
of any subsequent breach or default, and will not act to amend or negate the
rights of the waiving party.
11.9. Assignment. Customer may assign this Agreement in whole as part of a
corporate reorganization, consolidation, merger, or sale of substantially all of
its assets. Customer may not otherwise assign its rights or delegate its duties
under this Agreement either in whole or in part without the prior written
consent of Exodus, which shall not be unreasonably withheld and any attempted
assignment or delegation without such consent will be void. Exodus may assign
this Agreement in partand may delegate the performance of certain Services to
third parties, including Exodus' wholly owned subsidiaries, provided Exodus
controls the delivery of such Services to Customer and remains responsible to
Customer for the delivery of such Services. Exodus may not assign this Agreement
in whole without the prior written consent of Exodus which shall not be
unreasonable withheld and any attempted assignment or delegation without such
consent will be void. This Agreement will bind and inure to the benefit of each
party's successors and permitted assigns.
11.10 Notice. Any notice or communication required or permitted to be given
hereunder may be delivered by hand, deposited with an overnight courier, sent by
email, confirmed facsimile, or mailed by registered or certified mail, return
receipt requested, postage prepaid, in each case to the address of the receiving
party as listed on the Order Form or at such other address as may hereafter be
furnished in writing by either party to the other party. Such notice will be
deemed to have been given as of the date it is delivered, mailed, emailed, faxed
or sent, whichever is earlier.
11.11. Relationship of Parties. Exodus and Customer are independent
contractors and this Agreement will not establish any relationship of
partnership, joint venture, employment, franchise or agency between Exodus and
Customer. Neither Exodus nor Customer will have the power to bind the other or
incur obligations on the other's behalf without the other's prior written
consent, except as otherwise expressly provided herein.
11.12. Entire Agreement; Counterparts; Originals. This Agreement, including
all documents incorporated herein by reference, constitutes the complete and
exclusive agreement between the parties with respect to the subject matter
hereof, and supersedes and replaces any and all prior or contemporaneous
discussions, negotiations, understandings and agreements, written and oral,
regarding such subject matter. Any additional or different terms in any purchase
order or other response by Customer shall be deemed objected to by Exodus
without need of further notice of objection, and shall be of no effect or in any
way binding upon Exodus. This Agreement may be executed in two or more
counterparts, each of which will be deemed an original, but all of which
together shall constitute one and the same instrument. Once signed, any
reproduction of this Agreement made by reliable means (e.g., photocopy,
facsimile) is considered an original. This Agreement may be changed only by a
written document signed by authorized representatives of Exodus and Customer in
accordance with this Section 11.12. For purposes of this Agreement, the term
"written" means anything reduced to a tangible form by a party, including a
printed or hand written document, e-mail or other electronic format.
11.13 Interpretation of Conflicting Terms. In the event of a conflict between
or among the terms in this Agreement, the Order Form(s), the Specification
Sheet(s), the Statement(s) of Work, and any other document made a part hereof,
the documents shall control in the following order: the Order Form with the
latest date, the Statement of Work, Specification Sheets, the Agreement and
other documents.
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Authorized representatives of Customer and Exodus have read the foregoing and
all documents incorporated therein and agree and accept such terms effective as
of the date first above written.
CUSTOMER EXODUS COMMUNICATIONS, INC.
Signature: /s/ Christian Baudenheur Signature: /s/ Sallie L. McLean
--------------------------- ---------------------------
Print Name: Christian Baudenheur Print Name: Sallie L. McLean
-------------------------- --------------------------
Title: Chairman & CEO Title: Contracts
------------------------------- -------------------------------
Date: OCT 29, 1999 Date: 11/3/1999
-------------------------------- --------------------------------
This Agreement incorporates the following documents:
o Order Form(s)
Specification Sheet(s)
Statement(s) Of Work (if applicable)
o Registration Form
o Addendum A - Equipment Purchase Terms and Conditions (if applicable)
Page 9
<PAGE>
ADDENDUM A
EQUIPMENT PURCHASE TERMS AND CONDITIONS
1. SHIPPING AND HANDLING. All equipment purchased by Customer (the
"Equipment") is provided FOB vendor facility. Shipment will be made as specified
by Customer and Customer is solely responsible for all expenses in connection
with the delivery of the Equipment. The Equipment will be deemed accepted by
Customer upon shipment.
2. PURCHASE PRICE AND TAXES. Customer shall pay to Exodus the purchase
price set forth in the applicable Order Form ("Purchase Price") for each item of
Equipment. Customer hereby grants and Exodus reserves a purchase money security
interest in the Equipment and the proceeds thereof as a security for its
obligations hereunder until payment of the full Purchase Price to Exodus. The
Purchase Price is due and payable within thirty (30) days of shipment of the
Equipment. Customer shall pay all taxes and other governmental charges assessed
in connection with the sale, use or possession of the Equipment including,
without limitation, any and all sales and/or use taxes and personal property
taxes (other than taxes on Exodus' net income).
3. TITLE. Customer shall acquire title to the Equipment upon full
payment of the purchase price(s) set forth herein. Notwithstanding the
foregoing, Exodus and any licensor of rights to Exodus shall retain title to and
rights in the intellectual property (whether or not subject to patent or
copyright) and content contained in the materials supplied under the terms of
this Agreement.
4. SELECTION OF EQUIPMENT; MANUFACTURER WARRANTY. Customer acknowledges
that is has selected the Equipment and disclaims any statements made by Exodus.
Customer acknowledges and agrees that use and possession of the Equipment by
Customer shall be subject to and controlled by the terms of any manufacturer's
or, if appropriate, supplier's warranty, and Customer agrees to look solely to
the manufacturer or, if appropriate, supplier with respect to all mechanical,
service and other claims, and the right to enforce all warranties made by said
manufacturer are hereby, to the extent Exodus has the right, assigned to
Customer. THE FOREGOING WARRANTY IS THE EXCLUSIVE WARRANTY AND IS IN LIEU OF ANY
ORAL REPRESENTATION AND ALL OTHER WARRANTIES AND DAMAGES, WHETHER EXPRESSED,
IMPLIED OR STATUTORY. EXODUS HAS NOT MADE NOR DOES MAKE ANY OTHER WARRANTIES OF
ANY KIND, EXPRESSED OR IMPLIED, INCLUDING WITHOUT LIMITATION ANY WARRANTY OF
FITNESS FOR A PARTICULAR PURPOSE, MERCHANTABILITY, OR OF NONINFRINGEMENT OF
THIRD PARTY RIGHTS AND AS TO EXODUS AND ITS ASSIGNEES, CUSTOMER PURCHASES THE
EQUIPMENT "AS IS".
5. LIMITATION OF LIABILITY. Exodus' entire liability for any damages
which may arise hereunder, for any cause whatsoever, and regardless of the form
of action, whether in contract or in tort, including Exodus' negligence, or
otherwise, shall be limited to the Purchase Price paid by Customer for the
Equipment. IN NO EVENT WILL EXODUS BE LIABLE FOR ANY SPECIAL, INDIRECT,
INCIDENTAL, OR CONSEQUENTIAL DAMAGES, OR FOR ANY LOSS OF BUSINESS OR PROSPECTIVE
BUSINESS OPPORTUNITIES, PROFITS, SAVINGS, INFORMATION, USE OR OTHER COMMERICAL
OR ECONOMIC LOSS, EVEN IF EXODUS HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH
DAMAGES.
6. GOVERNING LAW; DISPUTE RESOLUTION. This Agreement is made under and
will be governed by and construed in accordance with the laws of the State of
California (except that body of law controlling conflicts of law) and
specifically excluding from application to this Agreement that law known as the
United Nations Convention on the International Sale of Goods. The parties will
endeavor to settle amicably by mutual discussions any disputes, differences, or
claims whatsoever related to this Agreement. Failing such amicable settlement,
any controversy, claim, or dispute arising under or relating to this Agreement,
including the existence, validity, interpretation, performance, termination or
breach thereof, the parties to this Agreement hereby consent to jurisdiction and
venue in the courts of the state of California and in the U.S. District Courts
in the City of San Francisco, California.
7. MISCELLANEOUS. THE ABOVE TERMS AND CONDITIONS ARE THE ONLY TERMS AND
CONDITIONS UPON WHICH EXODUS IS WILLING TO SELL THE EQUIPMENT AND SUPERSEDE ALL
PREVIOUS AGREEMENTS, PROMISES OR REPRESENTATIONS, ORAL OR WRITTEN.
Exodus Communications, Inc. Confidential Page 1
<PAGE>
CARRIER SERVICE AGREEMENT
THIS AGREEMENT IS ENTERED INTO AS OF THE 5TH DAY OF NOVEMBER, 1998 BY AND
BETWEEN EQUINOX INTERNATIONAL LLC, an Illinois company ("Equinox"), having its
main office at 125 Boeger Rd, Suite 201, Arlington Heights, IL 60004 and
CallNOW.com, Inc. (CALLNOW) having its primary address at 50 Board Street, NY,
NY 10004.
WITNESSETH:
WHEREAS, Equinox is in the business of providing telecommunications services and
CALLNOW wishes to resell these services.
NOW, THEREFORE, in consideration of the foregoing and of the mutual covenants
and agreements set forth herein, the parties agree as follows:
1. Long Distance Service. Equinox will provide CALLNOW the services listed
in Exhibit A.
2. Term The term of the agreement is for a Six (6) Month period unless
earlier terminated by Equinox upon 30 days notice, if without cause,
and immediately if for cause. For cause is defined herein as breach of
this agreement, bankruptcy or assignment for the benefit of creditors,
fraud or material misrepresentation or the failure of CALLNOW to
provide financial information set forth in paragraph 15. Equinox shall
also have the right to terminate this agreement in the event that its
underlying carrier cancels its service, changes its rates, or the way
it conducts business materially impact Equinox or CALLNOW becomes
financially unsound. This Agreement shall automatically renew for
consecutive one-year terms if not otherwise terminated prior to its
expiration date.
3. Minimum Usage CALLNOW shall use its best efforts to provide Equinox
at $5000 per month in usage.
4. Billing Equinox shall bill CALLNOW according to RATE SCHEDULE A
attached hereto. In the event, that Equinox's rates are increased,
Equinox reserves the right to increase CALLNOW's rates upon 5 days of
written notice. In the event of such an increase, CALLNOW may cancel
this agreement prior to the effective date of such new rates.
5. Payment of Bills CALLNOW agrees to pay Equinox International weekly
for services utilized during the prior week. The payment is due 24
hours after presentation of the bill by Equinox International. In
addition a prepayment of one week's estimated service is due prior to
the commencement of service.
6. Confidentiality CALLNOW agrees to keep all rate information strictly
confidential.
7. Compliance With Federal and State Laws CALLNOW agrees to abide by all
federal, state and local rules, regulations and laws and CALLNOW shall
be responsible for any tariff filings it may be required to make and
payment of all applicable local, state and federal taxes.
8. Notices All communications, notices, requests, instructions, consents
or demands given under this agreement will be in writing and will be
deemed to have been duly given when delivered to, or mailed by prepaid,
registered or certified mail addressed to, the party whom intended, as
follows, or to such other address as may be furnished by such party in
the manner provided herein:
IF TO EQUINOX: EQUINOX INTERNATIONAL LLC
125 BOEGER RD. #201
<PAGE>
ARLINGTON HEIGHTS, IL 60004
ATTENTION: Marcus McEwen
IF TO CALLNOW: CALLNOW.COM, INC.
50 BROAD STREET
NEW YORK, NY 10004
ATTENTION: Christian Bardenheuer
9. Liability and Indemnification Equinox shall not be liable for
consequential, special, punitive or incidental damages or loss of
profits relating to service interruptions or the providing of service.
Equinox shall not be liable for any fraudulent calls related to the
CALLNOW's account. CALLNOW agrees to indemnify and hold harmless
Equinox from any claims of third parties associated with CALLNOW.
10. Governing Law This Agreement in all respects be governed by and
construed under the laws of the State of Illinois without giving effect
to provisions thereof concerning conflict of laws. The parties agree to
jurisdiction within the State of Illinois and disputes relating hereto
shall be brought in state or federal courts located within the State of
Illinois.
11. Entire Agreement This Agreement sets forth the entire understanding
of the parties hereto with respect to the subject matter, merges and
supersedes all prior and contemporaneous understandings and may not be
waived or modified, in whole or in part, except by a writing signed by
each of the parties hereto. No waiver of any provisions of this
agreement in any instance may be deemed to be a waiver of the same or
any other provisions in any other instance.
12. Binding Agreement This Agreement will be binding upon, enforceable
against, and insure the benefit of, the parties hereto and their
respective successors and assigns, and nothing herein is intended to
confer any right, remedy or benefit upon any other person.
13 Enforceability If any provision of this Agreement is held to be
invalid or unenforceable by a court of competent jurisdiction, this
Agreement will be interpreted and enforceable as if such provision were
not contained herein, the provisions of this Agreement being severable
in any such instance.
14. Further Assurances CALLNOW hereby authorizes Equinox to obtain credit
information on CALLNOW. CALLNOW will upon request, provide financial
statements, tax returns, business plans, TRW and D&B Reports, company
brochures or other literature on CALLNOW which is reasonably available
to CALLNOW.
EQUINOX INTERNATIONAL LLC: CALLNOW.COM, INC.
BY: Marcus McEwen BY: /s/ Christian Bardenhueur
-------------------------------- --------------------------------
TITLE: Managing Director TITLE: CEO
----------------------------- -----------------------------
ADDRESS: 575 Tollgak ADDRESS: 50 Broad St.
--------------------------- ---------------------------
Elgin, Il 100123 NY, NY 10009
- ----------------------------------- -----------------------------------
<PAGE>
EXHIBIT A TO CARRIER SERVICE AGREEMENT WITH EQUINOX INTERNATIONAL LLC
11/5/99
Services to be provided to CallNOW. com, Inc. for resale by Equinox
International LLC
1. Virtual online telephone calling cards
2. Fax service over the Internet (e-Fax)
3. U.S. National Long Distance
<PAGE>
EMPLOYMENT AGREEMENT
THIS AGREEMENT, made as of the February 7, 2000, by and between
CALLNOW.COM, INC., a Delaware Corporation with principal offices at 50 Broad
Street, New York, NY 10004 (the "Company") and Christian Bardenheuer, an
individual residing at 216 East 30th Street, New York, NY 10022 (the
"Executive").
W I T N E S S E T H:
WHEREAS, the Executive is a founder of the Company and is experienced and
knowledgeable about the business and affairs of the Company; and
WHEREAS, the Company recognizes that the Executive's contributions as
founder and shareholder, to the growth and success of the Company have been
substantial, and desires to assure the Executive's continued commitment to the
Company and to compensate him therefore; and
WHEREAS, the Executive is desirous of committing himself to serve the
Company on the terms herein provided;
NOW, THEREFORE, it is agreed as follows:
ARTICLE 1. DEFINITIONS.
As used in this Agreement, the following terms shall have the meanings set
forth below:
1.01. "AFFILIATE" of an entity shall mean any entity controlled by,
controlling or under common control with such entity.
1.02. "BASE SALARY" shall mean the Executive's base salary pursuant to
Section 5.01(a) hereof.
1.03. "BOARD" shall mean the Board of Directors of the Company.
1.04. "CAUSE" shall mean (i) any proven act or acts of dishonesty by the
Executive constituting a felony; (ii) any proven act or acts of dishonesty by
the Executive resulting or intended to result directly or indirectly in gain to
or personal enrichment of the Executive at the Company's expense; (iii) any
action by the Executive that would expose the Company to public disrepute; (iv)
any willful act of insubordination by the Executive or refusal by the Executive
to follow the directives of the Company's Board of Directors; or (v) a proven
act or acts by the Executive constituting a substantial violation of a policy
established by the Company's Board
Page 1 of 14
<PAGE>
resulting in a materially adverse consequence to the Company, except that the
Executive shall not be deemed to have been terminated for Cause unless there
shall have been delivered to him a copy of a Notice of Termination from the
Company after reasonable notice to the Executive and an opportunity for him,
together with his counsel, to be heard before a meeting of the Board,
accompanied by a resolution duly adopted by a majority of the directors of the
Company then in office, finding that in the good faith opinion of such directors
the Executive was guilty of the conduct set forth above and specifying the
particulars thereof in reasonable detail.
1.05. "CONSUMER PRICE INDEX" shall mean the Consumer Price Index issued
from time to time by the Bureau of Labor Statistics of the United States
Department of Labor.
1.06. "DATE OF TERMINATION" shall mean (i) if the Executive's employment is
terminated by his death, the date of his death, (ii) if the Executive's
employment is terminated for Disability, thirty (30) days after Notice of
Termination is given (provided that the Executive shall not have returned to the
full-time performance of his duties during such thirty (30) day period), (iii)
if the Executive's employment is terminated for Cause, the date specified in the
Notice of Termination, and (iv) if the Term of this Agreement expires, upon the
later of the date of such expiration or the date of the actual termination of
the Executive's employment by the Company.
1.07. "DISABILITY" shall occur upon the earlier of (i) an incapacity due to
physical or mental illness, which causes the Executive to be absent from his
duties under this Agreement on a full-time basis for one hundred and eighty
(180) consecutive days, or (ii) thirty (30) days after written notice from the
Company to the Executive that the Company has received, from a duly licensed
physician selected according to the procedure described below, an opinion that
the Executive will be unable to perform his duties on a full-time basis prior to
the expiration of one hundred and eighty (180) days after an incapacity due to
physical or mental illness began.
Upon request from the Company, the Executive, his spouse or personal
representative shall permit a duly licensed physician selected by the Company to
make an examination which would permit such physician to form an opinion as to
the extent of the Executive's incapacity. At the Executive's option and at the
Company's expense, the Executive may then select an alternate duly licensed
physician to make an examination of the Executive and to render an opinion as to
the extent of the Executive's incapacity. If the two physicians are in
disagreement as to whether the Executive would be unable to perform his duties
on a full-time basis prior to the expiration of one hundred and eighty (180)
days after such incapacity began, such two physicians shall together select a
third duly licensed physician to make an examination and to render an opinion as
to the extent of the Executive's incapacity, and such third physician's opinion
shall be determinative.
1.08. "EXPENSES" shall mean and include without limitation, expenses of
investigations, judicial or administrative proceedings or appeals, amounts paid
in settlement by or on behalf of the Executive, attorneys' fees and
disbursements and any expenses of establishing a right to indemnity under this
Agreement.
1.09. "GOOD REASON" shall mean (i) any assignment to the Executive of any
duties other than those contemplated by, or any limitation of the powers of the
Executive in any respect not
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<PAGE>
contemplated by, Section 4.02 hereof, (ii) any removal of the Executive from or
any failure to re-elect the Executive to any of the positions indicated in
Article 4 hereof or of the Company or any Affiliate thereof, except in
connection with termination of the Executive's employment for Cause, death or
Disability, (iii) a reduction in the Executive's rate of compensation, or a
reduction in the Executive's fringe benefits except a reduction effected at the
insistence of the Executive or as otherwise permitted by this Agreement, (iv)
any other failure by the Company to comply with Articles 4 and 5 hereof, or (v)
breach by the Company, or any of the parties thereto, of any of the Other
Agreements.
1.10. "NOTICE OF TERMINATION" shall mean written notice which shall
indicate the specific provision in this Agreement being relied upon and shall
set forth in reasonable detail the facts and circumstances claimed to provide a
basis for termination of the Executive's employment under the provision so
indicated. Such a notice given by the Company may only be given if approved by
the Board.
1.11. "PROCEEDING" shall mean and include any threatened, pending or
completed action, suit or proceeding, whether brought by or in the right of the
Company or in the name of the Company or otherwise and whether of civil,
criminal, administrative or investigative nature, including but not limited to,
actions, suits or proceedings brought under and/or predicated upon the
Securities Act of 1933, as amended, and/or the Securities and Exchange Act of
1934, as amended, and/or the Investment Advisers Act of 1940, as amended, and/or
the Investment Company Act of 1940, as amended, and/or the Futures Trading Act
of 1982, as amended, and/or the Commodity Exchange Act, as amended, and/or their
respective state counterparts and/or any rule or regulation promulgated
hereunder, in which the Executive may be or may have been involved as a party or
otherwise, by reason of the fact that he is or was an officer, director,
employee or agent of the Company or any Affiliate of the Company or was serving
at the request of the Company as a director, officer, employee or agent of
another corporation, partnership, joint venture or other enterprise, or by
reason of any alleged action or inaction of the Executive while acting in such
capacity or in any other capacity related to the Company or such other
enterprise while serving in such capacity, whether or not he is serving in such
capacity at the time any liability or expense is incurred for which
indemnification is provided under this Agreement.
ARTICLE 2. EMPLOYMENT OF THE EXECUTIVE.
The Company shall continue to employ the Executive, according to the terms
of this Agreement, to perform his duties set forth in Schedule "A" attached
hereto. The Executive accepts such employment and agrees to serve the Company in
such capacities, according to the terms of this Agreement, for the duration
thereof.
ARTICLE 3. TERM.
The term of this Agreement shall begin on February 7, 2000 and shall
continue to and including February 7, 2002 (the "Term"). The Company and the
Executive may, from time to
Page 3 of 14
<PAGE>
time by mutual agreement, extend the Term of this Agreement beyond February 7,
2002, but each such extension shall be to a date certain. If the Executive
continues to be employed by the Company upon the expiration of the Term of this
Agreement, whether as extended or not, the terms of this Agreement shall remain
in full force and effect until such time as a superseding employment agreement
is executed by the Executive and the Company.
ARTICLE 4. DUTIES.
4.01. COMMITMENT. The Executive shall devote his best efforts and the time
and attention he deems necessary to the performance of his duties hereunder.
4.02. DUTIES.
(a) The Executive shall perform such duties as are normally carried out
by a Chairman and Chief Executive Officer as well as such other duties
consistent therewith as may be assigned to the Executive from time to time
by the Board. Any such other duties must be approved by the Executive.
(b) The Company shall not interfere directly or indirectly in the
performance of such duties and shall provide all support reasonably
necessary to the Executive to enable him to perform his duties.
(c) The Executive shall report directly to the Board of Directors. The
Company shall not name any person(s) to occupy positions superior, in title
or in fact, to those held by the Executive without the Executive's prior
written consent.
4.03. POSITIONS. The Executive shall be the Chairman of the Board of
Directors and Chief Executive Officer of the Company.
4.04. SITE. The Executive will perform his duties where it deems necessary
for the success of the Company.
ARTICLE 5. COMPENSATION.
5.01. BASE SALARY.
(a) The Company shall pay the Executive, and the Executive shall be
entitled to receive, a salary of ONE HUNDRED AND TWENTY THOUSAND DOLLARS
(US$120,000.00) per year, payable in equal semi-monthly installments (the
"Base Salary"), commencing on January 1, 2000, provided however that upon
consummation of the secondary offering in Registration No. 333-88065 such
salary shall be ONE HUNDRED EIGHTY THOUSAND DOLLARS (US$180,000) per year
retroactive to January 1, 2000.
Page 4 of 14
<PAGE>
(b) The Executive's Base Salary shall be increased annually on the
anniversary date of this Agreement at a rate equivalent to the rate of the
increase in the Consumer Price Index over the preceding twelve (12) months.
Notwithstanding the foregoing, the Company may increase the Executive's
Base Salary at a higher rate. In no event may the Base Salary be decreased.
5.02. BONUS.
(a) In addition to the Base Salary, the Company shall pay the
Executive, and the Executive shall be entitled to receive, the bonuses
described in this Section 5.02 and such other bonuses as the Board from
time to time may determine (the "Bonus").
(b) During the first two (2) months of every calendar year, the Company
and the Executive shall meet to negotiate the parameters upon which the
Bonus shall be determined for such calendar year or portion thereof. Such
Bonus shall not be less then TWENTY PERCENT (20%) the Executive's Base
Salary.
(c) The Bonus for each calendar year during the Term or portion thereof
shall be paid every six months (calendar year) in a lump sum at the
Executive's option in cash, marketable securities or other equivalent
assets, or contributed to a deferred compensation plan should the Company
establish or adopt one.
(d) If the Executive's employment is terminated prior to the
determination that he would have been entitled to receive the Bonus, he
will be entitled to receive a pro rata portion of the Bonus payable within
thirty (30) days after the Date of Termination.
5.03. STOCK OPTION.
(a) In addition to the Base Salary and Bonus, the Executive shall be
entitled to the benefits of an employee incentive stock option plan.
(b) In September 1999, the Compensation Committee granted to Executive
options to purchase three hundred thousand (300,000) shares of common stock
at an exercise price of $2.75 per share pursuant to the Company's stock
option plan.
(c) If the Executive's employment is terminated prior to the
determination that he would have been entitled to a grant of rights under
the a stock option plan, he will be entitled to receive a pro rata portion
of such grant of rights within thirty (30) days after the Date of
Termination.
5.04. BENEFITS.
(a) The Company shall reimburse the Executive, in accordance with its
standard policies on a monthly basis, for reasonable and proper expenses,
including entertainment expenses, incurred on behalf of the Company against
presentation of itemized statements of such expenditures.
Page 5 of 14
<PAGE>
(b) The Executive shall be entitled to four (4) weeks paid vacation for
every year of the Term. Such vacation time may be accumulated and taken in
a subsequent year.
(c) The Company shall provide the Executive and his dependents with
medical benefits pursuant to a standard group medical insurance policy.
5.05. MISCELLANEOUS.
(a) Any increase in Base Salary or other compensation hereunder shall
in no way limit or reduce any other obligation of the Company hereunder.
(b) The Company shall, at the Executive's election, defer payment of
all or a portion of the Executive's Base Salary, Bonus or other benefits.
(c) The Executive shall be entitled to participate in any deferred
compensation plan that may be adopted or established by the Company for the
benefit of its senior executives, in accordance with the terms thereof.
(d) In addition to the compensation payable to the Executive by the
Company under this Agreement as described in this Article 5, the Executive
shall be entitled to supplemental benefits, including (without limiting the
generality of the foregoing) benefits under stock option, stock purchase,
pension, thrift and deferred profit-sharing plans, employee retirement
plans, hospitalization and medical plans, long-term disability plans, group
life insurance plans, expense reimbursement plans, and other similar
benefits and fringe benefits which may hereafter be instituted by the
Company for its senior executives.
ARTICLE 6. TERMINATION.
6.01. BY THE COMPANY. The Company may terminate the Executive's employment
hereunder only for Cause or Disability.
6.02. BY THE EXECUTIVE. The Executive may terminate his employment
hereunder only for Good Reason. The Executive's right to terminate his
employment hereunder shall not be affected by his incapacity due to physical or
mental illness. The Executive's continued employment after the occurrence of
circumstances which constitute Good Reason shall not constitute consent to or
waiver of rights with respect to any subsequently occurring circumstances which
constitute Good Reason hereunder.
6.03. AUTOMATIC TERMINATION. The Executive's employment hereunder shall
automatically terminate upon his death.
6.04. NOTICE OF TERMINATION. Any termination of the Executive's employment
by the Company for Cause or Disability or by the Executive for Good Reason under
the provisions of
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this Article 6 shall be communicated by the party terminating
the Executive's employment by written Notice of Termination to the other party
hereto.
ARTICLE 7. COMPENSATION DURING DISABILITY OR UPON TERMINATION.
7.01. DISABILITY. During any period that the Executive fails to perform his
duties hereunder as a result of incapacity due to physical or mental illness,
the Executive shall continue to receive all compensation provided for in Article
5 hereof, including without limitation his full Base Salary, Bonus, stock
options and any deferred compensation, for such period until the Date of
Termination, provided that, if the Company terminates the Executive's employment
because it has received an opinion of a physician as described in Section 1.07
hereof, the period during which the Executive shall continue to receive such
payments shall not be less than two hundred ten (210) days from the time such
incapacity began. The Company shall not be obligated to pay the Executive the
compensation provided for in Article 5 hereof during any period in which he is
receiving benefits under any Company salary continuation or disability income
program except to the extent of compensation previously accrued and except to
the extent that the compensation provided for in Article 5 hereof exceeds such
benefits under such program.
7.02. DEATH. If the Executive's employment is terminated by reason of his
death, the Executive's legal representative and/or dependent or beneficiary
shall be entitled to receive, and the Company shall pay to or provide for
payment to the Executive's legal representative and/or dependent or beneficiary,
all amounts and benefits described in sub-Sections 7.04(a) through 7.04(d)
hereof.
7.03. TERMINATION BY THE COMPANY FOR CAUSE TERMINATION BY THE EXECUTIVE
WITHOUT GOOD REASON. If the Executive's employment shall be terminated by the
Company for Cause or if the Executive shall terminate his employment without
Good Reason, the Company shall pay the Executive his full Base Salary through
the Date of Termination at the annual rate in effect at the time such
termination occurs, and thereafter the Company shall have no further obligation
to the Executive under this Agreement, except the Company shall continue to have
its obligations (i) to pay deferred compensation under sub-Sections 5.02(c),
5.05(b) and 5.05(c) hereof, (ii) to pay accumulated benefits under benefits
plans or arrangements under Article 5, (iii) to reimburse the Executive for
expenses incurred pursuant to Section 5.04(a) hereof prior to termination, and
(iv) to indemnify the Executive under Article 10 hereof.
7.04. OTHER. If the Company shall terminate the Executive's employment
other than for Disability or Cause or if the Executive shall terminate his
employment for Good Reason, then:
(a) The Company shall pay the Executive, or his legal representative in
the case of the Executive's death, his full Base Salary through the Date of
Termination at the annual rate then in effect, and Bonus and stock option
for the year of termination as described in Sections 5.02 and 5.03 hereof;
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(b) For the remaining stated Term of this Agreement after the Date of
Termination the Company shall arrange to provide the Executive, and/or any
dependent or other person receiving such benefits prior to the Executive's
death or other termination, with life, disability, accident and health
insurance benefits substantially similar to those which the Executive
and/or such dependent or other person was receiving immediately prior to
the Date of Termination, provided that benefits otherwise receivable by the
Executive and/or such dependent or other person pursuant to this
sub-Section 7.04(c) shall be reduced to the extent comparable benefits are
actually received by the Executive and/or such dependent or other person
from any person other than the Company during the period from the Date of
Termination until the expiration of the stated Term of this Agreement, and
any such benefits actually received by the Executive and/or such dependent
or other person from any person other than the Company shall be promptly
reported in writing to the Company;
(c) The Company shall arrange to provide, and the Executive or, in the
case of the Executive's death, his legal representative or named
beneficiary, shall be entitled to receive, all benefits payable to the
Executive or his named beneficiary under any plan or agreement of the
Company relating to retirement in effect on the Date of Termination and
selected by the Executive or such representative or beneficiary; and
(d) The Executive shall not be required to mitigate the amount of any
payment provided for in this Article 7 by seeking other employment or
otherwise, nor shall the amount of any payment provided for in this Article
7 be reduced by any compensation earned by the Executive as the result of
employment by another employer after the Date of Termination, or otherwise.
ARTICLE 8. NON-TRANSFERABILITY.
Neither the Executive, his widow, nor his estate shall have the power to
transfer, assign, anticipate, mortgage or otherwise encumber any of the benefits
payable hereunder, nor will said benefits be subject to seizure for the payment
of any debts of, or judgments against, any of such persons, or be transferable
by operation of law in the event of bankruptcy or insolvency of any such
persons.
ARTICLE 9. PROPRIETARY INFORMATION AND NON-COMPETITION.
The Executive acknowledges and agrees that the duties of the Executive
under the terms of this Agreement will involve the use and creation of customer
lists, forecasting techniques and know-how, software, services, future plans and
other trade secrets of the Company in connection with its business which are
valuable, proprietary, confidential and not in the public domain ("Proprietary
Information"). Accordingly, the Executive agrees as follows:
9.01. CONFIDENTIALITY. During the period of his employment by the Company,
except as may be required by applicable law or legal process, the Executive
shall not, without the prior written consent of the Board or a person authorized
thereby, disclose, divulge, permit access to
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or communicate, directly or indirectly, any Proprietary Information to any
person, other than an employee of the Company or one of its Affiliates or a
person to whom disclosure is reasonably necessary or appropriate in connection
with the performance by the Executive of his duties hereunder.
9.02. NO COMPETITION. If the Company terminates the Executive's employment
hereunder for Cause, the Executive agrees that during a period of one (1) year
after the Date of Termination, the Executive 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 in the conduct of, any business enterprise in competition with the Company
in any place in the United States in which the Company has offices or conducts
business or contemplates conducting business.
Ownership of not to exceed five percent (5%) of the voting stock of any
publicly held corporation shall not constitute a violation hereof. If the
Company terminates the Executive's employment other than for Cause or if the
Executive terminates his employment for Good Reason, or if the Term of this
Agreement expires, the Executive will not be subject to the restrictions of this
Section 9.02.
9.03. INJUNCTIVE RELIEF. The Executive acknowledges and agrees that by
reason of the irreparable harm that would be sustained by the Company in the
event of a breach by the Executive of the covenants contained in this Article 9
for which there would be no adequate remedy at law, the Company shall be
entitled to enforcement of the covenants contained in this Article 9 by
injunction or decree of specific performance by a court of competent
jurisdiction, in addition to any other rights or remedies that the Company may
have under this Agreement or otherwise.
9.04. RIGHTS TO PROPRIETARY INFORMATION. All Proprietary Information
developed by the Executive during the period of his employment by the Company
shall be the property of the Company and the Executive shall execute any and all
documents reasonably requested by the Company in order to substantiate the
Company's rights to such Proprietary Information.
ARTICLE 10. INDEMNIFICATION.
10.01. INDEMNIFICATION. To the fullest extent not prohibited by law, the
Company shall indemnify the Executive against all Expenses, judgments, fines,
amounts and penalties (hereinafter referred to as "Losses") incurred by him in
connection with the defense or settlement of any Proceeding in which he is a
party, or in which he is threatened to be made a party or is otherwise involved,
by reason of the fact that he is or was an officer and/or director of the
Company or any Affiliate thereof, or is or was serving at the request of the
Company as a director, officer, employee, or agent of another corporation,
partnership, joint venture, trust or enterprise.
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10.02. INDEMNIFICATION PROCEDURE. Indemnification by the Company of Losses
incurred by the Executive pursuant to this Article 10 shall be made upon
delivery to the Company of (i) an invoice itemizing such Losses certified as
correct by the Executive, and (ii) an undertaking by or on behalf of the
Executive, to repay all amounts so advanced if it shall ultimately be determined
by final judicial decision from which there is no further right to appeal that
the Executive is not entitled to be indemnified for such amounts under this
Article 10 or otherwise. If a claim for indemnification under this Article 10 is
not paid in full by the Company within thirty (30) days after it has been
received in writing by the Company, except in the case of a claim for
reimbursement of Expenses, in which case the applicable period shall be ten (10)
days, the Executive may at any time thereafter institute proceedings against the
Company to recover the unpaid amount of such claim.
10.03. SURVIVAL. The provisions of this Article 10 shall survive the
expiration or termination of the Executive's employment and/or this Agreement
for any reason whatsoever other than (i) termination by the Company for Cause or
(ii) termination by the Executive other than for Good Reason.
ARTICLE 11. GOVERNING LAW.
This Agreement and all transactions pursuant thereto shall be governed by
and construed in accordance with the internal laws of the State of New York.
ARTICLE 12. DISPUTE RESOLUTION AND ARBITRATION.
12.01. 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.
12.02. 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.
12.03. 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.
ARTICLE 13. ASSIGNMENT.
13.01. BY THE PARTIES. Neither this Agreement, nor any rights hereunder,
may be assigned by the Executive or the Company without the prior written
consent of the other party.
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13.02. SUCCESSORS. This Agreement and all rights of the Executive hereunder
shall inure to the benefit of and be enforceable by the Executive's personal or
legal representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees. If the Executive should die while any
amounts would have been still payable to him had he continued to live, all such
amounts, unless otherwise provided herein, shall be paid in accordance with the
terms of this Agreement to the Executive's devisee, legatee, or other designee
or, if there be no such designee, to the Executive's estate.
ARTICLE 14. MISCELLANEOUS.
14.01. ENTIRE AGREEMENT. This Agreement, all Schedules, and Exhibits
attached hereto, and all agreements and instruments to be delivered by the
parties hereto constitute the entire agreement among the parties hereto
pertaining to the subject matter hereof and thereof and supersede all
negotiations, preliminary agreements and all prior or contemporaneous
discussions and understandings of the parties hereto in connection with the
subject matter hereof, whether oral or written, and except as aforesaid, are
intended as a complete and exclusive statement of the terms of the agreement
among the parties.
14.02. BINDING EFFECT. Except as otherwise provided in this Agreement,
every covenant, term, and provision of this Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective legal
representatives, successors, transferees, heirs and permitted assigns.
14.03. AMENDMENTS. Neither this Agreement nor any part hereof may be
amended, waived, changed or in any way modified except in a writing executed by
the parties hereto with the same formality as this Agreement.
14.04. WAIVER. The failure by any party to insist upon strict performance
of any covenant or condition of this Agreement, in any one or more instances,
shall not be construed as a waiver or relinquishment of any such covenant or
condition in the future, but the same shall be and remain in full force and
effect.
14.05. SEVERABILITY. If any term or other provision of this Agreement is
invalid, illegal or incapable of being enforced by any rule of law or public
policy, all other conditions and provisions of this Agreement shall nevertheless
remain in full force and effect so long as the economic or legal substance of
the transactions contemplated hereby is not affected in any manner adverse to
any party hereto. Upon such determination that any term or other provision is
invalid, illegal or incapable of being enforced, the parties hereto shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in an acceptable manner to the end
that the transactions contemplated hereby are fulfilled to the extent possible.
14.06. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
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14.07. HEADINGS. Article, Section, other headings and the table of
contents contained in this Agreement are for reference purposes only and are not
intended to describe, interpret, define, or limit the scope, extent, or intent
of this Agreement or any provision hereof, and shall not affect in any way the
meaning or interpretation of this Agreement.
14.08. FORM AND GENDER. Where the context and circumstances so require,
the use of the singular form of a word shall be deemed to include the plural
form thereof (and vice versa) and the masculine gender shall be deemed to
include the feminine and neuter genders thereof (and vice versa).
14.09. CONSTRUCTION. Every covenant, term, and provision of this
Agreement shall be construed simply according to its fair meaning and not
strictly for or against any party.
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ARTICLE 15. NOTICES.
Any notice, demand, request or other communication which by any provision
of this Agreement is required or permitted to be given to or served on any party
hereto shall be given in writing (setting forth in reasonable detail the purpose
of such notice, demand, request or communication and identifying the provision
of this Agreement pursuant to which such notice, demand, request or
communication is given), and shall be deemed to be effective for all purposes
when (i) delivered personally, (ii) sent by facsimile transmission, or (iii)
sent by registered or certified mail, return receipt requested, postage prepaid,
to the address set forth below for such party:
(a) If to the Company: CallNOW.com, Inc.
50 Broad Street
New York, NY 10004
Fax: (212) 785-4561
(b) If to the Executive: Christian Bardenheuer
216 East 30 Street
New York, NY 10016
IN WITNESS WHEREOF, the undersigned parties have executed this
Agreement as of the day and year first above written.
CALLNOW.COM, INC. Executive
By: /s/ Chris Seelbach By: /s/ Christian Bardenheuer
---------------------------- -------------------------------
Name: Chris Seelbach Name: Christian Bardenheuer
Title: Chief Operating Officer
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SCHEDULE "A"
[As per Articles 2 and 4 of the Agreement]
Duties of the Executive:
------------------------
(i) Serve as Chief Executive Officer of the Company;
(ii) Serve as a Chairman of the Board of Directors of the Company; and
(iii) Serve as an officer and director of the Company's subsidiaries, if any.
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EMPLOYMENT AGREEMENT
--------------------
THIS AGREEMENT, made as of the February 7, 2000, by and between
CallNOW.com, Inc., a Delaware Corporation with principal offices at 50 Broad
Street, New York, NY 10004 (the "Company") and Warner R. Johnson, Jr., an
individual residing at 521 Route 23b, Claverack, NY 12513 (the "Executive").
W I T N E S S E T H:
WHEREAS, the Executive is a founder of the Company and is experienced and
knowledgeable about the business and affairs of the Company; and
WHEREAS, the Company recognizes that the Executive's contributions as
founder and shareholder, to the growth and success of the Company have been
substantial, and desires to assure the Executive's continued commitment to the
Company and to compensate him therefore; and
WHEREAS, the Executive is desirous of committing himself to serve the
Company on the terms herein provided;
NOW, THEREFORE, it is agreed as follows:
ARTICLE 1. DEFINITIONS.
As used in this Agreement, the following terms shall have the meanings set
forth below:
1.01. "AFFILIATE" of an entity shall mean any entity controlled by,
controlling or under common control with such entity.
1.02. "BASE SALARY" shall mean the Executive's base salary pursuant to
Section 5.01(a) hereof.
1.03. "BOARD" shall mean the Board of Directors of the Company.
1.04. "CAUSE" shall mean (i) any proven act or acts of dishonesty by the
Executive constituting a felony; (ii) any proven act or acts of dishonesty by
the Executive resulting or intended to result directly or indirectly in gain to
or personal enrichment of the Executive at the Company's expense; (iii) any
action by the Executive that would expose the Company to public disrepute; (iv)
any willful act of insubordination by the Executive or refusal by the Executive
to follow the directives of the Company's Board of Directors; or (v) a proven
act or acts by the Executive constituting a substantial violation of a policy
established by the Company's Board
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resulting in a materially adverse consequence to the Company, except that the
Executive shall not be deemed to have been terminated for Cause unless there
shall have been delivered to him a copy of a Notice of Termination from the
Company after reasonable notice to the Executive and an opportunity for him,
together with his counsel, to be heard before a meeting of the Board,
accompanied by a resolution duly adopted by a majority of the directors of the
Company then in office, finding that in the good faith opinion of such directors
the Executive was guilty of the conduct set forth above and specifying the
particulars thereof in reasonable detail.
1.05. "CONSUMER PRICE INDEX" shall mean the Consumer Price Index issued
from time to time by the Bureau of Labor Statistics of the United States
Department of Labor.
1.06. "DATE OF TERMINATION" shall mean (i) if the Executive's employment is
terminated by his death, the date of his death, (ii) if the Executive's
employment is terminated for Disability, thirty (30) days after Notice of
Termination is given (provided that the Executive shall not have returned to the
full-time performance of his duties during such thirty (30) day period), (iii)
if the Executive's employment is terminated for Cause, the date specified in the
Notice of Termination, and (iv) if the Term of this Agreement expires, upon the
later of the date of such expiration or the date of the actual termination of
the Executive's employment by the Company.
1.07. "DISABILITY" shall occur upon the earlier of (i) an incapacity due to
physical or mental illness, which causes the Executive to be absent from his
duties under this Agreement on a full-time basis for one hundred and eighty
(180) consecutive days, or (ii) thirty (30) days after written notice from the
Company to the Executive that the Company has received, from a duly licensed
physician selected according to the procedure described below, an opinion that
the Executive will be unable to perform his duties on a full-time basis prior to
the expiration of one hundred and eighty (180) days after an incapacity due to
physical or mental illness began.
Upon request from the Company, the Executive, his spouse or personal
representative shall permit a duly licensed physician selected by the Company to
make an examination which would permit such physician to form an opinion as to
the extent of the Executive's incapacity. At the Executive's option and at the
Company's expense, the Executive may then select an alternate duly licensed
physician to make an examination of the Executive and to render an opinion as to
the extent of the Executive's incapacity. If the two physicians are in
disagreement as to whether the Executive would be unable to perform his duties
on a full-time basis prior to the expiration of one hundred and eighty (180)
days after such incapacity began, such two physicians shall together select a
third duly licensed physician to make an examination and to render an opinion as
to the extent of the Executive's incapacity, and such third physician's opinion
shall be determinative.
1.08. "EXPENSES" shall mean and include without limitation, expenses of
investigations, judicial or administrative proceedings or appeals, amounts paid
in settlement by or on behalf of the Executive, attorneys' fees and
disbursements and any expenses of establishing a right to indemnity under this
Agreement.
1.09. "GOOD REASON" shall mean (i) any assignment to the Executive of any
duties other than those contemplated by, or any limitation of the powers of the
Executive in any respect not
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contemplated by, Section 4.02 hereof, (ii) any removal of the Executive from or
any failure to re-elect the Executive to any of the positions indicated in
Article 4 hereof or of the Company or any Affiliate thereof, except in
connection with termination of the Executive's employment for Cause, death or
Disability, (iii) a reduction in the Executive's rate of compensation, or a
reduction in the Executive's fringe benefits except a reduction effected at the
insistence of the Executive or as otherwise permitted by this Agreement, (iv)
any other failure by the Company to comply with Articles 4 and 5 hereof, or (v)
breach by the Company, or any of the parties thereto, of any of the Other
Agreements.
1.10. "NOTICE OF TERMINATION" shall mean written notice which shall
indicate the specific provision in this Agreement being relied upon and shall
set forth in reasonable detail the facts and circumstances claimed to provide a
basis for termination of the Executive's employment under the provision so
indicated. Such a notice given by the Company may only be given if approved by
the Board.
1.11. "PROCEEDING" shall mean and include any threatened, pending or
completed action, suit or proceeding, whether brought by or in the right of the
Company or in the name of the Company or otherwise and whether of civil,
criminal, administrative or investigative nature, including but not limited to,
actions, suits or proceedings brought under and/or predicated upon the
Securities Act of 1933, as amended, and/or the Securities and Exchange Act of
1934, as amended, and/or the Investment Advisers Act of 1940, as amended, and/or
the Investment Company Act of 1940, as amended, and/or the Futures Trading Act
of 1982, as amended, and/or the Commodity Exchange Act, as amended, and/or their
respective state counterparts and/or any rule or regulation promulgated
hereunder, in which the Executive may be or may have been involved as a party or
otherwise, by reason of the fact that he is or was an officer, director,
employee or agent of the Company or any Affiliate of the Company or was serving
at the request of the Company as a director, officer, employee or agent of
another corporation, partnership, joint venture or other enterprise, or by
reason of any alleged action or inaction of the Executive while acting in such
capacity or in any other capacity related to the Company or such other
enterprise while serving in such capacity, whether or not he is serving in such
capacity at the time any liability or expense is incurred for which
indemnification is provided under this Agreement.
ARTICLE 2. EMPLOYMENT OF THE EXECUTIVE.
The Company shall continue to employ the Executive, according to the terms
of this Agreement, to perform his duties set forth in Schedule "A" attached
hereto. The Executive accepts such employment and agrees to serve the Company in
such capacities, according to the terms of this Agreement, for the duration
thereof.
ARTICLE 3. TERM.
The term of this Agreement shall begin on February 7, 2000 and shall
continue to and including February 7, 2002 (the "Term"). The Company and the
Executive may, from time to
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time by mutual agreement, extend the Term of this Agreement beyond February 7,
2002, but each such extension shall be to a date certain. If the Executive
continues to be employed by the Company upon the expiration of the Term of this
Agreement, whether as extended or not, the terms of this Agreement shall remain
in full force and effect until such time as a superseding employment agreement
is executed by the Executive and the Company.
ARTICLE 4. DUTIES.
4.01. COMMITMENT. The Executive shall devote his best efforts and the time
and attention he deems necessary to the performance of his duties hereunder.
4.02. DUTIES.
(a) The Executive shall perform such duties as are normally carried out
by a President of a company as well as such other duties consistent
therewith as may be assigned to the Executive from time to time by the
Board. Any such other duties must be approved by the Executive.
(b) The Company shall not interfere directly or indirectly in the
performance of such duties and shall provide all support reasonably
necessary to the Executive to enable him to perform his duties.
(c) The Executive shall report directly to Chairman and CEO and the
Board of Directors.
4.03. POSITIONS. The Executive shall be the President of the Company.
4.04. SITE. The Executive will perform his duties where it deems necessary
for the success of the Company.
ARTICLE 5. COMPENSATION.
5.01. BASE SALARY.
(a) The Company shall pay the Executive, and the Executive shall be
entitled to receive, a salary of ONE HUNDRED AND TWENTY THOUSAND DOLLARS
(US$120,000.00) per year, payable in equal semi-monthly installments (the
"Base Salary"), commencing on January 1, 2000, provided however that upon
consummation of the secondary offering in Registration No. 333-88065 such
salary shall be ONE HUNDRED EIGHTY THOUSAND DOLLARS (US$ 180,000) per year
retroactive to January 1, 2000.
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(b) The Executive's Base Salary shall be increased annually on the
anniversary date of this Agreement at a rate equivalent to the rate of the
increase in the Consumer Price Index over the preceding twelve (12) months.
Notwithstanding the foregoing, the Company may increase the Executive's
Base Salary at a higher rate. In no event may the Base Salary be decreased.
5.02. BONUS.
(a) In addition to the Base Salary, the Company shall pay the
Executive, and the Executive shall be entitled to receive, the bonuses
described in this Section 5.02 and such other bonuses as the Board from
time to time may determine (the "Bonus").
(b) During the first two (2) months of every calendar year, the Company
and the Executive shall meet to negotiate the parameters upon which the
Bonus shall be determined for such calendar year or portion thereof. Such
Bonus shall be up to TWENTY PERCENT (20%) the Executive's Base Salary.
(c) The Bonus for each calendar year during the Term or portion thereof
shall be paid every six months (calendar year) in a lump sum at the
Executive's option in cash, marketable securities or other equivalent
assets, or contributed to a deferred compensation plan should the Company
establish or adopt one.
(d) If the Executive's employment is terminated prior to the
determination that he would have been entitled to receive the Bonus, he
will be entitled to receive a pro rata portion of the Bonus payable within
thirty (30) days after the Date of Termination.
5.03. STOCK OPTION.
(a) In addition to the Base Salary and Bonus, the Executive shall be
entitled to the benefits of an employee incentive stock option plan.
(b) In September 1999, the Compensation Committee granted to Executive
options to purchase three hundred thousand (300,000) shares of common stock
at an exercise price of $2.75 per share pursuant to the Company's stock
option plan.
(c) If the Executive's employment is terminated prior to the
determination that he would have been entitled to a grant of rights under
the a stock option plan, he will be entitled to receive a pro rata portion
of such grant of rights within thirty (30) days after the Date of
Termination.
5.04. BENEFITS.
(a) The Company shall reimburse the Executive, in accordance with its
standard policies on a monthly basis, for reasonable and proper expenses,
including entertainment expenses, incurred on behalf of the Company against
presentation of itemized statements of such expenditures.
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(b) The Executive shall be entitled to four (4) weeks paid vacation for
every year of the Term. Such vacation time may be accumulated and taken in
a subsequent year.
(c) The Company shall provide the Executive and his dependents with
medical benefits pursuant to a standard group medical insurance policy.
5.05. MISCELLANEOUS.
(a) Any increase in Base Salary or other compensation hereunder shall
in no way limit or reduce any other obligation of the Company hereunder.
(b) The Company shall, at the Executive's election, defer payment of
all or a portion of the Executive's Base Salary, Bonus or other benefits.
(c) The Executive shall be entitled to participate in any deferred
compensation plan that may be adopted or established by the Company for the
benefit of its senior executives, in accordance with the terms thereof.
(d) In addition to the compensation payable to the Executive by the
Company under this Agreement as described in this Article 5, the Executive
shall be entitled to supplemental benefits, including (without limiting the
generality of the foregoing) benefits under stock option, stock purchase,
pension, thrift and deferred profit-sharing plans, employee retirement
plans, hospitalization and medical plans, long-term disability plans, group
life insurance plans, expense reimbursement plans, and other similar
benefits and fringe benefits which may hereafter be instituted by the
Company for its senior executives.
ARTICLE 6. TERMINATION.
6.01. BY THE COMPANY. The Company may terminate the Executive's employment
hereunder only for Cause or Disability.
6.02. BY THE EXECUTIVE. The Executive may terminate his employment
hereunder only for Good Reason. The Executive's right to terminate his
employment hereunder shall not be affected by his incapacity due to physical or
mental illness. The Executive's continued employment after the occurrence of
circumstances which constitute Good Reason shall not constitute consent to or
waiver of rights with respect to any subsequently occurring circumstances which
constitute Good Reason hereunder.
6.03. AUTOMATIC TERMINATION. The Executive's employment hereunder shall
automatically terminate upon his death.
6.04. NOTICE OF TERMINATION. Any termination of the Executive's employment
by the Company for Cause or Disability or by the Executive for Good Reason under
the provisions of
Page 6 of 14
<PAGE>
this Article 6 shall be communicated by the party terminating the Executive's
employment by written Notice of Termination to the other party hereto.
ARTICLE 7. COMPENSATION DURING DISABILITY OR UPON TERMINATION.
7.01. DISABILITY. During any period that the Executive fails to perform his
duties hereunder as a result of incapacity due to physical or mental illness,
the Executive shall continue to receive all compensation provided for in Article
5 hereof, including without limitation his full Base Salary, Bonus, stock
options and any deferred compensation, for such period until the Date of
Termination, provided that, if the Company terminates the Executive's employment
because it has received an opinion of a physician as described in Section 1.07
hereof, the period during which the Executive shall continue to receive such
payments shall not be less than two hundred ten (210) days from the time such
incapacity began. The Company shall not be obligated to pay the Executive the
compensation provided for in Article 5 hereof during any period in which he is
receiving benefits under any Company salary continuation or disability income
program except to the extent of compensation previously accrued and except to
the extent that the compensation provided for in Article 5 hereof exceeds such
benefits under such program.
7.02. DEATH. If the Executive's employment is terminated by reason of his
death, the Executive's legal representative and/or dependent or beneficiary
shall be entitled to receive, and the Company shall pay to or provide for
payment to the Executive's legal representative and/or dependent or beneficiary,
all amounts and benefits described in sub-Sections 7.04(a) through 7.04(d)
hereof.
7.03. TERMINATION BY THE COMPANY FOR CAUSE TERMINATION BY THE EXECUTIVE
WITHOUT GOOD REASON. If the Executive's employment shall be terminated by the
Company for Cause or if the Executive shall terminate his employment without
Good Reason, the Company shall pay the Executive his full Base Salary through
the Date of Termination at the annual rate in effect at the time such
termination occurs, and thereafter the Company shall have no further obligation
to the Executive under this Agreement, except the Company shall continue to have
its obligations (i) to pay deferred compensation under sub-Sections 5.02(c),
5.05(b) and 5.05(c) hereof, (ii) to pay accumulated benefits under benefits
plans or arrangements under Article 5, (iii) to reimburse the Executive for
expenses incurred pursuant to Section 5.04(a) hereof prior to termination, and
(iv) to indemnify the Executive under Article 10 hereof.
7.04. OTHER. If the Company shall terminate the Executive's employment
other than for Disability or Cause or if the Executive shall terminate his
employment for Good Reason, then:
(a) The Company shall pay the Executive, or his legal representative in
the case of the Executive's death, his full Base Salary through the Date of
Termination at the annual rate then in effect, and Bonus and stock option
for the year of termination as described in Sections 5.02 and 5.03 hereof.
Page 7 of 14
<PAGE>
(b) For the remaining stated Term of this Agreement after the Date of
Termination the Company shall arrange to provide the Executive, and/or any
dependent or other person receiving such benefits prior to the Executive's
death or other termination, with life, disability, accident and health
insurance benefits substantially similar to those which the Executive
and/or such dependent or other person was receiving immediately prior to
the Date of Termination, provided that benefits otherwise receivable by the
Executive and/or such dependent or other person pursuant to this
sub-Section 7.04(b) shall be reduced to the extent comparable benefits are
actually received by the Executive and/or such dependent or other person
from any person other than the Company during the period from the Date of
Termination until the expiration of the stated Term of this Agreement, and
any such benefits actually received by the Executive and/or such dependent
or other person from any person other than the Company shall be promptly
reported in writing to the Company;
(c) The Company shall arrange to provide, and the Executive or, in the
case of the Executive's death, his legal representative or named
beneficiary, shall be entitled to receive, all benefits payable to the
Executive or his named beneficiary under any plan or agreement of the
Company relating to retirement in effect on the Date of Termination and
selected by the Executive or such representative or beneficiary; and
(d) The Executive shall not be required to mitigate the amount of any
payment provided for in this Article 7 by seeking other employment or
otherwise, nor shall the amount of any payment provided for in this Article
7 be reduced by any compensation earned by the Executive as the result of
employment by another employer after the Date of Termination, or otherwise.
ARTICLE 8. NON-TRANSFERABILITY.
Neither the Executive, his widow, nor his estate shall have the power to
transfer, assign, anticipate, mortgage or otherwise encumber any of the benefits
payable hereunder, nor will said benefits be subject to seizure for the payment
of any debts of, or judgments against, any of such persons, or be transferable
by operation of law in the event of bankruptcy or insolvency of any such
persons.
ARTICLE 9. PROPRIETARY INFORMATION AND NON-COMPETITION.
The Executive acknowledges and agrees that the duties of the Executive
under the terms of this Agreement will involve the use and creation of customer
lists, forecasting techniques and know-how, software, services, future plans and
other trade secrets of the Company in connection with its business which are
valuable, proprietary, confidential and not in the public domain ("Proprietary
Information"). Accordingly, the Executive agrees as follows:
9.01. CONFIDENTIALITY. During the period of his employment by the Company,
except as may be required by applicable law or legal process, the Executive
shall not, without the prior
Page 8 of 14
<PAGE>
written consent of the Board or a person authorized thereby, disclose, divulge,
permit access to or communicate, directly or indirectly, any Proprietary
Information to any person, other than an employee of the Company or one of its
Affiliates or a person to whom disclosure is reasonably necessary or appropriate
in connection with the performance by the Executive of his duties hereunder.
9.02. NO COMPETITION. If the Company terminates the Executive's employment
hereunder for Cause, the Executive agrees that during a period of one (1) year
after the Date of Termination, the Executive 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 in the conduct of, any business enterprise in competition with the Company
in any place in the United States in which the Company has offices or conducts
business or contemplates conducting business.
Ownership of not to exceed five percent (5%) of the voting stock of any
publicly held corporation shall not constitute a violation hereof. If the
Company terminates the Executive's employment other than for Cause or if the
Executive terminates his employment for Good Reason, or if the Term of this
Agreement expires, the Executive will not be subject to the restrictions of this
Section 9.02.
9.03. INJUNCTIVE RELIEF. The Executive acknowledges and agrees that by
reason of the irreparable harm that would be sustained by the Company in the
event of a breach by the Executive of the covenants contained in this Article 9
for which there would be no adequate remedy at law, the Company shall be
entitled to enforcement of the covenants contained in this Article 9 by
injunction or decree of specific performance by a court of competent
jurisdiction, in addition to any other rights or remedies that the Company may
have under this Agreement or otherwise.
9.04. RIGHTS TO PROPRIETARY INFORMATION. All Proprietary Information
developed by the Executive during the period of his employment by the Company
shall be the property of the Company and the Executive shall execute any and all
documents reasonably requested by the Company in order to substantiate the
Company's rights to such Proprietary Information.
ARTICLE 10. INDEMNIFICATION.
10.01. INDEMNIFICATION. To the fullest extent not prohibited by law, the
Company shall indemnify the Executive against all Expenses, judgments, fines,
amounts and penalties (hereinafter referred to as "Losses") incurred by him in
connection with the defense or settlement of any Proceeding in which he is a
party, or in which he is threatened to be made a party or is otherwise involved,
by reason of the fact that he is or was an officer and/or director of the
Company or any Affiliate thereof, or is or was serving at the request of the
Company as a director, officer, employee, or agent of another corporation,
partnership, joint venture, trust or enterprise.
Page 9 of 14
<PAGE>
10.02. INDEMNIFICATION PROCEDURE. Indemnification by the Company of Losses
incurred by the Executive pursuant to this Article 10 shall be made upon
delivery to the Company of (i) an invoice itemizing such Losses certified as
correct by the Executive, and (ii) an undertaking by or on behalf of the
Executive, to repay all amounts so advanced if it shall ultimately be determined
by final judicial decision from which there is no further right to appeal that
the Executive is not entitled to be indemnified for such amounts under this
Article 10 or otherwise. If a claim for indemnification under this Article 10 is
not paid in full by the Company within thirty (30) days after it has been
received in writing by the Company, except in the case of a claim for
reimbursement of Expenses, in which case the applicable period shall be ten (10)
days, the Executive may at any time thereafter institute proceedings against the
Company to recover the unpaid amount of such claim.
10.03. SURVIVAL. The provisions of this Article 10 shall survive the
expiration or termination of the Executive's employment and/or this Agreement
for any reason whatsoever other than (i) termination by the Company for Cause or
(ii) termination by the Executive other than for Good Reason.
ARTICLE 11. GOVERNING LAW.
This Agreement and all transactions pursuant thereto shall be governed by
and construed in accordance with the internal laws of the State of New York.
ARTICLE 12. DISPUTE RESOLUTION AND ARBITRATION.
12.01. 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.
12.02. 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.
12.03. 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.
ARTICLE 13. ASSIGNMENT.
13.01. BY THE PARTIES. Neither this Agreement, nor any rights hereunder,
may be assigned by the Executive or the Company without the prior written
consent of the other party.
Page 10 of 14
<PAGE>
13.02. SUCCESSORS. This Agreement and all rights of the Executive hereunder
shall inure to the benefit of and be enforceable by the Executive's personal or
legal representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees. If the Executive should die while any
amounts would have been still payable to him had he continued to live, all such
amounts, unless otherwise provided herein, shall be paid in accordance with the
terms of this Agreement to the Executive's devisee, legatee, or other designee
or, if there be no such designee, to the Executive's estate.
ARTICLE 14. MISCELLANEOUS.
14.01. ENTIRE AGREEMENT. This Agreement, all Schedules, and Exhibits
attached hereto, and all agreements and instruments to be delivered by the
parties hereto constitute the entire agreement among the parties hereto
pertaining to the subject matter hereof and thereof and supersede all
negotiations, preliminary agreements and all prior or contemporaneous
discussions and understandings of the parties hereto in connection with the
subject matter hereof, whether oral or written, and except as aforesaid, are
intended as a complete and exclusive statement of the terms of the agreement
among the parties.
14.02. BINDING EFFECT. Except as otherwise provided in this Agreement,
every covenant, term, and provision of this Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective legal
representatives, successors, transferees, heirs and permitted assigns.
14.03. AMENDMENTS. Neither this Agreement nor any part hereof may be
amended, waived, changed or in any way modified except in a writing executed by
the parties hereto with the same formality as this Agreement.
14.04. WAIVER. The failure by any party to insist upon strict performance
of any covenant or condition of this Agreement, in any one or more instances,
shall not be construed as a waiver or relinquishment of any such covenant or
condition in the future, but the same shall be and remain in full force and
effect.
14.05. SEVERABILITY. If any term or other provision of this Agreement is
invalid, illegal or incapable of being enforced by any rule of law or public
policy, all other conditions and provisions of this Agreement shall nevertheless
remain in full force and effect so long as the economic or legal substance of
the transactions contemplated hereby is not affected in any manner adverse to
any party hereto. Upon such determination that any term or other provision is
invalid, illegal or incapable of being enforced, the parties hereto shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in an acceptable manner to the end
that the transactions contemplated hereby are fulfilled to the extent possible.
14.06. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
Page 11 of 14
<PAGE>
14.07. HEADINGS. Article, Section, other headings and the table of contents
contained in this Agreement are for reference purposes only and are not intended
to describe, interpret, define, or limit the scope, extent, or intent of this
Agreement or any provision hereof, and shall not affect in any way the meaning
or interpretation of this Agreement.
14.08. FORM AND GENDER. Where the context and circumstances so require, the
use of the singular form of a word shall be deemed to include the plural form
thereof (and vice versa) and the masculine gender shall be deemed to include the
feminine and neuter genders thereof (and vice versa).
14.09. CONSTRUCTION. Every covenant, term, and provision of this Agreement
shall be construed simply according to its fair meaning and not strictly for or
against any party.
Page 12 of 14
<PAGE>
ARTICLE 15. NOTICES.
Any notice, demand, request or other communication which by any provision
of this Agreement is required or permitted to be given to or served on any party
hereto shall be given in writing (setting forth in reasonable detail the purpose
of such notice, demand, request or communication and identifying the provision
of this Agreement pursuant to which such notice, demand, request or
communication is given), and shall be deemed to be effective for all purposes
when (i) delivered personally, (ii) sent by facsimile transmission, or (iii)
sent by registered or certified mail, return receipt requested, postage prepaid,
to the address set forth below for such party:
(a) If to the Company: CallNOW.com, Inc.
50 Broad Street
New York, NY 10004
Fax: (212) 785-4561
(b) If to the Executive: Warner R. Johnson, Jr.
P.O. Box 851
521 Route 23b
Claverack, NY 12513
IN WITNESS WHEREOF, the undersigned parties have executed this
Agreement as of the day and year first above written.
CALLNOW.COM, INC. Executive
By: /s/ Christian Bardenheuer By: /s/ Warner R. Johnson, Jr.
---------------------------- -------------------------------
Name: Christian Bardenheuer Name: Warner R. Johnson, Jr.
Title: Chief Executive Officer
Page 13 of 14
<PAGE>
SCHEDULE "A"
[As per Articles 2 and 4 of the Agreement]
Duties of the Executive:
(i) Serve as President of the Company; and
(ii) Serve as an officer and director of the Company's subsidiaries, if any.
Page 14 of 14
<PAGE>
Exhibit 23.3
[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
February 2, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1998
<PERIOD-END> DEC-31-1999 DEC-31-1998
<CASH> 80,542 7,565
<SECURITIES> 0 0
<RECEIVABLES> 29,056 122,700
<ALLOWANCES> 5,000 6,000
<INVENTORY> 0 0
<CURRENT-ASSETS> 109,598 130,265
<PP&E> 1,491,179 695,247
<DEPRECIATION> 405,435 182,944
<TOTAL-ASSETS> 2,192,105 679,353
<CURRENT-LIABILITIES> 2,007,120 1,250,301
<BONDS> 0 0
0 0
0 0
<COMMON> 6,315 3,875
<OTHER-SE> 912,197 1,931,849
<TOTAL-LIABILITY-AND-EQUITY> 2,192,105 679,353
<SALES> 0 0
<TOTAL-REVENUES> 1,004,636 2,295,202
<CGS> 0 0
<TOTAL-COSTS> 662,160 1,681,978
<OTHER-EXPENSES> 2,841,733 1,164,166
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 618,791 90,436
<INCOME-PRETAX> (3,118,048) (641,378)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (3,118,048) (641,378)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (3,118,048) (641,378)
<EPS-BASIC> (0.60) (0.17)
<EPS-DILUTED> (0.60) (0.17)
</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, 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
-------- -------- ------- -------- --------
YEAR ENDED DECEMBER 31, 1999
Allowance for doubtful accounts
(deducted from accounts receivable) $ 6,000 $ 77,224 $ -- $ 78,224 $ 5,000
-------- -------- ------- -------- --------
</TABLE>
