UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF
SECURITIES OF SMALL BUSINESS ISSUERS
UNDER SECTION 12(b) or (g)
OF
THE SECURITIES EXCHANGE ACT OF 1934
FULLNET COMMUNICATIONS, INC.
(Name of Small Business Issuer in its charter)
Oklahoma 73-1473361
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
200 N. Harvey, Suite 1704
Oklahoma City, Oklahoma 73102
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (405) 232-0958
Securities to be registered pursuant to Section 12(b) of the Act: none
Securities to be registered pursuant to Section 12(g) of the Act:
Common Stock
(Title of Class)
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PART I
Item 1. DESCRIPTION OF BUSINESS...................................................................... 1
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.................................... 14
ITEM 3. DESCRIPTION OF PROPERTY...................................................................... 17
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT............................... 18
ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS.............................. 18
ITEM 6. EXECUTIVE COMPENSATION....................................................................... 19
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS............................................... 20
ITEM 8. DESCRIPTION OF SECURITIES.................................................................... 21
PART II
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ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS.............................................................. 21
Item 2. LEGAL PROCEEDINGS............................................................................ 22
Item 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS................................................ 22
Item 4. RECENT SALES OF UNREGISTERED SECURITIES...................................................... 23
Item 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS.................................................... 23
Part F/S
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INDEX TO FINANCIAL STATEMENTS............................................................................ 25
PART III
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ITEM 1. INDEX TO EXHIBITS............................................................................. 26
ITEM 2. DESCRIPTION OF EXHIBITS....................................................................... 26
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DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This Registration Statement contains "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933, as amended (the
"Act"), and Section 21E of the Securities Exchange Act of 1934, as amended. All
statements other than statements of historical facts included in this
Registration Statement, including, without limitation, statements regarding the
Company's future financial position, business strategy, budgets, projected costs
and plans and objectives of Management for future operations, are
forward-looking statements. In addition, forward-looking statements generally
can be identified by the use of forward-looking terminology such as "may,"
"will," "expect," "intend," "estimate," "anticipate" or "believe" or the
negative thereof or variations thereon or similar terminology. Although the
Company believes that the expectations reflected in such forward-looking
statements are reasonable, it can give no assurance that such expectations will
prove to have been correct. Such statements are based upon numerous assumptions
about future conditions which may ultimately prove to be inaccurate and actual
events and results may materially differ from anticipated results described in
such statements. For a discussion of the risk factors that could cause actual
results to differ materially from the forward-looking statements, you should
read the section of the Registration Statement entitled "Risk Factors." All
subsequent written and oral forward-looking statements attributable to the
Company, or persons acting on its behalf, are expressly qualified in their
entirety by the cautionary statements. The Company assumes no duty to update or
revise its forward-looking statements based on changes in internal estimates or
expectations or otherwise. As a result, the reader is cautioned not to place
reliance on these forward-looking statements. Further, there can be no assurance
that the historical level of the Company's revenues and net income will continue
to be achieved in the future.
PART I
Item 1. Description of Business.
General
Fullnet Communications, Inc. (the "Company") is a regional provider of
consumer Internet access and business services, offering innovative
technological solutions for individuals, businesses, organizations, education
institutions, as well as government agencies. The Company provides direct
Internet access through a statewide network with "points of presence" in 14
communities throughout the state of Oklahoma. Points of presence are local
telephone numbers through which the Company's subscribers can access the
Internet. In addition, the Company also provides Internet-related value-added
products and services that are designed to enable its business customers to
outsource their Internet and electronic commerce activities. Such services
include:
-- connectivity to the Internet and secure private networks through the
Company's network from which its Internet access customers can reach
every other Internet address and the Company's network customers can
reach other destinations within their private network;
-- value-added services, which are additional services delivered over the
same circuit as the Company's connectivity services. The Company's
current value-added services are remote management of its networks and
systems integration, which includes the resale, installation and
configuration of customers' computer systems and software; and
-- web hosting, which is the distribution of customers' Internet content
from the Company's facilities.
The Company also sells Internet access to other Internet service
providers ("ISP's"), which then resell Internet access to their own customers
under their private label. To date, the Company has approximately 1,300
customers, with another 8,700 customers accessing the Internet through the
Company's ISP customers.
Additionally, the Company's wholly owned subsidiary, Fulltel, Inc.
("Fulltel"), a licensed "competitive local exchange carrier," or CLEC, as they
are commonly designated, is expected to commence operations in late 1999. As a
result, the Company expects to offer conventional local telephone service in
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selected communities throughout the state of Oklahoma, as well as local dial-up
Internet access in each of such communities so served. See "-Business
Segments-Local Telephone Service.
Headquartered in Oklahoma City, Oklahoma, the Company was founded in
1995 as CEN-COM of Oklahoma, Inc., an Oklahoma corporation. The Company changed
its name to Fullnet Communications, Inc. in December 1995.
The Company's principal executive offices are located at 200 N. Harvey
Avenue, Suite 1704, Oklahoma City, Oklahoma 73102, and its telephone number is
(405) 232-0958. The Company's website on the Internet is http://www.fullnet.net.
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Business Strategy
The Company's overall business objective is to supply the total
telecommunications and Internet needs of customers within the State of Oklahoma
and surrounding states. To achieve this objective, the Company intends to:
--Capitalize on the absence of larger ISP's in rural areas. The Company
believes that rural areas of Oklahoma and surrounding states are underserved by
ISP's, and that significant growth can be achieved by entering such markets and
providing reliable Internet connectivity at a reasonable cost to the residents
and businesses located in such areas. To that end, the Company, through its
wholly owned subsidiary, Fulltel, became a licensed CLEC in the State of
Oklahoma and intends to pursue such licensing in other, neighboring states. As a
CLEC exchange carrier in any particular state, the Company will be able to offer
local telephone numbers for Internet access. Additionally, as a CLEC the Company
will be able to purchase unbundled network elements from the applicable
"regional Bell operating company," or RBOP, operating in that state rather than
purchase retail local loops, resulting in significant cost savings.
--Cross sell value-added services. The Company intends to capitalize on
its existing customer base and future customers by aggressively cross selling
its value-added services. The Company is committed to offering its customers
reliable value-added network services necessary to address their Internet and
network management requirements. Based on the Company's existing network
infrastructure and expertise, it is able to offer these services continuously,
reliably and on a cost effective basis. Through acquisitions or development of
relationships with providers of leading Internet and other network technologies,
the Company intends to enhance and increase the services it offers to include
other value-added services, such as enhanced network security solutions, that
address our customers' rapidly evolving critical networking needs such as
electronic commerce.
--Provide Bundled, Comprehensive Networking Solutions. The
fragmentation among Internet and other network service providers has resulted in
users often faced with an overwhelming array of providers and services from
which to choose. For example, it is typical for a user to purchase local loop
connectivity from a RBOC or a competitive local exchange carrier, to purchase
Internet or other wide area network connectivity from a separate Internet or
other network service provider, and to purchase network services, like remote
management, systems integration and network security, from one or more other
companies. The Company believes the Internet and network service provider model
is evolving towards providers who are capable of providing comprehensive
solutions by bundling several or all of these functions efficiently, reliably
and on a cost effective basis. By combining our network infrastructure with our
existing and planned array of value-added networking services, the Company
believes it is well positioned to become one of the premier providers of
comprehensive, bundled networking solutions to small and medium-sized businesses
in its targeted market area. Additionally, the Company believes that by offering
bundled services, it can reduce customer loss, increase network usage by
existing customers, cross sell additional services to existing customers and
differentiate itself from its competitors.
--Expand Customer Base and Sales Efforts. The Company intends to expand
its customer base by significantly increasing its direct and indirect sales
forces as well as its marketing efforts. As of June 30, 1999, the Company's
direct sales force consisted of two persons in two sales offices. The Company's
sales force is supported in their efforts by sales engineers and, in many
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instances, senior management of the Company. The Company intends to increase the
number of its sales offices and to significantly expand the size of its direct
sales force with the goal of having an effective selling presence in all major
communities in the State of Oklahoma, expanding into regional markets as the
Company enters such markets. In addition, the Company is exploring other
strategies to grow its direct sales force, including developing an inside sales
center to generate additional sales.
--Accelerate Growth Through Targeted Acquisitions. The goal of the
Company's acquisition strategy is to accelerate market penetration, build upon
its core competencies and expand its technical staff and sales force. The
Company evaluates acquisition candidates based on their fit with the Company's
overall business plan. When a candidate is acquired, the Company will integrate
its existing Internet and network connectivity and value-added services with the
service offerings of the acquired company and use the acquired sales force and
customer base to expand market opportunities. The types of acquisitions targeted
by the Company include ISP's located in markets into which the Company wants to
expand, or to which the Company may already provide "private-label" Internet
connectivity. Other types of targeted acquisitions include local or regional
business ISP's in markets where the Company has established points of presence
and would benefit from the acquired company's local sales force and installed
customer base through the potential increase in the Company's network
utilization.
The Company intends to pursue its strategy initially in the State of
Oklahoma and thereafter in neighboring states, including Arkansas, Kansas,
Texas, and Missouri.
Recent Transactions
Regulation D Offering
In April 1999, the Company raised an aggregate $648,500 in an offering
of its common stock, par value $.00001 per share (the "Common Stock"). The
offering (the "504 Offering") was made pursuant to an exemption from the
registration requirements of the Securities Act pursuant to Rule 504 of
Regulation D of such act. Pursuant to the 504 Offering, an aggregate 648,500
shares of Common Stock were issued.
Acquisition of Animus
On March 26, 1998 the Company purchased 100% of the outstanding common
stock of Animus Communications, Inc. ("Animus"), an Oklahoma corporation engaged
in the business of providing Web Hosting Services, selling computer equipment
and providing configuration and maintenance of the equipment. The aggregate
purchase price for the Animus stock was $350,000, of which $175,000 was paid at
closing with the remaining $175,000 paid in two installments subsequent to
closing. See "Item 7. Certain Relationships and Related Transactions."
Business of the Registrant
Internet Access and Value-added Services
Industry Background
Growth of the Internet and the Web. The Internet is a collection of
connected computer systems and networks that link millions of public and private
computers to form what is essentially the largest computer network in the world.
The Internet has experienced rapid growth in recent years and is expected to
continue to grow based on estimated increases in the numbers of Web users, Web
traffic and the number of Web sites. Several factors are contributing to the
Internet's growth, including:
- The proliferation of lower cost personal computers;
- Advances in the performance and speed of PCs, modems and networking
components;
- Improvements in network infrastructures;
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- Easier and more competitive access to the Internet; and
- The increasing use of the Internet by businesses as a competitive
tool.
The Internet has become an important global medium that enables
millions of people to obtain and share information and conduct business
electronically.
Accessing the Internet. Internet access services represent the means by
which Internet service providers interconnect business and consumer users to the
Internet's resources. Access services vary from dial-up modem access for
individuals and small businesses to high speed dedicated transmission lines for
broadband access by large organizations. An Internet service provider provides
Internet access either by developing a proprietary network infrastructure or by
purchasing access service from a wholesale access vendor, or through a
combination of both.
The rapid development and growth of the Internet have resulted in a
highly competitive and fragmented industry consisting of more than 4,800
Internet service providers in the United States with an average customer base of
less than 5,000 subscribers. The vast majority of U.S.-based Internet service
providers conduct their operations within a single state or city, with only a
handful of Internet service providers, such as EarthLink and MindSpring, having
expanded the scope of their operations from a single region to nationwide
coverage. Due to the disparity between the large number of smaller Internet
service providers with limited resources and the emergence of a limited number
of national Internet service providers with their associated economies of scale,
the Internet service provider industry is expected to undergo substantial
consolidation. Forrester Research projects that Internet service provider access
revenues in the United States will grow from approximately $6 billion in 1997 to
$38 billion in 2002.
Growth in Electronic Commerce ("E-Commerce"). For many businesses, the
Internet has created a new communication and sales channel that enables
companies to interact with large numbers of geographically dispersed consumers
and business partners. In the last several years, many companies have emerged
that focus solely on the Internet as the medium for selling products or
delivering services directly to purchasers, bypassing traditional wholesale and
retail channels. Furthermore, traditional businesses are implementing
sophisticated Web sites to effect electronic commerce initiatives that offer
competitive advantages. These businesses are deploying an expanding variety of
Internet-enabled applications, ranging from Web site marketing and recruiting
programs to on-line customer interaction systems, integrated purchase order and
"just-in-time" inventory solutions for key customers and suppliers. These
capabilities require increasingly complex Web sites and support operations. In
addition, advances in on-line security and payment mechanisms are alleviating
concerns associated with conducting transactions in an open-platform
environment, thus prompting more consumers and businesses to use the Internet in
conjunction with purchases and more businesses to offer a greater breadth of
electronic commerce services.
Outsourcing of Internet Operations. As the Web increasingly becomes
synonymous with electronic commerce, businesses are placing greater emphasis on
their Internet transaction and communication operations. Internet-based
companies, and to a growing extent, traditional businesses, require noncongested
and scalable Internet operations to allow them to perform digital communication
and commerce transactions globally over the Internet. Due to constraints posed
by the lack of technical personnel with Internet skills or experience, the high
cost of advanced networking equipment and the complexity of innovative Web
solutions, many businesses are unable to internally develop, maintain and
continually enhance their facilities and systems to conduct desired levels of
Internet-based activities. As a result of these constraints and other factors,
many businesses are seeking to outsource their facilities and systems
requirements as the preferred means for providing electronic commerce solutions.
To this end, an increasing demand is developing for:
- Dedicated and broadband Internet access services to support reliable,
high speed and/or constantly connected Internet access and communication;
- Web hosting and co-location services which enable businesses to
obtain equipment, technical expertise and infrastructure for their Internet
needs on an outsourced basis; and
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- End-to-end electronic commerce solutions to sell goods and services
on the Web in a secure transaction environment.
By outsourcing their facilities and systems needs, businesses are able
to focus on their core competencies rather than expending vital resources to
support their Internet operations. Forrester Research estimates that over 40% of
Internet and internal corporate sites will be outsourced by 2002.
The Opportunity for Internet Service Providers. The number of
businesses and consumers accessing the Internet is expected to increase
significantly in the foreseeable future. According to Forrester Research, the
market for providing access to the Internet for businesses and consumers is
expected to be approximately $18.4 billion in 2000. Additionally, as businesses
and consumers are developing greater levels of comfort in the use of the
Internet for electronic commerce, businesses are increasingly implementing
sophisticated electronic commerce solutions which, in turn, require
significantly greater bandwidth and other business services. In response, an
increasing number of Internet service providers are attempting to augment their
basic Internet access services with a wide range of business services. According
to International Data Corporation, the market for Web hosting and Internet
security business services is the fastest growing segment of the Internet
services market, with revenues expected to increase from approximately $350
million in 1997 to approximately $7 billion in 2000.
Internet service providers that offer both Internet access to broad
segments of the population and that offer a broad selection of business services
are positioned to attain greater economies of scale through lower network
expansion and marketing costs on a per-subscriber basis. The Company believes
that it is uniquely positioned, among purely local or regional ISP's, to benefit
from this continued growth. Specifically, the Company believes that a window of
opportunity currently exists within the state of Oklahoma. Currently,
competition from the national ISP's, such as America Online, Prodigy,
CompuServe, has had only minimal impact on the Oklahoma ISP market due to the
lack of local dial-up Internet presence in rural Oklahoma and too many busy
signals. In addition, the local Oklahoma education ISP, OneNet, is also not a
factor due to the limits placed on it by the Oklahoma legislature. With the
demand for Internet access consistently exceeding all projections, the Company
believes that its target area, rural Oklahoma, is grossly underserviced.
Accordingly, the Company believes that a real opportunity exists for the Company
and its subsidiaries to establish a stronghold on the Oklahoma Internet market,
given the local infrastructure that it already has in place as well as its
multi-pronged marketing strategy. In short, the Company, through its
subsidiaries, believes that it is well positioned to provide all of the
telecommunications needs throughout Oklahoma whether it be through traditional
telephone service or the increasingly demanded Internet access.
Internet Access Services
The Company offers a full range of consumer Internet access services
and a broad selection of business services, both of which are offered nationwide
at competitive prices. The Company believes that its services provide customers
with the following benefits:
- FAST AND RELIABLE QUALITY SERVICE. The Company has implemented a
network architecture providing exceptional quality and consistency in Internet
services, making the Company a recognized leader in the Oklahoma ISP industry.
The Company offers unlimited, unrestricted and reliable Internet access
at a low monthly price. A user to modem ratio of 8:1 assures access without busy
signals. Dial-up access is available for the following modem speeds: 14.4, 28.8,
33.6, K56Flex, 56K V.90, ISDN 64K and ISDN 128K. The Company's dial-up access
supports all major platforms and operating systems, including MS Windows,
UNIX(R), Mac OS, OS/2 and LINUX. This allows simplified access to all Internet
applications, including the World Wide Web (WWW), email, news and file transfer
protocol (FTP).
- COST-EFFECTIVE ACCESS. The Company offers high quality Internet
connectivity and enhanced business services at price points that are generally
the same or slightly lower than those charged by other Internet service
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providers with national coverage. The Company offers pre-bundled access services
packages under monthly or prepaid plans.
- SUPERIOR CUSTOMER SUPPORT. The Company provides superior customer
service and support, with customer care and technical personnel available by
telephone and/or on-line on a 24 hours-a-day, seven days-a-week basis.
Value-added Internet Services
Web Hosting and E-Commerce Support. The Company offers a broad
selection of enhanced business services that are focused on the practical needs
of businesses to support their Internet operations. In addition to the Company's
role as an ISP, the Company, through Animus, is an established web hosting
service provider. Both directly and through the Company's global reseller
network, the Company offers customers a broad range of affordable service plans
including web hosting, advanced E-commerce, managed dedicated server, server
co-location and dedicated network connectivity solutions.
The Company's technical staff guides customers through every phase in
developing a web presence. These phases include domain name registration, site
design and set up, site maintenance and security. The Company's E-commerce team
assists clients in leveraging their existing technology investment to establish
a secure and reliable online shopping site. E-commerce involves selling products
and services on the Internet. It is a dynamic business process by which
customers interact with sales representatives. Through Animus, the Company
offers a "virtual shopping cart" program to keep track of multiple sales and
facilitate inventory management and order processing.
Online shoppers benefit by having flexibility over purchasing
decisions, while the program handles all shipping and tax calculations. Animus'
secure server allows online shoppers to enter their credit card or other payment
information in complete confidence by sending the information in an encrypted
format.
The Company believes that Animus' systems have 99.7% uptime
reliability. Client websites are hosted on dual processor servers, yielding
unusual speed and reliability. Animus maintains multiple T1 connections and one
T3 connection with uninterrupted power and is multi-homed.
Domain Name Registrar Services. On July 8, 1999, the Internet
Corporation for Assigned Names and Numbers (ICANN) announced that Animus was one
of only approximately 50 initial companies from around the world which have been
approved to act as registrars for the .com, .net and.org Internet domains.
Previously, registration for the three most popular top-level domains has been
handled exclusively by Network Solutions of Herndon, Virginia, under a 1992
contract with the U.S. government. With this coveted designation, Animus joins
an elite group of companies that includes Network Solutions, America Online,
AT&T, and France Telecom.
The assignment of Internet domain names for a fee will complement the
current services offered by the Company and give it an opportunity for
tremendous growth in a business that was previously conducted by only one
company. Currently, domain registration fees are $35 per domain name per annum.
The Company expects that the price charged for registration fees will fall with
the entry of multiple registrars; moreover, while no definitive agreement has
yet been reached with Network Solutions, the Company expects that a portion of
each fee charged by a registrar will be paid to Network Solutions. The Company
anticipates that this business segment should prove a profitable one for the
Company.
IP Telephony. The Company intends to add IP telephony to the array of
value-added Internet services it offers to its customers. IP telephony is the
delivery of telephone calls over the Internet. Traditional telephone service is
a circuit-switched technology. When a long-distance call is placed, the system
switches open a direct connection between the sender, and then over a series of
switching facilities, to the receiving party. The connection remains open during
the duration of the telephone call. Since no one else can use the circuit while
a call is in progress, more circuits are required, which leads to inefficiency
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and expense. In contrast, IP telephony is a packet-switched technology, which is
the basis of all Internet communication. IP breaks up network data into small
chunks or packets, which are then sent out on the Internet. These packets are
routed using the most expedient path available at the time, until they reach
their destination. On the Internet, this process happens in microseconds. The
data can consist of e-mail, video, and voice.
Thus, a caller will not have to place a conventional long-distance
telephone call to reach a party anywhere in the world, since with the Internet,
every call is just an e-mail (voice), i.e., local call away. The caller
initiates a local call to a switching center or gateway connected to an IP
provider. The call travels over the Internet to the receiver's geographic area
and a switching center in that area completes the call over that local call's
telephone lines. In 1996 the first IP telephony technology was put into place.
Millions of individuals, governments, and corporations are using this technology
every day to send data, voice conversations, and even money.
Local Telephone Service
The Company also plans to provide traditional telephone service
throughout parts of the State of Oklahoma through its wholly owned subsidiary,
Fulltel, Inc., which is a licensed and regulated "competitive local exchange
carrier" providing local telephone service in sections of Oklahoma. Competitive
local exchange carriers, or CLEC's, are new phone companies born out of the
Telecommunications Act of 1996 (the "Telecommunications Act"), which requires
the "incumbent local exchange carriers" (ILEC's), such as the regional Bell
companies, to provide CLEC's access to their local facilities, and to compensate
CLEC's for traffic originated by ILECs and terminated on the CLEC's network.
ILEC's are required to pay this compensation for the term of the interconnection
agreement entered into between it and the CLEC.
Fulltel was formed in February 1998 to compete with Southwestern Bell
Telephone and GTE by adding to the existing telephone network its own switch and
infrastructure thereby allowing Fulltel to offer local services in most of
Oklahoma, including local dial up for the Internet access services provided by
the Company.
Part of the Company's marketing strategy is to capitalize on the
perceived synergies between the Company's Internet activities and Fulltel's
local dial-up service. By organizing and funding Fulltel, the Company gains
local dial up Internet access to 80% of the State of Oklahoma. In return,
Fulltel gains immediate access to all of the Company's ISP customer base.
In the first six months of 1999 several developments in the regulatory
arena have occurred which the Company believes will have a favorable impact on
the Company's business. In January 1999, the United States Supreme Court ruled
that CLEC's may, in effect, "pick and choose" from existing interconnection
agreements already in place between an ILEC and other CLEC's. That ruling has
allowed for far quicker negotiations with Southwestern Bell Telephone, the
dominant ILEC in Oklahoma, and the Company's interconnection agreement was filed
with the Oklahoma Corporation Commission in early April 1999. Additionally, the
Federal Communications Commission (the "FCC") recently has adopted new rules
designed to make it easier and less expensive for CLECs to obtain "collocation"
(which allows companies such as us and other interconnectors to install and
maintain their own network termination equipment in ILEC central offices) by,
among other things, restricting the ILECs' ability to prevent certain types of
equipment from being collocated and requiring ILECs to offer alternative
collocation arrangements to CLECs. That will allow Fulltel to provide xDSL
services ("digital subscriber lines," faster applications using traditional
telephone lines which can currently send data 25 times faster than traditional
phone lines) in Oklahoma City as soon as Fulltel's switching equipment is
"turned on" by Southwestern Bell Telephone, which Southwestern Bell has
indicated will occur sometime in the fourth quarter of 1999. See "-Regulatory
Matters."
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Risk Factors
This Registration Statement includes "forward looking statements"
within the meaning of Section 27A of the Securities Act and Section 21E of the
Exchange Act. Although the Company believes that its plans, intentions and
expectations reflected in such forward looking statements are reasonable, it can
give no assurance that such plans, intentions or expectations will be achieved.
Important factors that could cause actual results to differ materially from the
Company's forward looking statements are set forth below and elsewhere in this
Registration Statement. All forward looking statements attributable to the
Company or persons acting on its behalf are expressly qualified in their
entirety by the cautionary statements set forth below.
Limited Operating History. The Company has a relatively limited
operating history upon which an evaluation of the Company's prospects can be
made. Consequently, the likelihood of success of the Company must be considered
in view of all of the risks, expenses and delays inherent in the establishment
and growth of a new business including, but not limited to, expenses,
complications and delays which cannot be foreseen when a business is commenced,
initiation of marketing activities, the uncertainty of market acceptance of new
services, intense competition from larger more established competitors and other
factors. The Company's ability to achieve profitability and growth will depend
on successful development and commercialization of its current and proposed
services. No assurance can be given that the Company will be able to introduce
its proposed services or market its services on a commercially successful basis.
Necessity of Additional Financing. In order for the Company to have
any opportunity for significant commercial success and profitability, it must
successfully obtain additional financing, either through borrowings, additional
private placements or an initial public offering, or some combination thereof.
Although the Company is actively pursuing a variety of funding sources, there
can be no assurance that it will be successful in such pursuit.
Potential Claims Under State Securities Laws. State and federal
securities laws require the registration of securities, unless applicable law
provides for an exemption from such registration requirements. Additionally,
under certain circumstances the agents of an issuer engaged in sales activities
must be registered as a broker/dealer. The Company has determined that it may
have inadvertently failed to comply with such requirements in certain of the
states in which the Common Stock was sold. Consequently, in July 1999, the
Company extended rescission offers to certain of its stockholders who acquired
Common Stock in the 504 Offering and who are residents of Florida and Oklahoma.
The rescission offer is open for 30 days from the stockholders' receipt thereof.
The acceptance of the rescission offer by stockholders representing in excess of
$150,000 of the subscriptions in the 504 Offering will have a material, adverse
effect on the Company unless the Company is able to obtain immediate funds to
replace the amounts refunded. There can be no assurance that, in such event, the
Company would be able to obtain the necessary replacement funding.
Limited Marketing Experience. The Company has limited experience in
developing and commercializing new services based on innovative technologies,
and there is limited information available concerning the potential performance
of its hardware or market acceptance of its proposed services. There can be no
assurance that unanticipated expenses, problems or technical difficulties will
not occur which would result in material delays in product commercialization or
that the Company's efforts will result in successful product commercialization.
Uncertainty of Products/Services Development. Although considerable
time and financial resources were expended in the development of the Company's
services and products, there can be absolutely no assurance that problems will
not develop which would have a material adverse effect on the Company. The
Company will be required to commit considerable time, effort and resources to
finalize such development and adapt its products/services to satisfy specific
requirements of potential customers. Continued system refinement, enhancement
and development efforts are subject to all of the risks inherent in the
development of new products/services and technologies, including unanticipated
delays, expenses, technical problems or difficulties, as well as the possible
insufficiency of funds to satisfactorily complete development, which could
result in abandonment or substantial change in commercialization. There can be
no assurance that development efforts will be successfully completed on a timely
basis, or at all, that the Company will be able to successfully adapt its
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hardware and/or software to satisfy specific requirements of potential
customers, or that unanticipated events will not occur which would result in
increased costs or material delays in development or commercialization. In
addition, technologies as complex as those planned to be incorporated into the
Company's products/services may contain errors which become apparent subsequent
to commercial use. Remedying such errors could delay the Company's plans and
cause it to incur substantial additional costs.
New Concept; Uncertainty of Market Acceptance and Commercialization
Strategy. The Company's proposed entry into IP telephony represent a new
business concept. As is typical in the case of a new business concept, demand
and market acceptance for a newly introduced product/service is subject to a
high level of uncertainty. Achieving market acceptance for this new concept will
require significant efforts and expenditures by the Company to create awareness
and demand by consumers. The Company's marketing strategy and preliminary and
future marketing plans may be unsuccessful and are subject to change as a result
of a number of factors, including progress or delays in the Company's marketing
efforts, changes in market conditions (including the emergence of potentially
significant related market segments for applications of the Company's
technology), the nature of possible license and distribution arrangements which
may or may not become available to it in the future and economic, regulatory and
competitive factors. There can be no assurance that the Company's strategy will
result in successful product commercialization or that the Company's efforts
will result in initial or continued market acceptance for the Company's proposed
products.
Competition; Technological Obsolescence. The markets that the Company
intends to enter are characterized by intense competition and an increasing
number of potential new market entrants who have developed or are developing
potentially competitive products and/or services. The Company will face
competition from numerous sources, certain of which may have substantially
greater financial, technical, marketing, distribution, personnel and other
resources than the Company, permitting such companies to implement extensive
marketing campaigns, both generally and in response to efforts by additional
competitors to enter into new markets and market new products and services. In
addition, the markets for the Company's proposed products/services are
characterized by rapidly changing technology and evolving industry standards
which could result in product obsolescence or short product life cycles.
Accordingly, the ability of the Company to compete will be dependent upon the
Company's ability to complete development and introduce its product and/or
services into the marketplace in a timely manner, to continually enhance and
improve its software and to successfully develop and market new products. There
can be no assurance that the Company will be able to compete successfully, that
competitors will not develop technologies or products that render the Company's
products and/or services obsolete or less marketable or that the Company will be
able to successfully enhance its products or develop new products and/or
services.
Risks Relating to the Internet. Use of the Internet by consumers is in
a relatively early state, and market acceptance of the Internet as a medium for
telephone service is subject to uncertainty. The rapid growth of global commerce
and the exchange of information on the Internet and other online networks is
relatively new and still evolving, making it difficult to predict whether the
Internet will prove to be a viable commercial marketplace generally. The Company
believes that its future success will depend on its ability to significantly
increase revenues, which, in turn, will be materially dependent upon the
development and widespread acceptance of the Internet and online services as a
medium for telephone service. The Internet may not prove to be a viable
commercial marketplace because of inadequate development of the necessary
infrastructure, such as reliable network backbones, or complementary services,
such as high-speed modems and security procedures. The Internet has experienced,
and is expected to continue to experience, significant growth in the number of
users and amount of traffic. There can be no assurance that the Internet
infrastructure will continue to be able to support the demands placed on it by
sustained growth. In addition, the viability of the Internet may prove uncertain
due to delays in the development and adoption of new standards and protocols,
the inability to handle increased levels of Internet activity or due to
increased government regulation. If use of the Internet does not continue to
grow, or if the necessary Internet infrastructure or complementary services are
not developed to effectively support growth that may occur, the Company's
business, results of operations and financial condition would be materially
adversely affected.
Potential Government regulations. The Company's operations in the field
of local telephone service provider is closely monitored and regulated by the
FCC. While the FCC and recent court decisions have consistently supported the
concept of competition with the RBOC's through the type of operations proposed
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to be engaged in by the Company, no assurance can be given that the regulatory
environment will not change or that future court challenges will not be
successful. In the event changes are made in the way entities such as the
Company interface with the RBOC's or if the current reciprocal compensation
agreements between the Company and Southwestern Bell Telephone are voided, the
Company's future earning potential could be adversely impacted.
Dependence on Key Personnel. The success of the Company depends in
large part upon the continued successful performance of its current executive
officers and key employees, Messrs. Timothy J. Kilkenny, Roger Laubhan and Jason
Ayers and Ms. Dawn Deckman, for the continued research, development, marketing
and operation of the Company. Although the Company has employed, and will employ
in the future, additional qualified employees as well as retaining consultants
having significant experience, if Messrs. Kilkenny, Laubhan or Ayers or Ms.
Deckman fail to perform any of their duties for any reason whatsoever, the
ability the Company to market, operate and support its products/services will be
adversely affected. While the Company is located in areas where the available
pool of people is substantial, there is also significant competition for
qualified personnel.
Absence of Public Market. There currently is no public market for the
Common Stock and no assurance can be given that such a market will develop or,
if developed, that it will be sustained. The Company is in the process of
preparing a registration statement to be filed with the SEC, which will permit
the Company's common stock to be eligible for trading on the OTC Bulletin Board
when it becomes effective (which will occur automatically 60 days after filing).
However, even if the common stock becomes OTC eligible, there can be no
assurance that a market maker will agree to quote the common stock on the OTC
Bulletin Board. Hence, there can be no assurance that stockholders will be able
to sell their shares should they desire to do so. Any market for the common
stock that may develop, in all likelihood, will be a limited one, and if such a
market does develop, the price may be volatile.
No Payment of Dividends on Common Stock. The Company has not paid any
dividends on its common stock. For the foreseeable future, the Company
anticipates that all earnings, if any, that may be generated from the Company's
operations will be used to finance the growth of the Company and that cash
dividends will not be paid to holders of the common stock.
Penny Stock Regulation. Broker-dealer practices in connection with
transactions in "penny stocks" are regulated by certain penny stock rules
adopted by the SEC. Penny stocks generally are equity securities with a price of
less than $5.00 (other than securities registered on certain national securities
exchanges or quoted on the NASDAQ system). The penny stock rules require a
broker-dealer, prior to a transaction in a penny stock not otherwise exempt from
the rules, to deliver a standardized risk disclosure document that provides
information about penny stocks and the nature and level of risks in the penny
stock market. The broker-dealer also must provide the customer with current bid
and offer quotations for the penny stock, the compensation of the broker-dealer
and its salesperson in the transaction, and, if the broker dealer is the sole
market-maker, the broker-dealer must disclose this fact and the broker-dealer's
presumed control over the market, and monthly account statements showing the
market value of each penny stock held in the customer's account. In addition,
broker-dealers who sell such securities to persons other than established
customers and accredited investors (generally, those persons with assets in
excess of $1,000,000 or annual income exceeding $200,000 or $300,000 together
with their spouse), must make a special written determination that the penny
stock is a suitable investment for the purchaser and receive the purchaser's
written agreement to the transaction. Consequently, these requirements may have
the effect of reducing the level of trading activity, if any, in the secondary
market for a security that is or becomes subject to the penny stock rules. If
the Company's securities are or become subject to the penny stock rules, the
Company's stockholders may find it more difficult to sell their shares.
Regulatory Matters
The following summary of regulatory developments and legislation is not
complete. It does not describe all present and proposed federal, state, and
local regulation and legislation affecting the ISP and telecommunications
industries. Existing federal and state regulations are currently subject to
judicial proceedings, legislative hearings, and administrative proposals that
could change, in varying degrees, the manner in which the Company's businesses
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operate. The Company cannot predict the outcome of these proceedings or their
impact upon the ISP and telecommunications industries or upon the Company's
business.
Both the provision of Internet access service and the provision of
underlying telecommunications services are affected by federal, state, local and
foreign regulation. The FCC exercises jurisdiction over all facilities of, and
services offered by, telecommunications carriers to the extent that they involve
the provision, origination or termination of jurisdictionally interstate or
international communications. The state regulatory commissions retain
jurisdiction over the same facilities and services to the extent they involve
origination or termination of jurisdictionally intrastate communications. In
addition, as a result of the passage of the Telecommunications Act, state and
federal regulators share responsibility for implementing and enforcing the
domestic pro-competitive policies of the Telecommunications Act. In particular,
state regulatory commissions have substantial oversight over the provision of
interconnection and non-discriminatory network access by ILECs. Municipal
authorities generally have some jurisdiction over access to rights of way,
franchises, zoning and other matters of local concern.
The Company's Internet operations are not currently subject to direct
regulation by the FCC or any other U.S. governmental agency, other than
regulations applicable to businesses generally. However, the FCC continues to
review its regulatory position on the usage of the basic network and
communications facilities by ISPs. Although in an April 1998 Report, the FCC
determined that ISPs should not be treated as telecommunications carriers and
therefore should not be regulated, it is expected that future ISP regulatory
status will continue to be uncertain. Indeed, in that report, the FCC concluded
that certain services offered over the Internet, such as phone-to-phone IP
telephony, may be functionally indistinguishable from traditional
telecommunications service offerings, and their non-regulated status may have to
be re-examined.
Changes in the regulatory structure and environment affecting the
Internet access market, including regulatory changes that directly or indirectly
affect telecommunications costs or increase the likelihood of competition from
RBOC's or other telecommunications companies, could have an adverse effect on
the Company's business. Although the FCC has decided not to allow local
telephone companies to impose per-minute access charges on ISPs, and that
decision has been upheld by the reviewing court, further regulatory and
legislative consideration of this issue is likely. In addition, some telephone
companies are seeking relief through state regulatory agencies. The imposition
of access charges would affect the Company's costs of serving dial-up customers
and could have a material adverse effect on the Company's business, financial
condition and results of operations.
In addition to our Internet activities, the Company has recently
focused attention on acquiring telecommunications assets and facilities, which
is a regulated activity. Fulltel, the Company's wholly owned subsidiary, has
received an received CLEC certification in the State of Oklahoma, and an
important part of the Company's growth strategy is obtaining CLEC certification
in certain other states. The Telecommunications Act requires CLEC's not to
prohibit or unduly restrict resale of their services; to provide dialing parity,
number portability, and nondiscriminatory access to telephone numbers, operator
services, directory assistance, and directory listings; to afford access to
poles, ducts, conduits, and rights-of-way; and to establish reciprocal
compensation arrangements for the transport and termination of
telecommunications traffic. In addition to federal regulation of CLEC's, the
states also impose regulatory obligations upon CLEC's. While these obligations
vary from state to state, most states require CLEC's to file a tariff for their
services and charges; require CLEC's to charge just and reasonable rates for
their services, and not to discriminate among similarly-situated customers; to
file periodic reports and pay certain fees; and to comply with certain services
standards and consumer protection laws. As a provider of domestic basic
telecommunications services, particularly competitive local exchange services,
the Company could become subject to further regulation by the FCC and/or another
regulatory agency, including state and local entities.
The Telecommunications Act has caused fundamental changes in the
markets for local exchange services. In particular, the Telecommunications Act
and the FCC rules issued pursuant to it mandate competition in local markets and
require that ILEC's interconnect with CLEC's. Under the provisions of the
Telecommunications Act, the FCC and state public utility commissions share
jurisdiction over the implementation of local competition: the FCC was required
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to promulgate general rules and the state commissions were required to arbitrate
and approve individual interconnection agreements. The courts have generally
upheld the FCC in its promulgation of rules, including a January 25, 1999 U.S.
Supreme Court ruling which determined that the FCC has jurisdiction to
promulgate national rules in pricing for interconnection.
An important issue for CLEC's is the right to receive reciprocal
compensation for the transport and termination of Internet traffic. The Company
believes that, under the Telecommunications Act, CLEC's are entitled to receive
reciprocal compensation from ILEC's. However, some ILEC's have disputed payment
of reciprocal compensation for Internet traffic, arguing that ISP traffic is not
local traffic. Most states have required ILEC's to pay CLEC's reciprocal
compensation. However, in October 1998, the FCC determined that dedicated DSL
service is an interstate service and properly tariffed at the interstate level.
In February 1999, the FCC concluded that at least a substantial portion of
dial-up ISP traffic is jurisdictionally interstate. The FCC also concluded that
its jurisdictional decision does not alter the exemption from access charges
currently enjoyed by ISPs. The FCC established a proceeding to consider an
appropriate compensation mechanism for interstate Internet traffic. Pending the
adoption of that mechanism, the FCC saw no reason to interfere with existing
interconnection agreements and reciprocal compensation arrangements. The FCC
order has been appealed. In addition, there is a risk that state public utility
commissions that have previously considered this issue and ordered the payment
of reciprocal compensation by the ILEC's to the CLEC's may be asked by the
ILEC's to revisit their determinations, or may revisit their determinations on
their own motion. To date, at least one ILEC has filed suit seeking a refund
from a carrier of reciprocal compensation that the ILEC had paid to that
carrier. There can be no assurance that any future court, state regulatory or
FCC decision on this matter will favor the Company's position. An unfavorable
result may have an adverse impact on the Company's potential future revenues as
a CLEC.
As the Company becomes a competitor in local exchange markets, it will
become subject to state requirements regarding provision of intrastate services.
This may include the filing of tarriffs containing rates and conditions. As a
new entrant, without market power, the Company expects to face a relatively
flexible regulatory environment. Nevertheless, it is possible that some states
could require the Company to obtain the approval of the public utilities
commission for the issuance of debt or equity or other transactions which would
result in a lien on its property used to provide intrastate services.
Competition
The market for Internet connectivity and related services is extremely
competitive. The Company anticipates that competition will continue to intensify
as the use of the Internet grows. The tremendous growth and potential market
size of the Internet access market has attracted many new start-ups as well as
existing businesses from different industries.
The Company believes that a reliable network, knowledgeable salespeople
and the quality of technical support currently are the primary competitive
factors in its targeted market and that price is usually secondary to these
factors.
The Company's current and prospective competitors include, in addition
to other national, regional and local ISPs, long distance and local exchange
telecommunications companies, cable television, direct broadcast satellite,
wireless communications providers and on-line service providers. While the
Company believes that its network, products and customer service distinguish it
from these competitors, most of these competitors have significantly greater
market presence, brand recognition, and financial, technical and personnel
resources than the Company.
ISP's
According to industry sources, there were over 6,700 ISP's in the
United States and Canada in 1998, consisting of national, regional and local
providers. The Company's current primary competitors include other ISP's with a
significant national presence which focus on business customers, such as UUNet
Technologies, Inc., GTE Internetworking (formerly BBN), Concentric Network and
DIGEX. While the Company believes that its level of customer service and support
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and target market focus distinguish it from these competitors, such competitors
have greater market share, brand recognition, and financial, technical and
personnel resources than the Company. The Company also competes with
unaffiliated regional and local ISP's in our targeted geographic regions.
Telecommunications Carriers
The major long distance companies, also known as interexchange
carriers, including AT&T, MCI WorldCom, Cable & Wireless/IMCI and Sprint, offer
Internet access services and compete with the Company. Reforms in the federal
regulation of the telecommunications industry have created greater opportunities
for incumbent local exchange carriers, or ILEC's, including the RBOC's, and
other CLEC's, to enter the Internet connectivity market. In order to address the
Internet connectivity requirements of the business customers of long distance
and local carriers, the Company believes that there is a move toward horizontal
integration by ILEC's and CLEC's through acquisitions or joint ventures with,
and the wholesale purchase of, connectivity from ISP's. The MCI/WorldCom merger
(and the prior WorldCom/MFS/UUNet consolidation), GTE's acquisition of BBN, the
acquisition by ICG Communications, Inc. of Netcom, Global Crossing's recently
announced plans to acquire Frontier Corp. (and Frontier's prior acquisition of
Global Center) and AT&T's recent purchase of IBM's global communications network
are indicative of this trend. Accordingly, the Company expects that it will
experience increased competition from the traditional telecommunications
carriers. These telecommunications carriers, in addition to their greater
network coverage, market presence, and financial, technical and personnel
resources, also have large existing commercial customer bases.
Cable Companies, Direct Broadcast Satellite and Wireless Communications
Companies
Many of the major cable companies have announced that they are
exploring the possibility of offering Internet connectivity, relying on the
viability of cable modems and economical upgrades to their networks. Continental
Cablevision, Inc., Tele-Communications, Inc. ("TCI") and At Home Corporation
(@Home) have announced trials to provide Internet cable service to their
residential customers in select areas. Cable companies, however, are faced with
large-scale upgrades of their existing plant equipment and infrastructure in
order to support connections to the Internet backbone via high-speed cable
access devices. Additionally, their current subscriber base and market focus is
residential, which requires that they partner with business-focused providers or
undergo massive sales and marketing and network development efforts in order to
target the business sector. Several announcements also recently have been made
by other alternative service companies approaching the Internet connectivity
market with various wireless terrestrial and satellite-based service
technologies. These include Hughes Network Systems' DirecPC product that
provides high-speed data through direct broadcast satellite technology; CAI
Wireless Systems Inc.'s announcement of an MMDS wireless cable operator
launching data services via 2.5 to 2.7 GHz and high-speed wireless modem
technology; Cellularvision's announcement that it is offering Internet access
via high-speed wireless LMDS technology; and WinStar Communications, a 38 GHz
radio company that wholesales its network capacity to other carriers and now
offers high-speed Internet access to business customers. The Company believes
that there is a trend toward horizontal integration involving cable companies
through acquisitions or joint ventures between cable companies and
telecommunications carriers. The acquisition of TCI by AT&T is indicative of
this trend.
On-line Service Providers
The dominant on-line service providers, including Microsoft Network,
America Online, Incorporated and Prodigy, Inc., have all entered the Internet
access business by engineering their current proprietary networks to include
Internet access capabilities. The Company competes to a lesser extent with these
service providers, which currently are primarily focused on the consumer
marketplace and offer their own content, including chat rooms, news updates,
searchable reference databases, special interest groups and shopping. However,
America Online's recent acquisition of Netscape Communications Corporation and
related strategic alliance with Sun Microsystems will enable it to offer a
broader array of IP-based services and products that could significantly enhance
its ability to appeal to the business marketplace and, as a result, compete more
directly with the Company. CompuServe has also announced that it will target
Internet connectivity for the small to medium-sized business market.
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The Company believes that its ability to attract business customers and
to market value-added services is a key to its future success. However, there
can be no assurance that the Company's competitors will not introduce comparable
services or products at similar or more attractive prices in the future or that
the Company will not be required to reduce its prices to match competition.
Recently, many competitive ISP's have shifted their focus from individual
customers to business customers. Moreover, there can be no assurance that more
of the Company's competitors will not shift their focus to attracting business
customers, resulting in even more competition for the Company. There can be no
assurance that the Company will be able to offset the effects of any such
competition or resulting price reductions. Increased competition could result in
erosion of the Company's market share and could have a material adverse effect
on its business, financial condition and results of operations.
Customers
In 1998, no customer represented in excess of 10% of the Company's
gross revenues.
Employees
As of June 30, 1999, the Company had 12 employees employed in
engineering, sales, marketing, customer support and related activities, and
general and administrative functions. None of the Company's employees is
represented by a labor union, and the Company considers its relations with its
employees to be good. The Company also engages consultants from time to time
with respect to various aspects of its business.
Item 2. Management's Discussion and Analysis or Plan of Operation.
Overview
The Company is a regional provider of consumer Internet access and
business services, offering innovative technological solutions for individuals,
businesses, organizations, education institutions, as well as government
agencies. The Company operates through itself and through two wholly owned
subsidiaries, Fulltel and Animus.
The Company's revenues are derived primarily from providing Internet
access services to individual and business subscribers. Revenues are comprised
principally of recurring revenues from the Company's customer base,
non-recurring start-up fees for modem and leased line connections and various
forms of ancillary services including but not exclusive to hardware sales. The
Company charge subscription fees, which are billed monthly or quarterly, in
advance, typically under pre-authorized credit card accounts or automatic bank
transfers. The Company has not yet generated any revenue from Fulltel.
Monthly subscriptions services revenue is recognized over the period in
which the services are provided. Service revenues derived from dedicated access
services, which require the purchase and installation of equipment at the
customer's location, are recognized when the service is commenced. Fee revenues
for ancillary services are recognized when performed.
Acceleration in the growth of the Company's subscriber base or changes
in usage patterns among subscribers may increase operating costs. Acceleration
in the growth of the subscriber base could require the Company to hire
additional personnel and increase its expenses related to marketing, network
infrastructure and customer support sooner than anticipated. An increase in peak
time usage or an overall increase in usage by subscribers could adversely affect
the Company's ability to consistently meet the demand for our access services.
As a result, the Company may be required to hire additional personnel and
increase expenses related to network infrastructure capacity with minimal
corresponding increases in revenue on a per subscriber basis.
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Acquisitions
The Company has expanded its operations in part through acquisitions,
which has placed and may continue to place a significant strain on the Company's
management, personnel, administrative, operational, financial and other
resources. To successfully manage its growth, the Company will be required to
continue to implement and improve information and operating systems, hire,
train, and manage an increasing number of management and other personnel,
monitor its operations and integrate new technologies as they be become
available.
In April 1998, the Company acquired all the issued and outstanding
stock of Animus Communcations Inc., a company engaged in the business of web
hosting. Animus is currently doing business in 37 countries around the world and
was responsible for approximately $250,000 of the Company's revenues in 1998.
Results of Operations
Year Ended December 31, 1998 Compared to Year Ended December 31, 1997
Revenues
Revenues for the year ended December 31, 1998 were $1,001,787 compared
to $511,903 for the year ended December 31, 1997. The increase in revenue was
due principally to three factors: one, the increase in dial-up and leased line
subscriber base; two, the entrance into the Value Added Reseller (VAR) and
integration market, which includes sale of hardware; and three, the acquisition
of Animus, which contributed approximately $250,000 of the Company's gross
revenues for 1998.
Cost of Revenues
Cost of revenues for 1998 was $790,155 compared to $460,322 for 1997.
Cost of revenues as a percentage of revenues for 1998 was 78.8% compared to
89.9% for 1997. The decrease in cost of revenues can be attributed to the higher
margins that exist in the web hosting business.
Operating Expenses
Operating expenses for 1998 were $138,123 compared to $129,827 for
1997. The increase in operating expenses was attributable to higher advertising,
payroll, professional fees and rent expense incurred in 1998 to support the
increased revenue base.
Interest Expense
Interest expense for 1998 was $75,398 compared to $50,588 for 1997.
The increase in interest expense was largely due to additional borrowing
incurred to acquire Animus.
Net Loss
The Company incurred a net loss of $209,134 for 1998 compared to a net
loss of $180,415 for 1997, an increase of approximately 16%. The increase in net
loss was attributable principally to increased expenditures associated with
increasing the capacity of the Company's network to accommodate the increase in
subscribers expected to be generated when Fulltel's telephone operations
commence.
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Liquidity and Capital Resources
The expansion of the Company's business will require significant
capital to fund capital expenditures, working capital needs, debt service and
the cash flow deficits generated by operating losses. The Company's principal
capital expenditure requirements include the purchase and installation of
switches and transmission equipment collocated in ILEC central offices and the
further development of operations support systems and other automated back
office systems. Additionally, the growth of the Company's web hosting business
will require significant capital expenditures.
To date, the Company has primarily funded its expenditures through bank
borrowings and the sale of its equity securities. During the second quarter of
1998, the Company received proceeds of $648,500 through the sale of equity
securities pursuant to Rule 504 of Regulation D of the Securities Act.
The Company expects to make significant capital outlays for the
foreseeable future in order to continue the development activities called for in
its current business plan and to fund expected operating losses. The Company
currently estimates that the cash required to fund capital expenditures for its
expansion plans will be approximately $500,000 in 1999. In order for the Company
to implement its current business plan and finance its projected capital
expenditures for 1999 and thereafter, the Company will be required to seek and
obtain significant amounts of additional financing (debt and/or equity) within
the next year. The Company's expansion plans in Oklahoma are dependent upon
raising substantial additional financing in the near term. If the Company's
plans or assumptions change, if its assumptions prove to be inaccurate, or if it
experiences unanticipated costs or competitive pressures, the Company will be
required to seek additional capital sooner than currently anticipated, possibly
within the next three to six months. In particular, if the Company elects to
pursue significant additional acquisition opportunities or to deploy more
switches than currently planned, its cash needs may be increased substantially.
There can be no assurance that the Company's current projection of cash flow
(and losses) from operations (which will depend upon numerous future factors and
conditions, many of which are outside of the Company's control) will be
accurate. Because the Company's cost of developing new networks and services,
funding other strategic initiatives and operating its business will depend on a
variety of factors (including, among other things, the number of subscribers and
the service for which they subscribe, the nature and penetration of services
that may be offered by the Company, regulatory changes, and actions taken by
competitors in response to the Company's strategic initiatives), it is almost
certain that actual costs and revenue will vary from expected amounts, very
likely to a material degree, and that such variations are likely to affect The
Company's future capital requirements. Current cash balances will not be
sufficient to fund the Company's current business plan beyond the next year. As
a consequence, the Company intends to seek additional debt and/or equity
financing to fund the Company's liquidity. There can be no assurance that the
Company will be able to raise additional capital on satisfactory terms or at
all. In the event that the Company is unable to obtain such additional capital
or to obtain it on acceptable terms or in sufficient amounts, the Company will
be required to delay the development of its network or take other actions that
could have a material adverse effect on the Company's business, operating
results and financial condition and its ability to achieve sufficient cash flow
to service debt requirements.
The ability of the Company to fund the capital expenditures and other
costs contemplated by its business plan and to make scheduled payments with
respect to the bank borrowings, will depend upon, among other things, its
ability to seek and obtain additional financing within the next year, to
implement its business plan, to deploy its network and expand its operations and
to obtain and retain a significant number of customers in its target markets,
and the future operating performance of the Company and its subsidiaries. Each
of these factors is, to a large extent, subject to economic, financial,
competitive, political, regulatory and other factors, many of which are beyond
the Company's control. The Company expects that it will generate operating
losses for the foreseeable future and that its business will not generate
positive cash flow for the foreseeable future. In addition, the Company will
require significant amounts of additional financing, which may not be available,
before it will be able to generate positive cash flow. No assurance can be given
that the Company will be successful in developing and maintaining a level of
cash flow from operations sufficient to permit it to pay the principal of, and
interest and any other payments on, outstanding indebtedness. If the Company is
unable to generate sufficient cash flow from operations to service its
indebtedness, it may have to modify its growth plans, limit its capital
expenditures, restructure or refinance its indebtedness or seek additional
capital or liquidate its assets. There can be no assurance (i) that any of these
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strategies could be effected on satisfactory terms, if at all, or (ii) that any
such strategy would yield sufficient proceeds to service the Company's debt or
otherwise adequately fund operations.
Year 2000 Issue
The year 2000 issue is the result of computer programs being written
using two digits rather than four to define the applicable year. Any of the
Company's computer programs that have date-sensitive software may recognize the
date using "00" as the year 1900 rather than the year 2000. The Company
anticipates spending $500,000 on new systems by the end of 1999 from funds
provided by the 504 Offering or from new sources of capital. However, specific
expenditures for year 2000 costs are not being made related to the new systems.
The Company has completed its assessment on the consequences of the year 2000 on
information technology systems. As the Company has a relatively short history,
virtually all systems are newly created or are being created and, during
information technology development, year 2000 issues have been consistently
addressed.
Other non-information technology systems which may be affected by the
year 2000 issue include systems provided to the Company by third parties. The
most significant third party systems are those which operate ILEC interfaces and
billing records, switching equipment and customer premises equipment. The
Company has been assured by significant third parties that year 2000 compliance
will be accomplished by the end of 1999. If such compliance is not achieved by
these third parties, it would have a material adverse effect on the Company's
business, operating results and financial condition and its ability to achieve
sufficient cash flow.
Impact of Inflation
The Company does not believe that inflation has had a significant
impact on the Company's consolidated operations.
Seasonality
The Company's business is not considered to be seasonal.
Item 3. Description of Property.
The Company currently is headquartered in facilities consisting of
approximately 1,800 square feet in Oklahoma City, of which approximately 800
square feet is leased on a month-to month basis, and approximately 1,000 square
feet is leased under a lease agreement with a term expiring September 2000. The
Company is finalizing negotiations for a new lease agreement for approximately
4,900 square feet in another facility. Although no definitive agreement has yet
been executed, it is anticipated that the agreement will provide for monthly
payments of approximately $4,000 commencing in September 1999. The Company also
leases space in a number of traditional telephone company central offices and
private facilities in which the Company's equipment is housed.
17
<PAGE>
Item 4. Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth information as of June 30, 1999,
concerning the beneficial ownership of Common Stock by each of the Company's
directors, each executive officer named in the table under the heading "Item 5.
Directors and Executive Officers, Promoters and Control Persons" and all
directors and executive officers of the Company as a group, and by each person
who is known by the Company to own more than 5% of the outstanding shares of
Common Stock. Unless otherwise indicated, the beneficial owner has sole voting
and investment power with respect to such stock.
Name and Address Shares Percent of
of Beneficial Holder(1) Beneficially Owned Class
- -------------------------------- ------------------ ----------
Timothy J. Kilkenny*(2) 1,380,000(3) 65.72%
Laura L. Kilkenny*(2) (3) (3)
Roger s. Laubhan (4) (4)
Jason C. Ayers (5) (5)
All executive officers and directors
as a group (4 persons) 1,380,000 65.72%
- ---------------------
* Director
(1) Unless otherwise noted, the Company believes that each person named in the
table has sole voting and investment power with respect to all shares
beneficially owned by such person.
(2) Address is c/o Fullnet Communications, Inc., 200 N. Harvey, Suite 1704,
Oklahoma City, Oklahoma 73102.
(3) Timothy J. Kilkenny and Laura L. Kilkenny hold 1,380,000 shares as joint
tenants. Amounts shown do not include options to purchase 120,000 shares at
$1.15 per share beginning October 2000.
(4) Pursuant to a stock bonus granted in June 1999 by the Board of Directors,
Mr. Laubhan has been granted a number of shares of common stock equal to 3%
of the fully diluted common stock outstanding at such date. Such shares
have not yet been issued, pending resolution of certain contingent
compensation, payable in the form of Common Stock and stock options, which
were to be paid to a third party in connection with a financial advisory
services agreement.
(5) Pursuant to a stock bonus granted in June 1999 by the Board of Directors,
Mr. Ayers has been granted a number of shares of common stock equal to 1%
of the fully diluted common stock outstanding at such date. Such shares
have not yet been issued, pending resolution of certain contingent
compensation, payable in the form of Common Stock and stock options, which
were to be paid to a third party in connection with a financial advisory
services agreement.
Item 5. Directors and Executive Officers, Promoters and Control Persons
Directors and Executive Officers
The following sets forth certain information as of June 30, 1999
concerning the directors and executive officers of the Company. The Board of
Directors currently consists of two members, although the Company intends to
increase the size of the Board in the near future. The executive officers of the
Company are elected annually by the Board of Directors. The directors serve one
year terms until their successors are elected. The executive officers serve
terms of one year or until their death, resignation or removal by the Board of
Directors. There are no family relationships between any of the directors and
executive officers, other than between Timothy J. Kilkenny and Laura L.
Kilkenny, who are husband and wife. In addition, there was no arrangement or
18
<PAGE>
understanding between any executive officer and any other person pursuant to
which any person was selected as an executive officer.
Name Age Position
---- --- --------
Timothy J. Kilkenny ........ 40 Chairman of the Board of Directors,
President and Chief executive Officer
Laura L. Kilkenny........... 42 Corporate Secretary and Director
Roger S. Laubhan............ 48 Vice President and Chief Technology Officer
Jason C. Ayers.............. 24 Vice President and President of Animus
Communications, Inc.
Timothy J. Kilkenny has been President, Chief Executive Officer and
Chairman of the Board of Directors of the Company since its inception in May
1995. Prior to that time, he spent 14 years in the financial planning business
as a manager for both MetLife and Prudential. Mr. Kilkenny is a graduate of
Central Bible College in Springfield, Missouri.
Laura L. Kilkenny, D.O., has been Corporate Secretary and a director of
the Company since May 1995. Dr. Kilkenny received her Doctorate of Osteopathic
Medicine in May 1997. She has had extensive banking and accounting experience
since 1976 when she began a banking career that lasted until 1990 when she
changed careers.
Roger S. Laubhan has been Vice President and Chief Technology Officer
of the Company since April 1999. He served as Chief of Network Operations of the
Company from December 1995 to April 1999. He has a B. S. degree in aeronautical
technology from Oklahoma State University, and an MBA from Webster University of
St. Louis, Illinois. Mr. Laubhan served 20 years in the United States Air Force
as an instructor pilot, retiring with the rank of major. Mr. Laubhan has had
formal training with Cisco and US Robotics and has 15 years of experience with
personal computers.
Jason C. Ayers has been President of Animus since its acquisition by
the Company in April 1998 and was elected a Vice President of the Company in
April 1999. Mr. Ayers received a B. S. degree from Southern Nazarene University
in May 1996 with a triple major in Computer Science, Math, and Physics. Upon
graduating, he was a co-founder of Animus, a web hosting company. On April 1,
1998, Animus was acquired by the Company and Mr. Ayers assumed the role of
President of the wholly owned subsidiary.
Key Employees
Dawn Deckman, 41, has been the Director of Sales and Marketing for
the Company since April 1997. Ms. Deckman has been in sales and management in
the telephony/data/Internet industry for the past five years.
Michael D Tomas, 27, has been IT Manager since June 1999 and an
employee of the Company since July 1996. Mr Tomas currently is completing his
studies at the University of Oklahoma for a degree in Management Information
Systems. Mr. Tomas has formal training with Cisco, Win 3.1, Win95/98, and
Windows NT 4.0 as well as LAN/WAN setup, including experience with wireless
networking.
Item 6. Executive Compensation.
Set forth in the following table is information as to the compensation
paid to the Company's Chief Executive Officer for each of the three years ended
December 31, 1998. No officer or director of the Company received, during any of
such periods, total compensation in excess of $100,000.
19
<PAGE>
Summary Compensation Table
Annual Compensation
-------------------
Name and Principal Position Year Salary Other
- --------------------------- ---- ------ -----
Timothy J. Kilkenny, Chairman of the Board
and Chief Executive Officer 1998 $31,200 $7,433(1)
1997 34,540 5,574(2)
1996 30,000 4,160(3)
(1) Represents $1,875 of expense reimbursement for business use of Mr.
Kilkenny's automobile and $5,558 of insurance premiums paid by the Company
for the benefit of Mr. Kilkenny.
(2) Represents $1,414 of expense reimbursement for business use of Mr.
Kilkenny's automobile and $4,160 of insurance premiums paid by the Company
for the benefit of Mr. Kilkenny.
(3) Represents $4,160 of insurance premiums paid by the Company for the benefit
of Mr. Kilkenny.
Stock Options Granted in Fiscal 1998
The Company does not have a stock option plan, nor were any stock
options granted by the Company during fiscal 1998 outside a plan. In February
1999, options to acquire an aggregate of 120,000 shares of Common Stock were
granted to Mr. Kilkenny. The options, which are not exercisable until October
2000, have an exercise price of $1.15 per share and are exercisable in whole or
in part until October 2003.
Item 7. Certain Relationships and Related Transactions.
On March 26, 1998 the Company purchased 100% of the outstanding common
stock of Animus Communications, Inc. ("Animus"), an Oklahoma corporation engaged
in the business of providing Web Hosting Services, selling computer equipment
and providing configuration and maintenance of the equipment. The aggregate
purchase price for the Animus stock was $350,000, of which $175,000 was paid at
closing with the remaining $175,000 paid in two installments subsequent to
closing. In connection with the acquisition, Jason C. Ayers, Vice President of
the Company and President of Animus, was paid approximately $28,542 in 1998 and
$29,792 in 1999 for his 1,000 shares of Animus common stock, which represented
approximately 16.67% of the total number of shares of Animus common stock
outstanding. The pro rata price paid to Mr. Ayers by the Company for his 1,000
shares of Animus common stock was the same price paid to other stockholders of
Animus.
In connection with the first installment payment of $50,000 due in
September 1998 to the former Animus stockholders, Mr. Kilkenny advanced $50,000
to the Company. Monthly payments of principal and interest were paid by the
Company until April 1999, when the $50,000 was repaid in full.
20
<PAGE>
Item 8. Description of Securities.
The authorized capital stock of the Company consists of (i) 10,000,000
shares of Common Stock, having a par value of $.00001 per share, of which
2,099,928 shares were issued and outstanding at June 30, 1999. At such date,
there were approximately 78 stockholders of record of the Common Stock.
Common Stock
The holders of Common Stock are entitled to one vote for each share on
all matters submitted to a vote of stockholders. There is no cumulative voting
with respect to the election of directors. Accordingly, holders of a majority of
the shares entitled to vote in any election of directors may elect all of the
directors standing for election. Subject to preferences that may be applicable
to any then outstanding class of preferred stock, the holders of Common Stock
are entitled to receive such dividends, if any, as may be declared by the Board
of Directors from time to time out of legally available funds. Upon liquidation,
dissolution or winding up of the Company, the holders of Common Stock are
entitled to share ratably in all assets of the Company that are legally
available for distribution, after payment of all debts and other liabilities and
subject to the prior rights of holders of any class of preferred stock then
outstanding. The holders of Common Stock have no preemptive, subscription,
redemption or conversion rights. The rights, preferences and privileges of
holders of Common Stock are subject to the rights of the holders of shares of
any series of preferred stock that the Company may issue in the future.
Transfer Agents, Warrant Agent and Registrar
The transfer agent for the Common Stock is Securities Transfer
Corporation, Dallas, Texas.
PART II
Item 1. Market Price of and Dividends on the Registrant's Common Equity and
Related Stockholder Matters.
General
The authorized capital stock of the Company consists of (i) 10,000,000
shares of common stock, having a par value of $.00001 per share, of which
2,099,928 shares were issued and outstanding at June 30, 1999. At such date,
there were outstanding options to purchase an aggregate 120,000 shares of Common
Stock. Additionally, a maximum of 200,000 shares of Common Stock as well as
options to purchase an aggregate 90,000 shares of Common Stock may be issued
pursuant to the terms of a financial advisory services agreement with a
financial advisory firm. The agreement is the subject of a dispute between the
Company and the financial advisor, and none of the shares or options have been
issued pending resolution of the dispute. See "Item 5. Legal Proceedings." In
June 1999, the Board of Directors granted stock bonuses to certain executive
officers and employees of the Company in an aggregate amount equal to 7% of the
fully diluted common stock outstanding at such date. Such shares have not yet
been issued, pending resolution of the amounts of Common Stock and stock options
payable in connection with the financial advisory services agreement.
Market Information
There is no public trading market for the Company's securities.
Although the Company's common stock will be eligible for trading on the OTC
Bulletin Board upon the effectiveness of this registration statement, there can
be no assurance that a market maker will agree to quote the common stock on the
OTC Bulletin Board. Hence, there can be no assurance that stockholders will be
able to sell their shares should they desire to do so. See "Item 1. Description
of Business-Risk Factors-Absence of Public Market."
21
<PAGE>
Number of Stockholders
The number of beneficial holders of record of the Common Stock of the
Company as of the close of business on June 30, 1999 was approximately 78.
Dividend Policy
To date, the Company has declared no cash dividends on its Common
Stock, and does not expect to pay cash dividends in the next term. The Company
intends to retain future earnings, if any, to provide funds for operation of its
business.
Item 2. Legal Proceedings.
The Company is not currently engaged in any material legal proceedings.
It is, however, subject to state commission, FCC and court decisions as they
relate to the interpretation and implementation of the Telecommunications Act,
the interpretation of CLEC interconnection agreements in general and our
interconnection agreements in particular. In some cases, the Company may be
deemed to be bound by the results of ongoing proceedings of these bodies or the
legal outcomes of other contested interconnection agreements that are similar to
agreements to which the Company is a party. The results of any of these
proceedings could have a material adverse effect on the Company's business,
prospects, financial condition and results of operations.
In February 1999, the Company entered into a financial advisory
services agreement with a financial advisory firm, pursuant to which Company
Common Stock and stock options were to be issued to such entity as partial
compensation for services to be performed by the financial advisor. The
agreement is the subject of a dispute between the Company and the financial
advisor. A maximum 200,000 shares of Common Stock were to be issued pursuant to
the terms of the agreement, as well as options to purchase an aggregate 90,000
shares of Common Stock at $1.25 per share beginning October 2000. The Common
Stock and options have not yet been issued pending resolution of the dispute. As
of August 11, 1999, there were no legal proceedings pending with respect to the
matters in dispute.
Item 3. Changes in and Disagreements with Accountants.
Not applicable.
22
<PAGE>
Item 4. Recent Sales of Unregistered Securities.
In April 1999, the Company completed an offering of Common Stock,
effected pursuant to Rule 504 of Regulation D of the Securities Act. Pursuant to
the 504 Offering, an aggregate of 648,500 shares of Common Stock were issued.
The following table sets forth, as of June 30, 1999, the use of the gross
proceeds of the 504 Offering:
Start-up costs for Fulltel (1) $116,193
Note payable (2) 125,000
Note payable (3) 50,000
Marketing costs 7,800
Working capital 284,507
Commissions and advisory fees 65,000
--------
Total $648,500
========
- ----------------------------
(1) Includes consulting fees, accounting and legal costs associated with
obtaining the carrier license from the Oklahoma Corporation Commission,
which regulates telephone carriers in the state of Oklahoma.
(2) This note payable represented the final installment of the purchase price
of Animus Communications, Inc. ("Animus"), which was acquired by the
Company in March 1998 for an aggregate purchase price of $350,000, of which
$175,000 was paid in cash at closing with the balance due over a one-year
period. Animus provides web hosting services to entities in 38 countries.
(3) This note payable evidenced the Company's obligation to repay an advance
made to the Company in September 1998 by Timothy J. Kilkenny, the President
and principal stockholder of the Company. Monies advanced by Mr. Kilkenny
were used by the Company to make an installment payment due to the former
stockholders of Animus.
Item 5. Indemnification of Directors and Officers.
Section 1006(B)(7) of the General Corporation Act of the State of
Oklahoma (the "OGCA") authorizes a corporation in its certificate of
incorporation to eliminate or limit the personal liability of members of its
board of directors to the corporation or its stockholders for monetary damages
for violations of a director's fiduciary duty of care, including acts
constituting gross negligence. Such a provision would have no effect on the
availability of equitable remedies, such as an injunction or rescission, for
breach of fiduciary duty. In addition, no such provision may eliminate or limit
the liability of a director for breaching his duty of loyalty to the corporation
or its shareholders, failing to act in good faith, engaging in intentional
misconduct or knowingly violating a law, paying an unlawful dividend or
approving an illegal stock repurchase, or executing any transaction from which
the director obtained an improper personal benefit.
Section 1031 of the OGCA empowers a corporation to indemnify any person
who was or is a party to or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right of the
corporation), by reason of the fact that he is or was a director, officer,
employee or agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorney's fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with such action, suit or
proceeding if he acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of the corporation, and, with respect
to any criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful. With respect to actions or suits by or in the right of the
corporation, such indemnification is limited to expenses (including attorneys'
fees) actually and reasonably incurred by such person in connection with the
defense or settlement of such action or suit. Further, no indemnification shall
be made in respect of any claim, issue or matter as to which such person shall
have been adjudged to be liable to the corporation unless and only to the extent
that the court in which such action or suit was brought shall determine upon
application that, despite the adjudication of liability but in view of all the
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the court shall deem proper. Additionally, a
23
<PAGE>
corporation is required to indemnify its directors and officers against expenses
to the extent that such directors or officers have been successful on the merits
or otherwise in defense of any action, suit or proceeding referred to above or
in defense of any claim, issue or matter therein.
An indemnification can be made by the corporation only upon a
determination made in the manner prescribed by the statute that indemnification
is proper in the circumstances because the party seeking indemnification has met
the applicable standard of conduct as set forth in the OGCA. The indemnification
provided by the OGCA shall not be deemed exclusive of any other rights to which
those seeking indemnification may be entitled under any bylaw, agreement, vote
of stockholders or disinterested directors, or otherwise. A corporation also has
the power to purchase and maintain insurance on behalf of any person covering
any liability incurred by such person in his capacity as a director, officer,
employee or agent of the corporation, or arising out of his status as such,
whether or not the corporation would have the power to indemnify him against
such liability. The indemnification provided by the OGCA shall, unless otherwise
provided when authorized or ratified, continue as to a person who has ceased to
be a director, officer, employee or agent and shall inure to the benefit of the
heirs, executors and administrators of such a person.
The Registrant's Charter and Bylaw Provisions
Section 7.1 of the Registrant's bylaws provides for indemnification to
the fullest extent permitted by Section 1031 of the OGCA.
24
<PAGE>
<TABLE>
<CAPTION>
PART F/S
INDEX TO FINANCIAL STATEMENTS
The Financial Statements required by this Item are included at the end
of this report beginning on page F-1 as follows:
Consolidated Financial Statements of Fullnet Communications, Inc. (Fullnet)
<S> <C> <C> <C>
Fullnet's Consolidated Financial Statements for the Years Ended December 31, 1998 and 1997
and Independent Auditor's Report............................................................. F-1
Independent Auditor's Report................................................................. F-2
Balance Sheets............................................................................... F-3
Income Statements............................................................................ F-5
Statements of Stockholders' Equity........................................................... F-6
Statements of Cash Flows..................................................................... F-7
Notes to Financial Statements................................................................ F-9
Fullnet's Consolidated Financial Statements for the
Six Months Ended June 30, 1999 (Unaudited)................................................... F-20
Consolidated Balance Sheet................................................................... F-21
Consolidated Income Statement................................................................ F-22
Condensed Consolidated Statement of Cash Flows............................................... F-23
Consolidated Statement of Shareholders' Equity............................................... F-24
Notes to Unaudited Consolidated Financial Statements......................................... F-25
</TABLE>
25
<PAGE>
PART III
Item 1. Index to Exhibits.
The following exhibits are filed herewith:
Exhibit
Number Name of Exhibit
------- ---------------
2.1 Certificate of Incorporation, as amended
2.2 Bylaws
3.1 Stock Option Agreement
6.1 Interconnection Agreement
6.2 Stock Purchase Agreement
6.3 Stock Option Agreement (to be included in Exhibit 3.1)
Item 2. Description of Exhibits
Not applicable.
26
<PAGE>
Pursuant to the requirements of Section 12 of the Securities Exchange
Act of 1934, the Registrant has duly caused this registration statement to be
signed on its behalf by the undersigned, thereto duly authorized.
August 11, 1999 FULLNET COMMUNICATIONS, INC.
By: /S/ Timothy J. Kilkenny
-----------------------
Timothy J. Kilkenny
President and Chief Executive Officer
27
<PAGE>
Fullnet Communications, Inc.
and Subsidiaries
Consolidated
Financial Statements
For the Years Ended
December 31, 1998 and 1997
and
Independent Auditors' Report
F-1
<PAGE>
Russell D. Robinson, CPA Warren Clinic Park
4606 East 67th Street, Suite 400
Charles L. Tefertiller, CPA Tulsa, Oklahoma 74136-4980
Phone: 918-492-8800
Norman C. Cross, Jr., CPA 1926-1985 Fax: 918-492-8808
www.crossandrobinson.com
Cross & Robinson
----------------------
ACCOUNTANTS AND AUDITORS
Independent Auditor's Report
Board of Directors
Fullnet Communications, Inc.
We have audited the accompanying consolidated balance sheets of Fullnet
Communications, Inc. and its wholly-owned subsidiaries Animus Communications,
Inc. and Fulltel, Inc. (Oklahoma corporations) as of December 31, 1998 and 1997
and the related consolidated statements of income, changes in shareholder's
equity and cash flow for the years then ended. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statement are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amount and disclosures in the consolidated financial statements.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall 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 financial position of
Fullnet Communications, Inc. and its subsidiaries Animus Communications, Inc.
and Fulltel, Inc. as of December 31, 1998 and 1997, and the results of its
operations and their cash flow for the years then ended in conformity with
generally accepted accounting principles.
CROSS AND ROBINSON
/S/ Cross and Robinson
---------------------------
Certified Public Accountants
Tulsa, Oklahoma
May 21, 1999
F-2
-------------------------
A PROFESSIONAL CORPORATION
<PAGE>
Fullnet Communications, Inc. and Subsidiaries
Consolidated Balance Sheets
December 31, 1998 and 1997
ASSETS
Current Assets 1998 1997
-------- --------
Cash $ 198 $ 3
Accounts receivable 105,809 24,855
Prepaid assets and other current assets 337 18,776
-------- --------
Total Current Assets 106,344 43,634
-------- --------
Property, Plant and Equipment, Net-Note 2 176,999 165,459
Goodwill-Note 12 302,667 --
Intangible Assets-Net of Accumulated
Amortization of $7,429-Note 3 64,726 67,669
Deferred Income Taxes-
Less Current Poriton-Note 6 17,500 --
-------- --------
Total Assets $668,236 $276,762
======== ========
Accompanying notes are an integral part of
the financial statements.
F-3
<PAGE>
LIABILITIES AND SHAREHOLDER'S EQUITY
1998 1997
-------- --------
Current Liabilities
Bank notes payable-current portion-Notes 4 and 5 $ 5,424 $ 24,273
Capital lease obligations-Note 10 9,039 --
Note payable-Animus purchase-Note 12 122,405 --
Cash overdraft 8,061 3,464
Deferred revenue-Note 1 97,379 28,055
Accounts payable-trade 129,578 31,058
Accrued interest 3,366 --
Accrued payroll expenses 5,430 2,454
Due to related parties-Note 11 43,891 (500)
-------- --------
Total Current Liabilities 424,573 88,804
-------- --------
BAnk Line of Credit-Note 4 616,107 351,567
Bank Notes Payable Less Current Portion-Note 5 81,819 79,899
Capital Lease Obligations Less Current Portion-Note 10 1,153 --
Shareholder's Equity
Common stock, $1 par value: 50,000 shares authorized,
500 shares issued and outstanding 500 500
Additional paid-in capital -- --
Retained earnings (455,916) (244,008)
-------- --------
Total Shareholder's Equity (Deficit) (455,416) (243,508)
-------- --------
Total Liabilities and Shareholder's Equity $ 668,236 $ 276,762
========= =========
Accompanying notes are an integral part of
the financial statements.
F-4
<PAGE>
Fullnet Communications, Inc. and Subsidiaries
Consolidated Income Statements
For the Years Ended December 31, 1998 and 1997
1998 1997
---------- ----------
Revenue from Sales $1,001,787 $ 511,903
Cost of goods Sold 790,155 460,322
---------- ----------
Gross Profit 211,632 51,581
Selling, General and Administrative Expenses 349,755 181,408
---------- ----------
Loss from Operations (138,123) (129,827)
Other Income and Expenses
Other income 4,387 --
Interest expense 75,398 50,588
---------- ----------
Net Loss Before Income Taxes $ (209,134) $ (180,415)
Provisions for Income Taxes-Note 6 -- --
---------- ----------
Net Loss $ (209,134) $ (180,415)
========== ==========
Net Loss per Common Share-Note 7 $ (418) $ (361)
========== ==========
Accompanying notes are an integral part of
the financial statements.
F-5
<PAGE>
<TABLE>
<CAPTION>
Fullnet Communications, Inc. and Subsidiaries
Consolidated Statements of Shareholder's Equity
For the Years Ended December 31, 1998 and 1997
Retained
Common Stock Earnings
Shares Amount (Deficit) Total
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Balance, January 1, 1997 500 $ 500 $ (63,593) $ (63,093)
Net loss from operations -- -- (180,415) (180,415)
---------- ---------- ---------- ----------
Balance, December 31, 1997 500 500 (244,008) (243,508)
Distributions of previous
Subchapter S earnings (2,774) (2,774)
Net loss from operations -- -- (209,134) (209,134)
---------- ---------- ---------- ----------
Balance, December 31, 1998 500 $ (455,916) $ (455,416)
========== ========== ========== ==========
</TABLE>
Accompanying notes are an integral part of
the financial statements.
F-6
<PAGE>
Fullnet Communications, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
For the Years Ended December 31, 1998 and 1997
1998 1997
---------- ----------
Cash Flows from Operating Activities:
Cash received from customers $ 942,236 $ 487,049
Other operating cash receipts 4,387 --
Cash paid to suppliers and employees (882,696) (548,088)
Interest paid (75,398) (25,148)
Taxes and other fees paid (19,579) (11,522)
Contributions to charity (250) (100)
---------- ----------
Net cash Used by Operating Activities (31,300) (97,809)
---------- ----------
Cash Flows from Investing Activities:
Plant and equipment purchases (30,393) (140,283)
Acquisition of subsidiary (175,000) --
Net purchase of investments -- (70,000)
---------- ----------
Net Cash used by Investing Activities (205,393) (210,283)
---------- ----------
Cash Flows from Financing Activities:
Proceeds from long-term debt -- 2,827
Proceeds from shareholder loans 44,391 --
Proceeds from line-of-credit 308,329 369,423
Repayment of note on purchase of subsidiary (37,055) --
Repayment of long-term debt (16,929) (46,299)
Repayment of line-of-credit (43,789) (17,856)
Repayment of capital lease obligation (18,059) --
---------- ----------
Net Cash Provided by Financing Activities 236,888 308,095
---------- ----------
Accompanying notes are an integral part of
the financial statements.
F-7
<PAGE>
Net Cash Provided 195 3
Cash at beginning of year 3 --
--------- ---------
Cash at End of Year $ 198 $ 3
========= =========
Reconciliation of Net Income to Net Cash
Cash Used by Operating Activities:
Net income (loss) $(209,134) $(180,415)
Adjustments to reconcile net income to net
cash used by operating activities:
Depreciation and amortization 105,594 45,844
(Increase) decrease in accounts receivable (56,778) (24,854)
(Increase) decrease in other current assets 18,439 40,173
Increase (decrease) in accounts payable 30,049 33,511
Increase (decrease) in deferred revenue 69,323 6,820
Increase (decrease) in loans from shareholder (2,773) --
Increase (decrease) in cash overdrafts 13,980 (18,888)
--------- ---------
Total adjustments 177,834 82,606
--------- ---------
Net Cash (Used) by Operating Activities $ (31,300) $ (97,809)
========= =========
Supplemental Disclosures:
Non-cash transactions affecting investing
and financing activities:
Debt issued as investment in subsidiary $ 175,000 $ --
Acquisition of subsidiary fixed assets $ 28,251 $ --
Acquired lease obligations of subsidiary $ (28,251) $ --
Accompanying notes are an integral part of
the financial statements.
F-8
<PAGE>
Fullnet Communications, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
Note 1 - Summary of Organization and Significant Accounting Policies
Organization and Description of Business
Fullnet Communications, Inc. formerly CEN-COM of Oklahoma, Inc.
("Fullnet" or "the Company") was incorporated in Oklahoma on May 24,
1995 as an internet communications company. Fullnet has 30 locations
in Oklahoma and will begin providing local access statewide beginning
in 1999. Along with internet service, Fullnet also provides
commercially dedicated ISDN to DS3 connectivity, WAN and LAN network
expertise, web design and hosting, domain name registration, and
co-location facilities.
On March 26, 1998 the Company purchased 100% of the outstanding
common stock of Animus Communications, Inc. ("Animus"), an Oklahoma
corporation engaged in the business of providing Web Hosting Services,
selling computer equipment and providing configuration and maintenance
of the equipment.
During 1998, a wholly-owned subsidiary of Fullnet was
incorporated. This new company is Fulltel, Inc. ("Fulltel"), an
Oklahoma corporation involved in providing local dial up for Internet
access. This incorporation was accounted for using the purchase
method of accounting. Fulltel had not begun its principal operations
in 1998 and, therefore had no operating revenues or expenses for the
year ended December 31, 1998.
Fulltel had no recorded assets at December 31, 1998 and
shareholders' equity consisted of 200 shares of no-par-value common
stock, with no related paid-in capital at that date. Consequently, the
Company did not recognize any income from this investment for the year
ended December 31, 1998.
Basis of Accounting
The consolidated financial statements have been prepared in
accordance with generally accepted accounting principles. The
statements have been prepared on the accrual basis of accounting and
include the assets, liabilities and results of operations of Fullnet
Communications, Inc. and its wholly owned subsidiary corporation,
Animus Communications, Inc. from the date of its acquisition. All
significant intercompany transactions and accounts have been
eliminated in the consolidated financial statements.
F-9
<PAGE>
Fullnet Communications, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
Note 1 - Summary of Organization and Significant Accounting Policies
(continued)
Cash and Cash Equivalents
The Company considers highly liquid investments (that are readily
convertible to cash) purchased with original maturity dates of three
months or less to be cash equivalents.
Revenue Recognition
Revenue is recognized on a monthly basis over the life of each
contract. Contract periods range from monthly to yearly. Deferred
revenues are calculated for those contracts that continue subsequent
to the current year-end.
Property, Plant and Equipment
Property, plant and equipment is stated at cost. Depreciation
expense for the years ended December 31, 1998 and 1997, was $84,566
and $43,513, respectively. Depreciation is computed on the
straight-line method over the estimated useful lives of the related
assets as follows:
Computers and equipment 5 years
Furniture and fixtures 7 years
Income Taxes
The Company, with the consent of its shareholders, has elected
under the Internal Revenue Code to be an S corporation. In lieu of
corporation income taxes, the shareholders of an S corporation are
taxed on their proportionate share of the Company's taxable income.
Therefore, no provision or liability for federal income taxes has been
included in the financial statements for the parent company.
Animus, a C Corporation, the wholly-owned subsidiary of Fullnet
uses the liability method of accounting for income taxes as set forth
in Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes." Under the liability method, deferred taxes are
determined based on the differences between the financial statement
and tax basis of assets and liabilities at enacted tax rates in effect
in the years in which the differences are expected to reverse.
F-10
<PAGE>
Fullnet Communications, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
Note 1 - Summary of Organization and Significant Accounting Policies
(continued)
Accounting Estimates
The preparation of these consolidated financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the amounts
reported in these consolidated financial statements and accompanying
notes. Actual results could differ materially from those estimates.
Note 2 - Property, Plant and Equipment
Property, plant and equipment consists of the following at
December 31, 1998 and 1997:
1998 1997
---------- ----------
Computers and equipment $350,747 $ 221,644
Furniture and Fixtures 5,785 4,920
Less accumulated depreciation (179,533) (61,105)
---------- ----------
$ 176,999 $ 165,459
========== ==========
Note 3 - Intangible Assets and Acquisitions
On April 22, 1997, the Company purchased the equipment, accounts
receivable, billed and unbilled, the internet customers and the
customer lists of Fullnet of Tulsa, an Oklahoma corporation in
exchange for cash of $100,000. This acquisition was accounted for
under the purchase method of accounting and the excess of the purchase
price over net assets acquired was recorded as an intangible asset in
the amount of $70,000. This asset is being amortized over 15 years
using the straight-line method. In connection with the acquisition,
Fullnet of Tulsa, Inc. entered into a covenant not-to-compete
agreement with Fullnet. Pursuant to the agreement, until April 22,
2000, the former owner will not engage in certain specific activities
related to Fullnet Communications, Inc. or its business.
Included in the purchase of Animus were the start up costs of
$2,155 associated with its incorporation. This asset is being
amortized over 60 months using the straight-line method.
F-11
<PAGE>
Fullnet Communications, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
Note 3 - Intangible Assets and Acquisitions (continued)
1998 1997
--------- ---------
Excess of purchase price over net
assets acquired, net of accumulated
amortization of $6,998 and $2,331 at
December 31, 1998 and 1997,
respectively. $ 63,002 $ 67,669
Start up costs associated with the
incorporation of Animus, net of
accumulated amortization of $431. 1,724 -
--------- ---------
$64,726 $67,669
========= =========
Note 4 - Bank Notes Payable
The Company's note payable-bank represents a $687,000 line of
credit of which $616,107 and $351,567 had been disbursed at December
31, 1998 and 1997, respectively. This note matures on September 15,
2002 and is personally guaranteed by the president of the Company.
Interest is payable monthly at 9.5%. The note is collateralized by
furniture and fixtures, accounts receivable and stock. At December 31,
1998, all of the Company's long-term debt is financed through one
institution.
Note 5 - Other Long-Term Debt
Other long-term debt consists of the following at December 31,
1998 and 1997:
1998 1997
--------- ---------
Note payable to bank collateralized by
furniture, fixtures, accounts receivable,
and stock with monthly payments of $444,
including interest at 11.5% and matures,
Septemeber 9, 2002. $ 31,048 $ 36,929
Note payable to bank collateralized by
furniture, fixtures, accounts receivable
and stock, with monthly payments of
$788, including interest at 11% and
matures April 1, 1998. - 1,896
F-12
<PAGE>
Fullnet Communications, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
Note 5 - Other Long-Term Debt (continued)
1998 1997
--------- ---------
Note payable to bank collateralized by
furniture, fixtures, accounts receivable,
and stock with montly payments of $798,
including interest at 11% and matures
September 15, 2002. 56,195 65,347
--------- ---------
87,243 104,172
Less current portion (5,424) (24,273)
--------- ---------
$ 81,819 $ 79,899
========= =========
Aggregate maturities of the notes payable-bank and
other long-term debt are as follows:
Year Amount
---------- ----------
1999 $ 5,424
2000 6,062
2001 6,775
2002 7,572
2003 8,463
Thereafter $669,054
Note 6 - Income Taxes
The deferred tax assets and liabilities are as
follows at December 31, 1998:
Net operating loss carryforward $ 38,000
Valuation allowance (20,500)
----------
Net Deferred Tax Asset $17,500
==========
F-13
<PAGE>
Fullnet Communications, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
Note 6 - Income Taxes (continued)
For financial reporting purposes, deferred tax assets are reduced
by a valuation allowance when, in the opinion of management, it is
more likely than not that some portion or all of the deferred tax
assets will not be realized. A valuation allowance of $20,500 has been
established for the year ended December 31, 1998. Due to Fullnet's
S-Corporation status (see Note 1), and the purchase of Animus during
1998 (see Note 12), there are no tax assets or liabilities recognized
for the year ended December 31, 1997.
Realization of approximately $17,500 of the total deferred tax
assets representing tax loss and credit carryforwards is dependent on
the Company's ability to generate approximately $44,000 of future
taxable income. Management believes that it is more likely than not
that forecasted taxable income, including income that may be generated
as a result of certain tax planning strategies, will be sufficient to
utilize the tax carryforwards prior to their expiration in 2011 to
partially recover the asset. However, there can be no assurance that
the Company will meet its expectations of future income. The Company
will continue to evaluate the realizability of the deferred tax assets
quarterly by assessing the need for and amount of a valuation
allowance.
As of December 31, 1998, the Company had a net operating loss
carryforward of approximately $ 95,000 for income tax purposes,
expiring in years beginning in 2011. Deferred taxes reflect a combined
federal and state tax rate of approximately 40%.
A reconciliation between the amount of federal and state income
taxes, based on a forty percent (40%) tax rate, and the effective
amount of income taxes based on continuing operations is as follows:
Statutory federal income taxes (refund) $ (76,417)
Exclusion of Subchapter S (earnings) loss 55,917
Valuation allowance 20,500
----------
Effective Income Taxes $ --
==========
Note 7 - Earnings Per Share of Common Stock
Statement of Financial Accounting Standards No. 128, "Earnings
Per Share," became effective in the fourth quarter of 1997 and
requires two presentations of earnings per share - "basic and
diluted".
F-14
<PAGE>
Fullnet Communications, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
Note 7 - Earnings Per Share of Common Stock (continued)
Basic earnings per share is computed by dividing income available
to common stockholders (the numerator) by the weighted-average number
of common share (the denominator) for the period. The computation of
diluted earnings per share is similar to basic earnings per share,
except that the denominator is increased to include the number of
additional common shares that would have been outstanding if the
potentially dilutive common shares had been issued. For the years
ended December 31, 1998 and 1997, Fullnet Communciations, Inc. did not
have any dilutive common shares.
Basic loss per share for the year ended December 31, 1998 and
1997 was computed as follows:
1998 1997
--------- ---------
Net loss from continuing operations
attributable to common shares $(209,134) $(180,415)
Weighted average common shares outstanding 500 500
Basic Loss Per Share From Continuing
Operations $ (418) $ (361)
========== ==========
Note 8 - Year 2000 Compliance (unaudited)
As the Year 2000 approaches, Fullnet Communications, Inc.
recognizes the need to ensure its operations will not be adversely
impacted by Year 2000 software failures. The Company is addressing
this issue to ensure the availability and integrity of its financial
systems and the reliability of its operational systems. Fullnet has
established processes for evaluating and managing the risks and costs
associated with this problem. The Company has and will continue to
make certain investments in its software systems and applications to
ensure that it is Year 2000 compliant. The financial impact to Fullnet
of Year 2000 remediation costs is anticipated to be in the range of
$300 to $500 in 1999. In addition, Fullnet is working with its
suppliers and customers to ensure their compliance with Year 2000
issues in order to avoid any interruptions in its business. While
Fullnet does not at this time anticipate significant problems with
suppliers and customers, it is developing contingency plans with these
third parties due to the possibility of compliance issues.
F-15
<PAGE>
Fullnet Communications, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
Note 9 - Subsequent Events
Subsequent to December 31, 1998, Fullnet Communications, Inc.
issued a subscription agreement under Regulation D, Rule 504 under the
Securities and Exchanges Act of 1933. This agreement allows the sale
of up to 1,000,000 shares of the Company's common stock at $1.00 per
share. Additionally, on April 6, 1999 Fullnet paid the remaining
balance on the note originally signed with Animus relating to their
stock purchase in 1998 (see Note 1).
On February 15, 1999, the Company's Board of Directors approved
an amendment to the Company's certificate of incorporation to increase
authorized common shares from 50 thousand to 10 million shares and to
effect a 2760-for-1 stock split with a reduction in par values from
$1.00 to $0.00001. In addition, Timothy Kilkenny, sole shareholder,
was granted a three year option to purchase 120,000 additional shares
at a price of $1.15 per share beginning 18 months after the initial
closing of the stock subscription mentioned in the previous paragraph.
The Company also entered into a financial consulting agreement with
third parties pursuant to which it will issue up to 220,000 shares and
three year options to purchase an aggregate of 90,000 additional
shares at a price of $1.25 per share beginning 18 months after the
initial closing of the stock subscription.
Note 10 - Capital Leases
Due to the purchase of Animus by Fullnet during 1998
(see Note 12), certain capital lease obligations were acquired by the
Company. Additionally, Fullnet held no capital lease obligations at
December 31, 1997. Property held under capital leases, included with
property owned on the balance sheet at December 31, 1998, consists of
the following:
Machinery and Equipment
Computers $ 28,251
Less: accumulated depreciation (10,145)
----------
Property and equipment under
capital leases, net $ 18,106
==========
F-16
<PAGE>
Fullnet Communications, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
Note 10 - Capital Leases (continued)
Capital lease obligation at December 31, 1998 consist of the
following:
Non-cancelable equipment lease expiring
September 25, 1999, payable in monthly
installments aggregating $6,314 including
imputed interest at 10%, secured by
certain equipment. $ 6,059
Non-cancelable equipment lease expiring
April 24, 2000, payable in monthly
installments aggregating $4,836 including
imputed interest at 22.92%, secured by
certain equipment. 4,133
Less: current portion of capital lease
obligations (9,039)
Long-term capital lease obligations, net $ 1,153
=========
The following is a schedule of future lease payments under capital
leases for the years ended December 31:
1999 $ 9,941
2000 1,209
Total minimum lease payments 11,150
Less: Imputed interest (958)
Present value of minimum lease payments $ 10,192
The Company and its subsidiary rent office and computer space
through six different operating leases that are renewed yearly. Rental
expense associated with these operating leases is charged to expenses
in the year incurred and was included in the Consolidated Income
Statement. Rental expense for the year ended December 31, 1998 and
1997 was $28,010 and $10,493, respectively.
F-17
<PAGE>
Fullnet Communications, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
Note 11 - Related Party Transactions
The Company has an outstanding obligation in the amount of
$43,891 at December 31, 1998 to the shareholder for advances made by
the shareholder in connection with the acquisition of Animus
Communications, Inc. (see Note 1). At December 31, 1997, the
shareholder had an outstanding obligation to Fullnet in the amount of
$500.
Note 12 - Purchase of Animus
As a result of the purchase of Animus by Fullnet, the
shareholders of Animus would receive cash and a note totaling
$350,000. An initial cash payment of $175,000 was paid at closing with
the balance due over the period of one year without an interest
charge. The financial statements reflect an imputed interest rate of
11% on the note balance resulting in a total discounted purchase price
of $334,460.
On September 31, 1998, Fullnet made a payment of $45,825 on the
non-interest-bearing note with the balance of $129,175 paid on April
1, 1999. Since the note payable has been discounted, the principal
balance at December 3, 1998 is reflected in the financial statements
as $122,405.
The consolidated financial statements reflect goodwill which is
the excess of the purchase price ($334,460) over the net assets of the
company purchased ($15,863) as well as the amount of amortization for
the year ended December 31, 1998 ($15,930). Goodwill is being
amortized using the straight-line method over 15 years.
The consolidated pro forma results of operations which follow
assume that the acquisition had occurred at the beginning of the
period presented. The calculations include adjustments for
depreciation, amortization, and interest. The pro forma statements may
not be indicative of the results that would have occurred if the
acquisition had been effective on the date indicated or of the results
that may be obtained in the future.
F-18
<PAGE>
Fullnet Communications, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
Note 12 - Purchase of Animus (continued)
1998
-----------
Contract Revenue $ 1,079,480
Cost of Goods Sold (800,765)
-----------
Gross Profit 278,715
Selling, General and Administrative (417,261)
Other Income and Expenses
Other income 4,437
Interest expense (63,261)
-----------
Net Loss $ (197,370)
===========
Net Loss Per Common Share - Note 7 $ (395)
===========
Note 13 - Advertising
The Company expenses advertising production costs as they are
incurred and advertising communication costs the first time the
advertising takes place. Advertising expenses for the year ended
December 31, 1998 and 1997 were $42,088 and $16,765, respectively.
Note 14 - Concentrations of Credit Risk
The Company operates and grants credit to customers in Oklahoma.
Accounts receivable derived from retail sales are not collateralized.
Concentrations of credit risk with respect to trade receivables are
limited due to the large number of customers comprising the Company's
customer base and their dispersion across different industries. As of
December 31, 1998 and 1997, the Company had no significant
concentrations of credit risk.
F-19
<PAGE>
Fullnet's Consolidated Financial Statements
for the Six Months Ended June 30, 1999
(Unaudited)
F-20
<PAGE>
Fullnet Communications, Inc. and Subsidiaries
Consolidated Balance Sheet
(Unaudited)
June 30, 1999
ASSETS
Current Assets
Cash $ 246,200
Accounts receivable 117,529
-----------
Total Current Assets 363,729
Property, Plant and Equipment, Net of Accumulated
Depreciation of $216,548 146,345
Goodwill - Net of Accumulated Amortization 292,047
Intangible Assets - Net of Accumulated
Amortization of $9,978 178,349
Loans to shareholders 9,937
-----------
Total Assets $ 990,407
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Bank notes and line of credit payable - current portion $ 56,711
Capital lease obligations, all current 4,798
Deferred revenue 114,196
Accounts payable - trade 53,368
Payroll liabilities 7,043
-----------
Total current liabilities 236,116
Bank Line of Credit and Loans payable 542,928
Bank Notes Payable Less Current Portion 78,872
Shareholders' Equity
Common stock, $.00001 par value:
10,000,000 shares authorized,
2,099,928 issued and outstanding 21
Additional paid-in capital 664,566
Retained earnings (deficit) (532,096)
-----------
Total Shareholders' Equity 132,491
-----------
Total Liabilities and Shareholders' Equity $ 990,407
===========
Accompanying notes are an integral part of the financial statements.
F-21
<PAGE>
Fullnet Communications, Inc. and Subsidiaries
Consolidated Income Statement
(Unaudited)
For the Six Months Ended June 30, 1999
Revenue from Sales $ 560,744
Cost of Goods Sold 453,412
------------
Gross Profit 107,332
Selling, General and Administrative Expenses 119,270
------------
Loss from Operations (11,938)
Other Income and Expenses
Interest expense (46,742)
------------
Net Loss Before Income Taxes (58,680)
Provisions for Income Taxes (17,500)
------------
Net Loss $ (76,180)
============
Net Loss per Common share $ .0363
============
Accompanying notes are an integral part of the financial statements.
F-22
<PAGE>
Fullnet Communications, Inc. and Subsidiaries
Condensed Consolidated Statement of Cash Flows
(Unaudited)
For the Six Months Ended June 30, 1999
Increase (decrease) in Cash:
Cash Flows from Operating Activities:
Cash received from customers $ 565,841
Cash paid to suppliers and employees (596,758)
Interest paid (50,108)
---------
Net Cash Provided by (used in) Operating Activities (81,025)
---------
Net Cash Provided by (used in) Investing Activities:
Computer equipment purchased -6,361
Startup costs Fulltel (116,172)
---------
Net Cash Provided by (used in) Operating Activities (122,533)
---------
Net Cash Provided by (used in) Financing Activities:
Retirement of long-term debt (152,638)
Contributions to capital from transactions in common stock 664,087
Repayment of loan from shareholder (53,828)
---------
Net Cash Provided by (used in) Financing Activities 457,621
---------
Net Increase (Decrease) in Cash $ 254,063
Cash at the Beginning of the Period (net overdraft) (7,863)
---------
Cash at the End of the Period $ 246,200
=========
Reconciliation of Net Income to Net Cash
Cash Provided by Operating Activities:
Net income (loss) $ (76,180)
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 50,184
(Increase) decrease in accounts receivable (11,720)
(Increase) decrease in prepaid expenses 337
(Increase) decrease in deferred taxes 17,500
Increase (decrease) in deferred revenue 16,817
Increase (decrease) in accounts payable (76,210)
Increase (decrease) in accrued interest (3,366)
Increase (decrease) in accrued payroll 1,613
---------
Net Cash (Used) by Operating Activities $ (81,025)
=========
Accompanying notes are an integral part of the financial statements.
F-23
<PAGE>
<TABLE>
<CAPTION>
Fullnet Communications, Inc. and Subsidiaries
Consolidated Statement of Shareholders' Equity
(Unaudited)
For the Six Months Ended June 30, 1999
Additional Retained
Common Stock Paid-In Earnings
Shares Par Value Capital (Deficit) Total
--------- ----------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1999 500 $ 500 $ - $ (455,916) $ (455,416)
Stock split 2,760 for 1, par value reduced 1,380,000 (486) 486 - -
From $1 per share to $.00001 per share
Common stock issued, 719,928 shares at
$1, net of offering expenses of $56,341 719,928 7 664,080 - 664,087
Net loss from operations (76,180) (76,180)
---------- ------------- ----------- ------------ ------------
Balance, June 30, 1999 2,099,928 $ 21 $ 664,566 (532,096) $ 132,491
========= ============= =========== ============ ============
</TABLE>
Accompanying notes are an integral part of the financial statements.
F-24
<PAGE>
Fullnet Communications, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
June 30, 1999
NOTE 1 BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the six month period ended June 30, 1999,
are not necessarily indicative of the results that may be expected for the year
ended December 31, 1999. For further information, refer to the consolidated
annual financial statements and footnotes thereto for the year ended December
31, 1998.
NOTE 2 REGULATION D, RULE 504 OFFERING
In April 1999, the Company raised an aggregate of $648,500 in an offering of its
common stock.
NOTE 3 OPTIONS ON COMMON STOCK
An option has been granted to Timothy J. Kilkenny to purchase 120,000 shares of
the common stock of the Company at a price of $1.15 per share, beginning October
2000. Mr. Kilkenny is an officer, director and controlling shareholder of the
Company.
A stock bonus was granted to Roger S. Laubhan in June 1999 equal to 3% of the
fully diluted shares of common stock deemed to be outstanding at such date. A
stock bonus was granted to Jason C. Ayers in June 1999 equal to 1% of the fully
diluted shares of common stock outstanding at such date. Such shares have not
yet been issued, pending resolution of certain contingent compensation, payable
in the form of common stock and stock options, which were to be paid to a third
party in connection with a financial advisory services agreement. Msrs. Laubhan
and Ayers are officers of the Company.
F25
EXHIBIT 2.1
CERTIFICATE OF CORRECTION
TO THE
AMENDED CERTIFICATE OF INCORPORATION
OF
FULLNET COMMUNICATIONS, INC.
FILED ON FEBRUARY 16, 1999
The undersigned corporation, an Oklahoma corporation, for the purpose
of correcting its Amended Certificate of Incorporation filed on February 16,
1999, pursuant to Section 1007 of the Oklahoma General Corporation Act, hereby
certifies:
1. The Amended Certificate of Incorporation filed on February 16, 1999,
incorrectly provided that the corporation is authorized to issue one class of
shares of capital stock, to be designated as "common stock", the total number of
shares which the corporation shall have authority to issue and the par value of
each share of common stock, are as follows:
Total Number Par Value Total Authorized
of Shares of Each Share Common Stock
10,000,000 $1.00 $10,000,000
2. The Amended Certificate of Incorporation filed on February 16, 1999, shall be
corrected as set forth below.
The corporation is authorized to issue one class of shares of capital
stock, to be designated as "common stock", the total number of shares which the
corporation shall have authority to issue and the par value of each share of
common stock, are as follows:
Total Number Par Value Total Authorized
of Shares of Each Share Common Stock
10,000,000 $0.00001 $100
IN WITNESS WHEREOF, this Corporation has caused this Certificate of
Correction to be signed by its President this 17th day of March, 1999.
FULLNET COMMUNICATIONS, INC.
An Oklahoma corporation
By:/S/ Timothy J. Kilkenny
------------------------------
Timothy J. Kilkenny, President
<PAGE>
AMENDED
CERTIFICATE OF INCORPORATION
OF
FULLNET COMMUNICATIONS, INC.
The undersigned corporation, an Oklahoma corporation, for purpose of
amending its Certificate of Incorporation pursuant to Section 1077 of the
Oklahoma General Corporation Act! hereby certifies:
1. Name.
A. No change, as filed May 24, 1995, and amended December
1 1995.
B. As amended: N/A
2. Registered Office.
A. No change, as filed May 24,1995.
B. As amended: N/A
3. Term.
A. No change, as filed May 24,1995.
B. As amended: N/A
4. Purpose.
A. No change, as filed May 24,1995.
B. As amended: N/A
5. Capital Stock:
A. The corporation is authorized to issue one class of
shares of capital stock, designed as "common stock",
the total number of authorized shares to be 50,000,
each with a par value of $1.00 per share.
B. As amended: The corporation is authorized to issue one
class of shares of capital stock, to be designated as
"common stock", the total number of shares which the
corporation shall have authority to issue and the par
value of each share of common stock, are as follows:
<PAGE>
Total Number Par Value Total Authorized
of Shares of Each Share Common Stock
10 ,000,000 $1.00 $10, 000,000
6. This Amendment to Certificate of Incorporation was duly adopted in
accordance with Section 1077 of the Oklahoma General Corporation Act. After
being proposed by the directors and adopted by the shareholders in the manner
and by the vote prescribed in said Section 1077 of the Oklahoma General
Corporation Act.
IN WITNESS WHEREOF, this Corporation has caused this Certificate to be
signed by its President and attested by its Secretary this 11th day of February,
1999.
FULLNET COMMUNICATIONS, INC.
An Oklahoma corporation
ATTEST:
/S/ Laura L. Kilkenny By: /S/ Timothy J. Kilkenny
- ---------------------------- --------------------------------
Laura L. KiIkenny, Secretary Timothy J. Kilkenny, President
<PAGE>
AMENDED
CERTIFICATE OF INCORPORATION
OF
CEN-COM OF OKLAHOMA, INC.
TO THE SECRETARY OF STATE OF THE STATE OF OKLAHOMA:
The undersigned corporation (this "Corporation"), an Oklahoma
corporation, for the purpose of amending its Certificate of Incorporation
pursuant to Section 1 077 of the Oklahoma General Corporation Act (the "Act"),
hereby certifies:
1. Name.
A. The name of this Corporation is "CEN-COM of Oklahoma,
Inc."
B. As amended: The name of this Corporation has been
changed to: "Fullnet. Communications, Inc."
2. Registered Office.
A. No change, as filed May 24, 1995.
B. As amended: N/A
3. Term.
A. No change, as filed May 24, 1995.
B. As amended: N/A.
4. Purpose.
A. No change, as filed May 24, 1995.
B. As amended: N/A
5. Capital Stock.
A. No change, as filed May 24, 1995.
B. As amended: N/A
6. This Amendment to Certificate of Incorporation was duly adopted in
accordance with Act Section 1077, after being proposed by the directors and
adopted by the shareholders in the manner and by the vote prescribed in Act
Section 1077.
<PAGE>
IN WITNESS WHEREOF, this Corporation has caused this Certificate to be
signed by its President and attested by its Secretary, this 30th day of
November, 1995.
CEN-COM OF OKLAHOMA, INC.,
an Oklahoma corporation
ATTEST:
/S/ Laura L. Kilkenny By: /S/ Timothy J. Kilkenny
- ---------------------------- ------------------------------
Laura L. KiIkenny, Secretary Timothy J. Kilkenny, President
<PAGE>
CERTIFICATE OF INCORPORATION
OF
CEN-COM OF OKLAHOMA, INC.
For the purpose of forming a for-profit stock corporation under and by
virtue of the Oklahoma General Corporation Act (the "Act") the following
Certificate of Incorporation is hereby adopted.
FIRST: Name. The name of the corporation is CEN-COM of Oklahoma, Inc.
(hereinafter the "Corporation").
SECOND: Purpose. The purpose or purposes for which the corporation
is organized is to engage in any lawful act or activity for which corporations
may be now or hereafter organized under the Act,
THIRD: Capital Stock. This Corporation is authorized to issue only one
(1) class of shares of capital stock, to be designated "Common Stock." The total
number of shares of Common Stock which this Corporation shall have authority to
issue and the par value of each share of Common Stock are as follows:
Total Number Par Value of Total Authorized
of Shares Each Share Common Stock
50,000 $1.00 $50,000.00
FOURTH: Initial Directors. The initial Board shall consist of one
director and the name and address of the person who shall serve as director
until the first annual meeting of stockholders or until his successor can be
elected and qualified are:
Name Mailing Address
Timothy J. Kilkenny 837 SE. Crestland
Bartlesville, OK 74006
FIFTH: Registered Office. The name and street address of the registered
agent of this Corporation in the State of Oklahoma and the street address of the
registered office of this Corporation in the State of Oklahoma, which is the
same as the street address of its registered agent, are:
Name Mailing Address
Timothy J. Kilkenny 837 S.E. Crestland
Bartlesville, OK 74006
<PAGE>
SIXTH: Incorporator. The name and mailing address of the incorporator
are as follows:
Name Mailing Address
Elaine Arnold Lakehoma Professional Center
106 N. Lakehoma Pkwy.
Mustang, OK 73064
SEVENTH: Term. The term of this Corporation shall be perpetual.
EIGHTH: Bylaws. The Bylaws for the governing of this Corporation
may be adopted, amended, altered, repealed or readopted by the Board of
Directors at any stated or special meeting of such board, but the powers of such
directors in this regard shall at all times be subject to the rights of the
shareholders to alter or repeal such Bylaws at any annual meeting of
shareholders.
NINTH: Amendment. This Corporation reserves the right at any time
and from time to time to amend, alter, change or repeal any provision contained
in this Certificate of Incorporation, and other provisions authorized by the
laws of the State of Oklahoma at the time may be added or inserted in this
Certificate of Incorporation, in the manner now or hereafter prescribed by law;
and all rights, preferences and privileges of whatsoever nature conferred upon
shareholders, directors or any other persons by and pursuant to this Certificate
of Incorporation in its present form or as hereafter amended are granted subject
to the right reserved in this Section NINTH.
IN WITNESS WHEREOF, the undersigned, the incorporator of the
above-named corporation, has hereunto signed this Certificate of incorporation
on this 24th day of May, 1995.
/S/ Elaine Arnold
-------------
Elaine Arnold
EXHIBIT 2.2
BYLAWS
OF
CEN-COM OF OKLAHOMA, INC.
(An Oklahoma Corporation)
ARTICLE I
Offices
SECTION 1.1. Principal Office. The present location of the principal
office for the transaction of the business of CEN-COM of Oklahoma, Inc. (the
"Corporation") is 837 SE. Crestland, Bartlesville, Oklahoma 74006. The Board of
Directors may change such principal office from time to time.
SECTION 1.2. Other Offices. The Corporation may have other offices at
such places, within or without the State of Oklahoma, as the Board of Directors
may designate or as the business of the Corporation may require from time to
time.
ARTICLE II
Meetings of Shareholders
SECTION 2.1. Annual Meetings. The annual meetings of shareholders shall
be held on the third Tuesday of the fourth month following the close of the
fiscal year; provided that if such day falls on a legal holiday, then any such
annual meeting of shareholders shall be held at the same time and place on the
next day thereafter which is a business day. Any such annual meeting may be held
at any other time which may be designated in a resolution adopted by the Board
of Directors or by the written consent of shareholders holding a majority of the
issued and outstanding voting shares of the Corporation. At the annual meeting,
directors shall be elected, reports of the affairs of the Corporation shall be
considered, and any other proper business may be transacted.
SECTION 2.2. Special Meetings. Special meetings of the shareholders for
any purpose or purposes, unless otherwise prescribed by law or by the
Certificate of Incorporation, may be called at any time by the President. Such
special meetings of the shareholders shall be called by the President, or by the
Secretary, at the request in writing of the Board of Directors or at the request
in writing of shareholders owning a majority in amount of the entire capital
stock of the corporation issued and outstanding and entitled to vote. Such
requests shall state the purpose or purposes of the proposed meeting. Notice of
such special meetings shall be given in the same manner as for annual meetings
of shareholders. Notices of any special meeting shall state, in addition to the
time, date and place of such meeting, the purpose or purposes of the meeting.
Business transacted at any special meeting of shareholders shall be limited to
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the purposes stated in the notice. Notice of a special meeting shall be given
not less than ten (1 0) days nor more than sixty (60) days after the receipt of
a request for a special meeting.
SECTION 2.3. Place of Meetings. All meetings of shareholders shall be
held either at the principal office of the Corporation or at any other place
within or without the State of Oklahoma as may be designated either by the Board
of Directors or by the written consent of the shareholders entitled to vote at
such meeting holding at least a majority of such shares given either before or
after the meeting and filed with the Secretary of the Corporation.
SECTION 2.4. Notice of Meetings. Written notice of the time, date and
place of each annual meeting of the shareholders shall be given to each
shareholder as described in Section 8.4 not less than ten (10) nor more than
sixty (60) days before each annual meeting.
SECTION 2.5. Voting List. The officer who has charge of the stock
ledger of the corporation shall prepare and make, at least forty-eight (48)
hours prior to each meeting of the shareholders, an alphabetical list of all
shareholders entitled to vote at such meeting, with the number of shares
entitled to be voted by each shareholder set forth opposite their respective
names. The said officer shall produce the share ledger or a duplicate thereof,
together with such list and shall keep it open either at a place within the city
where the meeting is to be held, which place shall be specified in the notice of
the meeting, or, if not so specified, at the place where the meeting is to be
held during the business hours of at least one (1) full day immediately
preceding the convening thereof and until the close of such meeting, and it
shall be subject to inspection at any time during such period by any shareholder
or person representing shares. However, the said officer shall not be required
to prepare and produce a list of shareholders in any case where the share ledger
reasonably shows in alphabetical order by classes of shares all persons entitled
to represent shares at such meeting with the number of shares entitled to be
voted by each shareholder.
SECTION 2.6. Quorum and Required Vote; Adjourned Meetings. The holders
of a majority of the stock issued and outstanding and entitled to vote thereat,
present in person or represented by proxy, shall constitute a quorum at all
meetings of the shareholders for the transaction of business, except as
otherwise provided by statute or the Certificate of Incorporation of the
Corporation. When a quorum is present at any meeting, a majority of the shares
represented thereat and entitled to vote thereat shall decide any question
brought before such meeting. The shareholders present at a duly called or held
meeting at which a quorum is present may continue to do business until
adjournment, notwithstanding the withdrawal of enough shareholders to leave less
than a quorum. Any shareholders' meeting, annual or special, whether or not a
quorum is present, may be adjourned from time to time by the holders of a
majority of the shares entitled to vote thereat, present in person or by proxy,
but in the absence of a quorum no other business may be transacted at such
meeting. It shall not be necessary to give any notice of the time and place of
the adjourned meeting or of the business to be transacted thereat, other than by
announcement at the meeting at which such announcement is taken, except that if
any shareholders' meeting, either annual or special, is adjourned for thirty
(30) days or more, notice of the adjourned meeting shall be given as in the case
of an original meeting.
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SECTION 2.7. Voting. At each meeting of shareholders each shareholder
entitled to vote shall vote in person or by proxy and he shall have one vote for
each share standing registered in his name at the closing of the transfer books
for such meeting, or the record date fixed for such meeting by the Board of
Directors, as the case may be, or standing registered in his name at the time of
such meeting if neither a date for the closing of the transfer books nor a
record date for such meeting has been fixed by the Board of Directors. The
voting at all meetings of shareholders may be viva voce but any qualified voter
may demand a share vote by written ballot, whereupon such share vote shall be
taken by written ballot each of which shall state the name of the shareholder
voting and the number of shares voted by him, and if such ballot be cast by
proxy, it shall also state the name of such proxy.
SECTION 2.8. Proxies. Any shareholder entitled to vote or execute
consents shall have the right to do so either in person or by one or more agents
authorized by proxy. The appointment of a proxy shall be in writing and signed
by the shareholder but shall require no other attestation and shall be filed
with the Secretary of the Corporation at or prior to the meeting. If any
shareholder appoints two or more persons to act as proxies and if the instrument
does not otherwise provide, then a majority of such persons present at the
meeting, or if only one shall be present, then that one shall have and may
exercise all of the powers conferred by such instrument upon all of the persons
so appointed; and if such proxies be equally divided as to the right and manner
of voting in any particular case, the vote shall be divided among the proxies.
Any person holding shares in a representative or fiduciary capacity which he may
represent in person may represent the same by proxy and confer general or
discretionary power upon such a proxy. The authority of a proxy if not coupled
with an interest may be terminated at will. Unless otherwise provided in the
appointment, the proxy's authority shall cease three (3) years after the
appointment. The termination of a proxy's authority by act of the shareholder
shall, subject to the time limitation herein set forth, be ineffective until
written notice of the termination has been given to the Secretary of the
Corporation. Unless otherwise provided therein, an appointment filed with the
Secretary shall have the effect of revoking all proxy appointments of prior
date. A proxy's authority shall not be revoked by the death or incapacity of the
maker unless before the vote is cast or the authority is exercised written
notice of such death or incapacity is given to the Corporation.
SECTION 2.9. Order of Business. The order of business at the annual
meeting, and so far as practicable at all other meetings of the shareholders,
shall be as follows:
(a) Calling meeting to order;
(b) Calling of roll and checking proxies;
(c) Proof of notice of meeting;
(d) Reading of any unapproved minutes;
(e) Reports of officers;
(f) Reports of committees;
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(g) Election of directors;
(h) Unfinished business;
(i) New business; and
(j) Adjournment.
SECTION 2.10. Action Without Meeting. Any action which, under any
provisions of the laws of the State of Oklahoma or under the provisions of the
Certificate of Incorporation or under these Bylaws may be taken at a meeting of
the shareholders, may be taken without a meeting, without prior notice and
without a vote if a consent in writing be signed by the holders of the
outstanding stock having not less than the minimum number of votes that would be
necessary to authorize or take action at a meeting at which all shares entitled
to vote thereon were present and voted. Such consent shall be filed with the
Secretary of the Corporation and made a part of the corporate records. Prompt
notice of the taking of the corporate action without a meeting by less than
unanimous written consent shall be given to those shareholders who have not
consented in writing.
ARTICLE Ill
Board of Directors
SECTION 3.1. Powers. All corporate powers, except those which are
conferred upon or reserved to the shareholders by the Certificate of
Incorporation, these Bylaws and the laws of the State of Oklahoma, shall be
exercised by or under the authority of, and the business and affairs of the
Corporation shall be managed and conducted by, the Board of Directors. Without
prejudice to such general power, but subject to the same limitations, the Board
of Directors shall have the following powers:
(a) To select and remove all officers, agents and employees of the
Corporation, prescribe such powers and duties for them as may not be
inconsistent with applicable law, with the Certificate of Incorporation or these
Bylaws and fix their compensation and to confer upon any officer of the
Corporation the power to appoint, remove and suspend subordinate officers and
agents;
(b) To adopt, make and use a corporate seal, and to prescribe the forms
of certificates of stock, and to alter the form of such seal and of such
certificates from time to time, as it may determine advisable;
(c) To authorize the issuance of shares of stock of the Corporation
from time to time, upon such terms as may be in accordance with applicable law
and to declare dividends from time to time in accordance with applicable law;
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(d) To borrow money and incur indebtedness for the purposes of the
Corporation, and to cause to be executed and delivered therefor, in the
corporate name, promissory notes, bonds, debentures, deeds of trust, mortgages,
pledges, hypothecations or other evidences of debt and securities therefor;
(e) To adopt such insurance, retirement and other benefits plans for
directors, officers and agents of the Corporation and its subsidiaries as it may
determine advisable; and
(f) To adopt regulations, not inconsistent with these Bylaws, for the
management of the Corporation's business and affairs.
Section 3.2. Number, Election and Term of Office. The Board of
Directors of the Corporation shall consist of one or more members. The
shareholders at any meeting shall determine the number which shall constitute
the Board of Directors and the number so determined shall remain fixed until
changed at a subsequent meeting of the shareholders. The directors shall be
elected at each annual meeting of the shareholders; however, if any such annual
meeting is not held or the directors are not elected thereat, the directors may
be elected at any meeting of the shareholders held for that purpose. Each
director shall hold office until his successor is elected or until his earlier
resignation or removal. A director need not be a shareholder of the Corporation.
SECTION 3.3. Vacancies. Vacancies in the Board of Directors may be
filled by a majority of the directors then in office, though not less than a
quorum, or by a sole remaining director, and each director so elected shall hold
office until his successor is elected at an annual or a special meeting of the
shareholders. A vacancy or vacancies in the Board of Directors shall be deemed
to exist in case of the death, resignation or removal of any director, or if the
authorized number of directors be increased, or if the shareholders fail, at any
annual or special meeting of shareholders at which any director or directors are
elected, to elect the full authorized number of directors to be voted for at
that meeting. The shareholders may elect a director or directors at any time to
fill any vacancy or vacancies not filled by the directors.
SECTION 3.4. Resignations. Upon the resignation of a director, a
majority of the remaining directors or the sole remaining director shall have
the power to elect a successor to take office when the resignation is to become
effective.
SECTION 3.5. Removal. The entire Board of Directors or any individual
director may be removed from office, with or without cause, by the vote of
shareholders holding a majority of the issued and outstanding shares entitled to
vote at any annual or special meeting of shareholders. New directors to fill
vacancies created by removal may be elected at the same meeting of shareholders
By the affirmative vote of a majority of the members of the Board of Directors
then in office, the Board of Directors at any time may remove, for cause or
without cause, any officer elected or appointed by the Board of Directors.
SECTION 3.6. Annual Meetings. An annual meeting of the Board of
Directors for the purpose of election of officers of the Corporation and the
transaction of any other business coming before such meeting shall be held each
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year immediately following the adjournment of the annual meeting of the
shareholders and no notice of such meeting to the elected directors shall be
necessary in order to legally constitute the meeting, provided a majority of the
Board shall be present. If a majority of the Board shall not be present, then
such annual meeting may be held at such time as shall be fixed by the consent,
in writing, of all of the directors. Other meetings of the Board may be held as
shall from time to time be determined by the Board provided notice of the time,
date and place of any such meeting is given to each director not less than two
(2) days before such meeting.
SECTION 3.7. Regular Meetings. Regular meetings of the Board of
Directors shall be held at such place or places, on such date or dates, and at
such time or times as shall have been established by the Board of Directors and
publicized among all directors. No notice of such regular meeting shall be
required.
SECTION 3.8. Special Meetings. Special meetings of the Board of
Directors for any purpose or purposes may be called at any time by the President
or the Secretary or by any two directors by notice of the time, date and place
thereof given to each director not less than two (2) days before such meeting.
No business shall be considered at any special meeting other than the purposes
mentioned in the notice given to each director of the meeting, except with the
consent of all directors.
SECTION 3.9. Place of Meetings. Meetings of the Board of Directors
shall be held at any place within or without the State of Oklahoma which has
been designated from time to time by resolution adopted by the Board or by
written consent of all members of the Board. In the absence of such designation,
meetings shall be held at the principal office of the Corporation.
SECTION 3.10. Quorum and Required Vote; Adjourned Meetings. A majority
of the directors shall constitute a quorum for the transaction of business at
any meeting of the directors, and the acts of a majority of the directors
present at a meeting at which a quorum is present shall be the acts of the Board
of Directors except as may be otherwise specifically provided by statute, by the
Certificate of incorporation or by these Bylaws and except to adjourn as
hereinafter provided. A quorum of the directors may adjourn any meeting of the
directors to meet again at a stated day and hour; provided that in the absence
of a quorum a majority of the directors present at any meeting of the directors,
either regular or special, may adjourn to a later date but may not transact any
business until a quorum has been secured. At any adjourned meeting at which a
required number of directors shall be present, any business may be transacted
which might have been transacted at the meeting as originally notified. Notice
of the time and place of holding an adjourned meeting need not be given to
absent directors if the time and place be fixed at the meeting adjourned.
SECTION 3.11. Compensation. Directors and members of committees may
receive such compensation, if any, for their services, and such reimbursement
for expenses, as may be fixed by resolution adopted by the Board of Directors.
Members of special or standing committees may be allowed compensation for
attending committee meetings, provided such compensation is authorized by
resolution of the Board of Directors.
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SECTION 3.12. Action without Meeting. Any action required or permitted
to be taken at a meeting of the Board of Directors may be taken without a
meeting if all members of the Board consent thereto in writing. Such written
action by unanimous consent shall have the same effect as action taken at a
meeting of the Board of Directors and shall be filed with the Secretary of the
Corporation and made a part of the minute of proceeding of the Board of
Directors.
SECTION 3.13. Committees. The Board of Directors may, by resolution
passed by a majority of the whole Board, designate one or more committees, each
such committee to consist of one (1) or more of the directors of the
Corporation, that, to the extent provided in the resolution, shall have and may
exercise the powers of the Board of Directors in the management of the business
and affairs of the Corporation and may authorize the seal of the Corporation to
be affixed to all papers which may require it. Such committee or committees
shall have such name or names as may be determined from time to time by
resolution adopted by the Board of Directors. Each committee so designated shall
keep regular minutes of its meetings and shall report the same to the Board of
Directors when required.
SECTION 3.14. Telephonic Meetings. Members of the Board of Directors,
or any committee thereof, may participate in a meeting of the Board of Directors
or such committee by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and participation in a meeting pursuant to this section shall
constitute presence in person at such meeting.
ARTICLE IV
Officers
Section 4.1. Officers. The officers of the Corporation shall, at a
minimum, consist of a President and a Secretary. The Board of Directors may also
choose additional officers, including a Chairman or Vice Chairman of the Board
of Directors, one or more Vice Presidents, a Treasurer, and one or more
Assistant Secretaries or Assistant Treasurers, and such other officers as may be
appointed in accordance with Section 4.3. One person may hold two or more
offices; provided that no person shall at the same time hold the offices of
President and Secretary.
SECTION 4.2. Election. The officers of the Corporation, except such
officers as may be appointed in accordance with Section 4.3 or 4.5, shall be
elected annually by the Board of Directors, and each shall hold his office until
he shall resign or shall be removed or otherwise disqualified to serve, or his
successor shall be elected and qualified.
SECTION 4.3. Subordinate Officers. The Board of Directors may appoint,
and may empower the President to appoint, such other officers as the business of
the Corporation may require, each of whom shall hold office for such period,
have such authority and perform such duties as are provided in these Bylaws or
as the Board of Directors may from time to time determine.
SECTION 4.4. Removal. Any officer may be removed, either with or
without cause, by the Board of Directors, at any regular or special meeting
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thereof, or, except in case of an officer chosen by the Board of Directors, by
any officer upon whom such power of removal may be conferred by the Board of
Directors.
SECTION 4.5. Resignation. Any officer may resign at any time by giving
written notice to the Board of Directors, or to the President, or to the
Secretary of the Corporation. Any such resignation shall take effect at the date
of the receipt of such notice or at any later time specified therein; and,
unless otherwise specified therein, the acceptance of such resignation shall not
be necessary to make it effective.
SECTION 4.6. Vacancies. A vacancy in any office because of death,
removal, resignation, disqualification or any other cause shall be filled in the
manner prescribed in these Bylaws for regular appointments to such office.
SECTION 4.7. Chairman of the Board. The Chairman of the Board, if any,
shall, if present, preside at all meetings of the Board of Directors and
exercise and perform such other powers and duties as may be from time to time
assigned to him by the Board of Directors or prescribed by these Bylaws.
SECTION 4.8. Vice Chairman of the Board. The Vice Chairman of the
Board, if any, shall perform such duties as the Board of Directors shall
prescribe. In the absence or disability of the Chairman of the Board, the Vice
Chairman shall perform the duties and exercise the powers of the Chairman of the
Board.
SECTION 4.9. President. The President shall be the Chief Executive
Officer of the Corporation and shall, subject to the control of the Board of
Directors, have general supervision, direction and control of the business,
finances and affairs of the Corporation and all other powers normally held and
exercised by the person serving as President of a corporation. The President
shall:
(a) Preside at all meetings of the shareholders and, in the
absence of the Chairman of the Board, at all meetings of the Board of Directors;
(b) Sign or countersign, as may be necessary, all such bills,
notes, checks, contracts and other instruments as may pertain to the ordinary
course of the business of the Corporation;
(c) Execute deeds, bonds, mortgages, and contracts required to
be executed under the seal of the Corporation, except where required or
permitted by law to be otherwise signed and executed and except where the
signing and execution thereof shall be expressly delegated by the Board of
Directors to some other officer or agent of the Corporation;
(d) Have the power to appoint all employees and agents of the
Corporation whose appointment is not otherwise provided for and to fix the
compensation thereof subject to the provisions of these Bylaws or suspend any
employee or agent who shall not have been appointed by the Board of Directors
and to suspend for cause, pending final action by the body which shall have
appointed him, any officer other than an elected officer, or any employee or
agent who shall have been appointed by the Board of Directors.
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(e) Present a complete report of the business of the
Corporation for the preceding fiscal year at the annual meeting of the
shareholders and report to the Board of Directors from time to time all matters
coming to his attention which materially affect the business of the Corporation;
and
(f) Serve as a member of the Board of Directors and an
ex-officio member of all standing committees, including the Executive Committee,
if any; and possess such usual powers and duties of supervision and management
as may pertain to the office of the President and such other powers and duties
as may be prescribed by the Board of Directors or these Bylaws.
SECTION 4.10. Vice President. In the absence or disability of the
President, the Vice Presidents, if any, in the order determined by the Board of
Directors, shall perform the duties and exercise the powers of the President and
shall perform such other duties and have such other powers as the Board of
Directors may from time to time prescribe.
SECTION 4.11. Secretary. The Secretary shall:
(a) Attend all meetings of the Board of Directors and the
shareholders and record all votes and the minutes of all proceedings in a book
to be kept for that purpose and shall, when requested, perform like duties for
all committees of the Board of Directors;
(b) Duly give or cause to be given all notices in accordance
with these Bylaws or as required by law;
(c) Be custodian of the corporate records and of the seal of
the Corporation and see that the seal of the Corporation is affixed to all
documents the execution of which on behalf of the Corporation under its seal is
duly authorized;
(d) Sign, with the President or Vice President, all deeds,
bonds, mortgages, contracts and other instruments when so ordered;
(e} Keep a register of the post office address of each
shareholder which shall be furnished to the Secretary by such shareholder;
(f) Have general charge of the stock transfer books of the
Corporation; and
(g) In general, perform all duties as from time to time may be
assigned to him by the President or by the Board of Directors.
SECTION 4.12. Assistant Secretaries. In the absence of the Secretary or
in the event of his death, inability or refusal to act, the Assistant
Secretaries in the order of their length of service as Assistant Secretary,
unless otherwise determined by the Board of Directors, shall perform the duties
of the Secretary, and when so acting shall have all the powers of, and be
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subject to, all the restrictions upon the Secretary. They shall perform such
duties as may be assigned to them by the Secretary, by the President, or by the
Board of Directors.
SECTION 4.13. Treasurer. The Treasurer, if one is chosen or, if not,
the Secretary, shall:
(a) Keep and maintain adequate and correct accounts of the
properties and business transactions of the Corporation;
(b) Have charge and custody of and be responsible for all
funds and securities of the Corporation; receive and give receipts for moneys
due and payable to the Corporation from any source whatsoever, and deposit all
such moneys in the name of the Corporation in such depositories as shall be
designated by the Board of Directors;
(c) Sign or countersign, as may be necessary, all such
bills, notes, checks and other instruments relating to the fiscal affairs of the
Corporation in the ordinary course of the business of the Corporation.
(d) Prepare, or cause to be prepared, a true statement of
the Corporation's assets and liabilities as of the close of each fiscal year and
a true statement of the results of the operations of the Corporation for the
fiscal year then ended, all in reasonable detail; and
(e) In general, perform all duties as from time to time may be
assigned to him by the President or by the Board of Directors.
SECTION 4.14. Assistant Treasurers. In the absence of the Treasurer or
in the event of his death, inability or refusal to act, the Assistant
Treasurers, in the order of their length of service as Assistant Treasurer,
unless otherwise determined by the Board of Directors, shall perform the duties
of the Treasurer, and when so acting shall have all the powers of, and be
subject to, all the restrictions upon the Treasurer. They shall perform such
other duties as may be assigned to them by the Treasurer, by the President, or
by the Board of Directors.
SECTION 4.15. Delegation of Duties. In case of the absence or
disability of any officer of the Corporation or for any other reason that the
Board of Directors may deem sufficient, the Board of Directors may, by a vote of
the majority of the whole Board, delegate, for the time being, the powers or
duties, or any of them, of such officer to any other officer or to any director.
ARTICLE V
Shares of Stock
SECTION 5.1. Certificates of Stock. A certificate or certificates for
shares of the capital stock of the Corporation shall be issued to each
shareholder when any such shares are fully paid, showing the number of the
shares of the Corporation standing on the books in his name. The form of such
certificate shall be determined by the Board of Directors. All such certificates
shall be signed by the President or a Vice President and the Secretary or an
Assistant Secretary, or be authenticated by facsimiles of the signatures of the
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President and Secretary or by a facsimile of the signature of the President and
the written signature of the Secretary or an Assistant Secretary. Every
certificate authenticated by a facsimile of a signature must be countersigned by
a transfer agent or transfer clerk. Even though an officer who signed, or whose
facsimile signature has been written, printed or stamped on, a certificate for
shares shall have ceased by death, resignation or otherwise to be an officer of
the Corporation before such certificate is delivered by the Corporation, such
certificate shall be as valid as though signed by a duly elected, qualified and
authorized officer, if it be countersigned by a transfer agent or transfer
clerk. Such certificates shall also be numbered and sealed with the seal of the
Corporation.
SECTION 5.2. Record of Shareholders. There shall be kept at the
registered office of the Corporation in the State of Oklahoma a record
containing the names and addresses of all shareholders of the Corporation,
arranged in alphabetical order, the number and class of shares held by each and
the dates when they respectively became the owners of record thereof; provided
that the foregoing shall not be required if the Corporation shall keep at its
registered office a statement containing the name and post office address,
including street number, if any, of the custodian of such record. Duplicate
lists may be kept in such other state or states as may, from time to time, be
determined by the Board of Directors.
SECTION 5.3. Transfer Agents and Registrars. The Board of Directors
may, in its discretion, appoint one or more banks or trust companies in such
city or cities as the Board of Directors may deem advisable, from time to time,
to act as Transfer Agents and Registrars of the shares of stock of the
Corporation; and, upon such appointments being made, no certificate representing
shares shall be valid until countersigned by one of such Transfer Agents and
registered by one of such Registrars.
Section 5.4. Transfer of Shares. Transfers of stock of the Corporation
shall be made on the books of the Corporation only upon authorization by the
registered holder thereof or by his attorney lawfully constituted in writing and
on surrender and cancellation of a certificate or certificates of a like number
of shares of the same class properly endorsed or accompanied by a duly executed
stock transfer power and payment of all taxes thereon, with such proof of
authenticity of the signatures as the Corporation or its transfer agents may
reasonably require.
SECTION 5.5. Shareholders Record Date and Closing Stock Books. The
Board of Directors may fix, in advance, a time as a record date for the
determination of the shareholders entitled to notice of or to vote at any
meeting of shareholders or any adjournment thereof, or to express consent to
corporate action in writing without a meeting not more than sixty (60) days
prior to the date of the meeting or action nor less than ten (10) days prior to
the date of the meeting or action. The Board of Directors may also fix, in
advance, a time as a record date for the determination of shareholders entitled
to receive payment of any dividend or other distribution or allotment of any
rights, or entitled to exercise any rights in respect of any change, conversion,
or exchange of shares or for the purpose of any other lawful action which shall
be not more than sixty (60) days prior to the date of the event for the purpose
of which it is fixed. When a record date is so fixed, only shareholders of
record on that date are entitled to notice of and to vote at the meeting or to
receive a dividend, distribution, or allotment of rights, or to exercise the
rights, as the case may be, notwithstanding any transfer of any shares on the
11
<PAGE>
books of the Corporation after the record date. In lieu of fixing a record date,
the Board of Directors may close the books of the Corporation against any
transfer of shares for a stated period but not to exceed in any case the maximum
periods set forth above.
SECTION 5.6. Registered Shareholders. The Corporation shall be entitled
to recognize the holder of record of any share or shares of stock as the
exclusive owner thereof for all purposes, and, accordingly, shall not be bound
to recognize any equitable or other claim to or interest in such shares on the
part of any other person, whether or not it shall have express or other notice
thereof, except as otherwise provided by law.
SECTION 5.7. Lost Certificates. No new certificate for shares shall be
issued in lieu of an old one unless the latter is surrendered and canceled at
the same time; provided that if any certificate for shares is lost, stolen,
mutilated or destroyed, the Board of Directors may authorize the issuance of a
new certificate in lieu thereof, upon such terms and conditions, including
indemnification of the Corporation reasonably satisfactory to it, as the Board
of Directors shall determine.
ARTICLE VI
Execution of Instruments
SECTION 6.1. Contracts. The Board of Directors or any committee
thereunto authorized may authorize any officer or officers, agent or agents, to
enter into any contract or to execute and deliver in the name and on behalf of
the Corporation any contract or other instrument, except certificates
representing shares of stock of the Corporation, and such authority may be
general or may be confined to specific instances.
SECTION 6.2. Checks or Drafts. All checks, drafts or other orders for
the payment of money, notes, acceptances or other evidences of indebtedness
issued by or in the name of the Corporation shall be signed by such officer or
officers, agent or agents of the Corporation and in such manner as shall be
determined from time to time by resolution of the Board of Directors.
SECTION 6.3. Deposits; Bank Accounts. All funds of the Corporation not
otherwise employed shall be deposited from time to time to the credit of the
Corporation in such banks, trust companies or other depositories as the Board of
Directors may from time to time designate or as may be designated by an officer
or officers of the Corporation to whom such power of designation may from time
to time be delegated by the Board of Directors. The Board of Directors may make
such special rules and regulations with respect to such bank accounts, not
inconsistent with the provisions of these Bylaws, as it may deem expedient.
Unless otherwise provided by resolution of the Board of Directors, endorsements
for deposit to the credit of the Corporation in any of its duly authorized
depositories may be made by hand-stamped legend in the name of the Corporation
or by written endorsement by any officer without countersignature.
SECTION 6.4. Loans. No loans shall be contracted on behalf of the
Corporation unless authorized by the Board of Directors, but when so authorized,
unless a particular officer or agent is directed to negotiate the same, may be
12
<PAGE>
negotiated, up to the amount so authorized, by the President or a Vice President
or the Treasurer; and such officers are hereby severally authorized to execute
and deliver in the name and on behalf of the Corporation notes or other
evidences of indebtedness countersigned by the President or a Vice President for
the amount of such loans and to give security for the payment of any and all
loans, advances and indebtedness by hypothecating, pledging or transferring any
part or all of the property of the Corporation, real or personal, at any time
owned by the Corporation.
SECTION 6.5. Sale or Transfer of Securities Held by the Corporation.
Stock certificates, bonds or other securities at any time owned by the
Corporation may be held on behalf of the Corporation or sold, transferred or
otherwise disposed of pursuant to authorization by the Board of Directors, or of
any committee thereunto duly authorized, and when so authorized to be sold,
transferred or otherwise disposed of, may be transferred from the name of the
Corporation by the signature of the President or a Vice President and the
Treasurer or an Assistant Treasurer or the Secretary or an Assistant Secretary.
SECTION 6.6. Execution of Proxies. The President, or, in the absence or
disability of the President, a Vice President, may authorize from time to time
the signature and issuance of proxies to vote upon shares of stock of other
corporations standing in the name of the Corporation or authorize the execution
of consents to action taken or to be taken by such other corporation. All such
proxies and consents shall be signed in the name of the Corporation by the
President or a Vice President and by the Secretary or an Assistant Secretary.
ARTICLE VII
Indemnification
SECTION 7.1. Indemnification of Officers, Directors, Employees and
Agents. To the extent and in the manner permitted by the laws of the State of
Oklahoma and specifically as is permitted under Section 1031 of Title 18 of the
Oklahoma Statutes, the Corporation shall indemnify any person who, by reason of
the fact that such person is or was a director, officer, employee, or agent of
the Corporation or is or was serving at the request of the Corporation as a
director, officer, employee, or agent of another corporation, partnership, joint
venture, trust, or other enterprise, was or is made a party to, or is threatened
to be made a party to, any threatened, pending or completed action, suit, or
proceeding (whether civil, criminal, administrative, or investigative), other
than an action by or in the right of the Corporation, against all expenses
(including attorney's fees, judgments, fines and amounts paid in settlement)
actually and reasonably incurred by him resulting from and arising out of said
action, suit or proceeding.
ARTICLE VIII
General Provisions
SECTION 8.1. Fiscal Year. The fiscal year of the Corporation shall be
determined by the Board of Directors.
13
<PAGE>
SECTION 8.2. Seal. The corporate seal of the Corporation shall be
circular in form and shall contain the name of the Corporation, the word
"OKLAHOMA" and such other words or information as shall be determined by the
Board of Directors. The seal may be used by causing it or a facsimile thereof to
be impressed, affixed or otherwise reproduced.
SECTION 8.3. Dividends. The Board of Directors may, out of funds
legally available therefor, from time to time at any regular or special meeting,
declare, and the Corporation may pay, dividends on its outstanding shares of
capital stock as and when it deems expedient. Such dividends may be made in
cash, property or shares of the capital stock of other securities of the
Corporation.
SECTION 8.4. Notice. Whenever any notice is required or permitted to be
given under the provisions of any law, the Certificate of Incorporation or these
Bylaws, it shall not be construed to require personal notice unless expressly so
stated, but such notice may be given by depositing the same in the United States
mail, postage prepaid, addressed to the person entitled thereto at his address
as it appears on the records of the Corporation, and such notice shall be deemed
to have been given on the day of such mailing. Notice shall be deemed to have
been duly given on the date of service if served personally or by telex,
telecopier, cable, telegram or similar communication. Shareholders not entitled
to vote shall not be entitled to receive notice of any meetings except as
otherwise provided by statute.
SECTION 8.5. Waiver of Notice. Whenever any notice whatever is required
to be given under the provisions of any law or of the Certificate of
Incorporation or of these Bylaws, a written waiver thereof, signed by the person
or persons entitled to such notice, whether before or after the time stated
therein, shall be deemed equivalent to notice. Attendance of a person at a
meeting shall constitute a waiver of notice of such meeting, except when the
person attends a meeting for the express purpose of objecting, at the beginning
of the meeting, to the transaction of any business because the meeting is not
lawfully called or convened. Neither the business to be transacted at, nor the
purpose of, any annual or special meeting of the shareholders, directors or
members of a committee of directors need be specified in any written waiver of
notice unless so required by the Certificate of incorporation.
SECTION 8.6. Conflicts of Interest. Except as may be otherwise provided
by the laws of the State of Oklahoma or the Certificate of Incorporation, no
contract or transaction between the Corporation and one or more of its directors
or officers, or between the Corporation and any other corporation, partnership,
association or other organization in which one or more of the directors or
officers are directors or officers, or have a financial interest, shall be void
or voidable solely for this reason, or solely because the director or officer is
present at or participates in the meeting of the Board of Directors or a
committee thereof which authorizes the contract or transaction, or solely
because his or their votes are accounted for such purpose, if: (a) the material
facts as to which the relationship or interest and as to the contract or
transaction are disclosed or are known to the Board of Directors or such
committee, and the Board of Directors or Executive Committee in good faith
authorizes the contract or transaction by the affirmative votes of a majority of
the disinterested directors, even though the disinterested directors be less
than a quorum; or (b) the material facts as to the relationship or interest and
14
<PAGE>
as to the contract or transaction are disclosed or are known to the shareholders
entitled to vote thereon, and the contract or transaction is specifically
approved in good faith by vote of the shareholders; or (c) the contract or
transaction is fair as to the Corporation as of the time it is authorized,
approved or ratified by the Board of Directors, a committee thereof, or the
shareholders. Common or interested directors may be counted in determining the
presence of a quorum at a meeting of the Board of Directors, or a committee
which authorizes the contract or transaction.
SECTION 8.7. Loans to Officers or Employees. The Corporation may lend
money to, or guarantee any obligation of, or otherwise assist any officer or
other employee of the Corporation or of its subsidiary, including any officer or
employee who is a director of the Corporation or its subsidiary whenever, in the
judgment of the directors, such loan, guaranty or assistance may reasonably be
expected to benefit the Corporation. The loan, guaranty or other assistance may
be with or without interest, and may be unsecured, or secured in such manner as
the Board of Directors shall approve, including, without limitation, a pledge of
shares of stock of the Corporation. Nothing contained in this section shall be
construed to deny, limit or restrict the powers of guaranty or warranty of any
Corporation at common law or under any statute.
SECTION 8.8. Amendment. These Bylaws may be amended, altered, changed
or repealed at any annual or special meeting of the shareholders, provided
notice of the proposed amendment, alteration, change or repeal is contained in
the notice of such meeting, by the affirmative vote of a majority of the shares
issued and outstanding, and entitled to vote thereat. These Bylaws also may be
amended, altered, changed or repealed at any annual or special meeting of the
Board of Directors, provided notice of the proposed amendment, alteration,
change or repeal is contained in the notice of such meeting, by the affirmative
vote of the members of the Board of Directors. Notwithstanding the preceding
sentence, the fact that such power to amend, alter, change or repeal has been
conferred upon the Board of Directors shall not divest the shareholders of the
power, nor limit their power to amend, alter, change or repeal these Bylaws.
The above Bylaws are certified to have been adopted by the Board of
Directors of the Corporation on the 30th day of May, 1995.
/S/ Joe B. Jones
-------------------
Secretary
EXHIBIT 3.1
FULLNET COMMUNICATIONS, INC.
STOCK OPTION AGREEMENT
------------------------------------------------------------------------------
THIS STOCK OPTION AGREEMENT (this "Agreement") is made this 17th day of
February, 1999, by and between FULLNET COMMUNICATIONS, INC., an Oklahoma
corporation (the "Company"), and TIMOTHY J. KILKENNY, an individual duly elected
to serve as a the President and Chief Executive Officer of the Company (the
"Grantee").
W I T N E S S E T H
WHEREAS, the Company desires to advance the interests of the Company
and its shareholders by encouraging and providing for the acquisition of an
equity interest in the Company by its key employees by providing additional
incentives to such persons, and by enabling the Company to attract and retain
the services of such persons who make substantial contributions to the Company
through their ability, loyalty and efforts.
WHEREAS, Grantee is a key employee of the Company, and the Company
desires to provide incentive to Grantee to continue to render valuable services
to it in the form of an inducement to acquire a further proprietary interest in
the Company by grant of an option to purchase shares of the Company's common
stock, par value $.00001 (the "Common Stock").
NOW, THEREFORE, in consideration of the foregoing and of the mutual
representations, covenants, warranties and agreements and upon the terms and
subject to the conditions hereinafter set forth, the parties hereto agree as
follows:
1. Grant of Option. The Company hereby grants to Grantee the right and
option to purchase, on the terms and conditions hereinafter set forth, an
aggregate of 120,000 shares of the Common Stock at the purchase price of $1.15
per share ("Grantee's Options").
2. Time and Manner of Exercise.
(a) Grantee's Options shall vest and be exercisable beginning October
7, 2000. The right of Grantee to exercise Grantee's Options, subject to
the terms and provisions of this Agreement, shall expire at the end of
the third year following the date on which the option was granted. Once
Grantee's Options become exercisable, they may be exercised in whole at
any time or in part from time to time until the expiration or
termination of the option, whether or not any option granted previously
to the Grantee remains outstanding at the time of such exercise.
(b) Grantee's Options shall be exercised by written notice delivered to
the Company at its principal offices at 200 N. Harvey, Suite 1704,
Oklahoma City, Oklahoma, 73102, or such other address as the Company
<PAGE>
shall designate in writing to the Grantee, setting forth the number of
shares as to which the option is being exercised, and accomplished by
payment of the option purchase price as follows:
(i) In cash;
(ii) By exchange of Common Stock valued at its Fair
Market Value on the date of exercise;
(iii) By means of a brokers' cashless exercise procedure by
the delivery to the Company of an exercise notice together
with irrevocable instructions to a broker to deliver promptly
to the Company the amount of proceeds necessary to pay the
purchase price of the shares of Common Stock as to which such
exercise relates; or
(iv) By any combination of the foregoing.
(c) Where payment of the purchase price is to be made with shares of
Common Stock acquired under any compensation plan of the Company, such
shares will not be accepted as payment unless the Grantee has acquired
such shares at least six months prior to such payment.
(d) Upon delivery by Grantee to the Company of notice and payment as
provided for in this section, the Company shall deliver to Grantee a
certificate or certificates representing such shares of Common Stock.
3. Termination of Option.
(a) Upon cessation of service to the Company by Grantee (for reasons
other than retirement or death), including cessation of service due to
physical or mental disability that prevents such person from rendering
further services to the Company as an employee, only those of Grantee's
Options which are exercisable at the date of cessation of service shall
be exercisable by the Grantee. Such options shall be exercisable until
the first to occur of (i) the expiration of the remaining term of the
option, or (ii) three months after cessation of service of the Grantee.
(b) Upon the retirement or death of the Grantee, options shall be
exercisable as follows:
(i) Upon retirement of Grantee while an employee of the
Company pursuant to a retirement plan maintained by the
Company, Grantee's Options shall continue to be exercisable
during their terms as if such person had remained an employee;
(ii) In the event of the death of Grantee while an employee of
<PAGE>
the Company, the Grantee's Options shall be exercisable until
the first to occur of (A) the expiration of the remaining term
of the option or (B) one year after the date of the Grantee's
death, but only to the extent that the Grantee would have been
entitled to exercise the options had he lived during such
period.
4. Adjustments in Shares. If the Company shall at any time change the
number of issued shares of Common Stock without new consideration to the Company
(such as by stock dividend or stock split), the total number of shares available
under this Agreement, the number of shares to be granted to the Grantee pursuant
to this Agreement, and the number and price of shares of Common Stock subject to
outstanding options, shall be adjusted so that the aggregate consideration
payable to the Company and the value of such options shall not be changed. If,
during the term of Grantee's Options, the Common Stock shall be changed into
another kind of stock or into securities of another corporation, whether as a
result of a reorganization, recapitalization, sale, merger, consolidation, or
other similar transaction, or if additional rights shall be offered with respect
to the Common Stock, the Board shall cause adequate provision to be made so that
the Grantee shall thereafter be entitled to receive, upon the due exercise of
any outstanding options, the securities or rights that the Grantee would have
been entitled to receive had he owned the Common Stock acquired on the exercise
of such options on the effective date of any such transaction.
5. Rights Prior to Exercise. Neither the Grantee nor his or her legal
representatives or beneficiaries shall have any of the rights of a stockholder
with respect to any shares subject to any option until payment of the option
purchase price and delivery of a certificate for such shares as provided herein.
6. Non-Transferability of Options. No option may be sold, transferred,
pledged, assigned or otherwise alienated or hypothecated otherwise than by will
or by the laws of descent and distribution. Except as otherwise specifically
provided herein, all options granted to Grantee under this Agreement shall be
exercisable during the lifetime of such Grantee only by such Grantee. When the
Grantee dies, the personal representative or other person entitled to succeed to
the rights of the Grantee may exercise such rights, subject to furnishing to the
Company proof satisfactory to the Company of his or her right to receive the
option under Grantee's will or under the applicable laws of descent and
distribution.
7. No Guaranteed Term of Office. Nothing in this Agreement, or any
modification thereof, and no grant of an option, or any term thereof, shall be
deemed an agreement or condition guaranteeing to any employee any particular
term of office or limiting the right of the Company, the Board of Directors or
the stockholders to terminate the employment of the Grantee.
8. Administration. The grant of options to Grantee pursuant to this
Agreement shall be administered by the Board of Directors of the Company.
<PAGE>
9. Other Provisions. This option is granted and delivered in the State
of Oklahoma and is intended to be construed and enforced under the laws thereof.
The provisions hereof shall inure to the benefit of and be binding upon the
parties hereto and their respective heirs, executors, administrators,
successors, and assigns.
IN WITNESS WHEREOF, this option is executed on behalf of the Company by
its duly authorized officer and by Grantee as of the day and year first above
written.
"COMPANY"
Fullnet Communications, Inc.
By: /s/ Timothy J. Kilkenny
------------------------
Name: Timothy J. Kilkenny
Title: President and Chief Executive Officer
"GRANTEE"
/s/ Timothy J. Kilkenny
-----------------------
Name: Timothy J. Kilkenny
EXHIBIT 6.1
INTERCONNECTION AGREEMENT UNDER SECTIONS 251 AND 252 OF THE TELECOMMUNICATIONS
ACT OF 1996
by and between
SOUTHWESTERN BELL TELEPHONE COMPANY
And
FULLTEL COMMUNICATIONS, INC.
<PAGE>
<TABLE>
<CAPTION>
SWBT/FULLTEL COMMUNICATIONS, INC.
Page 1 of 2
TABLE OF CONTENTS
<S> <C> <C>
1.0 DEFINITIONS....................................................................................3
2.0 INTERPRETATION AND CONSTRUCTION...............................................................11
3.0 RATES CHARGES AND IMPLEMENTATION - GENERALLY..................................................11
3.1 Implementation Schedule and Interconnection Activation Dates..................................11
3.2 Rates and Charges - Generally.................................................................12
4.0 INTERCONNECTION PURSUANT TO SECTION 251(c)(2).................................................12
4.1 Scope.........................................................................................12
4.2 Interconnection Coverage......................................................................13
4.3 Methods for Interconnection...................................................................14
4.4 Physical Architecture.........................................................................14
4.5 Technical Specifications......................................................................16
4.6 Interconnection in Additional Metropolitan Exchange Areas.....................................16
5.0 TRANSMISSION AND ROUTING OF TELEPHONE EXCHANGE SERVICE TRAFFIC
PURSUANT TO SECTION 251(c)(2).....................................................................17
5.1 Scope of Traffic..............................................................................17
5.2 Responsibilities of the Parties...............................................................17
5.3 Reciprocal Compensation for Termination of Local Traffic......................................18
5.4 Reciprocal Compensation for Transit Traffic...................................................19
5.5 Reciprocal Compensation for Termination of IntraLATA Intexchange Traffic......................19
5.6 Compensation for Origination and Termination of Switched Access Service Traffic to or
From an IXC (Meet-Point Billing (MPB) Arrangements)...........................................20
5.7 Billing Arrangements for Compensation for Termination of IntraLATA, Local, Transit
and Optional Calling Area Traffic.............................................................21
6.0 TRANSMISSION AND ROUTING OF EXCHANGE ACCESS TRAFFIC PURSUANT TO
251(c)(2).........................................................................................23
6.1 Scope of Traffic..............................................................................23
6.2 Trunk Group Architecture and Traffic Routing..................................................23
7.0 TRANSPORT AND TERMINATION OF OTHER TYPES OF TRAFFIC...........................................23
7.1 Information Services Traffic..................................................................23
7.2 Line Status Verification (LSV)/Busy Line Interrupt (BLI) Traffic..............................23
7.3 Wireless Traffic..............................................................................24
7.4 911 Service...................................................................................24
8.0 SIGNALING.....................................................................................24
9.0 NUMBERING.....................................................................................25
10.0 RESALE - Sections 251(c)(4) and 251(b)(1).....................................................26
10.1 Availability of Retail Telecommunications Services............................................26
10.2 Availability of Retail Telecommunications Services for Resale.................................26
11.0 UNBUNDLED NETWORK ELEMENTS - SECTIONS 251(c)(3), 271(c)(2)(B)(II),
(IV),(V),(VI),(X).....................................................................................26
12.0 NOTICE OF CHANGES - SECTION 251(c)(5).........................................................26
13.0 COLLOCATION-SECTION 251(c)(6).................................................................27
14.0 NUMBER PORTABILITY - SECTIONS 251(b)(2), 271(c)(2)(B)(xi).....................................27
15.0 DIALING PARITY - SECTION 251(b)(3) AND 271(e)(2)..............................................27
16.0 ACCESS TO RIGHTS-OF-WAY - SECTION 251(b)(4)...................................................27
17.0 DATABASE ACCESS...............................................................................28
18.0 COORDINATED SERVICE CALLS.....................................................................28
18.1 Referral Announcement.........................................................................28
18.2 Coordinated Repair Calls......................................................................28
19.0 OTHER SERVICES 271(c)(2)(vii), 271(c)(2)(B)(viii)................................................29
19.1 White Pages...................................................................................29
19.2 Calling Name Information......................................................................29
19.3 Billing/Collecting/Remitting..................................................................29
19.4 911 Service...................................................................................29
19.5 Directory Assistance..........................................................................29
19.6 Direct Access.................................................................................29
<PAGE>
SWBT/FULLTEL COMMUNICATIONS,INC.
Page 2 of 2
19.7 Operator Services.............................................................................29
19.8 Clearinghouse Services........................................................................29
19.9 Hosting.......................................................................................29
19.10 Recording.....................................................................................29
19.11 Signaling System 7 Interconnection............................................................30
20.0 GENERAL RESPONSIBLITIES OF THE PARTIES............................................................30
21.0 EFFECTIVE DATE, TERM AND TERMINATION..............................................................31
22.0 DISCLAIMER OF REPRESENTATIONS AND WARRANTIES......................................................32
23.0 SLAMMING..........................................................................................32
24.0 SEVERABILITY......................................................................................33
25.0 LIMITATION OF LIABILITY...........................................................................33
26.0 INDEMNIFICATION...................................................................................34
27.0 REGULATORY APPROVAL...............................................................................35
28.0 MISCELLANEOUS.....................................................................................35
28.1 Authorization.................................................................................35
28.2 Compliance and Certification..................................................................35
28.3 Law Enforcement...............................................................................36
28.4 Independent Contractor........................................................................36
28.5 Force Majeure.................................................................................36
28.6 Confidentiality...............................................................................37
28.7 Governing Law.................................................................................38
28.8 Taxes.........................................................................................38
28.9 Non-Assignment................................................................................39
28.10 Non-Waiver....................................................................................40
28.11 Audits........................................................................................40
28.12 Disputed Amounts..............................................................................40
28.13 Dispute Resolution............................................................................41
28.14 Notices.......................................................................................41
28.15 Publicity and Use of Trademarks or Service Marks..............................................42
28.16 Section 252(i) Obligations....................................................................43
28.17 Joint Work Product............................................................................43
28.18 Intervening Law...............................................................................44
28.19 No Third Party Beneficiaries; Disclaimer of Agency............................................44
28.20 No License....................................................................................44
28.21 Survival......................................................................................44
28.22 Scope of Agreement............................................................................44
28.23 Entire Agreement..............................................................................44
</TABLE>
<PAGE>
SWBT/FULLTEL COMMUNICATIONS, INC.
Page 1 of 45
INTERCONNECTION AGREEMENT UNDER SECTIONS 251 AND 252 OF THE TELECOMMUNICATIONS
ACT OF 1996
This Interconnection Agreement under Sections 251 and 252 of the
Telecommunications Act of 1996 ("Agreement"), is by and between Southwestern
Bell Telephone Company, a Missouri Corporation ("SWBT"), and Fulltel
Communications, Inc., an Oklahoma corporation ("CLEC").
WHEREAS, pursuant to Section 252(i) of the Federal Telecommunications Act
of 1996, CLEC and SWBT have entered into an agreement on the same terms and
conditions contained in the SWBT/Cox Oklahoma Telcom, Inc. Agreement for the
State of Oklahoma ("the underlying Agreement.")
WHEREAS, the Parties acknowledge and agree that the rates, terms and
conditions set forth in this Agreement are subject to any appeals and that
Southwestern Bell reserves all appellate rights with respect to such rates,
terms and conditions and does not waive any legal arguments by executing this
Agreement. It is Southwestern Bell's intent and understanding of state and
federal law, that any negotiations, appeal, stay, injunction or similar
proceeding which impacts the applicability of such rates, terms or conditions to
the underlying Agreement will similarly and simultaneously impact the
applicability of such rates, terms and conditions to CLEC. In the event that any
of the rates, terms and/or conditions herein are invalidated, modified or stayed
by any action of any state or federal regulatory bodies, courts or regulatory
agencies of competent jurisdiction ("such Actions"), the Parties shall
immediately incorporate changes from the underlying Agreement, made as a result
of such Actions, into this Agreement. Where revised language is not immediately
available, the Parties shall expend diligent efforts to incorporate the results
of such Actions into this Agreement on an interim basis, but shall conform this
Agreement to the underlying Agreement, once such changes are filed with the
Commission.
Pursuant to this Agreement for Local Wireline Network interconnection and
Service Resale ("Agreement"), CLEC a Local Service Provider ("LSP") and
Southwestern Bell Telephone Company ("SWBT") (collectively, "the Parties") will
extend certain arrangements to one another within each LATA in which they both
operate within the state of Oklahoma in which the Parties may operate within the
term of this Agreement. This Agreement includes terms, conditions, and prices
for network interconnection, access to unbundled network elements, ancillary
network services, and retail services, provided at wholesale prices to CLEC,
available for resale. The Agreement will be submitted to the Oklahoma
Corporation Commission for regulatory concurrence.
Notwithstanding this mutual commitment, however, the Parties enter into
this Agreement without prejudice to any positions they have taken previously, or
may take in the future in any legislative, regulatory, or other public forum
addressing any matters, including matters related to the types of arrangements
prescribed by this Agreement.
The Parties agree and understand that SWBT and CLEC are proposing certain
provisions in this Agreement, based on the FCC's First Report and Order, In the
Matter of Implementing of the Local Competition Provisions in the
Telecommunications Act of 1996, CC Docket No. 96-98, released Aug. 8, 1996 ("FCC
1st Order") and the Second Report and Order and Memorandum Opinion and Order, In
the Matter of Implementation of the Local Competition Provisions of the
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Telecommunications act of 1996, CC Docket No. 96-98, released Aug. 8, 1996 ("FCC
2d Order"). To the extent that certain of the rules contained in the FCC 1st
Order and the FCC 2d Order, or any other FCC Order, adopted to implement the
Telecommunications Act of 1996, are deemed by the courts to be not effective,
this Agreement shall be modified to comport with the final court decisions and
subsequent FCC rules adopted to comply with the court's decisions and to the
extent that such modifications prohibit the Parties from performing their
obligations under this Agreement, then they may terminate this Agreement upon
reasonable notice.
WHEREAS, the Parties want to interconnect their networks at mutually agreed
upon points of interconnection to provide, directly or indirectly, Telephone
Exchange Services (as defined below) and Exchange Access (as defined below) to
residential and business end users predominantly over their respective telephone
exchange service facilities in Oklahoma; and
WHEREAS, the Telecommunications Act of 1996 (the "Act") was signed into law
on February 2, 1996; and
WHEREAS, the Parties intend to negotiate a permanent interconnection
agreement pursuant to Section 251 of the Telecommunications Act of 1996; and
WHEREAS, the Act places certain duties and obligations upon, and grants
certain rights to, Telecommunications Carriers; and
WHEREAS, SWBT is an Incumbent Local Exchange Carrier.
WHEREAS, the Parties should be able to efficiently exchange traffic and
signaling at well-defined and standardized points of mutually agreed
interconnection; and
WHEREAS, SWBT is willing to sell unbundled Network Elements and Ancillary
Functions and additional features, as well as services for resale, on the terms
and subject to the conditions of this Agreement; and
WHEREAS, CLEC is a Telecommunications Carrier and has requested that SWBT
negotiate an Agreement with CLEC for the provision of interconnection,
reciprocal compensation, resale and unbundled Network Elements (including
Ancillary Functions and additional features) pursuant to the Act and in
conformance with SWBT's duties under the Act; and
WHEREAS, for purposes of this Agreement, the Parties intend to operate
where SWBT is the incumbent local exchange carrier and CLEC, a competitive local
exchange carrier, is certified by the Oklahoma State Commission, as required.
WHEREAS, the Parties are entering into this Agreement to set forth the
respective obligations of the Parties and the terms and conditions under which
the Parties will interconnect their networks and provide other services as
required by the Telecommunications Act of 1996 ("Act") and additional services
as set forth herein; and
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NOW, THEREFORE, in consideration of the mutual provisions contained herein
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, CLEC and SWBT hereby covenant and agree as follows:
SCOPE OF AGREEMENT
A. This Agreement sets forth the terms, conditions and prices under which SWBT
agrees to provide (a) services for resale (hereinafter referred to as
"Resold Services") (b) certain Unbundled Network Elements, (as specified in
Appendix UNE) Ancillary Functions and additional features to CLEC
(hereinafter collectively referred to as "Network Elements") for CLEC's own
use or for resale to others, and (c) Interconnection and reciprocal
compensation for the exchange of local traffic, for the termination of
local traffic between SWBT and CLEC, for purposes of offering local
exchange services. Unless otherwise provided in this Agreement, SWBT and
CLEC will perform all of their obligations hereunder throughout, to the
extent provided in the Appendices attached hereto. This Agreement includes
all accompanying appendices.
B. In the performance of their obligations under this Agreement, the Parties
shall act in consistent good faith with the intent of the Act. Where
notice, approval or other action by a Party is permitted or required by any
provision of this Agreement, (including, without limitation, the obligation
of the parties to further negotiate the resolution of new or open issues
under this Agreement) such action shall not be unreasonably delayed,
withheld or conditioned.
1.0 DEFINITIONS
1.1 "Act" means the Communications Act of 1934 (47 U.S.C.
153(R)), as amended by the Telecommunications Act of 1996, and as from
time-to-time interpreted in the duly authorized rules and regulations of the FCC
or a Commission within its state of jurisdiction.
1.2 "Access Services" refers to the tariffed interstate and
intrastate switched access and dedicated transport services offered for the
origination and/or termination of interexchange traffic.
1.3 "Access Service Request" or "ASR" means the industry
standard forms and supporting documentation used for ordering Access Services.
The ASR will be used to order trunking, switching, unbundled elements,
transport, services for resale and other facilities between CLEC and SWBT for
Local Interconnection Service.
1.4 "Affiliate" means a person that (directly or indirectly)
owns or controls, is owned or controlled by, or is under common ownership or
control with, another person. For purposes of this paragraph, the term "own"
means to own an equity interest (or the equivalent thereof) of more than 10
percent.
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1.5 "Access Tandem Switches" are switches used to connect end
offices to Interexchange Carrier Class 4 switches.
1.6 "Automatic Number Identification" or "ANI" is a switching
system feature that forwards the telephone number of the calling party and is
used for screening, routing and billing purposes.
1.7 "LSV/BLI Traffic" or "LSV/BLI Call" refers to an operator
call between a CLEC operator and a SWBT operator to inquire as to the busy
status of, or requesting an interruption of a call on a Local Exchange
Telecommunications Service.
1.8 "Calling Party Number" or "CPN" is a feature of signaling
system 7 (SS7) protocol whereby the ten (10) digit number of the calling party
is forwarded from the end office serving that party.
1.9 "Central Office Switch" means a single switching system
within the public switched telecommunications network, including the following:
a. "End Office Switches" which are Class 5 switches where
end user Exchange Services are directly connected and
offered.
b. "Tandem Office Switches" or "Tandems" which are
switches, which may be Access Tandems or other, used to
connect and switch trunk circuits between Central
Office Switches and intra/interLATA carriers.
Central Office Switches may be employed as combination
End Office/Tandem Office switches.
1.10 "CLASS Features" mean certain CCS-based features
available to end users including, but not limited to: Automatic Call Back; Call
Trace; Caller Identification and related blocking features; Distinctive Ringing;
Call Waiting; Selective Call Forward; and Selective Call Rejection.
1.11 "Collocation" is the virtual or physical collocation
service that SWBT provides in its designated wire centers.
1.12 "Collocation Arrangement", as more fully described in
Appendix Collocation, means an arrangement whereby one Party's (the "Collocating
Party") facilities are terminated in its equipment necessary for Interconnection
or for access to Network Elements on an unbundled basis , which has been
installed and maintained at the premises of a second Party (the "Housing
Party"). Collocation may be "physical" or "virtual." In "Physical Collocation,"
the Collocating Party installs and maintains its own equipment in the Housing
Party's premises. In "Virtual Collocation," the Housing Party installs and
maintains the collocated equipment in the Housing Party's premises.
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Collocation includes, but is not limited to, collocation of 38 GHz basic
transmission equipment, provided it complies with the guidelines in SWBT's
Physical Collocation Technical Publication provided to CLEC.
1.13 "Commissions" means the Oklahoma Corporation Commission
and the FCC collectively, otherwise Commission means the Oklahoma Corporation
Commission.
1.14 "Common Channel Signaling" or "CCS" is a special network,
fully separate from the transmission path of the public switched network, that
digitally transmits call set-up and network control data.
1.15 "Local Service Provider" or "LSP" is a telecommunications
provider certified to provide Basic Exchange Telecommunications Service in
geographic areas which may include SWBT's local exchange territory.
1.16 As used in this Agreement, "Dialing Parity" refers to
both Local Dialing Parity and Toll Dialing Parity. "Dialing parity" means that a
person that is not an affiliate of a local exchange carrier is able to provide
telecommunications services in such a manner that customers have the ability to
route automatically, without the use of any access code, their
telecommunications to the telecommunications services provider of the customer's
designation from among two or more telecommunications services providers
(including such local exchange carrier).
1.17 "DID" means direct inward dialing.
1.18 "Digital Signal Level" means one of several transmission
rates in the North American time-division multiplex hierarchy.
1.19 "Digital Signal Level 0" or "DS0" means the 64 Kbps
zero-level signal in the North American time-division multiplex hierarchy.
1.20 "Digital Signal Level 1" or "DS1" means the 1.544 Mbps
first-level signal in the North American time-division multiplex hierarchy. In
the time-division multiplexing hierarchy of the telephone network, DS1 is the
result of the initial level of multiplexing.
1.21 "Digital Signal Level 3" or "DS3" means the 44.736 Mbps
third-level in the North American time-division multiplex hierarchy. In the
time-division multiplexing hierarchy of the telephone network, DS3 is defined as
the third level of multiplexing.
1.22 "Electronic File Transfer" refers to any system or
process which utilizes an electronic format and protocol to send or receive data
files.
1.23 "End User" means a third-party residence or business,
that subscribes to telecommunications services provided by either of the
Parties, or by another telecommunications service provider.
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1.24 "Exchange Message Record" or "EMR" means the standard
used for exchange of telecommunications message information among
telecommunications carriers for billable, non-billable, sample, settlement and
study data. EMR format is contained in Bellcore Practice BR-010-200-010 CRIS
Exchange Message Record.
1.25 "Telephone Exchange Service" means (A) service within a
telephone exchange, or within a connected system of telephone exchanges within
the same exchange area operated to furnish to subscribers intercommunicating
service of the character ordinarily furnished by a single exchange, and which is
covered by the exchange service charge, or (B) comparable service provided
through a system of switches, transmission equipment, or other facilities (or
combination thereof) by which a subscriber can originate and terminate a
telecommunication service.
1.26 "Fiber-Meet" means an interconnection architecture method
whereby the Parties physically interconnect their networks via an optical fiber
interface (as opposed to an electrical interface) at a mutually agreed upon
location.
1.27 "Local Exchange Carrier" or "LEC" means an incumbent
local exchange carrier or a Local Service Provider (LSP).
1.28 Forward Looking Long Run Incremental Cost (LRIC) as
defined by the Commission means the long run forward looking additional cost
caused by providing all volume-sensitive and volume-insensitive inputs required
to provide a service or network element offered as a service, using economically
efficient current technology efficiently deployed. LRIC also equals the cost
avoided, in the long run, when a service or network element offered as a service
is no longer produced. LRIC excludes costs directly and solely attributable to
the production of other services or network elements offered as services, and
unattributable costs which are incurred in common for all the services supplied
by the firm. The long run means a period long enough so that the cost estimates
are based on the assumption that all inputs are variable.
1.29 "Initial Billing Company" or "IBC" is as described in
Section 5.6.3 of this Agreement.
1.30 "Interconnection" is as described in the Act and refers
to the connection of separate pieces of equipment, facilities, or platforms
between or within networks for the purpose of transmission and routing of
Telephone Exchange Service traffic and Exchange Access traffic
1.31 "Interconnection Activation Date" is the date that the
construction of the joint facility interconnection arrangement has been
completed, trunk groups have been established, and joint trunk testing is
completed.
1.32 "Interexchange Carrier" or "IXC" means a carrier that
provides, directly or indirectly, interLATA or intraLATA Telephone Toll
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Services. For purposes of Section 6.0 of this Agreement, the term "IXC" includes
any entity which purchases FGB or FGD Switched Exchange Access Service in order
to originate or terminate traffic to/from CLEC's end users.
1.33 "Interim Number Portability" (INP) as referenced in this
Agreement, is the capability of an end user to retain their telephone number
when changing local service providers, using RCF or DID technology.
1.34 "IntraLATA Toll Traffic" means those intraLATA station
calls that are not defined as Local Traffic in this Agreement.
1.35 "Integrated Services Digital Network" or "ISDN" is
switched network service providing end-to-end digital connectivity for the
simultaneous transmission of voice and data. ISDN is provisioned end-to-end
pursuant to TR-444. Basic Rate Interface ISDN ("BRI-ISDN") provides for digital
transmission of two analog or 64 Kbps digital data information bearing channels
("Bearer Channels") and one 16 Kbps data channel (2B+D).
1.36 "Line Information Database" or "LIDB" is as described in
Appendix LIDB.
1.37 "Local Calling Area" is as described in Section 5.1.2 of
this Agreement.
1.38 "Local Exchange Carrier" or "LEC" means any person that
is engaged in the provision of telephone exchange service or exchange access.
Such term does not include a person insofar as such person is engaged in the
provision of a commercial mobile service under section 332(c),except to the
extent that the Commission finds that such service should be included in the
definition of such term.
1.39 "Local Exchange Routing Guide" or "LERG" is a Bellcore
reference typically used by LECs, IXCs and CLCs to identify NPA-NXX routing and
homing information.
1.40 "Local Serving Office" means the end office that serves
an end user.
1.41 "Local Traffic," for purposes of intercompany
compensation, means traffic that originates and terminates between or among end
users within a SWBT local calling area defined in SWBT tariffs as they exist at
the time of the signing of this agreement, including mandatory local calling
scope arrangements, but excluding Optional EAS areas, if any. "Mandatory Local
Calling Scope" is an arrangement that requires end users to subscribe to a local
calling scope beyond their basic exchange serving area. In no event shall the
Local Traffic area for purposes of local call termination billing between the
Parties be decreased during the term of this Agreement.
1.42 "Losses" means any and all losses, costs (including court
costs), claims, damages (including fines, penalties, and criminal or civil
judgments and settlements), injuries, liabilities and expenses (including
attorneys' fees).
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1.43 "MECAB" refers to the Multiple Exchange Carrier Access
Billing document prepared by the Billing Committee of the Ordering and Billing
Forum (OBF), which functions under the auspices of the Carrier Liaison Committee
(CLC) of the Alliance for Telecommunications Industry Solutions (ATIS). The
MECAB document, published by Bellcore as Special Report SR-BDS-000983, contains
the recommended guidelines for the billing of access services provided to an IXC
by two or more LECs, or by one LEC in two or more states within a single LATA.
The latest release is issue No. 5, dated June 1994.
1.44 "MECOD" refers to the Multiple Exchange Carriers Ordering
and Design Guidelines for Access Services - Industry Support Interface, a
document developed by the Ordering/Provisioning Committee of the Ordering and
Billing Forum (OBF), which functions under the auspices of the Carrier Liaison
Committee (CLC) of the Alliance for Telecommunications Industry" Solutions
(ATIS). The MECOD document, published by Bellcore as Special Report SR
STS-002643, establishes methods for processing orders for access service which
is to be provided to an IXC by two or more telecommunications providers. The
latest release is issue No. 3, dated February 1996.
1.45 "Meet Point" is as described in Section 5.6.2 of this
Agreement.
1.46 "Meet-Point Billing" or "MPB" refers to a billing
arrangement whereby two or more Telecommunications Carriers jointly provide for
switched access service to an IXC, with each LEC receiving an appropriate share
of its switched access revenues as defined by its effective access tariffs.
1.47 "Metropolitan Exchange Area" means a geographical area
defined in SWBT current tariffs effective December, 1996 as a metropolitan
exchange local calling area. For example, Oklahoma City, Tulsa, and each
separate Metropolitan Exchange Area.
1.48 "Multi-Frequency" or "MF" means signaling arrangements
that make use of pairs of frequencies out of a group of six frequencies. MF
signals are used for called number address signaling, calling number
identification, ring-back, and coin control.
1.49 "Multiple Bill/Multiple Tariff method" is the meet-point
billing method where each LEC prepares and renders its own meet point bill to
the IXC in accordance with its own tariff for that portion of the
jointly-provided Switched Access Service which the LEC provides. MECAB documents
refer to this method as "Multiple Bill/Single Tariff."
1.50 "North American Numbering Plan" or "NANP" means the
system of telephone numbering employed in the United States, Canada, and certain
Caribbean
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countries. It denotes the three digit Numbering Plan Area code and a seven digit
telephone number made up of a three digit Central Office code plus a four digit
station number.
1.51 "Network Element" means a facility or equipment used in
the provision of a telecommunications service. Such term also includes features,
functions, and capabilities that are provided by means of such facility or
equipment, including subscriber numbers, data bases, signaling systems, and
information sufficient for billing and collection or used in the transmission,
routing, or other provision of a telecommunications service.
1.52 "Network Element Bona Fide Request" means the process
described in Appendix UNE that is attached hereto and incorporated herein that
prescribes the terms and conditions relating to a Party's request that the other
Party provide a Network Element.
1.53 "Numbering Plan Area" or "NPA" is sometimes referred to
as an area code. This is the three digit indicator that is defined by the "A",
"B", and "C" digits of each 10-digit telephone number within the North American
Numbering Plan (NANP). There are two general categories of NPA, "Geographic
NPAs" and "Non-Geographic NPAs". A Geographic NPA is associated with a defined
geographic area, and all telephone numbers bearing such NPA are associated with
services provided within that Geographic area. A Non-Geographic NPA, also known
as a "Service Access Code" (SAC Code) is typically associated with a specialized
telecommunications service that may be provided across multiple geographic NPA
areas.
1.54 "NXX", "NXX Code", or "Central Office Code" is the three
digit switch entity indicator that is defined by the "D", "E", and "F" digits of
a 10 digit telephone number within the North American Numbering Plan (NANP).
1.55 "Permanent Number Portability" or "PNP" means the use of
the local routing number (LRN) database solution to provide fully transparent
LNP for all customers and all providers without limitation.
1.56 "Point of Interface" or "POI" is a mutually agreed upon
point of demarcation where the exchange of traffic between two LECs takes place.
1.57 "Pre-ordering and Ordering" is as described in Appendix
OSS.
1.58 "Port" is as described in Appendix UNE.
1.59 "Provider" means a carrier who provides services to end
users or other carriers.
1.60 "Rate Center" means the specific geographic point and
corresponding geographic area associated with one or more NPA-NXX codes that
have been assigned to a LEC for its provision of Telephone Exchange Service.
1.61 "Referral Service" means a process in which calls are
routed to an announcement which states the new telephone number of an end user.
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1.62 "Resale" is as described in Appendix Resale.
1.63 "Routing Point" means a location that a LEC or LSP has
designated on its own network as the homing (routing) point for traffic, bearing
a certain NPA-NXX designation, that is inbound to Basic Exchange
Telecommunications Services provided by the LEC or LSP. The Routing Point is
employed to calculate mileage measurements for the distance-sensitive transport
element charges of Switched Access Services. Pursuant to Bellcore Practice BR
795-100-100, the Routing Point may be an "End Office" location, or a "LEC
Consortium Point of Interconnection". Pursuant to that same Bellcore Practice,
examples of the latter shall be designated by a common language location
identifier (CLLI) code with (x)KD in positions 9, 10, 11, where (x) may be any
alphanumeric A-Z or 0-9. The above referenced Bellcore document refers to the
Routing Point as the Rating Point. The Routing Point must be located within the
LATA in which the corresponding NPA-NXX is located. However, Routing Points
associated with each NPA-NXX need not be the same as the corresponding Rate
Center, nor must there be a unique and separate Routing Point corresponding to
each unique and separate Rate Center; provided only that the Routing Point
associated with a given NPA-NXX must be located in the same LATA as the Rate
Center associated with the NPA-NXX.
1.64 "Service Control Point" or (SCP) is as described in
Appendix UNE.
1.65 "Service Switching Point" or "SSP" is as described in
Appendix UNE.
1.66 "Signaling Point" or "SP" is as described in Appendix
UNE.
1.67 "Signal Transfer Point" or "STP" is as described in
Appendix UNE.
1.68 "Signaling System 7 or "SS7" is as described in
Appendix UNE.
1.69 "Special Access" means access other than switched access
and provides a dedicated trunk or trunk group between A and Z locations.
1.70 "Subsequent Billing Company" or "SBC" is as described in
Section 5.6.3 of this Agreement.
1.71 "Switched Exchange Access Service" means the offering of
transmission or switching services to Telecommunications Carriers for the
purpose of the origination or termination of Telephone Toll Service. Switched
Exchange Access Services include, but are not necessarily limited to: Feature
Group A, Feature Group B, Feature Group D, 800/888 access, and 900 access and
their successors or similar Switched Exchange Access services.
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1.72 "Synchronous Optical Network" or "SONET" means an optical
interface standard that allows inter-networking of transmission products from
multiple vendors. The base rate is 51.84 Mbps (OC-1/STS-1) and higher rates are
direct multiples of the base rate, up to 13.22 Gpbs.
1.73 "Tariff Services" as used throughout this Agreement
refers to SWBT interstate tariffs and intrastate tariffs.
1.74 "Telecommunications Services" is as defined in the Act.
1.75 "Transit " is as defined in the Reciprocal Compensation
Section of this Agreement.
1.76 "Trunk Side" is as defined in Appendix UNE.
1.77 "Wholesale Discount" is as described in Appendix Resale.
1.78 "Wire Center" means an occupied structure or portion
thereof in which a Party has the exclusive right of occupancy and which serves
as a Routing Point for Switched Exchange Access Service.
2.0 INTERPRETATION AND CONSTRUCTION
In the event of any amendment of the Act or any legislative, regulatory,
judicial order, rule or regulations, or other legal action that revises or
reverses the Act, the FCC's Orders in FCC Docket Nos. 96-98 and 95-185 or any
applicable FCC order or arbitration award purporting to apply the provisions of
the federal Act, the Parties reserve all of their rights and remedies, including
those to amend, alter, or revise this Agreement.
3.0 RATES CHARGES AND IMPLEMENTATION -- GENERALLY
3.1 IMPLEMENTATION SCHEDULE AND INTERCONNECTION ACTIVATION DATES
3.1.1 Pursuant to this Agreement, CLEC and SWBT agree to the following
schedule of rates and charges:
The Parties agree to use the Commission's ordered interim
rates from Cause No. PUD 960000218 (AT&T/SWBT Arbitration). The Parties agree to
use such interim rates and charges until such time as new rates are established
pursuant to a final and effective Commission order or more favorable rates are
included in a final approved interconnection agreement between SWBT and another
carrier. Such new rates shall be substituted in place of the interim rates
previously established when final and effective or available in a final approved
interconnection agreement. To the extent required by the Commission in the above
referenced docket, such interim rates shall be subject to true-up.
3.1.2 Subject to the terms and conditions of this Agreement,
Interconnection of the Parties' facilities and equipment pursuant to Sections
4.0, 5.0 and 6.0 for obtaining unbundled network elements, the transmission and
routing of Telephone Exchange Service traffic; and for Exchange Access traffic
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shall be established on or before the corresponding "Interconnection Activation
Date" shown for each such Metropolitan Exchange Area on Appendix DCO. Appendix
DCO may be revised and supplemented from time to time upon the mutual agreement
of the Parties to reflect the Interconnection of additional Metropolitan
Exchange Areas pursuant to Section 4.7 by modifying or updating the DCO
appendix.
3.2 RATES AND CHARGES -- GENERALLY
3.2.1 SWBT's prices for termination and transport of traffic,
interconnection, access to unbundled network elements (including operational
support systems), and ancillary services are based upon the forward looking long
run incremental cost and including an appropriate allocation of forward looking
joint and common costs, incurred by SWBT in providing the service. Prices are
set forth in the attached Appendices, and comport with the Act and the
Commission's decision in the permanent cost docket.
3.2.2 SWBT's wholesale discounts for resale services, set forth in the
attached Appendices, are calculated in accordance with the standards set forth
in the Act.
3.2.3 Where any request for services or elements under this Agreement
entails the modification of existing facilities; where such request cannot be
met by the offerings specified in this Agreement; where such a request entails a
higher or lower level of quality than SWBT historically provided to itself; or
where this Agreement and incorporated Appendices do not establish a price to
recover the development, implementation, or other costs of meeting the request;
the Bona Fide Request detailed in this document shall apply.
4.0 INTERCONNECTION PURSUANT TO SECTION 251(c)(2)
4.1 Scope
This Section, 4.0, describes the physical architecture for
Interconnection of the Parties' facilities and equipment for the transmission
and routing of Telephone Exchange Service traffic and Exchange Access traffic
pursuant to Section 251(c)(2) of the Act. Such Interconnections shall be equal
in quality to that provided by the Parties to themselves or to any subsidiary,
affiliate or Third Party. For purposes of this Section 4.0, "equal in quality"
refers to functionally equivalent interfaces specifications, provisioning and
installation intervals, and maintenance, testing and repair, and quality of
performance. Appendix ITR prescribes the specific trunk groups (and traffic
routing parameters) which will be configured over the physical connections
described in this Section (4.0 ) to provide the facilities for the transmission
and routing of Telephone Exchange Service traffic (as described in Section 5.0),
Exchange Access traffic (as described in Section 6.0), LSV/BLI traffic (as
described in Section 7.2), and E911/911 traffic (as described in Section 7.4).
Use of this physical connection shall be limited to the trunk groups described
in Appendix ITR.
4.2 Interconnection Coverage
The Parties shall provide for interoperation of their networks and
shall interconnect their facilities as stated below:
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1. CLEC shall interconnect with SWBT's facilities as follows:
a. In each SWBT exchange area in which CLEC chooses to offer local
exchange service, CLEC, at a minimum, will interconnect its
network facilities to (a) one access tandem and (b) to each SWBT
local tandem(s) or to each SWBT end office(s) (EOs). If CLEC
desires a single point for interconnection within a LATA, CLEC
agrees to purchase dedicated or common transport from SWBT to any
other exchange within a LATA requested by CLEC, or CLEC may
self-provision, or use a third party's facilities. The SWBT EOs
and tandems through which CLEC will terminate its traffic will be
called SWBT Interconnection Wire Centers and are to be identified
in Appendix DCO attached hereto and incorporated herein by
reference. As CLEC initiates exchange service operations in
additional SWBT exchange areas, SWBT and CLEC shall agree upon
additional SWBT Interconnection Wire Centers in each new exchange
area. CLEC agrees that if SWBT establishes additional local
tandems in an exchange area within which CLEC offers local
exchange service, CLEC will interconnect to the additional
tandems.
b. Interconnection to a SWBT local tandem(s) will provide CLEC local
access to the SWBT end offices and NXXs which subtend that
tandem(s), and to other Local Exchange Carriers (LECs) (subject
to Section 7.3) which are connected to that tandem(s).
Interconnection to SWBT EO(s) will provide CLEC access only to
the NXXs served by that individual EO(s) to which CLEC
interconnects.
c. Interconnection to a SWBT access tandem will provide CLEC
interexchange access to SWBT, IXCs, LECs, and wireless providers
(subject to Section 7.3) which are connected to that tandem.
Where an access tandem also provides local tandem functions,
interconnection to a SWBT access tandem serving that exchange
will also provide CLEC access to SWBT's EOs with the same
functionality described in (b) above.
d. Where CLEC requires ancillary services (e.g., Directory
Assistance, Operator Assistance, 911/E911) additional
interconnection to SWBT's Interconnection Wire Center(s) or
special trunking will be required for interconnection to such
ancillary services.
SWBT shall interconnect with CLEC's facilities under terms and
conditions no less favorable than those identified in Section 4.2,
Paragraph 1, above.
4.3 Methods for Interconnection
Where the Parties interconnect, for the purpose of exchanging traffic
between networks, the Parties may use the following interconnection methods for
each Tandem and End Office identified in Appendix DCO making use of facilities
they own or lease from a third party.
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4.3.1 Physical Collocation Interconnection (PCI) is where CLEC
provides fiber cable and connects to its equipment located in the SWBT Wire
Center. CLEC owns and maintains CLEC's equipment.
4.3.2 Virtual Collocation Interconnection (VCI) is where CLEC
provides fiber cable to SWBT for connection to CLEC's designated basic
transmission equipment dedicated solely for CLEC's use, located in the SWBT
Interconnection Wire Center. Where space is not available for physical
collocation and space is available for virtual collocation and technical
limitations do not exist, CLEC and SWBT agree to negotiate in good faith, an
arrangement whereby CLEC shall be permitted to purchase transmission equipment
that SWBT will install, maintain, and repair at the request of CLEC. If CLEC
elects to remove such equipment it shall pay SWBT the cost of removal.
4.3.3 SONET-Based Interconnection (SBI) is where CLEC provides
fiber cable to SWBT for connection to SWBT-designated basic transmission
equipment located at the SIWC and dedicated solely for CLEC's use. SWBT owns and
maintains the basic transmission equipment. This option shall be consistent with
SWBT's SBI tariff as modified, if necessary, to comport with the ACT and FCC
Order.
4.3.4 Leased Facility Interconnection (LFI) - where facilities
exist, either Party may lease facilities from the other Party as mutually
agreed.
4.3.5 Mid-span Fiber Interconnection - Where the Parties agree
to interconnect through SONET technology, using a mutually agreeable originating
line terminating multiplexer fiber optic terminal (FOT) details of this
architecture are addressed in Appendix MSFI. This interconnection arrangement is
limited to interconnecting trunks.
4.3.6 The Parties may agree to utilize another Interconnection
Method as may be determined to be technically feasible in the future.
4.4 Physical Architecture
4.4.1 Using one or more of the Interconnection Methods
described in Section 4.3 above, the Parties will agree on a physical
architecture plan. This plan will be documented within Appendix DCO. The Parties
agree to deploy a physical architecture plan per Metropolitan Serving Area which
is mutually acceptable. Two architecture arrangements, End Span Meet (or End
Point Meet) and Mid-Span Meet (or Mid-Point Meet), are discussed below.
Additional physical architectures, as yet undefined, may evolve during the term
of this Agreement. These future, as yet undefined architectures, can be deployed
if mutually agreed upon.
4.4.2 As set forth in Appendix ITR, the Parties shall
initially configure all Traffic Exchange Trunk groups as two-way, but utilized
as one-way as described herein. The Parties agree that two-way trunking is the
desired architecture and shall use their best efforts to mutually agree on a
schedule for conversion to utilization of two-way trunks but not to exceed
twelve (12) months from the Interconnection Activation Date.
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a. End Point Meet
Using the "End Point Meet" architecture, the Parties will
establish transport facilities from their own Central Office(s) to the other
party's Central Office(s) utilizing any method of interconnection described in
Section 4.3. Unless otherwise mutually agreed upon, each Party will use its own
or third party transport facilities to provide trunking as set forth in Exhibit
B. The Parties will be responsible for the appropriate sizing of the trunk
groups. Operation and maintenance of the transport facilities will be the
responsibility of the Party providing them.
If initially deployed as an End-Span Architecture, the
deployment architecture may be migrated or groomed, upon mutual agreement, to a
Mid-Span Meet architecture.
b. Mid-Span Meet
Using the "Mid-Span Meet" architecture, the Parties will agree
upon a Network Interconnection Point (NIP). The NIP functions as a demarcation
point for each Party. Each Party is responsible to provide the necessary
trunking to its side of the NIP utilizing any method of interconnection
described in Section 4.3 above. The Parties are mutually responsible for the
appropriate sizing of the composite trunking facility. The Party providing the
facility section is responsible for the operation and maintenance of the
transport facility to the NIP.
A second NIP may be established, when mutually agreed upon, to
eliminate a "single point of failure". The establishment of the second NIP may
not require additional or increased trunking or facilities of either Party.
Trunking from the initial NIP will be groomed or augmented to the second NIP
upon mutual agreement.
When required, based on guidelines established pursuant to
Appendix ITR, either Party may trunk directly to the other Party's EO. If the
Party is virtually or physically collocated at the EO, then that collocation
will be designated as a NIP. This collocation will be used for the transport of
direct EO trunking, in addition to other uses. The collocated Party is
responsible for the appropriate sizing, operation, and maintenance of the
transport facility which will carry mutual traffic. In the instance where the
Party is not collocated, the EO trunk group will be handed off at the original
NIP and both Parties will be economically and technically responsible for the
transport facility on their side of that NIP.
Unless otherwise mutually agreed upon, when Mid- Span Meet
architecture has been deployed, it will remain as the architecture of choice
during the term of this Agreement.
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4.5 Technical Specifications
4.5.1 CLEC and SWBT shall work cooperatively to install and
maintain a reliable network. CLEC and SWBT shall exchange appropriate
information (e.g., maintenance contact numbers, network information, information
required to comply with law enforcement and other security agencies of the
Government and such other information as the Parties shall mutually agree) to
achieve this desired reliability.
4.5.2 CLEC and SWBT shall work cooperatively to apply sound
network management principles by invoking network management controls to
alleviate or to prevent congestion.
4.5.3 Technical Publications that describes the practices,
procedures, specifications and interfaces generally utilized by SWBT are
identified herein. Technical Publications referred to herein assist the Parties
in meeting their respective Interconnection responsibilities. Copies of the
publications listed in this Agreement have been provided to CLEC by SWBT.
4.6 Interconnection in Additional Metropolitan Exchange Areas
4.6.1 If CLEC decides to offer Telephone Exchange Services in
any other Exchange Areas in which SWBT also offers Telephone Exchange Services,
CLEC shall provide written notice to SWBT of the need to establish
Interconnection in such Exchange Areas pursuant to this Agreement.
4.6.2 The notice provided in Section 4.6.1 shall include (i)
the initial Routing Point CLEC has designated in the Exchange Area; (ii) CLEC's
requested Interconnection Activation Date; and (iii) a non-binding forecast of
CLEC's trunking requirements.
4.6.3 Unless otherwise agreed by the Parties, the Parties
shall designate the Wire Center that CLEC has identified as its initial Routing
Point in the Exchange Area as the CLEC Interconnection Wire Center (CIWC) in
that Exchange Area and shall mutually designate a SWBT Tandem Office Wire
Center(s) within the Exchange Area as the SIWC(s) in that Exchange Area.
4.6.4 Unless otherwise agreed by the Parties, the
Interconnection Activation Date in each new Exchange Area shall be targeted at
ninety (90) days but in no event more than 150 days following the date on which
CLEC delivered notice to SWBT of the need to establish Interconnection pursuant
to Section 4.6.1. Within ten (10) business days of SWBT's receipt of CLEC's
notice, SWBT and CLEC shall confirm the respective Wire Centers to be
Interconnected and the Interconnection Activation Date for the new Exchange Area
by attaching a supplementary schedule to Appendix DCO.
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5.0 TRANSMISSION AND ROUTING OF TELEPHONE EXCHANGE SERVICE TRAFFIC PURSUANT TO
SECTION 251(c)(2)
5.1 Scope of Traffic
This Section (5.0) prescribes parameters for Traffic Exchange trunk
groups the Parties shall establish over the Interconnections specified in
Section 4.0. The parties shall employ the Traffic Exchange trunk groups
specified, in this Section (5.0) and in Appendix ITR, for the transmission and
routing of all Local and IntraLATA Toll Traffic between the Parties.
5.1.1 For purposes of compensation under this Agreement, the
telecommunications traffic traded between CLEC and SWBT will be classified as
either Local Traffic, Transit Traffic, Optional Calling Area Traffic, IntraLATA
Interexchange Traffic, InterLATA Interexchange Traffic, FGA Traffic, or Wireless
Traffic. The compensation arrangement for the joint provision of Feature Group A
(FGA) Services is covered in Appendix FGA, attached hereto and incorporated
herein by reference. The compensation arrangement for the joint provision of
Wireless Traffic is covered in Appendix Wireless, attached hereto and
incorporated herein by reference. The Parties agree that, notwithstanding the
classification of traffic under this Agreement, either Party is free, within the
terms of this Agreement to define its own "local" calling area(s) for purposes
of its provision of Telecommunications Services to its end users.
5.1.2 Calls originated by one Party's end user and terminated
to the other Party's end user will be classified as "Local Traffic" under this
Agreement if: (i) the call originates and terminates in the same SWBT exchange
area; or (ii) originates and terminates within different SWBT Exchanges that
share a common mandatory local calling area, e.g., mandatory Extended Area
Service (EAS), mandatory Extended Local Calling Service (ELCS), or other like
types of mandatory expanded local calling scopes.
5.2 Responsibilities of the Parties
5.2.1 Each Party will be responsible for the accuracy and
completeness and quality of its data as submitted to the respective Parties
involved.
5.2.2 Each Party will include in the information transmitted
to the other, for each call being terminated on the other's network (where
available), the originating Calling Party Number (CPN) or Automatic Number
Identification (ANI).
5.2.3 The type of originating calling number transmitted
depends on the protocol of the trunk signaling used for interconnection.
Traditional toll protocol will be used with Multi-Frequency (MF) signaling, and
ANI will be sent from the originating Party's end office switch to the
terminating Party's tandem or end office switch.
5.2.4 Where one Party is passing CPN but the other party is
not properly receiving information, the Parties will cooperate to rate the
traffic correctly.
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5.3 Reciprocal Compensation for Termination of Local Traffic
5.3.1 The Compensation set forth below will apply to all Local
Traffic as defined in Section 5.1.2 of this Agreement.
5.3.2 Applicability of Rates
i) The rates, terms, conditions in this Section
5.3 apply only to the termination of Local
Traffic, except as explicitly noted.
ii) The Parties agree to compensate each other
for the termination of Local Traffic on a
minute of use (MOU) basis.
5.3.3 Rate Elements
5.3.3.1. A Tandem rate element is applicable to
Tandem Routed Local Traffic on a terminating local MOU basis and includes
compensation for the following sub-elements.
i) Tandem Switching - compensation for the use
of tandem switching functions.
ii) Tandem Transport - compensation for the
transmission facilities between the local
tandem and the end offices subtending that
tandem.
iii) End Office Switching - compensation for the
local EO office switching and line
termination functions necessary to complete
the transmission.
5.3.3.2 An End Office rate element applies to
direct-routed Local Traffic, on a terminating local MOU basis, and includes
compensation for End Office Switching. This includes direct-routed Local Traffic
that terminates to offices that have combined tandem and End Office functions.
5.3.3.3 De minimis Provision. The first nine months
of this agreement shall be a de minimis period. For purposes of Section 5.3.3
there shall be a monthly threshold de minimis level of Local Traffic below which
no compensation will be paid by the Parties for termination of Local Traffic,
unless the net of such terminating traffic results in Minutes of Use (MOUs) in
excess of the threshold. Such de minimis level shall be 105% determined by
comparing each Party's monthly MOU calculation. Such minutes of use shall be
measured in seconds by call type and accumulated monthly and then rounded to the
nearest one minute increment for billing purposes. This provision applies to
Local Traffic only, which includes calls originated and terminated to/from
mandatory local calling areas, but does not include Transit or CMRS Traffic. The
Parties acknowledge and agree that any compensation which might accrue in an
amount less than required by this Section shall be considered de minimis,
however, the Parties shall exchange all records required under the Agreement
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Page 19 of 45
even when the traffic exchanged between the Parties is de minimis. Whenever the
traffic exchanged between the parties exceeds the 105% de minimis level, in any
given month, the Parties shall bill or settle amongst themselves for all MOUs.
5.3.4 Local Traffic Interconnection Rates
Prices
------
Tandem Switching $0.002822/MOU
----------------
Tandem Transport
----------------
Common
------
Zone A $0.000621/MOU
Zone B $0.000393/MOU
Zone C $0.000519/MOU
End Office Switching
Zone A $0.007598/MOU
Zone B $0.005965/MOU
Zone C $0.005775/MOU
5.4 Reciprocal Compensation for Transit Traffic
5.4.1 Transit Traffic allows one Party to send Local traffic
to a third party network through the other Party's tandem. A Transit Traffic
rate element applies to all MOUs between a Party and third party networks that
transit the other Party's tandem switch. The originating Party is responsible
for the appropriate rates unless otherwise specified. The Transit Traffic rate
element is only applicable when calls do not originate with (or terminate to)
the transit Party's end user.
Prices
------
Local Transit $0.003443/MOU
All other traffic which transits a tandem shall be
treated as meet-point billing traffic unless otherwise agreed.
Each Party represents that it shall not send local
traffic to the other Party that is destined for the network of a third party
unless and until such Party has the authority to exchange traffic with the third
party.
5.5 Reciprocal Compensation for Termination of IntraLATA
Interexchange Traffic
5.5.1 For intrastate intraLATA interexchange service
traffic, compensation for termination of intercompany traffic will be at
terminating access rates for Message Telephone Service (MTS) and originating
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access rates for 800 Service, including the Carrier Common Line (CCL) charge, as
set forth in each party's Intrastate Access Service Tariff. For interstate
intraLATA service, compensation for termination of intercompany traffic will be
at terminating access rates for MTS and originating access rates for 800 Service
including the CCL charge, as set forth in each party's interstate Access Service
Tariff.
5.6 Compensation for Origination and Termination of
Switched Access Service Traffic to or From an IXC
(Meet-Point Billing (MPB) Arrangements)
5.6.1 For interstate, interLATA traffic, terminating
compensation will be at access rates as set forth in each Party's own applicable
access tariffs.
5.6.2 The Parties will establish MPB arrangements, as
mutually agreed upon, in order
to provide Switched Access Services to IXCs via SWBT's access tandem switch in
accordance with the MPB guidelines adopted by and contained in the Ordering and
Billing Forum's MECOD and MECAB documents. CLEC's Meet Points with SWBT, and
SWBT's Meet Points with CLEC shall be those identified in Appendix DCO and any
supplements thereto.
5.6.3 Billing to IXCs for the Switched Exchange
Access Services jointly provided by the Parties via Meet-Point Billing
arrangement shall be according to the multiple bill/single tariff method. As
described in the MECAB document, each Party will render a bill in accordance
with its own tariff for that portion of the service it provides. For the purpose
of this Agreement, CLEC is the Initial Billing Company (IBC) and SWBT is the
Subsequent Billing Company (SBC). The assignment of revenues, by rate element,
and the Meet-Point Billing percentages applicable to this Agreement are set
forth in the Meet Point Billing Arrangement Revenue Assignment Schedule. The
actual rate values for each element shall be the rates contained in that Party's
own applicable access tariffs.
5.6.4 The Parties will maintain provisions in their
respective federal and state
access tariffs, or provisions within the National Exchange Carrier Association
(NECA) Tariff No. 4, or any successor tariff, sufficient to reflect this MPB
arrangement, including MPB percentages.
5.6.5 As detailed in the MECAB document, the Parties
will, in accordance with accepted time intervals exchange all information
necessary to accurately, reliably and promptly bill third Parties for Switched
Access Services traffic jointly handled by the Parties via the Meet Point
Arrangement. Each Party reserves the right to charge the other Party for the
recording/processing functions it performs pursuant to Appendix Recording or
nondiscriminatory terms and conditions. Information shall be exchanged in
Exchange Message Record (EMR) format, on magnetic medium or via a mutually
acceptable electronic file transfer protocol.
5.6.6 Initially, billing to IXCs for the Switched
Access Services jointly provided by the parties via the MPB arrangement will be
according to the multiple bill single tariff method, as described in the MECAB
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SWBT/FULLTEL COMMUNICATIONS, INC.
Page 21 of 45
document. Each Party will render a bill to the IXC in accordance with its own
tariff for that portion of the service it provides. Each Party will bill its own
network access service rates to the IXC. The residual interconnection charge
(RIC), if any, will be billed by the Party providing the End Office function.
5.6.7 Meet-Point Billing shall also apply to all
jointly provided MOU traffic bearing the 900, 800, and 888 NPAs or any other
non-geographic NPAs which may likewise be designated for such traffic in the
future where the responsible party is an IXC. For 800 database queries performed
by SWBT, SWBT will charge the provider of the Signaling Service Point for the
database query in accordance with standard industry practices and at rates
included in the attached Appendices.
5.6.8 Each Party shall coordinate and exchange the
billing account reference ("BAR") and billing account cross reference ("BACR")
numbers for the Meet Point Billing service. Each Party shall notify the other if
the level of billing or other BAR/BACR elements change, resulting in a new
BAR/BACR number.
5.6.9 Each Party will provide the other with the
Exchange Access detailed usage data within thirty (30) days of the end of the
billing period. SWBT will perform assembly and editing, messages processing and
provision of Access Usage Records in accordance with Appendix Recording, which
is attached hereto and incorporated herein by this reference. Each Party will
provide to the other the Exchange Access Summary Usage Records within ten (10)
working days after the date that a bill is rendered to the IXC by the initial
Party. The Parties reserve the right to charge for such data and will negotiate
mutual and reciprocal charges.
5.6.10 Errors in information transmission and/or
billing may be discovered by CLEC, the IXC or SWBT. Both SWBT and CLEC agree to
provide the other Party with notification of any discovered errors within two
(2) business days of the discovery.
5.6.11 In the event of a loss of data, both Parties
shall cooperate to reconstruct the lost data within sixty (60) days of
notification and if such reconstruction is not possible, shall accept a
reasonable estimate of the lost data, based upon an extrapolation from no more
than three (3) to twelve (12) months of prior usage data, if available.
5.7 Billing Arrangements for Compensation for Termination
of IntraLATA, Local, Transit, and Optional Calling Area
Traffic
5.7.1 Other than for traffic described in Section 5.6
above, each Party shall deliver monthly settlement statements for terminating
the other Party's traffic based on a mutually agreed schedule as follows:
For billing purposes, each Party shall, unless otherwise agreed, pass the
originating call record for the recording, record exchange and billing of
traffic using the guidelines as set forth in the Technical Exhibit Settlement
Procedures (TESP), provided by SWBT to CLEC.
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(a) Where CLEC has direct/high usage trunks to a SWBT end office with
overflow trunking through a SWBT tandem, billing for the Tandem Traffic
will be calculated as follows:
total originating MOUs to SWBT's end office recorded by CLEC
less direct end office terminating MOUs recorded by SWBT
equals total MOUs to be compensated as Tandem traffic
(b) Where CLEC has direct/high usage trunks to a third party with
overflow trunking through a SWBT tandem, CLEC must differentiate the
originating MOU records for the Parties to ascertain how many MOUs should
be compensated as Transit Traffic. If CLEC is unable to differentiate the
originating MOU records, the Parties shall mutually agree upon a surrogate
method for calculating the basis for Transit Traffic charges owed to SWBT.
5.7.1.1 On a monthly basis, each Party will record its
originating MOU including identification of the originating and terminating NXX
for all intercompany calls.
5.7.1.2 Each Party will transmit the summarized originating MOU
from Section 5.7.1.1 above to the transiting and/or terminating Party for
subsequent monthly intercompany settlement billing.
5.7.1.3 Bills rendered by either Party will be paid within 30
days of receipt subject to subsequent audit verification.
5.7.1.4 Detailed technical descriptions and requirements for the
recording, record exchange and billing of traffic are included in the Technical
Exhibit Settlement Procedures (TESP), a copy of which has been provided to CLEC
by SWBT.
5.7.2 MOUs for the rates contained herein will be measured in seconds by
call type, accumulated each billing period into an aggregate number of seconds
and rounded to the nearest one minute increment for billing purposes in
accordance with 5.3.3.3.
5.7.3 Each Party will multiply the tandem routed and end office routed
terminating MOUs by the appropriate rate contained in the attached Appendices to
determine the total monthly billing to each Party.
5.7.4 If the percentage of calls passed by either Party with CPN is greater
than ninety percent (90%), all calls exchanged without CPN information will be
billed as either Local Traffic or IntraLATA Toll Traffic in direct proportion to
the minutes of use (MOU) of calls exchanged with CPN information. If the
percentage of calls passed with CPN is less than 90%, all calls passed without
CPN will be billed as IntraLATA Toll Traffic.
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6.0 TRANSMISSION AND ROUTING OF EXCHANGE ACCESS TRAFFIC PURSUANT TO
251(c)(2)
6.1 Scope of Traffic
Section 6.0 prescribes parameters for certain trunk groups ("Access
Toll Connecting Trunks") to be established over the Interconnections specified
in Section 4.0 for the transmission and routing of Exchange Access traffic
between CLEC Telephone Exchange Service end users and IXCs via a SWBT access
tandem.
6.2 Trunk Group Architecture and Traffic Routing
6.2.1 The Parties shall, as mutually agreed upon, jointly
establish Access Toll Connecting Trunks as described in Appendix ITR, by which
they will jointly provide tandem-transported Switched Exchange Access Services
to IXCs to enable SWBT and CLEC end users to originate and receive traffic
to/from such IXCs.
6.2.2 Access Toll Connecting Trunks shall be used solely for
the transmission and routing of Switched Exchange Access to allow CLEC or SWBT
end users to originate and terminate traffic to/from any IXCs which is connected
to the other's Access Tandem. In addition, the trunks shall be used to allow
CLEC's or SWBT's end users to connect to, or be connected to, the 800 Services
of any Telecommunications Carrier connected to the other Party's Access Tandem.
7.0 TRANSPORT AND TERMINATION OF OTHER TYPES OF TRAFFIC
7.1 Information Services Traffic
7.1.1 At such time as the Parties shall agree to route
intraLATA Information Services Traffic to one another, they shall agree to
exchange rating and billing information to effectively allow the Parties to bill
their end users and to charge reciprocal rates.
7.2 Line Status Verification (LSV)/Busy Line Interrupt (BLI)
Traffic
7.2.1 Each Party's operator bureau shall accept LSV and BLI
inquiries from the operator bureau of the other Party in order to allow
transparent provision of LSV/BLI Traffic between the Parties' networks. Only one
LSV attempt will be made per end user operator bureau call, and the applicable
charge shall apply whether or not the line is busy at the time of verification
and if the called party releases the line. Only one BLI attempt will be made per
end user operator telephone call, and the applicable charge shall apply whether
or not the called party releases the line.
7.2.2 Each Party shall route LSV/BLI Traffic inquiries between
the Parties' respective operator bureaus over trunks described in Appendix ITR.
7.2.3 Each Party shall compensate the other Party for LSV/BLI
Traffic as set forth in the Appendix OS.
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7.3 Wireless Traffic
7.3.1 Appendix Wireless sets forth the terms and conditions
under which the Parties will distribute revenue from their joint provision of
Wireless Interconnection Service for mobile to landline traffic terminating
through the Parties' respective wireline switching networks within a LATA. If
either Party enters into an interconnection agreement with a CMRS provider,
Appendix Wireless shall no longer be applicable between the Parties with respect
to such CMRS providers.
7.3.2 SWBT will apply the Local Transit Traffic rate to CLEC
for calls that originate on CLEC's network and are sent to SWBT for termination
to a CMRS Provider as long as such Traffic can be identified as wireless
traffic. CLEC will apply the Local Transit Traffic rate to SWBT for such calls
that originate on SWBT's network and are sent through CLEC's network for
termination on a CMRS Provider's network. Each Party shall be responsible for
interconnection agreements with CMRS providers for terminating compensation
regarding traffic originating on the Party's network and terminating on the CMRS
provider's network. The originating Party agrees to indemnify the transiting
Party for any claims of compensation that may be made by the CMRS provider
against the transiting Party regarding compensation for such traffic.
7.3.3 When traffic is originated by either Party to a CMRS
Provider, and the traffic cannot be specifically identified as wireless traffic
for purposes of compensation between SWBT and CLEC, the traffic will be treated,
in comport with its origination and termination, as either Local or Access and
the appropriate compensation rate will apply.
7.4 911 Service
7.4.1 Pursuant to Section 271(c)(2)(B)(vii) of the Act, SWBT
will make nondiscriminatory access to 911 service available under the terms and
conditions of Appendix 911, attached hereto and incorporated by reference.
7.4.2 CLEC shall route 911 traffic over trunks as described in
Appendix ITR.
8.0 SIGNALING
The SWBT signaling publications that describe the practices, procedures
and specifications generally utilized by SWBT for signaling purposes and are
listed in Appendix TP which is attached hereto and incorporated herein. Copies
of these publications have been provided to CLEC.
8.1 The Parties will cooperate on the exchange of Transactional
Capabilities Application Part (TCAP) messages to facilitate interoperability of
CCS-based features between their respective networks, including all CLASS
features and functions, to the extent each Party offers such features and
functions to its end users. All CCS signaling parameters will be provided
including, without limitation, calling party number (CPN), originating line
information (OLI), calling party category and charge number.
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9.0 NUMBERING
9.1 Nothing in this Agreement shall be construed to limit or otherwise
adversely impact in any manner either Party's right to employ or to request and
be assigned any NANP number resources including, but not limited to, central
office (NXX) codes pursuant to the Central Office Code Assignment Guidelines1,
or to establish, by tariff or otherwise, Exchanges and Rating Points
corresponding to such NXX codes. Each Party is responsible for administering the
NXX codes assigned to it.
9.2 At a minimum, in those Exchange Areas where CLEC intends to provide
local exchange service, CLEC shall obtain a separate NXX code for each SWBT
exchange wherein CLEC intends to offer service to end users. This will enable
CLEC and SWBT to identify the jurisdictional nature of traffic for intercompany
compensation until such time as both Parties have implemented billing and
routing capabilities to determine traffic jurisdiction on a basis other than NXX
codes.
9.3 Each Party agrees to make available to the other, up-to-date
listings of its own assigned NPA-NXX codes, along with associated Rating Points
and Exchanges.
9.4 To the extent SWBT serves as Central Office Code Administrator for
a given region, SWBT will work with CLEC in a neutral and nondiscriminatory
manner, consistent with regulatory requirements, in regard to CLEC's requests
for assignment of central office code(s) (NXX) consistent with the Bellcore (or
the succeeding organization assuming this function) Central Office Code
Assignment Guidelines.
9.5 Each Party is responsible to program and update its own switches
and network systems to recognize and route traffic to the other Party's assigned
NXX codes at all times. Neither Party shall impose fees or charges on the other
Party for such required programming and updating activities.
9.6 Each Party is responsible to input required data into the Routing
Data Base Systems (RDBS) and into the Bellcore Rating Administrative Data
Systems (BRADS) or other appropriate system(s) necessary to update the Local
Exchange Routing Guide (LERG), unless negotiated otherwise.
9.7 Neither Party is responsible for notifying the other Parties' end
users of any changes in dialing arrangements, including those due to NPA
exhaust, unless otherwise ordered by the Commission, the FCC, or a court.
9.8 NXX Migration
Where either Party has activated an entire NXX for a single end user,
or activated more than half of an NXX for a single end user with the remaining
numbers in that NXX either reserved for future use or otherwise unused, if such
- ------------------
1 Last published by the Industry Numbering Committee ("INC") as
INC 95-0407-008, Revision 4/7/95, formerly ICCF 93-0729-010.
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end user chooses to receive service from the other Party, the first Party shall
cooperate with the second Party to have the entire NXX reassigned in the LERG
(and associated industry databases, routing tables, etc.) to an End Office
operated by the second Party. Such transfer will require development of a
transition process, to minimize impact on the Network and on the end user(s)'
service and will be subject to appropriate industry lead times (currently 45
days) for movements of NXXs from one switch to another. The Party to whom the
NXX is migrated will pay NXX migration charges of $10,000 per NXX.
10.0 RESALE -- SECTIONS 251(c)(4) and 251(b)(1)
10.1 Availability of Retail Telecommunications Services
SWBT shall offer to CLEC for resale at wholesale rates its
Telecommunications Services, as described and in comport with Section 251(c)(4)
of the Act, pursuant to the terms and conditions of the Appendix, "Resale"
attached hereto, which are intended to comport with and be subject to the Act,
and incorporated herein by this reference.
10.2 Availability of Retail Telecommunication Services for Resale
CLEC shall make available its Telecommunications Services for resale at
rates to SWBT in accordance with Section 251(b)(1) of the Act.
11.0 UNBUNDLED NETWORK ELEMENTS - SECTIONS 251(c)(3), 271(c)(2)(B) (II),
(IV),(V),(VI),(X)
SWBT shall provide CLEC access to unbundled network elements for the
provision of a telecommunication service as described in Section 251(c)(3) of
the Act, pursuant to the terms and conditions of the Appendix, "UNE" which is
intended to be subjected to and in comport with the Act and the Commissions'
Orders, is attached hereto and incorporated herein by this reference.
12.0 NOTICE OF CHANGES -- SECTION 251(c)(5)
Nothing in this Agreement shall limit either Party's ability to
upgrade its network through the incorporation of new equipment, new software or
otherwise. If a Party makes a change in its network which it believes will
materially affect the interoperability of its network with the other Party, the
Party making the change shall provide at least ninety (90) days advance written
notice of such change to the other Party. Notwithstanding the foregoing, if
either Party establishes additional tandems in an exchange area in which the
other Party offers local exchange service, that Party will provide the other
Party with not less than 180 days' advance notification of same, and with
greater notification when practicable. Both Parties agree to coordinate
interconnection matters consistent with the requirements of the Americans with
Disabilities Act (42 U.S.C. 12101) and with Sections 255 and 256 of the Act. In
addition, the Parties will comply with the Network Disclosure rules adopted by
the FCC in CC Docket No. 96-98, Second Report and Order, as may be amended from
time to time. The Party upgrading its network shall be solely responsible for
the cost and effort of accommodating such changes in its own network.
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13.0 COLLOCATION -- SECTION 251(c)(6)
13.1 SWBT shall provide to CLEC facilities for the Physical Collocation
of equipment necessary for Interconnection (pursuant to Section 4.0 of this
Agreement), access to Network Elements on an unbundled basis, or once
collocated, connection to the networks of third parties, except that SWBT may
provide for Virtual Collocation to achieve the same ends if SWBT demonstrates to
the Commission that Physical Collocation is not practical for technical reasons
or because of space limitations, as provided in Section 251(c)(6) of the Act.
SWBT shall provide such Collocation for the purpose of network Interconnection
or access to Network Elements on an unbundled basis, except as otherwise
mutually agreed to in writing by the Parties or as required by the FCC or the
appropriate Commission, subject to this Agreement.
13.2 Except as otherwise ordered by the Commission or the FCC, or as
mutually agreed to by CLEC and SWBT, Physical or Virtual Collocation shall be
available at a Central Office Switch location classified as an end office
location, a serving wire center, a local, sector, or access tandem office
location, a remote node that serves as a rating point for special access or
switched access transport, or other locations as required by the Act or
Commissions' Order.
13.3 Attached hereto as Appendix Collocation, is the SWBT/CLEC
Collocation agreement which sets forth terms and conditions under which SWBT
shall provide physical collocation to CLEC in SWBT's Central central office in
Oklahoma City. Additionally, Appendix Collocation is a generic collocation
agreement which sets forth the terms and conditions under which SWBT shall
provide physical collocation to CLEC for all future collocation arrangements
between the Parties during the term of this Agreement. The prices and time
frames for any future collocations requested by CLEC will be determined on a
case-by-case basis. These variables are indicated by underlining (indicating
blanks) in the generic appendix.
14.0 NUMBER PORTABILITY -- SECTIONS 251(b)(2), 271(c)(2)(B)(xi)
The Parties agree to provide Interim Number Portability (INP) to one
another pursuant to terms and conditions outlined in Appendix PORT attached
hereto and incorporated herein.
15.0 DIALING PARITY -- SECTION 251(b)(3) and 271(e)(2)
15.1 The Parties shall provide Local Dialing Parity to each other as
required under Section 251(b)(3) of the Act.
15.2 SWBT shall provide IntraLATA Dialing Parity in accordance with
Section 271(e)(2) of the Act.
16.0 ACCESS TO RIGHTS-OF-WAY -- SECTION 251(b)(4)
To the extent required by Section 251(b)(4) of the Act, each Party
shall provide the other Party access to the poles, ducts, rights-of-way and
conduits (including riser conduit) it owns or controls in accordance with
Section 224 of the Act on the terms, conditions and prices set forth in Appendix
Poles, Conduits and Rights-of-Way to this Agreement.
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17.0 DATABASE ACCESS
In accordance with Section 271 of the Act and Appendices UNE, 800, LIDB
Validation, AIN, LIDB, CNAM, and OSS, SWBT shall provide CLEC with
nondiscriminatory access to databases and associated signaling necessary for
call routing and completion. When requesting access to databases not otherwise
provided for in this Agreement, or appropriate interfaces, regardless of whether
they constitute unbundled Network Elements, CLEC will use the Network Element
Bona Fide Request process.
18.0 COORDINATED SERVICE CALLS
18.1 Referral Announcement. The Party formerly providing service to an
end user shall provide a Basic Referral announcement, reciprocally and free of
charge on the abandoned telephone number. The announcement will state that the
called number has been disconnected or changed and will provide the end user's
new telephone number if it is listed.
(a) Basic Intercept Referral Announcements are to be provided
on residential numbers for the same period of time that a Party provides to its
own end users, but at a minimum, for thirty (30) days where facilities exist and
the threat of telephone number exhaustion is not imminent.
Basic Intercept Referral Announcements for a single line
business end user and the primary listed telephone number for DID and
"Centrex-type" end users, shall be available for a minimum of thirty (30) days
or the life of the White Pages directory, whichever is greater. If the threat of
telephone number exhaustion becomes imminent for a particular Central Office,
the service provider may reissue a disconnected number prior to the expiration
of the directory, for the same period of time that a Party provides to its own
end users, but no earlier than thirty (30) days after the disconnection of the
business telephone number.
18.2 Coordinated Repair Calls. The Parties will employ the
following procedures for handling misdirected repair calls:
(a) The Parties will inform their respective end users of the
correct telephone numbers to call to access their respective
repair bureaus.
(b) To the extent the correct provider can be determined,
misdirected repair calls will be referred to the proper
provider of local exchange service in a courteous manner, at
no charge, and the end user will be provided the correct
contact telephone number.
In responding to misdirected repair calls, neither Party shall
make disparaging remarks about each other, nor shall they use
these repair calls as the basis for internal referrals or to
solicit customers or to market services, nor shall they
initiate extraneous communications beyond the direct referral
to the correct repair telephone number.
(c) The Parties will provide their respective repair contact
numbers to one another on a reciprocal basis.
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19.0 OTHER SERVICES 271(c)(2)(vii), 271(c)(2)(B)(viii)
19.1 White Pages. In accordance with Section 271(c)(2)(B) of the Act,
SWBT will make nondiscriminatory access to White Pages service available under
the terms and conditions of the Appendix "WP", attached hereto and incorporated
by reference.
19.2 Calling Name Information. The Parties shall provide, on mutually
agreeable and reciprocal terms, each other with access to Calling Name
information of their respective end users whenever one Party initiates a query
from a Signaling System Point for such information associated with a call
terminating to an end user who subscribes to a calling name service.
19.3 Billing/Collecting/Remitting. The Parties will jointly agree to
terms and conditions for Billing, Collecting and Remitting for alternated billed
local message as described in the Appendix "BCR", attached hereto and
incorporated by reference.
19.4 911 Service. Pursuant to Section 271(c)(2)(B)(vii) of the Act,
SWBT will make nondiscriminatory access to 911 service available under the terms
and conditions of Appendix 911, attached hereto and incorporated by reference.
CLEC shall route 911 traffic over trunks as described in the Appendix "ITR".
19.5 Directory Assistance (DA). Pursuant to Section 271(c)(B)(vii) of
the Act, SWBT will provide nondiscriminatory access to DA services under the
terms and conditions identified in the Appendix "DA", which is attached hereto
and make a part hereof.
19.6 Direct Access (DIRECT). Pursuant to the Act and the Commissions'
Orders, SWBT will provide nondiscriminatory access to published subscriber
listing information contained in SWBT's Directory Assistance DA Database under
the terms and conditions identified in the Appendix, "DIRECT", which is attached
hereto and made a part hereof.
19.7 Operator Services. At CLEC's request, SWBT shall provide
nondiscriminatory access to Operator Services under the terms and conditions
identified in the Appendix "OS" which is attached hereto and make a part hereof.
19.8 Clearinghouse Services. To the extent requested by CLEC, SWBT
shall provide for the tracking of message revenues from certain messages to
facilitate the transfer of revenues between the billing company the earning
company through the Clearinghouse Services provided by SWBT pursuant to the
terms and conditions in the Appendix "CH", which is attached hereto and made a
part hereof.
19.9 Hosting. At CLEC's request, SWBT shall perform hosting
responsibilities for the provision of billable message data and/or access usage
data received from CLEC for distribution to the appropriate billing and/or
processing location or for delivery to CLEC of such data via SWBT's internal
network or the nationwide CMDS network pursuant to the Appendix "HOST", which is
attached hereto and made a part hereof.
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19.10 Recording. At CLEC's request, SWBT shall perform recording
functionality for CLEC pursuant to the Appendix "RECORDING", which is attached
hereto and made a part hereof. These functions associated with recording will
include assembly and editing, message processing and provision of Access Usage
Record (AURs). These records will be generated by SWBT and provided to
CLECwithin the time frame agreed upon between the companies.
19.11 Signaling System 7 Interconnection. At CLEC's request, SWBT shall
perform SS7 interconnection services for CLEC pursuant to the Appendix "SS7",
which is attached hereto and made a part hereof.
20.0 GENERAL RESPONSIBILITIES OF THE PARTIES
20.1 SWBT and CLEC shall each use their best efforts to meet the
Interconnection Activation Dates.
20.2 Each Party is individually responsible to provide facilities
within its network that are necessary for routing, transporting, measuring, and
billing traffic from the other Party's network and for delivering such traffic
to the other Party's network in the standard format compatible with SWBT's
network as referenced in Bellcore's BOC Notes on LEC Networks Practice No.
SR-TSV-002275, and to terminate the traffic it receives in that standard format
to the proper address on its network. The Parties are each solely responsible
for participation in and compliance with national network plans, including the
National Network Security Plan and the Emergency Preparedness Plan.
20.3 Each Party shall, unless otherwise agreed, adhere to the
requirements for the recording, record exchange, and billing of traffic using
the guidelines as set forth in the Technical Exhibit Settlement Procedures
(TESP), previously provided by SWBT to CLEC. Reference to this technical
publication is included in Appendix TP which is attached hereto and incorporated
herein by reference.
20.4 Neither Party shall use any service related to or use any of the
services or elements provided in this Agreement in any manner that interferes
with other persons in the use of their service, prevents other persons from
using their service, or otherwise impairs the quality of service to other
carriers or to either Party's end users, and either Party may discontinue or
refuse service, but only for so long as the other Party is violating this
provision. Upon such violation, either Party shall provide the other Party
notice of the violation at the earliest practicable time.
20.5 Each Party is solely responsible for the services it provides to
its end users and to other Telecommunications Carriers.
20.6 The Parties shall work cooperatively to minimize fraud associated
with third-number billed calls, calling card calls, and any other services
related to this Agreement.
20.7 At all times during the term of this Agreement, each Party shall
keep and maintain in force at each Party's expense all insurance required by law
(e.g. workers' compensation insurance) as well as general liability insurance
for personal injury or death to any one person, property damage resulting from
any one incident, automobile liability with coverage for bodily injury for
property damage. Upon request from the other Party, each Party shall provide to
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Page 31 of 45
the other Party evidence of such insurance (which may be provided through a
program of self insurance, in which case bonds, letters of credit, or escrows
will be established in comport with mutual agreement).
20.8 In addition to its indemnity obligations under Section 26.0, each
Party shall provide, in its tariffs and contracts with its end users that relate
to any Telecommunications Service provided or contemplated under this Agreement,
that in no case shall such Party or any of its agents, contractors or others
retained by such parties be liable to any end user or third party for (i) any
Loss relating to or arising out of this Agreement, whether in contract or tort,
that exceeds the amount such Party would have charged the applicable end user
for the service(s) or function(s) that gave rise to such Loss, and (ii) any
Consequential Damages (as defined in Section 26.3 below).
20.9 Unless otherwise stated, each Party will render a monthly bill to
the other for service(s) provided hereunder. Remittance in full will be due
within thirty (30) days of that billing date. Interest shall apply on overdue
amounts (other than Disputed Amounts which are subject to Section 28.12) at the
rate specified in Section 28.12, unless otherwise specified in an applicable
tariff. Each Party reserves the right to net delinquent amounts against amounts
otherwise due the other.
20.10 SWBT is participating with the industry to develop standardized
methods through the OBF and shall implement ordering and billing
formats/processes consistent with industry guidelines as capabilities are
deployed. Where such guidelines are not available SWBT will provide CLEC with
information on its ordering and billing format/process and requirements at the
earliest practicable time.
21.0 EFFECTIVE DATE, TERM, AND TERMINATION
21.1 This Agreement shall be effective not later than ten (10) days
after approval by the Oklahoma Commission when it has determined that the
Agreement complies with Sections 251 and 252 of the Act ("Effective Date").
21.2 The terms of the Agreement will commence upon approval by the
Oklahoma Corporation Commission and will expire on August 1, 2000 (the "Term").
Absent the receipt by one Party of written notice from the other Party at least
sixty (60) days prior to the expiration of the Term to the effect that such
Party does not intend to extend the Term of this Agreement, this Agreement shall
automatically renew and remain in full force and effect on and after the
expiration of the Term until terminated by either Party pursuant to Section
21.4.
21.3 Either Party may terminate this Agreement in the event that the
other Party fails to perform a material obligation that disrupts the operation
of either Party's network and/or end user service and fails to cure such
material nonperformance within forty-five (45) days after written notice
thereof.
21.4 If pursuant to Section 21.2 this Agreement continues in full force
and effect after the expiration of the Term, either Party may terminate this
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Agreement one hundred eighty (180) days after delivering written notice to the
other Party of its intention to terminate this Agreement, subject to Section
21.5. Neither Party shall have any liability to the other Party for termination
of this Agreement pursuant to this Section 21.4 other than its obligations under
Section 21.5.
21.5 Upon termination or expiration of this Agreement in accordance
with this Section 21.0:
(a) each Party shall promptly pay all amounts (including
any late payment charges) owed under this Agreement;
and
(b) each Party 's indemnification obligations shall
survive.
Upon expiration or termination the Parties will negotiate a successor agreement;
during such period, each Party shall continue to perform its obligations and
provide the services described herein that are to be included in the successor
agreement until such time as the latter agreement becomes effective; provided
however, that if the Parties are unable to reach agreement within six (6) months
after termination or expiration of this Agreement, either Party has the right to
submit this matter to the Commission for resolution. Until a survivor agreement
is reached or the Commission resolves the matter, whichever is sooner, the
terms, conditions, rates, and charges stated herein will continue to apply,
subject to a true-up based on the Commission action, if any.
21.6 Except as specifically set forth in this Agreement, no remedy set
forth herein is intended to be exclusive and each and every remedy shall be
cumulative and in addition to any other rights or remedies now or hereafter
existing under applicable law or otherwise.
22.0 DISCLAIMER OF REPRESENTATIONS AND WARRANTIES
EXCEPT AS EXPRESSLY PROVIDED UNDER THIS AGREEMENT, NO PARTY MAKES OR RECEIVES
ANY WARRANTY, EXPRESS OR IMPLIED, WITH RESPECT TO THE SERVICES, FUNCTIONS AND
PRODUCTS IT PROVIDES UNDER OR CONTEMPLATED BY THIS AGREEMENT AND THE PARTIES
DISCLAIM THE IMPLIED WARRANTIES OF MERCHANTABILITY OR OF FITNESS FOR A
PARTICULAR PURPOSE. ADDITIONALLY, NEITHER SWBT NOR CLEC ASSUMES RESPONSIBILITY
WITH REGARD TO THE CORRECTNESS OF DATA OR INFORMATION SUPPLIED BY THE OTHER WHEN
THIS DATA OR INFORMATION IS ACCESSED AND USED BY A THIRD PARTY.
23.0 SLAMMING
Each Party will abide by applicable state commission rules when
obtaining end user authorization to change an end user's local service provider
to itself and in assuming responsibility for any applicable charges. Failure to
obtain end user authorization prior to changing such end user's local service
provider shall be considered slamming. Only an end user can initiate a challenge
to a change in its local exchange telephone service. Each Party shall make
available proof of end user authorization upon request.
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24.0 SEVERABILITY
24.1 The Parties negotiated the services, arrangements,
Interconnection, terms and conditions of this Agreement by the Parties as a
total arrangement and are intended to be nonseverable, subject only to Section
24.2 of this Agreement.
24.2 In the event the Commission, the FCC, or a court rejects any
portion or determines that any provision of this Agreement is contrary to law,
or is invalid or unenforceable for any reason, the Parties shall continue to be
bound by the terms of this Agreement, insofar as possible, except for the
portion rejected or determined to be unlawful, invalid, or unenforceable. In
such event, the Parties shall negotiate in good faith to replace the rejected,
unlawful, invalid, or unenforceable provision and shall not discontinue service
to the other party during such period if to do so would disrupt existing service
being provided to an end user. Nothing in this Agreement shall be construed as
requiring or permitting either Party to contravene any mandatory requirement of
federal or state law, or any regulations or orders adopted pursuant to such law.
25.0 LIMITATION OF LIABILITY
25.1 Except for indemnity obligations under this Agreement, or except
as otherwise provided in specific appendices, each Party's liability to the
other Party for any Loss relating to or arising out of any negligent act or
omission in its performance under this Agreement, whether in contract or tort,
shall not exceed in total the amount SWBT or CLEC has to or would have charged
the other Party during the year of the negligent act or omission for the
affected service(s) or function(s) that were not performed or were otherwise
improperly performed. Provided however, in no event shall either Party's
liability to the other for any act or omission under this Agreement exceed the
total dollar amount of services provided to or received by the liable Party in
the contract year.
25.2 Except for Losses alleged or made by an end user of either Party,
or except as otherwise provided in specific appendices, in the case of any Loss
alleged or made by a third party arising under the negligence or willful
misconduct of both Parties, each Party shall bear, and its obligation under this
section shall be limited to, that portion (as mutually agreed to by the Parties)
of the resulting expense caused by its own negligence or willful misconduct or
that of its agents, servants, contractors, or others acting in aid or concert
with it.
25.3 In no event shall either Party have any liability whatsoever to
the end users of the other Party for claims arising from the provision of the
other Party's service to its end user, including claims for interruption of
service, quality of service or billing disputes.
25.4 In no event shall either Party have any liability whatsoever to
the other Party for any indirect, special, consequential, incidental, or
punitive damages, including but not limited to loss of anticipated profits or
revenues or other economic loss in connection with or arising from anything
said, omitted or done hereunder (collectively "Consequential Damages"), even if
the other Party has been advised of the possibility of such damages; provided
however, that the foregoing shall not limit a Party's obligation under this
Agreement to indemnify, defend and hold the other Party harmless against any
amounts payable to a third party for any Losses or Consequential Damages of such
third party.
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26.0 INDEMNIFICATION
26.1 In no event shall either Party have any liability whatsoever to
the end users of the other Party for claims arising from the provision of the
other Party's service to its end user, including claims for interruption of
service, quality of service or billing disputes.
26.2 In no event shall either Party have any liability whatsoever to
the other Party for any indirect, special, consequential, incidental, or
punitive damages, including but not limited to loss of anticipated profits or
revenues or other economic loss in connection with or arising from anything
said, omitted or done hereunder (collectively "Consequential Damages"), even if
the other Party has been advised of the possibility of such damages; provided
however, that the foregoing shall not limit a Party's obligation under this
Agreement to indemnify defend and hold the other Party harmless against any
amounts payable to a third party for any Losses or Consequential Damages of such
third party.
26.3 In the case of any Loss alleged or made by an end user of either
Party, the Party whose end user alleged or made such Loss (Indemnifying Party)
shall defend and indemnify the other Party (Indemnified Party) against any and
all such claims or Loss by its end users regardless of whether the underlying
service was provided or unbundled element was provisioned by the Indemnified
Party, unless the Loss was caused by the gross negligence or intentional
misconduct of the other (Indemnified) Party.
26.4 Each Party shall be indemnified, defended and held harmless by the
other Party against any Loss arising from a Party's use of services or elements
provided under this Agreement involving:
26.4.1 Tort claims, including claims for libel, slander,
invasion of privacy, or infringement of copyright arising from a Party's own
communications or the communications of its end users; or
26.4.2 Claims for patent, trademark, infringement or other
infringement or intellectual property rights, arising from the Party's use of
services or unbundled elements provided under this Agreement.
26.5 The Indemnifying Party agrees to defend any suit brought against
the Indemnified Party for any Loss identified in this Section or specific
appendices. The Indemnified Party agree to notify the Indemnifying promptly in
writing of any written claims, lawsuits or demands for which the Indemnifying
Party may be responsible under this Agreement. The Indemnified Party shall
cooperate in every reasonable way to facilitate defense or settlement. The
Indemnifying Party shall have the right to control and conduct the defense and
settlement of any action or claim subject to the consultation of the Indemnified
Party. The Indemnifying Party shall not be responsible for any settlement unless
the Indemnifying Party approved such settlement in advance and agrees to be
bound by the settlement agreement.
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27.0 REGULATORY APPROVAL
The Parties understand and agree that this Agreement will be filed with
the Commission and may thereafter be filed with the FCC. Each Party covenants
and agrees to fully support approval of this Agreement by the Commission or the
FCC under Section 252 of the Act without modification. Additionally, the Parties
agree that so long as SWBT fully implements the terms and conditions of this
Agreement, CLEC will not oppose SWBT's Section 271 (of the Act) application.
CLEC represents that it is, or intends to become, a provider of
Telephone Exchange Service to residential and business subscribers offered
exclusively over its own Telephone Exchange Service facilities or predominantly
over its own Telephone Exchange Service facilities in combination with the use
of unbundled Network Elements purchased from another entity and the resale of
the Telecommunications Services of other carriers.
28.0 MISCELLANEOUS
28.1 Authorization.
(a) SWBT is a corporation duly organized, validly existing and
in good standing under the laws of the State of Missouri and has full power and
authority to execute and deliver this Agreement and to perform the obligations
hereunder.
(b) CLEC is a corporation duly organized, validly existing and
in good standing under the laws of the State of Oklahoma and has full power and
authority to execute and deliver this Agreement and to perform its obligations
hereunder.
28.2 Compliance and Certification.
28.2.1 Each Party shall comply with all federal, state, and
local laws, rules, and regulations applicable to its performance under this
Agreement.
28.2.2 Each Party warrants that it has obtained all necessary
state certification required in those states in which it has ordered services
from the other Party pursuant to this Agreement. Upon request by any state
governmental entity, each Party shall provide proof of certification.
28.2.3 Each Party represents and warrants that any equipment,
facilities or services provided to the other Party under this Agreement comply
with the Communications Law Enforcement Act (CALEA). Each Party shall indemnify
and hold the other Party harmless from any and all penalties imposed upon the
other Party for such noncompliance and shall at the non-compliant Party's sole
cost and expense, modify or replace any equipment, facilities or services
provided to the other Party under this Agreement to ensure that such equipment,
facilities and services fully comply with CALEA.
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28.3 Law Enforcement.
28.3.1 SWBT and CLEC shall handle law enforcement requests as
follows:
(a) Intercept Devices: Local and federal law enforcement agencies
periodically request information or assistance from local
telephone service providers. When either Party receives a
request associated with an end user of the other Party, it
shall refer such request to the Party that serves such end
user, unless the request directs the receiving Party to attach
a pen register, trap-and-trace or form of intercept on the
Party's facilities, in which case that Party shall comply with
any valid request.
(b) Subpoenas: If a Party receives a subpoena for information
concerning an end user the Party knows to be an end user of
the other Party, it shall refer the subpoena to the requesting
party with an indication that the other Party is the
responsible company, unless the subpoena requests records for
a period of time during which the Party was the end user's
service provider, in which case the Party will respond to any
valid request.
(c) Emergencies: If a Party receives a request from a law
enforcement agency for temporary number change, temporary
disconnect, or one-way denial of outbound calls for an end
user of the other Party by the receiving Party's switch, that
Party will comply with an valid emergency request. However,
neither Party shall be held liable for any claims or damages
arising from compliance with such requests on behalf of the
other Party's end user and the Party serving such end user
agrees to indemnify and hold the other Party harmless against
any and all such claims.
28.4 Independent Contractor. Each Party and each Party's contractor
shall be solely responsible for the withholding or payment of all applicable
federal, state and local income taxes, social security taxes and other payroll
taxes with respect to its employees, as well as any taxes, contributions or
other obligations imposed by applicable state unemployment or workers'
compensation acts. Each Party has sole authority and responsibility to hire,
fire and otherwise control its employees.
28.5 Force Majeure. Neither Party shall be liable for any delay or
failure in performance of any part of this Agreement from any cause beyond its
control and without its fault or negligence including, without limitation, acts
of nature, acts of civil or military authority, government regulations,
embargoes, epidemics, terrorist acts, riots, insurrections, fires, explosions,
earthquakes, nuclear accidents, floods, work stoppages, equipment failure, cable
cuts, power blackouts, volcanic action, other major environmental disturbances,
unusually severe weather conditions, inability to secure products or services of
other persons or transportation facilities or acts or omissions of
transportation carriers In such event, the Party affected shall, upon giving
prompt notice to the other Party, be excused from such performance on a
day-to-day basis to the extent of such interference (and the other Party shall
likewise be excused from performance of its obligations on a day-for-day basis
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to the extent such Party's obligations related to the performance so interfered
with). The affected Party shall use its best efforts to avoid or remove the
cause of nonperformance and both Parties shall proceed to perform with dispatch
once the causes are removed or cease.
28.6 Confidentiality.
28.6.1 All information, including but not limited to
specifications, microfilm, photocopies, magnetic disks, magnetic tapes,
drawings, sketches, models, samples, tools, technical information, data,
employee records, maps, financial reports, and market data, (i) furnished by one
Party (the "Disclosing Party") to the other Party (the "Receiving Party")
dealing with customer-specific, facility-specific, or usage-specific
information, other than customer information communicated for the purpose of
publication or directory database inclusion, 911, call processing, billing or
settlement or as otherwise mutually agreed upon, or (ii) in written, graphic,
electromagnetic, or other tangible form and marked at the time of delivery as
"Confidential" or "Proprietary," or (iii) communicated orally and declared to
the Receiving Party at the time of delivery, or by written notice given to the
Receiving Party within ten (10) days after declaration to be "Confidential" or
"Proprietary" (collectively referred to as "Proprietary Information"), shall
remain the property of the Disclosing Party.
28.6.2 Upon request by the Disclosing Party, the Receiving
Party shall return all tangible copies of Proprietary Information, whether
written, graphic, or otherwise. In the event of the expiration or termination of
this Agreement for any reason whatsoever, each Party shall return to the other
Party or destroy all Proprietary Information and other documents, work papers
and other material (including all copies thereof) obtained from the other Party
in connection with this Agreement.
28.6.3 Each Party shall keep all the other Party's Proprietary
Information confidential in the same manner in which it keeps its own
Proprietary Information confidential, and shall use the other Party's
Proprietary Information only for performing the covenants contained in the
Agreement and shall disclose such Proprietary Information only to those
employees, contractors, agents or Affiliates who have a need to know. Neither
Party shall use the other Party's Proprietary Information for any other purpose
except upon such terms and conditions as may be agreed upon between the Parties
in writing.
28.6.4 Unless otherwise agreed, the obligations of
confidentiality and nonuse set forth in the Agreement do not apply to such
Proprietary Information as:
(i) was at the time of receipt already known to the
receiving Party free of any obligation to keep it
confidential evidenced by written records prepared
prior to delivery by the disclosing Party; or
(ii) is or becomes publicly known through no wrongful act
of the receiving Party; or
(iii) is rightfully received from a third person having no
direct or indirect secrecy or confidentiality
obligation to the disclosing Party with respect to
such information; or
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SWBT/FULLTEL COMMUNICATIONS, INC.
Page 38 of 45
(iv) is independently developed by an employee, agent, or
contractor of the receiving Party which individual is
not involved in any manner with the provision of
services pursuant to the Agreement and does not have
any direct or indirect access to the Proprietary
Information; or
(v) is disclosed to a third person by the disclosing
Party without similar restrictions on such third
person's rights; or
(vi) is approved for release by written authorization of
the disclosing Party; or
(vii) is required to be made public by the Receiving Party
pursuant to applicable law or regulation provided
that the receiving party shall provide the Disclosing
Party with written notice of such requirement as soon
as possible and prior to such disclosure. The
Disclosing Party may then either seek appropriate
protective relief from all or part of such
requirement or, if it fails to successfully do so, it
shall be deemed to have waived the Receiving Party's
compliance with Section 29.6 with respect to all or
part of such requirement. The Receiving Party shall
use all commercially reasonable efforts to cooperate
with the Disclosing Party in attempting to obtain any
protective relief which such Disclosing Party chooses
to obtain. Notwithstanding the foregoing, SWBT shall
be entitled to disclose confidential information on a
confidential basis to regulatory agencies upon
request for information as to SWBT's activities under
the Act.
28.6.5 Notwithstanding any other provision of this Agreement,
the Proprietary Information provisions of this Agreement shall apply to all
information furnished by either Party to the other in furtherance of the purpose
of this Agreement, even if furnished before the date of this Agreement.
28.6.6 Pursuant to Section 222(b) of the Act, both parties
agree to limit their use of Proprietary Information received from the other to
the permitted purposed identified in the Act.
28.7 Governing Law. For all claims under this Agreement that are based
upon issues within the jurisdiction (primary or otherwise) of the FCC, the
exclusive jurisdiction and remedy for all such claims shall be as provided for
by the FCC and the Act. For all claims under this Agreement that are based upon
issues within the jurisdiction (primary or otherwise) of the Commission, the
exclusive jurisdiction for all such claims shall be with such Commission, and
the exclusive remedy for such claims shall be as provided for by such
Commission. In all other respects, this Agreement shall be governed by the
domestic laws of the state of Oklahoma without reference to conflict of law
provisions.
28.8 Taxes.
28.8.1 Each Party purchasing services hereunder shall pay or
otherwise be responsible for all federal, state, or local sales, use, excise,
gross receipts, transaction or similar taxes, fees, or surcharges (hereinafter
<PAGE>
SWBT/FULLTEL COMMUNICATIONS, INC.
Page 39 of 45
"Tax") levied against or upon such purchasing party (or the providing Party when
such providing Party is permitted by applicable law to pass along to the
purchasing party such taxes, fees, or surcharges), except for any Tax on either
party's corporate existence, status, or income. Whenever possible, these amounts
shall be billed as a separate item on the invoice. To the extent a sale is
claimed to be for resale tax exemption, the purchasing party shall furnish the
providing party a proper resale tax exemption certificate as authorized or
required by statute or regulation by the jurisdiction providing said resale tax
exemption. Failure to timely provide said resale tax exemption certificate will
result in no exemption being available to the purchasing Party until such time
as the purchasing Party presents a valid certification. Failure to timely
provide said resale tax exemption certificate will result in no exemption being
available to the purchasing Party until such time as the purchasing Party
presents a valid certificate.
28.8.2 With respect to any purchase of services, facilities or
other arrangements, if any Tax is required or permitted by applicable law to be
collected from the purchasing party by the providing party, then (i) the
providing party shall bill the purchasing party for such Tax, (ii) the
purchasing party shall remit such Tax to the providing party and (iii) the
providing party shall remit such collected Tax to the applicable taxing
authority.
28.8.3 With respect to any purchase hereunder of services,
facilities or arrangements that are resold to a third party, if any Tax is
imposed by applicable law on the end user in connection with any such purchase,
then (i) the purchasing party shall be required to impose and/or collect such
Tax from the end user and (ii) the purchasing party shall remit such Tax to the
applicable taxing authority. The purchasing party agrees to indemnify and hold
harmless the providing party on an after-tax basis for any costs incurred by the
providing party as a result of actions taken by the applicable taxing authority
to collect the Tax from the providing party due to the failure of the purchasing
party to pay or collect and remit such tax to such authority.
28.8.4 If the providing party fails to collect any Tax as
required herein, then, as between the providing party and the purchasing party,
(i) the purchasing party shall remain liable for such uncollected Tax and (ii)
the providing party shall be liable for any penalty and interest assessed with
respect to such uncollected Tax by such authority. However, if the purchasing
party fails to pay any taxes properly billed, then, as between the providing
party and the purchasing party, the purchasing party will be solely responsible
for payment of the taxes, penalty and interest.
If the purchasing party fails to impose and/or collect any Tax
from end users as required herein, then, as between the providing party and the
purchasing party, the purchasing party shall remain liable for such uncollected
Tax and any interest and penalty assessed thereon with respect to the
uncollected Tax by the applicable taxing authority. With respect to any Tax that
the purchasing party has agreed to pay or impose on and/or collect from end
users, the purchasing party agrees to indemnify and hold harmless the providing
party on an after-tax basis for any costs incurred by the providing party as a
result of actions taken by the applicable taxing authority to collect the Tax
from the providing Party due to the failure of the purchasing party to pay or
collect and remit such Tax to such authority.
28.9 Non-Assignment. This Agreement shall be binding upon every
subsidiary of either Party that is engaged in providing Telephone Exchange and
Exchange Access services in any territory within which SWBT is an Incumbent
Local Exchange Carrier as of the date of this Agreement (the "SWBT Territory")
and shall continue to be binding upon all such entities regardless of any
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SWBT/FULLTEL COMMUNICATIONS, INC.
Page 40 of 45
subsequent change in their ownership. Each Party covenants that, if it sells or
otherwise transfers to a third party its Telephone Exchange and Exchange Access
network facilities within the SWBT Territory, or any portion thereof, to a third
party, it will require as a condition of such transfer that the transferee agree
to be bound by this Agreement with respect to services provided over the
transferred facilities. Except as provided in this paragraph, neither Party may
assign or transfer (whether by operation of law or otherwise) this Agreement (or
any rights or obligations hereunder) to a third party without the prior written
consent of the other Party; provided that each Party may assign this Agreement
to a corporate Affiliate or an entity under its common control or an entity
acquiring all or substantially all of its assets or equity by providing prompt
written notice to the other Party of such assignment or transfer. The Parties
agree that such consent shall not be unreasonably withheld. Any attempted
assignment or transfer that is not permitted is void ab initio. Without limiting
the generality of the foregoing, this Agreement shall be binding upon and shall
inure to the benefit of the Parties' respective successors and assigns.
28.10 Non-Waiver. Failure of either Party to insist on performance of
any term or condition of this Agreement or to exercise any right or privilege
hereunder shall not be construed as a continuing or future waiver of such term,
condition, right or privilege.
28.11 Audits. Each Party to this Agreement will be responsible for the
accuracy and quality of its data as submitted to the respective Parties
involved. Where SS7 is deployed, each Party shall pass Calling Party Number
(CPN) information on each call carried over the Traffic Exchange trunks;
provided that so long as the percentage of calls passed with CPN is greater than
ninety percent (90%), all calls exchanged without CPN information shall be
billed as either Local Traffic or IntraLATA Toll Traffic in direct proportion to
the minutes of use of calls exchanged with CPN information. If the percentage of
calls passed with CPN is less than 90%, all calls passed without CPN shall be
billed as IntraLATA Toll Traffic.
Upon reasonable written notice and at its own expense, each
Party or its authorized representative (providing such authorized representative
does not have a conflict of interest related to other matters before one of the
Parties) shall have the right to conduct an audit of the other Party to give
assurances of compliance with the provisions of this Agreement; provided, that
neither Party may request more than two (2) such audits within any twelve-month
period. This includes on-site audits at the other Party's or the Party's vendor
locations. Each Party, whether or not in connection with an audit, shall
maintain reasonable records for a minimum of 24 months and provide the other
Party with reasonable access to such information as is necessary to determine
amounts receivable or payable under this Agreement. Each Party's right to access
information for audit purposes is limited to data not in excess of 24 months in
age.
28.12 Disputed Amounts.
28.12.1 No claims, under this Agreement or its Appendices,
shall be brought for disputed amounts more than twenty-four (24) months from the
date of occurrence which gives rise to the dispute. Under this Section 28.12, if
any portion of an amount due to a Party (the "Billing Party") under this
Agreement is subject to a bona fide dispute between the Parties, the Party
billed (the "Non-Paying Party") shall within sixty (60) days of its receipt of
the invoice containing such disputed amount give notice to the Billing Party of
the amounts it disputes ("Disputed Amounts") and include in such notice the
specific details and reasons for disputing each item. The Non-Paying Party shall
<PAGE>
SWBT/FULLTEL COMMUNICATIONS, INC.
Page 41 of 45
pay when due (i) all undisputed amounts to the Billing Party and (ii) all
Disputed Amounts to Billing Party.
28.12.2 If the Parties are unable to resolve the issues
related to the Disputed Amounts in the normal course of business within sixty
(60) days after delivery to the Billing Party of notice of the Disputed Amounts,
each of the Parties shall appoint a designated representative who has authority
to settle the dispute and who is at a higher level of management than the
persons with direct responsibility for administration of this Agreement. The
designated representatives shall meet as often as they reasonably deem necessary
in order to discuss the dispute and negotiate in good faith in an effort to
resolve such dispute.
28.12.3 If the Parties are unable to resolve issues related to
the Disputed Amounts within forty-five (45) days after the Parties' appointment
of designated representatives pursuant to Section 28.12.2, then either Party may
file a complaint with the Commission to resolve such issues or proceed with any
other remedy pursuant to law or equity. The Commission may direct release of any
or all funds (including any accrued interest) in the escrow account, plus
applicable late fees, to be paid to either Party.
28.12.4 The Parties agree that all negotiations pursuant to
this Section 28.12 shall remain confidential and shall be treated as compromise
and settlement negotiations for purposes of the Federal Rules of Evidence and
state rules of evidence.
28.12.5 Any undisputed amounts not paid when due shall accrue
interest from the date such amounts were due at the lesser of (i) one and
one-half percent (1 1/2%) per month or (ii) the highest rate of interest that
may be charged under applicable law.
28.13 Dispute Resolution.
28.13.1 No claims shall be brought for disputes arising under
this Agreement or its Appendices more than twenty-four (24) months from the date
of occurrence which gives rise to the dispute.
28.13.2 For disputes other than disputed amounts under this
Agreement or its Appendices, each Party shall appoint a designated
representative as set forth in Section 28.12.2 and if unable to resolve the
dispute, proceed as set forth in Section 28.12.3.
28.14 Notices. Any notice to a Party required or permitted under this
Agreement shall be in writing and shall be deemed to have been received on the
date of service if served personally; on the date receipt is acknowledged in
writing by the recipient if delivered by regular mail; or on the date stated on
the receipt if delivered by certified or registered mail or by a courier service
that obtains a written receipt. Notice may also be provided by facsimile, which
shall be effective on the next Business Day following the date of transmission
as reflected in the facsimile confirmation sheet. "Business Day" shall mean
Monday through Friday, SWBT/CLEC holidays excepted. Any notice shall be
delivered using one of the alternatives mentioned in this section and shall be
directed to the applicable address indicated below or such address as the Party
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SWBT/FULLTEL COMMUNICATIONS, INC.
Page 42 of 45
to be notified has designated by giving notice in compliance with this section,
except that notices to a Party's 24-hour contact number shall be by telephone
and/or facsimile and shall be deemed to have been received on the date
transmitted.
To CLEC: Fulltel Communications, Inc.
Timothy J. Kilkenny, President and CEO
837 Crestland
Bartlesville, OK 74006
918-971-1239 (Fax)
and copy to:
Rudolph J. Geist
Wilkes, Artis, Hedrick & Lane
1666 K Street, N.W., Suite 1100
Washington, D.C. 20006
202-457-7814 (Fax)
To SWBT: Account Manager
Four Bell Plaza, 7th Floor
Dallas, TX 75202
24-Hour Network Management Contact
- ----------------------------------
For CLEC:
Engineering/Operations Manager
405-235-5688
For SWBT:
Area Manager-NSMC Control
1-800-792-2662
28.15 Publicity and Use of Trademarks or Service Marks.
28.15.1 The Parties agree not to use in any advertising or
sales promotion, press releases, or other publicity matters any endorsements,
direct or indirect quotes, or pictures implying endorsement by the other Party
or any of its employees without such Party's prior written approval. The Parties
will submit to each other for written approval, prior to publication, all
publicity matters that mention or display one another's name and/or marks or
contain language from which a connection to said name and/or marks may be
inferred or implied; the Party to whom a request is directed shall respond
promptly. Nothing herein, however, shall be construed as preventing either Party
from publicly stating the fact that it has executed this Agreement with the
other Party.
28.15.2 Nothing in this Agreement shall grant, suggest, or
imply any authority for one Party to use the name, trademarks, service marks, or
trade names of the other for commercial purposes without prior written approval.
<PAGE>
SWBT/FULLTEL COMMUNICATIONS, INC.
Page 43 of 45
28.16 Section 252(i) Obligations. If either Party enters into an
agreement (the "Other Agreement") approved by the Commission or FCC pursuant to
Section 252 of the Act (regardless of whether the approved agreement was
negotiated or arbitrated) which provides for the provision of arrangements
covered in this Agreement to another requesting Telecommunications Carrier,
including an Affiliate, such Party shall make available to the other Party such
arrangements upon the same rates, terms and conditions as those provided in the
Other Agreement. At its sole option, the other Party may avail itself of either
(i) the Other Agreement in its entirety or (ii) the prices, terms and conditions
of the Other Agreement that directly relate to any of the following duties as a
whole:
(1) Interconnection - Section 251(c)(2) of the Act; or
(2) Exchange Access - Section 251(c)(2) of the Act; or
(3) Unbundling - Section 251(c)(3) of the Act; or
(4) Wireless Traffic (Section 7.4 of this Agreement); or
(5) Resale - Section 251(c)(4) of the Act (Appendix Resale); or
(6) Collocation - Section 251(c)(6) of the Act (Section 13.0 of this
Agreement); or
(7) Number Portability - Section 251(b)(2) of the Act (Section 14.0
of this Agreement); or
(8) Database Access - Section 271(c)(2)(B)(x) of the Act (Section
17.0 of this Agreement); or
(9) Access to Rights of Way - Section 251(b)(4) of the Act (Section
16.0 of this Agreement); or
(10) White Pages - Section 271(c)(2)(B)(viii) of the Act (Appendix
White Pages).
In addition to any rights set forth above, CLEC at its option may
obtain any interconnection service or network element, at the same rates, terms,
and conditions, which results from an arbitration and is contained in an
approved agreement. However, to the extent SWBT appeals or otherwise seeks
modification of such arbitration results in a manner that stays the
effectiveness of that approved agreement, then the results will not be
considered effective until such time as the stay is lifted.
In the event CLEC exercises its rights under this Section, it may
retain provisions within this Agreement that are otherwise specific to its
wireless technology.
28.17 Joint Work Product. This Agreement is the joint work product of
the Parties and has been negotiated by the Parties and their respective counsel
and shall be fairly interpreted in accordance with its terms and, in the event
of any ambiguities, no inferences shall be drawn against either Party.
<PAGE>
SWBT/FULLTEL COMMUNICATIONS, INC.
Page 44 of 45
28.18 Intervening Law. This Agreement is entered into as a result of
both private negotiation between the Parties and the incorporation of some of
the results of arbitration by the Oklahoma Corporation Commission. If the
actions of Oklahoma or federal legislative bodies, courts, or regulatory
agencies of competent jurisdiction invalidate, modify, or stay the enforcement
of laws or regulations that were the basis for a provision of the contract which
is reflective of the Arbitration Award approved by the Commission, the affected
provision shall be invalidated, modified, or stayed as required by action of the
legislative body, court, or regulatory agency. In such event, the Parties shall
expend diligent efforts to arrive at an agreement respecting the modifications
to the Agreement required. If negotiations fail, disputes between the Parties
concerning the interpretation of the actions required or provisions affected by
such governmental actions shall be resolved pursuant to the dispute resolution
process provided for in this Agreement. The invalidation, stay, or modification
of the pricing provisions of the FCC's First Report and Order in CC Docket No.
96-98 (August 8, 1996) and the FCC's Order on Reconsideration (September 27,
1996) shall not be considered an invalidation, stay, or modification requiring
changes to provisions of the Agreement required by the Commission Arbitration
Award, in that the FCC's pricing provisions are not the basis for the costing
and pricing provisions of the Commission's Arbitration Award.
28.19 No Third Party Beneficiaries; Disclaimer of Agency. This
Agreement is for the sole benefit of the Parties and their permitted assigns,
and nothing herein express or implied shall create or be construed to create any
third-party beneficiary rights hereunder. Except for provisions herein expressly
authorizing a Party to act for another, nothing in this Agreement shall
constitute a Party as a legal representative or agent of the other Party, nor
shall a Party have the right or authority to assume, create or incur any
liability or any obligation of any kind, express or implied, against or in the
name or on behalf of the other Party unless otherwise expressly permitted by
such other Party. Except as otherwise expressly provided in this Agreement, no
Party undertakes to perform any obligation of the other Party, whether
regulatory or contractual, or to assume any responsibility for the management of
the other Party's business.
28.20 No License. No license under patents, copyrights or any other
intellectual property right (other than the limited license to use consistent
with the terms, conditions and restrictions of this Agreement) is granted by
either Party or shall be implied or arise by estoppel with respect to any
transactions contemplated under this Agreement.
28.21 Survival. The Parties' obligations under this Agreement which by
their nature are intended to continue beyond the termination or expiration of
this Agreement shall survive the termination or expiration of this Agreement.
28.22 Scope of Agreement. This Agreement is intended to describe and
enable specific Interconnection and compensation arrangements between the
Parties. This Agreement does not obligate either Party to provide arrangements
not specifically provided herein.
28.23 Entire Agreement. The terms contained in this Agreement and any
Schedules, Exhibits, Appendices, tariffs and other documents or instruments
referred to herein, which are incorporated into this Agreement by this
reference, constitute the entire agreement between the Parties with respect to
the subject matter hereof, superseding all prior understandings, proposals and
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SWBT/FULLTEL COMMUNICATIONS, INC.
Page 45 of 45
other communications, oral or written. Neither Party shall be bound by any
preprinted terms additional to or different from those in this Agreement that
may appear subsequently in the other Party's form documents, purchase orders,
quotations, acknowledgments, invoices or other communications. This Agreement
may only be modified by a writing signed by an officer of each Party.
IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to
be executed as of this _____ day of _________________, 19____ .
Fulltel Communications, Inc. *Southwestern Bell Telephone Company
By: By:
Printed: Printed:
Title: Title: President - Industry Markets
----------------------------
AECN/OCN #_____________
* The Parties acknowledge that on January 25, 1999, the United States Supreme
Court issued its opinion in AT&T Corp. v. Iowa Utilities Bd., 1999 WL 24568
(U.S.). The Parties further acknowledge and agree that neither party had a full
opportunity to factor that decision into the Section 252(i) adoption and
preparation of this Agreement and that by executing this Agreement, neither
Party waives any of its rights, remedies, or arguments with respect to such
decision, including its rights under the intervening law clause of this
Agreement, and any legal or equitable rights of review (including court
reconsideration).
EXHIBIT 6.2
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "Agreement") is made and entered
into this 26th day of March, 1998, by and among ROBERT L. GRUENEWALD, WILLIAM
TOOMBS RICHARDSON, JR., Trustee of the William Toombs Richardson, Jr. 1995
Revocable Trust dated May 25, 1995, STEVE R. BAILEY, Trustee of the Steve R.
Bailey Living Trust dated October 28, 1994, KEVIN HACKLER, JASON AYERS and
TRAVIS CHRISTOPHER LUX, (hereinafter sometimes individually referred to as a
"Seller" and hereinafter collectively, jointly and severally referred to as the
"Sellers"); and FULLNET COMMUNICATIONS, INC., an Oklahoma corporation (the
"Purchaser").
EXPLANATORY STATMENT
A. The Sellers constitute all of the shareholders and all of the
directors of ANIMUS COMMUNICATIONS, INC. ("Company"), an Oklahoma corporation
that is engaged in the business of providing Web Hosting Services, selling
computer equipment and providing configuration and maintenance thereof (the "Web
Services").
B. The Sellers own of record and beneficial]y and in the aggregate
6,000 shares of the $1.00 common stock (the "Common Stock") of the Company (such
6,000 shares of Common Stock shall be hereinafter collectively referred to as
the "Sellers' Shares"). The Sellers' Shares constitute all of the issued and
outstanding capital stock of the Company.
C. The Sellers desire to sell, assign, transfer and deliver to
Purchaser, and the Purchaser desires to purchase, all, but not less than all, of
the Sellers Shares on the terms and subject to the conditions hereinafter
contained.
NOW, THEREFORE, in consideration of the Explanatory Statement that
shall be deemed to be a substantive part of this Agreement, the mutual
covenants, promises agreements, representations and warrantees contained in this
Agreement, and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged the parties hereby agree as follows:
1. Purchase and Sale of the Sellers Shares.
1.1. Purchase and Sale. On the terms and subject to the
conditions set forth in this Agreement, at the Closing on the Closing Date, the
Sellers shall each sell, assign, transfer and deliver to the Purchaser and the
Purchase shall purchase from each of the Sellers, that number of the Sellers'
Shares as is set forth opposite the name of each of the Sellers as follows:
<PAGE>
Number of Sellers
Shares That Shall Be
Sellers Sold to Purchaser
------- -----------------
Robert L. Gruenewald 1,000
William Toombs Richardson, Jr.,
Trustee of the William Toombs
Richardson, Jr. 1995 Revocable
Trust Agreement dated the 25th
day of May, 1995 1,000
Steve R. Bailey, Trustee of the
Steve R. Bailey Living Trust
dated October 28,1994 1,000
Kevin Hackler 1,000
Jason Ayers 1,000
Travis Christopher Lux 1,000
------
TOTAL SHARES 6,000
======
1.2. Purchase Price: Transfer of Securities.
1.2.1. The total purchase price that shall be paid
by Purchaser to the Sellers for the Sellers Shares shall be Three Hundred Fifty
Thousand and no/100 Dollars ($350,000.00) (the "Purchase Price"), subject to the
following terms. Of that Purchase Price, One Hundred Seventy-Five Thousand and
no/100 Dollars ($175,000.00) shall be paid at the Closing by bank cashier's
check or by wire transfer into bank accounts to be designated by Sellers, and
allocated among the Sellers as follows:
Names Consideration
----- -------------
Robert L. Gruenewald $ 23,333.00
William Toombs Richardson, Jr.,
Trustee of the William Toombs
Richardson, Jr. 1995 Revocable
Trust Agreement dated the 25th
day of May, 1995 40,834.00
2
<PAGE>
Steve R. Bailey, Trustee of the
Steve R. Bailey Living Trust
dated October 28, 1994 40,834.00
Kevin Hackler 23,333.00
Jason Ayers 23,333.00
Travis Christopher Lux 23,333.00
TOTAL $ 175,000.00
============
1.2.2. Fifty Thousand and no/100 Dollars ($50,000.00)
of the Purchase Price shall be paid six months from the date of Closing by bank
cashier's check or wire transfer to bank accounts designated by Sellers and
allocated among the Sellers as follows:
Name Consideration
---- -------------
William Toombs Richardson, Jr.
Trustee of the William Toombs
Richardson, Jr. 1995 Revocable
Trust Agreement dated the 25th
day of May, 1995 $ 14,583.00
Steve R. Bailey, Trustee of the
Steve R. Bailey Living Trust
dated October 28, 1994 14,583.00
Robert L. Gruenewald 5,208.50
Kevin Hackler 5,208.50
Jason Ayers 5,208.50
Travis Christopher Lux 5,208.50
--------
TOTAL $ 50,000.00
===========
1.2.3. The remaining One Hundred Twenty-Five Thousand
and no/l00 Dollars ($125,000.00) of the Purchase Price, subject to the
provisions of paragraph 1.2.4. hereof, shall be paid on April 1, 1999, by bank
cashier's check or funds wire transferred into accounts designated to each
Seller and allocated among the Sellers as follows:
3
<PAGE>
Names Consideration
Robert L. Gruenewald $ 29,792.00
William Toombs Richardson, Jr.,
Trustee of the William Toombs
Richardson, Jr. 1995 Revocable
Trust Agreement dated the 25th
day of May, 1995 2,916.00
Steve R. Bailey, Trustee of the
Steve R. Bailey Living Trust
dated October 28, 1994 2,916.00
Kevin Hackler 29,792.00
Jason Ayers 29,792.00
Travis Christopher Lux 29,792.00
TOTAL $125,000.00
===========
1.2.4. The final payment of One Hundred Twenty-Five
Thousand and no/100 Dollars ($125,000.00) may be adjusted downward to reflect
the one year gross revenues actually produced by Company. If Company's gross
revenue at the end of 12 months of operation does not equal or exceed the
purchase Price, i.e. $350,000.00, the final payment will be adjusted so that the
final Purchase Price is equal to the gross revenue attributable to Company's
business between April 1, 1998 and March 31, 1999. "Gross revenue" is defined as
total cash receipts during the period April 1,1998 through March 31, 1999, plus
the accounts receivable on the books at March 31, 1999.
1.2.5. At Closing, the Sellers shall deliver to the
Purchaser stock certificate numbers 001, 004, 005, 007, 008, and 009 of the
Company, representing the Sellers' Shares owned of record and beneficially by
each of the Sellers, duly endorsed in blank, or accompanied by assignments
separate from certificate duly endorsed in blank. Sellers represent and warrant
to the Purchaser that at the time of such transfer, the Sellers' Shares shall be
free and clear of all liens, security interests and encumbrances.
1.2.6. Purchaser will execute a Promissory Note (the
"Note") on the balance of the Purchase Price not paid at closing ($175,000.00)
which Note shall be co-made by the Purchaser and TIMOTHY J. KILKENNY
("Kilkenny"), the principal shareholder of PURCHASER. The co-making of the
Promissory Note by Kilkenny is a part of the consideration to Sellers from
Purchaser. A copy of the Promissory Note to be delivered to Sellers at Closing
is attached hereto as Exhibit "A" and made a part hereof.
4
<PAGE>
1.2.7. Prior to or at closing, Sellers shall cause
Company to distribute to Sellers all accounts receivable and cash of the Company
in existence through March 31, 1998. The sale of Company by Sellers specifically
does not include cash or accounts receivable of Company.
2. Closing
2.1. The closing of the purchase and sale of the Sellers'
Shares provided for by this Agreement (referred to throughout this Agreement as
the "Closing") shall take place at the offices of Animus Communications, Inc.,
200 N. Harvey, Suite 1704, Oklahoma City, Oklahoma, 73102, on March 26, 1998, at
11:00 A.M., or at such other date, time and place to be agreed upon in writing
by all the parties.
2.2. At the Closing, the following actions, among others,
shall occur:
2.2.1. The Sellers shall deliver to the Purchaser:
2.2.1.1. Share Certificates owned by sellers
properly endorsed in blank;
2.2.1.2. Resignation of all Officers and
Directors of Company.
2.2.2. Purchaser shall deliver to Sellers:
2.2.2.1. Cashier's checks or wire transfer
advices in the amounts set out in paragraph 1.2.1. hereof.
2.2.2.2. The Promissory Note executed by
Purchaser and Kilkenny in the form as set out on Exhibit "A" hereto.
2.2.2.3. Certificate of Authority of the
Secretary of Purchaser in the form as set out on Exhibit "B" hereto and made a
part hereof.
2.2.3. Company shall distribute to Sellers
all cash and accounts receivable of Company if such distribution has not been
effected prior to closing.
3. Representations and Warranties.
3.1. Representations and Warranties of Sellers. The
Sellers represent and warrant to the Purchaser that to Sellers' best knowledge
and belief:
3.1.1. Ownership of Sellers' Shares. Each Seller
is the sole and exclusive record and beneficial owner of that number of the
Sellers' shares as is set forth opposite his name in Section 1.1. hereof,
subject to the provisions of a Shareholder's Agreement by and among the Sellers
and the Company. The Sellers possess good title to the Sellers' Shares, and own
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the Sellers' Shares free and clear of any and all security interests,
agreements, restrictions, claims, liens, pledges and encumbrances of any nature
or kind. Subject to the Shareholder's Agreement, the Sellers have the absolute
and unconditional right to sell, assign, transfer and deliver the Sellers'
Shares to the Purchaser in accordance with the terms of this Agreement.
3.1.2. Due Organization, Good Standing, Authority
of the Company. The Company is a corporation duly organized, validly existing as
a stock corporation, and in good standing under the laws of the State of
Oklahoma. Company has full right, power and authority to own its properties and
assets, and to carry on its business as a provider of Web Services. The Company
is duly licensed, qualified and authorized to do business as a foreign
corporation, and is in good standing, in each jurisdiction in which the
properties and assets owned by it or the nature of the business conducted by it
makes such licensing, qualification and authorization legally necessary. A
complete and correct copy of the Company's certificate of incorporation, as
amended to the date of this Agreement (the "Certificate"), and bylaws as amended
to the date of this Agreement (the "Bylaws"), have been heretofore provided to
Purchaser. The Certificate and the Bylaws are in full force and effect, and the
Company is not in breach or violation of any of the provisions thereof.
3.1.3. Validity of Agreement. The Sellers have the
legal capacity and authority to enter in to this Agreement. This Agreement is a
valid and legally binding obligation of the Sellers and is fully enforceable
against the Sellers in accordance with its terms, except as such enforceability
may be limited by general principles of equity, bankruptcy, insolvency,
moratorium and similar laws relating to creditors' rights generally.
3.1.4. Capitalization, the Company Stock: Related
Matters. Company's authorized capital stock consists of 50,000 shares of common
stock, $1.00 par value per share, of which 6,000 shares, namely, the Sellers'
Shares, are issued and outstanding and owned of record and beneficially by each
Seller as is set forth opposite the name of each Seller in Section 1.1. hereof.
The Sellers' Shares have been duly, legally and validly issued, and are fully
paid and nonassessable. Delivery of the Sellers' Shares by the Sellers to the
Purchaser at the Closing on the closing Date pursuant to this Agreement will
transfer to the Purchaser full and entire legal and equitable title to 100% of
the issued and outstanding capital stock of the Company.
3.1.5. No Subsidiaries. The Company oes not have
any subsidiaries and does not, directly or indirectly, own any interest in or
control any corporation, partnership, joint venture or other business entity.
3.1.6. Agreement not in conflict with Other
Instruments: Required Approvals Obtained. The execution, delivery and
performance of this Agreement by the Sellers and the consummation of the
transactions contemplated by this Agreement will not (a) violate or require any
registration, qualification, consent, approval, or filing under, (i) any law,
statute, ordinance, rule or regulation (hereinafter collectively referred to as
"Laws") of any federal, state or local government (hereinafter collectively
referred to as "Governments") or any agency, bureau, commission or
instrumentality of any Governments (hereinafter collectively referred to as
"Governmental Agencies"), or (ii) any judgment, injunction, order, writ or
6
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decree of any court, arbitrator, Government or Governmental Agency by which the
Company or any of its assets or Properties is bound; (b) conflict with, require
any consent, approval, or filing under, result in the breach or termination of
any provision of, constitute a default under, result in the acceleration of the
performance of the Company's obligations under, or result in the creation of any
claim, security interest, lien, charge, or encumbrance upon any of the Company's
properties, assets, or businesses pursuant to (i) the Company's Certificate or
Bylaws, (ii) any indenture, mortgage, deed of trust, license, permit, approval,
consent, franchise, lease, contract or other instrument or agreement to which
the Company is a party or by which the Company or any of the Company's assets or
properties is bound, or (iii) any judgment, injunction, order, writ or decree of
any court, arbitrator, Government or Governmental Agency by which the Company of
any of its assets or properties is bound.
3.1.7. Conduct of Business in Compliance with
Regulatory and Contractual Requirements. The Company has conducted and is
conducting the Company's business in compliance with all applicable Laws of all
Governments and Governmental Agencies.
3.1.8. Legal Proceedings. There is no action,
suit, proceeding, claim, arbitration or investigation by any Government,
Governmental Agency or other Person (a) pending to which Company is a party, (b)
threatened against or relating to Company or any of Company's assets or
businesses, (c) challenging Company's right to execute, acknowledge, seal,
deliver, perform under or consummate the transactions contemplated by this
Agreement, or (d) asserting any right with respect to any of the Sellers'
Shares, and there is no basis for any such action, suit, proceeding, claim,
arbitration or investigation.
3.1.9. Financial Statements: Undisclosed
Liabilities. The Financial Statements dated as of the 31st day of December, 1997
are in accordance with the books and records of Company, and are true, correct
and complete and accurately present Company's financial position for the periods
then ended, all in conformity with accounting principles utilized by the Company
on a consistent basis during each period and on a basis consistent with that of
prior periods. Except (a) as disclosed in the Financial Statements, and (b) as
disclosed in this Agreement, Company has no liabilities or obligations of any
nature or kind, known or unknown, whether accrued, absolute, contingent or
otherwise.
3.1.10. Tax Matters. Company has duly and
timely filed with all appropriate Governmental Agencies, all tax returns,
information returns and reports required to be filed by Company. Company has
paid in full all taxes (including taxes withheld from employees' salaries and
other withholding taxes and obligations), interest, penalties, assessments and
deficiencies owned by Company to all taxing authorities. All information
reported on the Returns is true, accurate and complete. All claims by the IRS or
any state taxing authorities for taxes due and payable by Company have been paid
by Company. All federal income tax returns required to be filed by Company have
either been examined by the IRS, or the period during which any assessments may
be made by the IRS has expired without waiver or extension for all years, and
any deficiencies or assessments claimed or made have been paid, settled or fully
provided for in Company's Financial Statements. Company has not adopted a plan
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<PAGE>
of complete liquidation under the Internal Revenue code of 1986, as amended (the
"Code"), or filed a consent pursuant to Section 341(f) of the code. Company is
not a party to, and is not aware of, any pending or threatened action, suit,
proceeding or assessment against it for the collection of taxes by any
Governmental Agency.
3.1.11. Accounts Receivable and Accounts Payable.
Company's accounts receivable (collectively, the "Accounts Receivable") Are bona
fide accounts receivable, the full amount of which is actually owing to Company.
Company's accounts payable arose from bona fide transactions in the ordinary
course of Company's business.
3.1.12. No Real Property. Company does not own or
have any interest in any real estate.
3.1.13. Condition of Personal Property. The
Company has sole and exclusive, good and merchantable title to all of the
Personal Property owned by it, free and clear of all pledges, claims, liens,
restrictions, security interests, charges and other encumbrances. AU of the
Personal Property is in good repair and good operating condition, fit for its
intended purposes, and is adequate for the continuation of Company's business as
a provider of Web Services and in selling computer equipment provider.
3.1.14. Pension Plans. Company does not own or have
any interest in any pension plans.
3.1.15. Benefit Plans. With respect to each benefit
plan Company may have an interest in, Company has complied with all reporting
and disclosure obligations under ERISA, and all documents arid report forms
submitted for such purposes are complete and accurate in all materiel respects.
Also, with respect to each Benefit Plan, (a) no prohibited transaction (as
defined in Section 4975 of the Code and Section 406 of ERISA) has occurred; (b)
each Benefit Plan is in conformity with ERISA and all other applicable laws; (c)
Company is not in default in any material respect in performing any of its
contractual or legal obligations; (d) all Persons having any fiduciary
responsibility are in compliance in all material respects with the applicable
provisions of ERISA; (e) there has not been a breach of any fiduciary duty; (f)
there are no pending ruling requests or appeals (either formal or informal),
investigations, or audits by or before any Governmental Agency; and (g) there is
no claim, demand, suit, proceeding or cause of action pending, or threatened
with respect to any Benefit Plan, and there is no liability except for
reasonable and customary administrative expenses and benefits payable pursuant
to the terms of each Benefit Plan.
3.1.16. Employee Relations and Employment Agreements.
3.1.16.1. None of Company's employees is
represented by a labor organization. No petition for representation has ever
been filed with the National Labor Relations Board (the "NLRB") with respect to
employees. Sellers are not aware of any union organizational activity with
respect to Company and have no reason to believe that any such activity is being
contemplated.
8
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3.1.16.2. Company is not in violation of
applicable equal employment opportunity laws, wage and hour laws, occupational
safety and health laws, federal labor laws or any other Laws of any government
or Governmental Agency relating to employment. Sellers have disclosed to the
Purchaser the status of all investigations, claims, charges and
employment-related suits or controversies which have occurred with respect to
Company since its incorporation or which are presently pending or threatened
with respect to Company under any employment related Law of any Government or
Governmental Agency (including common law). Company has satisfied and performed
fully all judgments, decrees, conciliation agreements, or settlement agreements
by which it is bound or to which it is subject concerning employment-related
matters
3.1.16.3. Except as provided in Exhibit "C",
Company has not entered into any employment agreement and all employees can be
terminated at will. Company has no contractual obligation or special termination
or severance arrangement in respect of any employee.
3.1.16.4. Company has paid all wages due
(including all required taxes, insurance, and withholding thereon) through the
date of this Agreement.
3.1.17. Books and Records; Fiscal Year;
Method of Accounting. Company has made available to the Purchaser all of its
tax, accounting, corporate and financial books and records. The books and
records pertaining to Company's business made available to the Purchaser are
true, correct and complete, have been maintained on a current basis, and fairly
reflect the basis for Company's financial condition and results of operations as
set forth in its Financial Statements. Company has consistently used the fiscal
year ending December 31 as its taxable year, and has consistently used the cash
receipts and disbursements method of accounting for tax purposes.
3.1.18. Adverse Conditions. The Sellers have
no knowledge of any present or future condition, state of facts or circumstances
which has affected or may affect adversely the business of Company or prevent
Company from carrying on its business.
3.1.19. Full Disclosure. This Agreement
(including the Exhibits hereto) does not contain any untrue statement of a
material fact or omit to state any material fact necessary to make the
statements contained herein not misleading. There is no fact known to Sellers or
Company which is not disclosed in this Agreement which materially adversely
affects the accuracy of the representations and warranties contained in this
Agreement or Company's financial condition, results of operations, business or
prospects.
3.1 20. No Brokerage. The Sellers have not
incurred any obligation or liability, contingent or otherwise, for brokerage
fees, finder's fees, agent's commissions or the like in connection with this
Agreement or the transactions contemplated hereby.
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3.2. Representations and Warranties of the Purchaser. The
Purchaser represents and warrants to Sellers that:
3.2.1. Due Organization; Good Standing; Power. The
Purchaser is a corporation duly organized, validly existing, and in good
standing under the laws of the State of Oklahoma. The Purchaser has all
requisite corporate power to enter into this Agreement and to perform its
obligations hereunder.
3.2.2. Authorization and Validity of Documents. The
execution, delivery and performance of this Agreement by the Purchaser, and the
consummation by the Purchaser of the transactions contemplated hereby, have been
duly and validly authorized by the Purchaser. This Agreement has been duly
executed and delivered by the Purchaser and is a legal, valid and binding
obligation of the Purchaser.
3.2.3. No Brokerage. The Purchaser has not incurred
any obligation or liability, contingent or otherwise, for brokerage fees,
finder's fees, agent's commissions or the like In connection with this Agreement
or the transactions contemplated hereby.
3.2.4. Adverse Conditions. The Purchase has no
knowledge of any present or future condition, state of facts or circumstances
which have affected or may affect adversely the business of Purchaser or prevent
Purchaser from carrying on its business or which would prevent or render
Purchaser unable to timely complete the defined purchase provisions of this
Agreement.
3.2.5. Full Disclosure. This Agreement (including the
Exhibits hereto) does not contain any untrue statement of a material fact or
omit to state any material fact necessary to make the statements contained
herein not misleading. There is no fact known to Purchaser which is not
disclosed in this Agreement which materially adversely affects the accuracy of
the representations and warranties contained in this Agreement or Purchaser's
financial condition, results of operations, business or prospects.
4. Covenants against Competition.
4.1. Sellers' Agreement Not to Compete. For a period of
three (3) years commencing on the date of Closing, Sellers shall not, within
Oklahoma County, Oklahoma, directly or indirectly, own, manage, operate, joint
or control, or participate in the ownership, management, operation or control
of, or be a shareholder or employee of, or a consultant to, any business, firm,
corporation or entity which is conducting any business which competes with the
Web Services. As a violation by Sellers of the provisions of this section could
cause irreparable injury to the Purchaser and there is no adequate remedy at law
for such violation, the Purchaser shall have the right, in addition to any other
remedies available to it, at law or in equity, to enjoin Sellers in a court of
equity for violating such provisions.
To the extent that any provision or portion of this section shall
be held, found or deemed to be unreasonable, unlawful or unenforceable by a
court of competent jurisdiction, then any such provision or portion thereof
shall be deemed to be modified to the extent necessary in order that any such
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<PAGE>
provision or portion thereof shall be legally enforceable to the maximum extent
permitted by applicable law, and any court of competent jurisdiction shall, and
the parties hereto do hereby expressly authorize, request and empower any court
of competent jurisdiction to enforce any such provision or portion thereof or to
modify any such provision or portion thereof in order that any such provision or
portion thereof shall be enforced by such court to the maximum extent permitted
by applicable law.
5. Liabilities of Seller. With the exception of certain
contractual obligations of Company as set out on Exhibit "D" hereto, all
liabilities of Seller shall be paid by Seller on or before Closing.
6. Additional Covenants of the Parties. At the Closing on the
Closing Date:
6.1. Resignations of Officers and Directors of Company.
The resignation of each of Company's officers and directors effective at the
Closing on the Closing Date shall have been executed and delivered to Purchaser
by each such officer and director.
7. Indemnification.
7.1. Indemnification by the Sellers. The Sellers shall
defend, indemnify and hold harmless the Purchaser, its officers, directors,
shareholders, agents, servants and employees, and their respective heirs,
personal and legal representatives, guardians, successors and assigns, from and
against any and all claims, threats, liabilities, taxes, interest, fines,
penalties, suits, actions, proceedings, demands, damages, losses, costs and
expenses (including attorneys' and experts' fees and court costs) of every kind
and nature arising out of, resulting from, or in connection with:
7 1.1. Any misrepresentation or breach by Sellers
or any of Sellers of any representation or warranty contained in this Agreement.
7.1.2. Any nonfulfillment, failure to comply or
breach by Sellers or any of Sellers of or with any covenant, promise or
agreement of the Sellers or any of Sellers contained in this Agreement.
7.1.3. Any act, failure to act or omission prior to
the Closing Date by any Participant.
7.2. Indemnification by the Purchaser. The Purchaser shall
defend, indemnify and hold harmless the Sellers and their respective heirs,
personal and legal representatives, guardians, successors and assigns, from and
against any and all claims, threats, liabilities, taxes, interest, fines,
penalties, suits, actions, proceedings, demands, damages, losses, costs and
expenses (including attorneys' and experts' fees and court costs) of every kind
and nature arising Out of, resulting from, or in connection with:
7.2.1. Any misrepresentation, omission or breach by
Purchaser of any representation or warranty contained in this Agreement.
7.2.2. Any nonfulfillment, failure to comply or breach
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by the Purchaser of or with any covenant, promise or agreement of the Purchaser
contained in this Agreement.
8. General.
8.1. Survival of Representations, Warranties, and
Agreements. All of the representations, warranties, covenants, promises and
agreements of the parties contained in this Agreement (or in any document
delivered or to be delivered pursuant to this Agreement or in connection with
the Closing) shall survive the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby.
8.2. Entire Agreement. This Agreement (including all
Exhibits hereto which are incorporated herein by this reference) constitutes the
full, entire and integrated agreement between the parties hereto with respect to
the subject matter hereof, and supercedes all prior negotiations,
correspondence, understandings and agreements among the parties hereto
respecting the subject matter hereof.
8.3. Assignability. This Agreement shall not be
assignable by any party hereto without the prior written consent of the other
parties hereto.
8.4. Binding Effect; Benefit. This Agreement shall inure
to the benefit of and be binding upon the parties hereto, each other Person who
is indemnified under any provision of this Agreement, and their respective
heirs, personal and legal representatives, guardians, successors and, in the
case of Purchaser, its permitted assigns. Nothing in this Agreement, express or
implied, is intended to confer upon any other Person any rights, remedies,
obligations or liabilities.
8.5. Severability. Any provision of this Agreement which
is held by a court of competent jurisdiction to be prohibited or unenforceable
shall be ineffective to the extent of such prohibition or unenforceability,
without invalidating or rendering unenforceable the remaining provisions of this
Agreement.
8.6. Amendment; Waiver. No provision of this Agreement
may be amended, waived or otherwise modified without the prior written consent
of all of the parties hereto. No action taken pursuant to this Agreement,
including any investigation by or on behalf of any party, shall be deemed to
constitute a waiver by the party taking such action of compliance with any
representation, warranty, covenant or agreement herein contained. The waiver by
any party hereto of a breach of any provision or condition contained in this
Agreement shall not operate or be construed as a waiver of any subsequent breach
or of any other conditions hereof.
8.7. Section Headings. The section and other headings
contained in this Agreement are for reference purposes only and shall not affect
the meaning or interpretation of this Agreement.
8.8. 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 together shall be deemed to be one and the same instrument.
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8.9. Applicable Law. This Agreement is made and entered
into, and shall be governed by and construed in accordance with, the laws of the
State of Oklahoma.
8.10. Remedies. The parties hereto acknowledge that the
Sellers' Shares are unique; that any claim for monetary damages may not
constitute an adequate remedy; and that it may therefore be necessary for the
protection of the parties and to carry out the terms of this Agreement to apply
for the specific performance of the provisions hereof. Accordingly, no objection
to the form of the action or the relief prayed for in any proceeding for
specific performance of this Agreement shall be raised by any party, in order
that such relief may be expeditiously obtained by an aggrieved party. All
parties may proceed to protect and enforce their rights hereunder by a suit in
equity, transaction at law or other appropriate proceeding, whether for specific
performance or for an injunction against a violation of the terms hereof or in
aid of the exercise of any right, power or remedy granted hereunder or by law,
equity or statute or otherwise. No course of dealing and no delay on the part of
any party hereto in exercising any right, power or remedy shall operate as a
waiver thereof or otherwise prejudice its rights, powers or remedies, and no
right, power or remedy conferred hereby shall be exclusive of any other right,
power or remedy referred to herein or flow or hereafter available at law, in
equity, by statute or otherwise.
8.11. Notices. All notices, offers, acceptances,
exercises of options, waivers and other acts under this Agreement shall be in
writing and shall be deemed to have been duly given if delivered personally or
sent by first class mail with postage prepaid, or sent by telex, telegram or
facsimile, as follows:
If to the Sellers:
ANIMUS COMMUNICATIONS, INC.
Attn: Bobby Gruenewald
1062 Cumberland Mansion
Yukon, OK 73099
With a copy to:
John M. Coffey, Esq.
WHTE, COFFEY, GALT & FITE, P.C.
6520 N. Western, Suite 300
Oklahoma City, OK 73116
(405) 842-7545
Fax - (405) 840-989O
If to the Purchaser:
FULLNET COMMNICATIONS, INC.
200 N. Harvey, Suite 1706
Oklahoma City, OK 73102
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or to such other address as a party shall have specified by notice in writing to
the other parties. All such notices, requests, demands, waivers and
communications shall be deemed to have been received on the date of personal
delivery or on the third business day after the mailing thereof or on the date
of confirmation of transmission of any telex, telegram or facsimile.
IN WITNESS WHEREOF, the parties hereto have executed and
delivered this Agreement on the date first above written.
SELLERS:
/S/ Robert L. Gruenewald
--------------------------------------------------
Robert L. Gruenewald
/S/ William Toombs Richardson, Jr.
--------------------------------------------------
William Toombs Richardson, Jr.,
Trustee of the William Toombs
Richardson, Jr. 1995 Revocable
Trust Agreement dated the 25th
of May, 1995
/S/ Steve R. Bailey
--------------------------------------------------
Steve R. Bailey, Trustee of the
Steve R. Bailey Living Trust dated October 28,
1994
/S/ Kevin Hackler
--------------------------------------------------
Kevin Hackler
/S/ Jason Ayers
--------------------------------------------------
Jason Ayers
/S/ Travis C. Lux
--------------------------------------------------
Travis Christopher Lux
PURCHASER:
FULLNET COMMUNICATIONS, INC.
ATTEST:
/S/ Laura L. Kilkenny By:/S/ Timothy J. Kilkenny
- ---------------------------- --------------------------------
Laura L. Kilkenny, Secretary Timothy J Kilkenny, President
14
