AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 27, 1999
Registration No. 333-______________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM SB-2
REGISTRATION STATEMENT
UNDER THE
SECURITIES ACT OF 1933
PHON-NET.COM, INC.
(Name of Small Business Issuer in Its Charter)
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<CAPTION>
<S> <C> <C>
Florida 7372 98-0198225
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Number) Identification No.)
</TABLE>
750 West Pender Street
Suite 600
Vancouver, British Columbia V6C 2T7
(604) 437-3787
(Address and Telephone Number of Principal Executive Offices)
-------------------------
Brian Collins
750 West Pender Street
Suite 600
Vancouver, British Columbia V6C 2T7
(604) 437-3787
(Name, Address and Telephone Number of Agent For Service)
------------------------------
Copies of all communications to:
Steven I. Weinberger, Esq.
Atlas, Pearlman, Trop & Borkson, P.A.
200 East Las Olas Boulevard, Suite 1900
Fort Lauderdale, FL 33301
Telephone: (954) 763-1200
Facsimile No. (954) 766-7800
Approximate Date of Proposed Sale to the Public: As soon as practicable
after the effective date of this Registration Statement.
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
Proposed Proposed
Title of Each Maximum Maximum
Class of Securities Amount to be Offering Price Aggregate Amount of
to be Registered Registered Per Security(1) Offering Price(1) Registration Fee(1)
---------------- ---------- --------------- ----------------- -------------------
<S> <C> <C> <C> <C>
Common Stock, par value
$.001 per share 5,985,000 $0.20 $1,197,000 $332.77
-------
Total Registration Fee $332.77
</TABLE>
- --------------------------
(1) Estimated solely for purposes of calculating the registration fee
pursuant to Rule 457. Based upon the average of the closing bid and
asked prices for the common stock on August 25, 1999.
The registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with section 8(a) of the
securities act of 1933, as amended, or until the registration statement shall
become effective on such date as the Commission, acting pursuant to said section
8(a), may determine.
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there by any sale of these securities
in any state in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such state.
ii
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Subject to Completion August 27, 1999
PROSPECTUS
PHON-NET.COM, INC.
5,985,000 Shares of Common Stock
($.001 par value per share)
This prospectus covers the 5,985,000 shares of common stock, $.001 par
value per share, of Phon-Net.com, Inc. being offered by certain selling
securityholders. We will not receive any proceeds from the sale of the shares by
the selling securityholders.
Our common stock is traded on the OTC Bulletin Board under the trading
symbol "PNET". On August 25, 1999, the closing bid price for our common stock
was $.19. See "Risk Factors" beginning on Page 7.
----------------------------
This investment involves a high degree of risk. You should purchase
shares only if you can afford a complete loss of your investment. See "Risk
Factors" beginning on page 7.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities, or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
----------------------------
The date of this prospectus is ____________, 1999
<PAGE>
AVAILABLE INFORMATION
Following the effective date of the registration statement relating to
this prospectus, we will file annual, quarterly and special reports with the
United States Securities and Exchange Commission (the "SEC"). You may read and
copy any document we file at the SEC's public reference rooms in Washington,
D.C., New York, New York, and Chicago, Illinois. Please call the SEC at
1-800-SEC-0330 for further information on the public reference rooms. Our SEC
filings will be publicly available through the SEC's web site on the Internet at
http://www.sec.gov.
This prospectus does not contain all of the information set forth in
the registration statement and the exhibits thereto. Descriptions of any
contract or other document referred to in this prospectus are not necessarily
complete. In each instance, reference is made to the copy of such contract or
other document filed as an exhibit to the registration statement for a more
complete description of the matter involved, each such statement being qualified
in its entirety by such reference. At your written or telephonic request, we
will provide you, without charge, a copy of any of the information that is
incorporated by reference (excluding exhibits to the information that is
incorporated by reference unless the exhibits are themselves specifically
incorporated by reference). Please direct your request to the Company at
Phon-Net.com, Inc., 750 West Pender Street, Suite 600, Vancouver, British
Columbia V6C 2T7, Attention: Chief Executive Officer, telephone (604) 437-3787.
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information, including information contained under the caption "Risk Factors",
"Business" and Financial Statements, including the notes thereto, appearing
elsewhere in this prospectus.
This prospectus contains forward-looking statements that involve risks
and uncertainties. Our actual results may differ materially from the results
discussed in the forward-looking statements. You are urged to read this
prospectus carefully and in its entirety.
THE COMPANY
We are a Florida corporation that develops and markets software
products primarily to benefit Internet users, persons and businesses who operate
Internet Web sites and advertisers on the Internet.
We currently have two products. One product is our Phon-Net Direct
Connect software. Direct Connect provides increased capability to the Internet
user whose computer and telephone share the same phone line. A visitor to an
Internet Web site can, with a simple prompt, command Direct Connect to
automatically dial and establish telephone contact with the Web site operator or
Web site advertiser. The user can speak with the Web site operator or advertiser
and continue to view the Web page, without logging off the computer. Once
telephone contact is made, the user can speak directly with the Web site
operator or advertiser, leave a voice mail or access promotional benefits made
available by the Web site operator or advertiser. Following completion of the
telephone call, the user may seamlessly reconnect to the Internet and
immediately continue at the same or any other desired Internet location.
Direct Connect is of benefit to single-phone line Internet users.
However, our marketing efforts are directed to Web site owners and advertisers.
Web site owners and advertisers believe that once an Internet user logs off his
or her computer, or leaves the current Web site, the chances of the user
telephoning the Web site operator or advertiser are significantly reduced.
Direct Connect's software capability is intended to increase the Web site's
productivity by increasing communication between the Internet user and the Web
site operator or advertiser. A significant advantage that Direct Connect
provides for Internet commerce is that credit card payment may be made during
the telephone portion of the transaction, rather than transmitting credit card
information over the Internet.
Our other product is the "Phon-Net Search Engine Product". The Search
Engine product, incorporates Direct Connect and functions as a yellow pages.
This product enables the user to search the world wide web and a local
interactive telephone database for a desired business listing. Once the business
is identified and its telephone number is found, the user can command
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Direct Connect to contact the party by telephone. We intend to market the Search
Engine product to businesses for an annual fee. Our Search Engine product has
been beta tested, however we have not yet introduced it to the marketplace so
that we may concentrate our current efforts towards marketing Direct Connect.
The market for Direct Connect includes the approximately 50,000,000
businesses world-wide that maintain an Internet Web site. Direct Connect has
been "beta" tested for 12 months in Vancouver, British Columbia, and has been
recently introduced to the marketplace. We sell our products directly over the
Internet, through third-party Internet sites and through resellers of
Internet-related products. Our products also can be "bundled" with other
Internet-related software products made by third parties.
We also operate a "1-800" service throughout Canada, under the name
"National For Sale Phone Company". This service provides interactive voiceleads
by telephone to realtors and professionals, without charge to consumers.
Our fiscal year end is July 31. For each of the two years ended July
31, 1998 and 1997, and the nine months ended April 30, 1999, we generated
revenues of $134,378, $259,742 and $19,545, respectively. For each of those
years and period we incurred losses of $(625,266), ($95,741) and $(696,685),
respectively.
Our executive offices are located at 750 West Pender Street, Suite 600,
Vancouver, British Columbia V6C 2T7, and our telephone number is (604) 437-3787.
See "Risk Factors", "Management", "Business" and "Certain Transactions" for a
discussion of certain factors which should be considered in evaluating the
Company and its business.
4
<PAGE>
THE OFFERING
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Common Stock Offered by
<S> <C> <C>
Selling Securityholders........................................ 5,985,000 shares(1)
Common Stock Outstanding(2):
Prior to the Offering .................................... 36,927,430
After the Offering ...................................... 36,927,430
Trading Symbol for Common Stock................................ PNET(3)
Risk Factors .................................................. The offering involves a high degree of risk.
See "Risk Factors".
</TABLE>
- ---------------------------
(1) The selling securityholders are offering up to 5,985,000 shares of our
common stock that they presently own for sale in transactions that may
be effected by them from time-to-time. We have not arranged for any
broker or underwriter to sell the shares on behalf of the selling
securityholders. See "Description of Securities".
(2) Does not give effect to the issuance of 4,400,000 shares in the event
of exercise of outstanding options.
(3) Our common stock is currently listed on the OTC Bulletin Board. We are
not sure when we will be able to apply for listing with the Nasdaq
Stock Market or a stock exchange. See "Risk Factors".
5
<PAGE>
SELECTED FINANCIAL DATA
The following summary of our financial information has been derived
from our financial statements that are included in this prospectus. The
information for the years ended July 31, 1998 and 1997 are derived from our
audited financial statements. The information for the Nine months ended April
30, 1999 and 1998 are derived from our unaudited financial statements. See
"Financial Statements" and "Management's Discussion and Analysis or Plan of
Operation".
<TABLE>
<CAPTION>
Nine months ended
Year ended July 31, April 30,
------------------- -----------------------------
1998 1997 1999 1998
---- ---- ---- ----
(unaudited)
<S> <C> <C> <C> <C>
Revenues $134,378 $259,742 $19,545 $100,784
Operating Expenses $759,644 $487,416 $716,230 $569,735
Net (Loss) $(625,266) $(95,741) $(696,685) $(468,951)
Net (Loss) Per Share $(0.17) $(0.03) $(0.06) $(0.13)
July 31,
-------------------
1998 1997 April 30, 1999
---- ---- --------------
(unaudited)
Working Capital
(Deficit) $(96,511) $(34,154) $154,537
Total Assets $449,064 $330,068 $649,540
Current Liabilities $206,352 $77,993 $256,971
Notes Payable $35,486 $38,829 $36,702
Shareholder's Equity
(Deficit) $207,226 $213,246 $392,569
</TABLE>
6
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RISK FACTORS
An investment in the securities offered hereby is speculative in nature
and involves a high degree of risk. In addition to the other information
contained in this prospectus, the following factors should be considered
carefully in evaluating the Company and its business before purchasing the
securities offered hereby. This prospectus contains, in addition to historical
information, forward-looking statements that involve risks and uncertainties.
The Company's actual results may differ materially from the results discussed in
the forward-looking statements. Factors that might cause or contribute to such
differences include, but are not limited to, those discussed below, and
elsewhere in this prospectus.
Net Losses
For the fiscal years ended July 31, 1998 and 1997, we experienced net
losses of $(625,266) and $(95,741), respectively. For the nine months ended
April 30, 1999, we incurred a net loss of $(696,685). Our operating results for
future periods will include significant expenses, including product and service
development expenses, sales and marketing costs, programming and administrative
expenses and acquisition costs, and will be subject to numerous uncertainties.
As a result, we are unable to predict whether we will be profitable in the
future.
We May Need Additional Capital
We have funded our operations to date through the sale of shares of our
common stock. However, our operations are capital intensive and our growth will
consume a substantial portion of our available working capital. Therefore,
depending upon the timing and rate at which we are able to generate revenues
from operations, we may require additional capital in order to fund our
operations. We don't know whether additional financing will be available to us
on acceptable terms.
Dependence On And Uncertainties Concerning The Internet
Use of the Internet by consumers is at an early stage of development,
and market acceptance of the Internet as a medium for commerce is subject to a
high degree of uncertainty. Our ability to succeed will depend on our ability to
significantly increase revenues, which will require the further development and
widespread acceptance of the Internet as a medium for commerce and advertising.
Numerous areas of uncertainty will have a long-term effect on our success and
the acceptance of the Internet as a successful retailing channel, any of which
are out of our control. They include the following:
o delays in the development and adoption of new standards and
protocols to handle increased levels of Internet activity;
o acceptance of the Internet as an advertising medium;
7
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o our ability to anticipate, monitor and successfully respond to
rapidly changing needs and preferences to attract, retain and
expand a loyal user base; and
o overcoming consumer concern over Internet security.
Some Risks Of Operations That Could Significantly Affect Our Business
Factors that may affect our operating results include:
o our ability to develop active user based acceptance of our
products,
o our ability to attract new users for our products and
services;
o the announcement or introduction of new sites, services and
products by our competitors;
o the success of our marketing campaigns;
o price competition;
o the level of use of the Internet and online services;
o need for consumer confidence in and acceptance of the Internet
and other online services for commerce;
o consumer confidence in the security of transactions over the
Internet;
o our ability to upgrade and develop systems and infrastructure
to deal with growth;
o our ability to attract and retain qualified personnel;
o technical difficulties or service interruptions;
o the amount and timing of operating costs and capital
expenditures relating to expansion of our business, operations
and infrastructure;
o governmental regulation of the Internet by federal or local
governments; and
o general economic conditions as well as economic conditions
specific to the Internet and online commerce industries.
8
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We May Have Difficulty Managing Potential Growth
Further expansion of our operations will be required to address
potential growth of our customer base and market opportunities. Expansion will
place a significant strain on our management, operational and financial
resources. Currently, we have only a limited number of employees, to do this and
will need to improve existing and implement new transaction processing,
operational and financial systems, procedures and controls, and to expand, train
and manage our employee base. We also will be required to expand our finance,
administrative and operations staff. Furthermore, we will need to enter into
relationships with various strategic partners, Web site owners and operators,
product manufacturers and distributors and other online service providers and
other third parties necessary to develop our business. Our failure to manage
growth effectively could have a damaging effect on our business, results of
operations and financial condition.
We Will Be Dependent on Continued Growth of Developing Online Person-to-Person
Commerce Market
The market for the sale of goods over the Internet, particularly
through person-to-person trading, is a new and emerging market. Our future
revenues and profits will be heavily dependent upon the widespread acceptance
and use of the Internet and other online services as a form of commerce by
consumers. Rapid growth in the use of and interest in the Web, the Internet and
other online services is a recent development. We cannot say that this
acceptance and use will continue to develop, or that a sufficiently broad base
of consumers will adopt, and continue to use, the Internet as a method of
commerce. Demand and market acceptance for recently introduced services and
products over the Internet may not be sustained.
Risks Of Internet Commerce
The Internet may not be commercially viable over the long term for a
number of reasons, including:
o potentially inadequate development of the necessary network
infrastructure;
o delayed development of enabling technologies;
o performance improvements; and
o security measures
If the Internet continues to have significant growth, their frequency
of use or their bandwidth requirements, there could be a question whether the
infrastructure for the Internet and other online services will be able to
support the demands placed upon them.
9
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In addition, the Internet or online services could be hurt by delays in
the development or adoption of new standards and procedures required to handle
increased levels of Internet or online service activity, or due to increased
governmental regulation.
Changes in or insufficient availability of telecommunications services
to support the Internet or online services also could result in slower response
times and affect usage of the Internet and our business in particular. If these
types of problems surface, our business, results of operations and financial
condition would be severely affected.
Intense Competition Is A Feature Of Our Industry
The market for online commerce over the Internet is new, rapidly
evolving and intensely competitive. Competition will likely increase in the
future. Barriers to entry are relatively low, and current and new competitors
can launch new sites at a relatively low cost using commercially available
software.
While we do not believe that we currently face extensive competition
for our current products, we expect that other companies will develop technology
similar to that marketed by us. Given the large and well capitalized companies
currently engaged in technology and Internet-related businesses, it is likely
that our competition will come from companies that are substantially larger and
have substantially greater financial and other resources than we have.
Significant competition, could have a damaging effect on our business, results
of operations and financial condition.
We Run The Risk Of Rapid Technological Changes
The industry and market in which we compete face rapidly changing
technology, evolving industry standards, frequent new service and product
introductions and changing customer demands. These industry and market
characteristics are heightened by the emerging nature of the Internet and the
need of companies from a range of industries to offer Internet-based products
and services.
Accordingly, our future success will depend on our ability to adapt to
rapidly changing technologies and to adapt our services to evolving industry
standards. We also need to continually improve the performance, features and
reliability of our service in response to competition and the evolving demands
of the marketplace. In addition, the widespread adoption of new Internet,
networking or telecommunications technologies or other technological changes may
require substantial costs to modify or adapt our services or infrastructure,
which will likely have a negative effect on our business, results of operations
and financial condition.
Online Commerce Security Risks Could Prove a Burden to Us
Secure transmission of confidential information over public networks is
a significant obstacle to the development of online commerce and communications.
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Technology developments could compromise or breach the technology the industry
currently uses to protect customer transaction data.
While we believe that Direct Connect offers a viable alternative to
transmitting person and confidential information over the Internet, concerns
over the security of transactions on the Internet and online services, and the
privacy of users, may limit the growth of the Internet and online services,
especially for commercial transactions.
Governmental Regulation of The Internet and Other Legal Uncertainties Could
Affect Our Business
We and other Internet-related companies are not currently subject to
direct federal, state or local regulation and laws applicable to commerce on the
Internet, other than regulations applicable to businesses generally. However,
due to the increasing popularity and use of the Internet and other online
services, it is possible that a number of laws and regulations may be adopted
governing the Internet and online services covering issues such as user privacy,
freedom of expression, pricing, content and quality of products and services,
taxation, advertising, intellectual property rights, libel, obscenity and
personal privacy. The vast majority of laws adopted prior to the Internet do not
address the unique issues of the Internet and related technologies. A state
could attempt to impose regulations in the future which could have a damaging
effect on our business, results of operations and financial condition.
We Are Dependent On Key Executive Officer
Our success depends greatly on Brian Collins, our key executive. While
we have entered into a contractual agreement with him, the loss of his services
would be highly damaging to us. We currently have $100,000 in key-man insurance
on Mr. Collins' life.
Securities and Exchange Commission Rules On "Penny Stocks" Could Greatly Affect
the Market for Our Common Stock
The Securities and Exchange Commission has adopted regulations which
generally define a "penny stock" to be any equity security that has a market
price (as defined) of less than $5.00 per share, subject to certain exceptions.
Depending on market fluctuations, our common stock would be considered a "penny
stock". As a result, it may be subject to rules that impose additional sales
practice requirements on broker/dealers who sell these securities to persons
other than established customers and accredited investors. For transactions
covered by these rules, the broker-dealer must make a special suitability
determination for the purchase of our securities. In addition he must receive
the purchaser's written consent to the transaction prior to the purchase. He
must also provide certain written disclosures to the purchaser. Consequently,
the "penny stock" rules may restrict the ability of broker/dealers to sell our
securities, and may negatively affect the ability of holders of our shares to
resell them.
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It Is Not Likely That We Will Pay Dividends On Our Common Stock for the
Foreseeable Future
We have no present intention of paying cash dividends on our common
stock for the foreseeable future, as we intend to follow a policy of retaining
our earnings, if any, for use in our business.
Shares Eligible for Future Sale May Negatively Affect the Market for Our Common
Stock
The sale, or availability for sale, of a substantial number of shares
of common stock in the public market subsequent to the offering under Rule 144
under the Securities Act or this prospectus or otherwise, could have a major
negative effect on the market price of our common stock. It could also limit our
ability to raise additional capital from the sale of our equity securities or
debt financing. There are currently 29,405,000 shares of our outstanding common
stock that are "restricted securities", including 5,985,000 shares registered
for sale by this prospectus. All of these "restricted" shares may, in the
future, be sold. If we do not have a substantial market for our shares, a
significant number of shares being sold could greatly affect the market and
cause a decline in the price of our common stock.
Year 2000 Risk
We have implemented a Year 2000 date conversion program to ensure that
our computer systems and applications will function properly beyond 1999. We
believe that we have allocated adequate resources for this purpose and expect
our Year 2000 date conversion program to be successfully completed on a timely
basis. We cannot be sure, however, that this will be the case. We do not expect
to incur significant expenditures to address this issue. The ability of third
parties with whom we transact business to adequately address their respective
Year 2000 issues is outside of our control. We cannot be certain that our
failure or the failure of these third parties to adequately address Year 2000
issues will not have a negative effect on our business, financial condition,
cash flows and results of operations.
It is not possible to foresee all risks which may affect us. Moreover,
we cannot predict whether we will successfully effectuate our current business
plan. Each prospective purchaser is encouraged to carefully analyze the risks
and merits of an investment in the Shares and should take into consideration
when making such analysis, among others, the Risk Factors discussed above.
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CAPITALIZATION
The following table sets forth our capitalization as of April 30, 1999.
The table does not reflect the exercise of any options or the issuance of
9,660,000 shares after April 30, 1999. The table should be read in conjunction
with the Consolidated Financial Statements and related notes included elsewhere
in this prospectus.
April 30, 1999
Notes payable $36,702
Shareholder's equity (deficit):
Common Stock, $.001 par value,
80,000,000 shares authorized,
27,267,430 shares issued and
outstanding $1,916,163
Preferred Stock, $.01 par value,
10,000,000 shares authorized,
no shares issued or outstanding - 0 -
Accumulated deficit (1,526,779)
Translation Adjustment 3,185
----------
Total shareholder's equity $392,569
----------
Total capitalization $429,271
========
USE OF PROCEEDS
We will not receive any proceeds upon the sale of shares by the Selling
securityholders.
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
Our shares of common stock are traded over-the-counter and quoted on
the OTC Electronic Bulletin Board under the symbol "PNET". The reported high and
low bid prices for the common stock are shown below for the period from
inception of trading in April 1998 through June 30, 1999. The closing bid price
on August 25, 1999 is also shown. Until January
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1998, the symbol for our common stock was "XGAG". The prices do not always
represent actual transactions.
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<CAPTION>
Period High Low
- ------ ---- ---
<S> <C> <C>
April 1, 1998 - June 30, 1998 $3.25 $.75
July 1, 1998 - September 30, 1998 $2.375 $.0625
October 1, 1998 - December 31, 1998 $.37375 $.0625
January 1, 1999 - March 31, 1999 $1.50 $.12
April 1, 1999 - June 30, 1999 $.69 $.19
August 19, 1999 $.19
</TABLE>
We have never paid cash dividends on our common stock. We intend to
keep future earnings, if any, to finance the expansion of our business, and we
do not anticipate that any cash dividends will be paid for the foreseeable
future. The future dividend policy will depend on our earnings, capital
requirements, expansion plans, financial condition and other relevant factors.
FORWARD-LOOKING STATEMENTS
Some of the statements in this prospectus discuss further expectations
or state other forward-looking information. Those statements are subject to
known and unknown risks, uncertainties and other factors that could cause our
actual results to differ materially from those contemplated by the statements.
Factors that might cause a difference include, but are not limited to, those
discussed in "Risk Factors" and elsewhere in this prospectus.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATION
Results of Operations
Fiscal Year Ended July 31, 1998 Compared to Fiscal Year Ended July 31, 1997
For the fiscal year ended July 31, 1998, we generated revenues of
$134,378, a 48% decrease from revenues of $259,742 for the fiscal year ended
July 31, 1997. This decrease was primarily caused by our focus on development of
our Search Engine product and market testing.
For the 1998 fiscal year, we incurred a net loss of $(625,266) or
approximately $(.17) per share, compared to a net loss of $(95,741) or
approximately $(.03) per share for the 1997 fiscal year. The 55.3% increase in
our net loss was due to expenses we incurred in developing, testing and
preliminary marketing activities relating to our Search Engine product.
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Expenses of $759,644 for the year ended July 31, 1998 reflect an
increase of 56% over expenses of $487,416 incurred during the fiscal year ended
July 31, 1997. This increase in expenses results mainly from increased
advertising and promotion costs and management and professional fees, as well as
travel expenses related to sales and marketing efforts, for the most recent
fiscal year.
Nine Months Ended April 30, 1999 Compared to Nine Months Ended April 30, 1998
For the nine months ended April 30, 1999, we generated revenues of
$19,545, compared to revenues of $100,784 for the nine months ended April 30,
1998. The 81% decrease in revenues for the 1999 period was primarily due to
increased expenses attributable to development of our Internet Direct Connect
software.
For the 1999 nine month period, we incurred a net loss of $(696,685) or
approximately $(.06) per share, compared to a net loss of $(468,951) or
approximately $(.13) per share for the comparable nine months of 1998. The 49%
increase in our net loss was due to expenses incurred for beta testing of our
Direct Connect software.
Expenses of $716,230 incurred during the nine months ended April 30,
1999 reflect an increase of 26% over expenses of $569,735 incurred during the
nine months ended April 30, 1998. This increase in expenses results mainly from
increased advertising and promotion costs and management and professional fees
for the most recent nine month period.
Liquidity and Capital Resources
As of July 31, 1998, our auditors indicated in their audit report that
our net loss and working capital deficit raised substantial doubt that we would
be able to continue as a going concern.
To date, we have funded our cash requirements from operating revenues
and from the sale of shares of our common stock. As of April 30, 1999, we had
cash reserves of $379,508, and working capital of $154,537. We are unable to
predict whether the audit report for our current fiscal year will contain a
going concern qualification similar to the one set forth in the prior year's
report.
While our operations are not capital intensive, we intend to finance
our cash requirements from internally generated funds, as well as from
additional sales of our securities. To the extent we are unable to generate
sufficient revenues and proceeds from the sale of our securities, we may be
required to borrow funds to sustain our operations. We may not be able to secure
financing on acceptable terms.
Year 2000 Issue
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The year 2000 issue relates to whether computer systems will properly
recognize and process information relating to dates in and after the year 2000.
These systems could fail or produce erroneous results if they cannot process
dates beyond the year 1999 and are not corrected. Significant uncertainty exists
in the software industry concerning the potential consequences that may result
from the failure of software to adequately address the year 2000 issue.
Our dependence upon computers as part of our daily operations is
minimal and we do not believe that we will be significantly impacted by the year
2000 issue. However, we have reviewed all software and hardware used internally
by us in order to determine whether they are year 2000 compliant. Our review
indicates that our internal operations will not be materially impacted by the
year 2000 issue, nor will we be required to expend material sums in order to
modify our systems so that they are year 2000 compliant.
Notwithstanding the foregoing, our ability to generate revenues and our
future success is dependent upon the continued use of computer systems and
particularly the Internet. Any widespread failure of computer systems arising as
a result of the year 2000 issue could have a material adverse effect on our
current and future operations. We are unable to predict whether the year 2000
issue will have a significant impact on continued computer use or Internet
access.
BUSINESS
We are a Florida corporation that develops and markets software
products that primarily benefit Internet users, persons and businesses who
operate Internet Web sites and advertisers on the Internet.
Products
We currently have two products. One product is our Phon-Net Direct
Connect software. Direct Connect provides increased capability to the Internet
user whose computer and telephone share the same phone line. A visitor to an
Internet Web site can, with a simple prompt, command Direct Connect to
automatically dial and establish telephone contact with the Web site operator or
Web site advertiser. The user can speak with the Web site operator or advertiser
and view the Web page, without logging off the computer. Once telephone contact
is made, the user can speak directly with the Web site operator or advertiser,
leave a voice mail message or access promotional benefits made available to
callers by the Web site operator or advertiser. Following completion of the
telephone call, the user may seamlessly reconnect to the Internet and
immediately continue at the same or any other desired Internet location.
While Direct Connect benefits single-phone line Internet users, our
marketing efforts are directed to Web site owners and advertisers. They believe
that once an Internet user logs off his or her computer, or leaves the current
Web site, the chances of the user telephoning the Web site operator or
advertiser are significantly reduced. Direct Connect's software capability is
intended
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<PAGE>
to increase the Web site's productivity by increasing communication between the
Internet user and the Web site operator or advertiser.
We believe that security concerns, primarily the transmission of
personal and credit card information over the Internet, have prevented Internet
commerce from achieving widespread acceptance as a method of commerce. A
significant advantage that Direct Connect provides for Internet commerce is that
credit card payment may be made during the telephone portion of the transaction,
rather than transmitting personal and credit card information over the Internet.
Our other product is the "Phon-Net Search Engine Product". The Search
Engine product, incorporates Direct Connect and functions as a yellow pages.
This product enables the user to search the world wide web and a local
interactive telephone database for a desired business listing. Once the business
is identified and its telephone number is found, the user can command Direct
Connect to contact the party by telephone. Other features of our Search Engine
product include voice mail with automatic notification to the business that a
message has been left, and the ability of the business to update voice and text
messages at any time.
Our Search Engine product provides a service to consumers seeking to
locate a business. It is also designed to enable businesses to expand their
presence in the marketplace and to enable them to provide desired information to
consumers seeking their services. We intend to market the Search Engine product
to businesses for an annual fee. Our Search Engine product has been beta tested,
however we have not yet introduced it to the marketplace so that we may
concentrate our current efforts towards marketing Direct Connect.
Product Development and Production
We have an agreement with Quad-Linq Software, Inc., of British
Columbia, Canada ("Quad-Linq"), to develop, maintain, support, upgrade and
enhance our Direct Connect software. We retain exclusive ownership of the
software, and Quad-Linq agrees not to develop similar software for others. As
payment to Quad-Linq, we issued 3,000,000 shares of our stock, and options to
purchase an additional 2,000,000 shares, to Quad-Linq and its principals. The
options are exercisable at $.40 per share, until June 30, 2001.
Sales and Marketing
We have actively begun to market Direct Connect using several
strategies to directly and indirectly reach Internet Web site operators. These
strategies include marketing Direct Connect software:
o directly to Web site operators;
o to businesses that advertise on Web sites;
o to businesses that create and/or host Web sites for others;
17
<PAGE>
o to resellers, who "bundle" our software with other
Internet-related software products;
o to developers of Internet-related software products, for
incorporation into their products; and
o to resellers, who believe that Direct Connect offers a viable
alternative to E-Commerce security concerns.
Direct Connect has been "beta" tested for 12 months in Vancouver,
British Columbia, and has been recently introduced to the marketplace. The
market for Direct Connect includes the approximately 50,000,000 businesses
world-wide that maintain an Internet Web site. We are seeking to expand our
marketing efforts by attracting resellers who have access to a large number of
Web site operators and advertisers. We also market Direct Connect to business
targeted by us, through E-Mail presentations.
We license our Direct Connect software to businesses. Direct Connect is
currently available:
o directly from us at our Web site;
o over the Internet at the I-Mall Web site; and
o through a reseller who markets Direct Connect along with its
own Internet services.
At the time of purchase, the customer is provided with a password that
allows the customer to download the information directly to its Web site. Our
customers license Direct Connect for an initial one year license fee of $99.
After the expiration of one year, Direct Connect has a mechanism that makes it
inoperable unless the customer renews the license. Prior to the end of the year,
an E-Mail is sent to the customer advising that the license will terminate and
that the customer can then renew the license on a year to year basis.
Employees
We currently employ seven people, six of whom are full-time employees,
in the following capacities: two executive officers, one administrative
employee, one sales and marketing person and two programmers. Our employees are
not represented by a collective bargaining unit. We believe relations with our
employees are good.
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<PAGE>
Legal Proceedings
We are not a party to any material legal proceeding, nor are any of our
officers, directors or affiliates a party adverse to us in any legal proceeding.
Description of Property
On July 9, 1999, we entered into a three year lease for approximately
1,300 square feet of office space in Vancouver, British Columbia. We use this
space for our executive headquarters. The lease is for a term of three years
ending July 31, 2002, and we will pay the landlord monthly rent of $1,343.42 (or
$16,121.00 per year). We are also obligated to pay all utility charges for our
use of the space, as well as our proportionate share of all operating expenses
in the building. We are not permitted to assign or sublet our lease without the
landlord's prior written consent.
MANAGEMENT
Directors and Executive Officers
The following table includes the names, positions held and ages of our
executive officers and directors. All directors serve for one year and until
their successors are elected and qualify. Officers are elected by the Board and
their terms of office are, except as otherwise stated in employment contracts,
at the discretion of the Board.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Brian Collins 44 Chairman of the Board of Directors, Chief
Executive Officer, President, Chief
Operating Officer, Secretary, Treasurer and Director
Sloan Young 30 Vice President of Technology and Operations
</TABLE>
Brian Collins has served as our Chief Executive Officer, President and
a Director since our acquisition of Phon-Net Corp., a Nevada corporation ("PNET
Nevada") in October 1998. In 1998, Mr. Collins founded PNET Nevada, which owns
the intellectual property of its wholly-owned subsidiaries, Piedmont Technology,
Inc., a British Columbia corporation ("Piedmont") and National For Sale Phone,
Inc., a British Columbia corporation ("National"). Mr. Collins continues to
serve as the President, Chief Executive Officer and Chairman of PNET Nevada,
Piedmont and National. In 1995, he founded Piedmont, which developed early
versions of our search engine product. In May 1993, Mr. Collins founded
National, which operates an interactive "1-800" real estate telephone channel
coast-to-coast in Canada..
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<PAGE>
Sloan Young has served as our Vice President of Technology and
Operations since October 1998. From 1993 until he joined us, Mr. Young was
employed as a restaurant manager for Cactus Club Cafe (November 1996 to June
1997) and Zachary's Restaurant (June 1995 to September 1996). He attended CDI
College of Business and Technology from September 1997 to November 1998 and
received a Programmer Analyst Diploma in 1998.
Board Committees: We do not as yet have an audit committee or a compensation
committee. We may organize these committees in the future.
Employment Agreements. We have entered into an employment agreement with Brian
Collins to serve as our President and Chief Executive Officer for an initial
three year term, with two renewal terms, each for two years. If we decide not to
renew, and we do not have cause for our decision, we must pay Mr. Collins the
equivalent of one year's compensation. For his services, we pay Mr. Collins a
salary of $150,000 each year and provide a monthly automobile allowance of $700.
We have also granted annual stock appreciation rights to Mr. Collins, which
provide for our payment of amounts to Mr. Collins based upon appreciation in the
market price of our stock. Volatility in our stock price could require us to pay
Mr. Collins substantial amounts attributable to his stock appreciation rights at
a time when such payment could have a material adverse effect on our financial
condition. Mr. Collins is the founder of our Company, and our future success
depends upon his services. In order to induce him to serve as our President and
enter into the employment agreement, we issued him 5,000,000 shares of our stock
and granted him options to purchase 2,000,000 additional shares. The options are
exercisable at $.40 each, until May 26, 2009.
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth information relating to the compensation
we paid during the past three fiscal years to: (i) our President and Chief
Executive Officer; and (ii) each of our executive officers who earned more than
$100,000 during the fiscal year ended July 31, 1998:
<TABLE>
<CAPTION>
Fiscal Other Annual LTIP All Other
Name and Principal Position Year Salary Bonus Compensation Options/ (#) Payouts Compensation
- --------------------------- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Brian Collins, CEO 1998 $52,926 - - - - -
1997 $21,899 - - - - -
1996 $16,788 - - - - -
</TABLE>
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<PAGE>
Option Grants in Last Fiscal Year
The following table sets forth information concerning our grant of
options to purchase shares of our common stock during the fiscal year ended July
31, 1998 to (i) our President and Chief Executive Officer; and (ii) each of our
executive officers who earned more than $100,000 during the fiscal year ended
July 31, 1998.
<TABLE>
<CAPTION>
Percent of
Number of Total Options/
Securities SARs Granted
Underlying To Employees Exercise Or
Options/SARs In Fiscal Base Price
Name Granted (#) Year ($/Sh) Expiration Date
---- ----------- ---- ------ ---------------
<S> <C> <C> <C> <C>
Brian Collins, CEO - - - --
</TABLE>
Incentive and Non-Qualified Stock Option Plan
On May 27, 1999, the board of directors and shareholders adopted our
1999 stock option plan. We have reserved 3,000,000 shares of common stock for
issuance upon exercise of options granted from time to time under the 1999 stock
option plan. The 1999 stock option plan is intended to assist us in securing and
retaining key employees, directors and consultants by allowing them to
participate in our ownership and growth through the grant of incentive and
non-qualified options.
Under the stock option plan we may grant incentive stock options only
to key employees and employee directors, or we may grant non-qualified options
to our employees, officers, directors and consultants. The 1999 stock option
plan is currently run by our board of directors.
Subject to the provisions of each of the stock option plans, the board
will determine who shall receive options, the number of shares of common stock
that may be purchased under the options, the time and manner of exercise of
options and exercise prices. The term of options granted under the stock option
plan may not exceed ten years or five years for an inventive stock option
granted to an optionee owning more than 10% of our voting stock. The exercise
price for incentive stock options will be equal to or greater than 100% of the
fair market value of the shares of the common stock at the time granted.
However, the inventive stock options granted to a 10% holder of our voting stock
are exercisable at a price equal to or greater than 10% of the fair market value
of the common stock on the date of the grant. The exercise price for
non-qualified options will be set by the board, in its discretion, but in no
event shall the exercise price be less than 75% of the fair market value of the
shares of common stock on the date of grant. The exercise price may be payable
in cash or, with the approval of the board, by delivery of shares or by a
combination of cash and shares. Shares of common stock received upon exercise of
options will be subject to restrictions on sale or transfer. As of the date of
this prospectus, we have granted options to purchase 2,400,000 shares under the
stock option plan.
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<PAGE>
Option Exercises and Holdings
The following table sets contains information with respect to the
exercise of options to purchase shares of common stock during the fiscal year
ended July 31, 1998 to (i) our President and Chief Executive Officer; and (ii)
each of our executive officers who earned more than $100,000 during the fiscal
year ended July 31, 1998.
Aggregated Option/SAR Exercises in Last Fiscal Year and Fiscal Year-End
Option/SAR Values
<TABLE>
<CAPTION>
Number of
Securities Value of
Underlying Unexercised
Shares Unexercised In-The-Money
Acquired Options/SARs Options/SARs
On Value At FY-End (#) At FY-End ($)
Exercise Realized Exercisable/ Exercisable/
Name (#) ($) Unexercisable Unexercisable
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Brian Collins, CEO - - - -
</TABLE>
Long-Term Incentive Plans Awards in Last Fiscal Year
<TABLE>
<CAPTION>
Number Performance
of Shares or Other Estimated Future Payouts Under
Units or Period Until Non-Stock Price-Based Plans
Other Rights Maturation Threshold Target Maximum
Name (#) or Payout ($or #) ($or #) ($ or #)
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Brian Collins, CEO - - - - -
</TABLE>
Limitation on Liability and Indemnification Matters
As authorized by the Florida Business Corporation Law, our Articles of
Incorporation provides that none of our directors shall be personally liable to
us or our shareholders for monetary damages for breach of fiduciary duty as a
director, except for liability for:
o any breach of the director's duty of loyalty to our company or
its shareholders;
o acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law
o unlawful payments of dividends or unlawful stock redemptions
or repurchases;
o any transaction from which the director derived an improper
personal benefit
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<PAGE>
This provision limits our rights and the rights of our shareholders to
recover monetary damages against a director for breach of the fiduciary duty of
care except in the situations described above. This provision does not limit our
rights or the rights of any shareholder to seek injunctive relief or rescission
if a director breaches his duty of care. These provisions will not alter the
liability of directors under federal securities laws.
Our certificate of incorporation further provides for the
indemnification of any and all persons who serve as our director, officer,
employee or agent to the fullest extent permitted under Florida law.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to our directors, officers and controlling persons pursuant
to the foregoing provisions, or otherwise, we have been advised that in the
opinion of the SEC, this indemnification is against public policy as expressed
in the securities laws, and is, therefore unenforceable.
CERTAIN TRANSACTIONS
Corporate History
Phon-Net.com, Inc. was incorporated under the laws of the State of
Florida on January 16, 1997, under the name XGA Golf International, Inc. On
March 26, 1997, we purchased all of the outstanding shares of Gold
International, Inc., and on March 27, 1997, we purchased all of the outstanding
interests of Eric Redd Group, LLC. On the same day, we also purchased certain
assets from inFOREtech. By May 1998, due to the lack of profitable operations,
we disposed of our business operations. In June 1998, we changed our name to
Agrosol, Inc.
On October 5, 1998, we exchanged 11,410,000 shares of our common stock
for all of the outstanding shares of Phon-Net Corp., a Nevada corporation, and
changed our name to Phon-Net Corporation. In January 1999, we changed our name
to Phon-Net.com, Inc. On April 15, 1999, we increased the number of shares of
common stock we are authorized to issue to 80,000,000. In May 1999, following
the satisfaction of certain product development goals provided for as part of
the share exchange, we issued 8,085,000 additional shares to Brian Collins, our
President and CEO.
PRINCIPAL SHAREHOLDERS
The following table sets forth information known to us relating to the
beneficial ownership of shares of common stock by: each person who is known by
us to be the beneficial owner of more than five percent of the outstanding
shares of common stock; each director; each executive officer; and all executive
officers and directors as a group.
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<PAGE>
Unless otherwise indicated, the address of each beneficial owner in the
table set forth below is care of Phon-Net.com, Inc., 750 West Pender Street,
Suite 600, Vancouver, British Columbia V6C 2T7.
We believe that all persons named in the table have sole voting and
investment power with respect to all shares of common stock shown as being owned
by them.
Under securities laws procedures, a person is considered to be the
beneficial owner of securities that can be acquired by him within 60 days from
the date of this prospectus upon the exercise of options, warrants or
convertible securities. We determine a beneficial owner's percentage ownership
by assuming that options, warrants or convertible securities that are held by
him, but not those held by any other person and which are exercisable within 60
days of the date of this prospectus, have been exercise or converted.
<TABLE>
<CAPTION>
Name and Address of Amount and Nature of Percentage
Beneficial Owner Beneficial Ownership of Class
---------------- -------------------- --------
<S> <C> <C>
Brian Collins(1) 21,286,287 54.7%
Sloan Young(2) 228,000 1.0%
Executive Officers and
Directors (as a group of 2) 21,514,287 55.0%
</TABLE>
- -----------------
(1) Includes presently exercisable options to purchase 2,000,000 shares.
Does not include 327,587 shares owned by the spouse of Mr. Collins, as
to which Mr. Collins disclaims beneficial ownership.
(2) Includes presently exercisable options to purchase 200,000 shares.
DESCRIPTION OF SECURITIES
Our authorized capital stock consists of 80,000,000 shares of common
stock, $.001 par value per share and 10,000,000 shares of preferred stock, $.01
par value per share. As of the date of this prospectus, there are 5,985,000
shares of common stock issued and outstanding, which are held of record by
approximately 120 holders. As of the date of this prospectus, there are no
shares of preferred stock outstanding.
24
<PAGE>
Common Stock
Holders of common stock are entitled to one vote for each share on all
matters submitted to a shareholder vote. Holders of common stock do not have
cumulative voting rights. Therefore, holders of a majority of the shares of
common stock voting for the election of directors can elect all of the
directors. Holders of common stock are entitled to share in all dividends that
the board of directors, in its discretion, declares from legally available
funds. In the event of our liquidation, dissolution or winding up, each
outstanding share entitles its holder to participate in all assets that remain
after payment of liabilities and after providing for each class of stock, if
any, having preference over the common stock.
Holders of common stock have no conversion, preemptive or other
subscription rights, and there are no redemption provisions for the common
stock. The rights of the holders of common stock are subject to any rights that
may be fixed for holders of preferred stock, when and if any preferred stock is
authorized and issued. All outstanding shares of common stock are, and the
shares underlying all option and warrants will be, duly authorized, validly
issued, fully paid an non-assessable upon our issuance of these shares.
Preferred Stock
We may issue preferred stock from time to time, with such designations,
preferences, conversion rights, cumulative, relative, participating, optional or
other rights, including voting rights, qualifications, limitations or
restrictions as are determined by our Board of Directors.
Transfer Agent and Registrar
The transfer agent for our common stock is Florida Atlantic Stock
Transfer, Inc. Its address is 7130 Nob Hill Road, Tamarac, Florida 33321, and
its telephone number is (954) 726-4954.
Reports to Securityholders
We intend to furnish our stockholders with annual reports containing
audited financial statements. We may disseminate such other unaudited interim
reports to securityholders as we deem appropriate.
SELLING SECURITYHOLDERS
The following table sets forth (1) the name of each selling
securityholder, (2) the number or shares of common stock beneficially owned by
each selling securityholder as of the date of this prospectus, giving effect to
the exercise of the selling securityholders' warrants into shares of common
stock and (3) the number of shares being offered by each selling securityholder.
The shares of common stock being offered are being registered to permit public
sales and the selling securityholders may offer all or part of the shares for
resale from time to time. All expenses of the
25
<PAGE>
registration of the common stock on behalf of the selling securityholder are
being borne by the Company. The Company will receive none of the proceeds of
this offering.
<TABLE>
<CAPTION>
Shares Owned Shares Available Shares Percent of
Prior to this Pursuant to Owned after Class
Selling Securityholder Offering this Prospectus Offering after Offering
- ---------------------- -------- --------------- -------- --------------
<S> <C> <C> <C> <C>
1st Net Technologies, Inc. 60,000 60,000 - 0 - *
Jan Douglas Atlas 25,000 25,000 - 0 - *
BCD Online 200,000 200,000 - 0 - *
Roxanne K. Beilly 5,000 5,000 - 0 - *
Roger Betterton 1,012,666 1,012,666 - 0 - *
Robin C. Campbell and
Les Campbell Ten Ent 5,000 5,000 - 0 - *
Brian Collins(1) 19,286,287 1,000,000 18,286,287 49.5%
Jerry Collins 15,000 15,000 - 0 - *
Matthew Collins 15,000 15,000 - 0 - *
Phyllis Collins 15,000 15,000 - 0 - *
Susan Collins 327,587 290,000 37,587 *
Tim Collins 15,000 15,000 - 0 - *
Christopher E. Georgelin 493,677 493,677 - 0 - *
Jim Hall 400,000 400,000 - 0 - *
Market Surveys
International, Inc. 400,000 400,000 - 0 - *
Joel D. Mayersohn and
Jamie Mayersohn Ten Ent 5,000 5,000 - 0 - *
Jerry McCoy 683,426 100,000 583,426 1.5%
Tony Musfelt 15,000 15,000 - 0 - *
Charles B. Pearlman 25,000 25,000 - 0 - *
Quad-Linq Software, Inc. 1,000,000 1,000,000 - 0 - *
Kathleen Roberts 22,000 22,000 - 0 - *
Susan Schneider 25,000 25,000 - 0 - *
Seidmehdi
Seidbagherzadeh 493,657 493,657 - 0 - *
Tom Ward 310,000 310,000 - 0 - *
Steven I. Weinberger 10,000 10,000 - 0 - *
Sloan Young(2) 28,000 28,000 - 0 - *
--------------
Total 5,985,000
</TABLE>
- ------------------------
* Less than 1%.
(1) Mr. Collins is our President, sole director and principal shareholder.
Mr. Collins disclaims beneficial ownership of the shares owned by Susan
Collins, his wife.
(2) Mr. Young is our Vice-President of Technology and Operations.
The information contained in the foregoing table is derived from our
books and records, as well as from our transfer agent.
26
<PAGE>
PLAN OF DISTRIBUTION
The shares covered by this prospectus may be distributed from time to
time by the selling securityholders in one or more transactions that may take
place on the over-the-counter market. These include ordinary broker's
transactions, privately-negotiated transactions or through sales to one or more
broker-dealers for resale of these shares as principals, at market prices
existing at the time of sale, at prices related to existing market prices,
through Rule 144 transactions or at negotiated prices. Usual and customary or
specifically negotiated brokerage fees or commissions may be paid by the selling
securityholders in connection with sales of securities.
The selling securityholders may sell the securities in one or more of
the following methods:
o a block trade in which a broker or dealer will attempt to sell
the shares as agent but may position and resell a portion of
the block as principals to facilitate the transaction;
o purchasers by a broker or dealer as principal and resale by
the broker or dealer for its account under this prospectus;
o ordinary brokerage transactions and transactions which the
broker solicits purchases, and
o face-to-face transactions between sellers and purchasers
without a broker-dealer.
In making sales, brokers or dealers used by the selling securityholders
may arrange for other brokers or dealers to participate. The selling
securityholders and others through whom such securities are sold may be
"underwriters" within the meaning of the Securities Act for the securities
offered, and any profits realized or commission received may be considered
underwriting compensation.
At the time a particular offer of the securities is made by or on
behalf of a selling securityholder, to the extent required, a prospectus is to
delivered. The prospectus will include the number of shares of common stock
being offered and the terms of the offering, including the name or names of any
underwriters, dealers or agents, the purchase price paid by any underwriter for
the shares of common stock purchased from the selling securityholder, and any
discounts, commissions or concessions allowed or reallowed or paid to dealers,
and the proposed selling price to the public.
We have told the selling securityholders that the anti-manipulative
rules under the Securities Exchange Act of 1934, including Regulation M, may
apply to their sales in the market. We have provided each of the selling
securityholders with a copy of these rules. We have also told the selling
securityholders of the need for delivery of copies of this prospectus in
connection with any sale of securities that are registered by this prospectus.
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<PAGE>
Sales of securities by us and the selling securityholders or even the
potential of these sales may have a negative effect on the market price for
shares of our common stock.
SHARES ELIGIBLE FOR FUTURE SALE
On the date of this prospectus, we have 36,927,430 shares of common
stock issued and outstanding. Of those shares, 13,507,430 shares (including the
5,985,000 shares covered by this prospectus) are freely tradeable without
restriction or further registration under the Securities Act, except for any
shares purchased by an affiliate of ours. This does not include shares that may
be issued upon exercise of options.
The remaining 23,420,000 shares of common stock currently outstanding
are restricted securities, and will become eligible for public sale at various
times, provided they have been held for at least one year and the requirements
of Rule 144 are complied with.
We cannot predict the effect, if any, that market sales of common stock
or the availability of these shares for sale will have on the market price of
our shares from time to time. Nevertheless, the possibility that substantial
amounts of common stock may be sold in the public market could negatively damage
affect market prices for the common stock and could damage our ability to raise
capital through the sale of our equity securities.
LEGAL MATTERS
The validity of the securities offered by this prospectus will be
passed upon for us by Atlas, Pearlman, Trop & Borkson, P.A., 200 East Las Olas
Boulevard, Suite 1900, Fort Lauderdale, FL 33301, Florida. Members of that firm
and certain of its other attorneys own an aggregate of 100,000 shares of our
common stock.
EXPERTS
The consolidated financial statements as of July 31, 1998 and July 31,
1997, and for each of the two years in the period ended July 31, 1998, appearing
in this prospectus and registration statement have been audited by Morgan &
Company, independent auditors, as set forth in their report thereon appearing
elsewhere in this prospectus, and are included in reliance upon this report
given on the authority of Morgan & Company as experts in auditing and
accounting.
28
<PAGE>
ADDITIONAL INFORMATION
We have filed with the SEC the registration statement on Form SB-2
under the Securities Act for the common stock offered by this prospectus. This
prospectus, which is a part of the registration statement, does not contain all
of the information in the registration statement and the exhibits filed with it,
portions of which have been omitted as permitted by SEC rules and regulations.
For further information concerning us and the securities offered by this
prospectus, we refer to the registration statement and to the exhibits filed
with it. Statements contained in this prospectus as to the content of any
contract or other document referred to are not necessarily complete. In each
instance, we refer you to the copy of the contracts and/or other documents filed
as exhibits to the registration statement, and these statements are qualified in
their entirety by reference to the contract or document The registration
statement, including all exhibits, may be inspected without charge at the SEC's
Public Reference Room at 450 Fifth Street, N.W. Washington, D.C. 20549, and at
the SEC's regional offices located at Seven World Trade Center, Suite 1300, New
York, New York 10048 and Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. Copies of these materials may also be obtained from the
SEC's Public Reference at 450 Fifth Street, N.W., Room 1024, Washington D.C.
20549, upon the payment of prescribed fees. You may obtain information on the
operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. In
addition, registration statements and other filings made with the SEC through
its Electronic Data Gathering, Analysis and Retrieval Systems are publicly
available through the SEC's site on the World Wide Web located at
http//www.sec.gov. The registration statement, including all exhibits and
schedules and amendments, has been filed with the SEC through the Electronic
Data Gathering, Analysis and Retrieval system.
Upon the closing of this offering, we will become subject to the
reporting requirements of the Exchange Act and in accordance with these
requirements, will file reports, and other information with the SEC. We intend
to furnish our shareholders with annual reports containing audited financial
statements and other periodic reports as we think appropriate or as may be
required by law.
29
<PAGE>
PHON-NET CORPORATION
(A Development Stage Company)
CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 1999 AND JULY 31, 1998 AND 1997
(Stated in U.S. Dollars)
<PAGE>
REVIEW ENGAGEMENT REPORT
To the Directors
Phon-Net Corporation
(a development stage company)
We have reviewed the interim consolidated balance sheet of Phon-Net Corporation
(a development stage company) as at April 30, 1999 and the interim consolidated
statements of operations and deficit, cash flows and stockholders' equity for
the nine months then ended. Our review was made in accordance with generally
accepted standards for review engagements and accordingly consisted primarily of
enquiry, analytical procedures and discussion related to information supplied to
us by the Company.
A review does not constitute an audit and consequently we do not express an
audit opinion on these financial statements.
Based on our review, nothing has come to our attention that causes us to believe
that these financial statements are not, in all material respects, in accordance
with generally accepted accounting principles.
Vancouver, Canada /s/ Morgan & Company
------------------------
July 15, 1999 Chartered Accountants
F-1
<PAGE>
AUDITORS' REPORT
To the Directors
Phon-Net Corporation
(a development stage company)
We have audited the consolidated balance sheets of Phon-Net Corporation (a
development stage company) as at July 31, 1998 and 1997 and the consolidated
statements of operations and deficit and cash flows and stockholders' equity for
the periods ended July 31, 1998, 1997, and 1996. 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 United States and Canadian generally
accepted auditing standards. Those standards require that we plan and perform an
audit to obtain reasonable assurance whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the Company as at July 31, 1998 and
1997 and the results of its operations and its cash flows for the periods ended
July 31, 1998, 1997, and 1996 in accordance with United States generally
accepted accounting principles.
Without qualifying our opinion we draw attention to Note 1 to the consolidated
financial statements. The Company incurred a net loss of $625,266 during the
year ended July 31, 1998, and as at that date, the Company's current liabilities
exceeded its current assets by $96,511. These factors, along with other matters
as set forth in Note 1, raise substantial doubt that the Company will be able to
continue as a going concern.
Vancouver, Canada /s/ Morgan & Company
------------------------
February 15, 1999 Chartered Accountants
Comments by Auditors on United States - Canada Difference
In Canada, reporting standards for auditors do not permit the addition of an
explanatory paragraph when the financial statements account for, disclose and
present in accordance with generally accepted accounting principles conditions
and events that cast substantial doubt on the Company's ability to continue as a
going concern. Although our audit was conducted in accordance with both United
States and Canadian generally accepted auditing standards, our report to the
shareholders dated February 15, 1999 is expressed in accordance with United
States reporting standards which require a reference to such conditions and
events in the auditors' report.
Vancouver, B.C. /s/ Morgan & Company
------------------------
February 15, 1999 Chartered Accountants
F-2
<PAGE>
<TABLE>
<CAPTION>
PHON-NET CORPORATION
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS
(Stated in U.S. Dollars)
----------------------------------- -------------------------------
APRIL 30 JULY 31
1999 1998 1998 1997
----------------------------------- -------------------------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
ASSETS
Current
Cash $ 379,508 $ 4,354 $ 43,039 $ 6,714
Accounts and advances receivable 23,995 25,000 28,920 11,620
Due from related parties - 27,000 29,932 25,505
Prepaid expenses 8,005 - 7,950 -
----------------- ------------------ ---------------- ----------------
411,508 56,354 109,841 43,839
Capital Assets (Note 4) 102,864 174,299 160,725 40,795
Intangibles (Note 5) 135,168 195,232 178,498 245,434
----------------- ------------------ ---------------- ----------------
$ 649,540 $ 425,885 $ 449,064 $ 330,068
================= ================== ================ ================
LIABILITIES
Current
Accounts payable and accrued liabilities $ 156,737 $ 155,000 $ 179,694 $ 67,273
Due to related parties 63,532 25,000 26,658 10,720
Current portion of notes payable 36,702 - - -
----------------- ------------------ ---------------- ----------------
256,971 180,000 206,352 77,993
Notes Payable (Note 6) - 37,471 35,486 38,829
----------------- ------------------ ---------------- ----------------
256,971 217,471 241,838 116,822
----------------- ------------------ ---------------- ----------------
STOCKHOLDERS' EQUITY
Common Stock
Authorized:
At April 30, 1999
80,000,000 common shares, par value $0.001
10,000,000 preferred shares, par value $0.01
At April 30, 1998, July 31, 1998 and 1997
100,000 common shares without par value
100,000,000 Class `A' preference shares,
par value $10
100,000,000 Class `B' preference shares,
par value $50
Issued And Outstanding:
27,267,430 common shares at April 30, 1999
8,930,420 common shares at April 30, 1998
9,422,000 common shares at July 31, 1998 and
7,455,676 common shares at July 31, 1997 1,916,163 878,793 1,033,358 415,099
Deficit (1,526,779) (673,779) (830,094) (204,828)
Cumulative Translation Adjustment 3,185 3,400 3,962 2,975
----------------- ------------------ ---------------- ----------------
392,569 208,414 207,226 213,246
----------------- ------------------ ---------------- ----------------
$ 649,540 $ 425,885 $ 449,064 $ 330,068
================= ================== ================ ================
Approved by the Sole Director:
</TABLE>
F-3
<PAGE>
<TABLE>
<CAPTION>
PHON-NET CORPORATION
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS AND DEFICIT
(Stated in U.S. Dollars)
INCEPTION
NINE MONTHS ENDED YEAR ENDED MARCH 19, 1996
APRIL 30 JULY 31 TO JULY 31
1999 1998 1998 1997 1996
----------------- ----------------- ---------------- ---------------- --------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Revenue $ 19,545 $ 100,784 $ 134,378 $ 259,742 $ 27,477
----------------- ----------------- ---------------- ---------------- --------------
Expenses
Advertising and promotion 149,981 21,583 28,777 10,426 3,658
Amortization of goodwill 51,415 50,202 66,936 66,936 22,312
Amortization of capital assets 64,099 40,721 54,295 21,111 10,418
Automobile 4,532 4,762 6,349 8,135 3,988
Bank charges and interest 5,812 1,908 2,544 3,687 -
Management fees 146,216 39,695 52,926 21,899 16,788
Office and sundry 47,571 63,263 84,351 28,243 2,621
Professional fees 29,649 6,399 8,532 18,272 24,602
Rent 27,158 23,469 31,292 15,066 3,796
Telephone 37,453 64,247 85,662 77,428 24,810
Transfer agent and filing fees 2,585 - - - -
Travel 5,652 61,478 81,970 7,862 -
Wages and benefits 144,107 192,008 256,010 208,351 23,571
----------------- ----------------- ---------------- ---------------- --------------
716,230 569,735 759,644 487,416 136,564
----------------- ----------------- ---------------- ---------------- --------------
Loss Before The Following 696,685 468,951 625,266 227,674 109,087
Forgiveness of debt - - - (230,961) -
Write-down of investments - - - 99,028 -
----------------- ----------------- ---------------- ---------------- --------------
Net Loss For The Period 696,685 468,951 625,266 95,741 109,087
Deficit, Beginning Of Period 830,094 204,828 204,828 109,087 -
----------------- ----------------- ---------------- ---------------- --------------
Deficit, End Of Period $ 1,526,779 $ 673,779 $ 830,094 $ 204,828 $ 109,087
================= ================= ================ ================ ==============
Loss Per Share $ 0.06 $ 0.13 $ 0.17 $ 0.03 $ 0.03
================= ================= ================ ================ ==============
Weighted Average Number Of Shares Outstanding 12,613,048 3,650,000 3,650,000 3,650,000 3,650,000
================= ================= ================ ================ ==============
</TABLE>
F-4
<PAGE>
<TABLE>
<CAPTION>
PHON-NET CORPORATION
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOW
(Stated in U.S. Dollars)
--------------------------------------------------------------------------------
INCEPTION
NINE MONTHS ENDED YEAR ENDED MARCH 19, 1996
APRIL 30 JULY 31 TO JULY 31
1999 1998 1998 1997 1996
------------------- ------------------------------------ -----------------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Cash Flow From Operating Activities
Loss for the period $ (696,685) $ (468,951) $ (625,266) $ (95,741) $ (109,087)
--------------- -------------- ---------------- ---------------- ---------------
Adjustments To Reconcile Loss To Net Cash Used
By Operating Activities
Amortization 115,514 90,923 121,231 88,047 32,730
Write down of investments - - - 99,028 -
Forgiveness of debt - - - (230,961) -
Change in accounts and advances receivable 4,925 (13,380) (17,300) (7,047) (4,573)
Change in due from related parties 29,932 (1,495) (4,427) (10,906) (14,599)
Change in prepaid expenses (55) - (7,950) - -
Change in accounts payable and
accrued liabilities (22,957) 87,727 112,421 (373) 67,646
Change in due to related parties 36,874 14,280 15,938 (78) 10,798
--------------- -------------- ---------------- ---------------- ---------------
Total Adjustments 164,233 178,055 219,913 (62,290) 92,002
--------------- -------------- ---------------- ---------------- ---------------
Net Cash Used In Operating Activities (532,452) (290,896) (405,353) (158,031) 17,085
--------------- -------------- ---------------- ---------------- ---------------
Cash Flow From Investing Activities
Capital assets (6,238) (174,225) (174,225) (167) (72,157)
Goodwill - - - - (334,682)
Investments - - - - (160,068)
Proceeds on sale of investments - - - 61,040 -
--------------- -------------- ---------------- ---------------- ---------------
Net Cash Used In Investing Activities (6,238) (174,225) (174,225) 60,873 (566,907)
--------------- -------------- ---------------- ---------------- ---------------
Cash Flow From Financing Activities
Common stock issued 874,720 463,694 618,259 78,103 336,996
Notes payable 1,216 (1,358) (3,343) (283) 270,073
--------------- -------------- ---------------- ---------------- ---------------
Net Cash From Financing Activities 875,936 462,336 614,916 77,820 607,069
--------------- -------------- ---------------- ---------------- ---------------
Effect Of Exchange Rate Changes On Cash (777) 425 987 532 2,443
--------------- -------------- ---------------- ---------------- ---------------
Net Increase (Decrease) In Cash 336,469 (2,360) 36,325 (18,806) 25,520
Cash, Beginning Of Period 43,039 6,714 6,714 25,520 -
--------------- -------------- ---------------- ---------------- ---------------
Cash, End Of Period $ 379,508 $ 4,354 $ 43,039 $ 6,714 $ 25,520
=============== ============== ================ ================ ===============
</TABLE>
F-5
<PAGE>
PHON-NET CORPORATION
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOW
(Stated in U.S. Dollars)
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING AND INVESTING ACTIVITIES
Effective October 5, 1998, the Company acquired 100% of the issued and
outstanding shares of Phon-Net Corporation and Piedmont Technologies Inc. by
issuing 11,410,000 common shares at an ascribed value of $7,000.
During the period ended April 30, 1999, the Company issued 8,085,000 common
shares at an ascribed value of $8,025 to a director for the acquisition of
technology.
F-6
<PAGE>
<TABLE>
<CAPTION>
PHON-NET CORPORATION
(A Development Stage Company)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(Stated in U.S. Dollars)
Common Stock
------------------------------------------------
Additional Cumulative
Number Paid-in Translation
of Shares Amount Capital Adjustment
------------- ------------------ --------------- -----------------
<S> <C> <C> <C> <C>
Balance, August 1, 1996 2,308,580 $ 336,996 $ - $ 2,443
Issuance of common stock 5,147,096 78,103 - -
Translation adjustment - - - 532
Loss for the year - - - -
------------- ------------------ -- ------------ -----------------
Balance, July 31, 1997 7,455,676 415,099 - 2,975
Issuance of common stock 1,966,324 618,259 - -
Translation adjustment - - - 987
Loss for the year - - - -
------------- ------------------ -- ------------ -----------------
Balance, July 31, 1998 9,422,000 1,033,358 - 3,962
Issuance of common stock 578,000 77,365 - -
------------- ------------------ -- ------------ -----------------
10,000,000 1,110,723 - 3,962
Consolidation of stock on 1 for 2 basis (5,000,000) - - -
------------- ------------------ -- ------------ -----------------
5,000,000 1,110,723 - 3,962
Adjustment to number of shares issued
and outstanding as a result of the reverse
take-over transaction
Piedmont Technologies Inc. (5,000,000) - - -
Phon-Net Corporation 3,650,000 - - -
------------- ------------------ -- ------------ -----------------
3,650,000 1,110,723 - 3,962
Issuance of common stock to acquire
subsidiaries 11,410,000 7,000 - -
Issuuance of common stock 12,207,430 12,207 786,233 -
Translation of adjustment - - - (777)
Loss for the period - - - -
------------- ------------------ --------------- -----------------
Balance April 30, 1999 27,267,430 $ 1,129,930 $ 786,233 $ 3,185
============= ================== =============== =================
(RESTUBBED TABLE)
Accumulated
Deficit Total
------------------ ---------------
Balance, August 1, 1996 $ (109,087) $ 230,352
Issuance of common stock - 78,103
Translation adjustment - 532
Loss for the year (95,741) (95,741)
------------------ ---------------
Balance, July 31, 1997 (204,828) 213,246
Issuance of common stock - 618,259
Translation adjustment - 987
Loss for the year (625,266) (625,266)
------------------ ---------------
Balance, July 31, 1998 (830,094) 207,226
Issuance of common stock - 77,365
------------------ ---------------
(830,094) 284,591
Consolidation of stock on 1 for 2 basis - -
-- --------------- ---------------
(830,094) 284,591
Adjustment to number of shares issued
and outstanding as a result of the reverse
take-over transaction
Piedmont Technologies Inc. - -
Phon-Net Corporation - -
------------------ ---------------
(830,094) 284,591
Issuance of common stock to acquire
subsidiaries - 7,000
Issuance of common stock - 798,440
Translation of adjustment - (777)
Loss for the period (696,685) (696,685)
------------------ ---------------
Balance April 30, 1999 $ (1,526,779) $ 392,569
================== ===============
</TABLE>
F-7
<PAGE>
PHON-NET CORPORATION
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 1999 AND JULY 31, 1998 AND 1997
(Stated in U.S. Dollars)
1. NATURE OF OPERATIONS
Development Stage Activities
Phon-Net Corporation was organized to provide consumers with quick and easy
access through any touch tone telephone, cellular/PCS phone, screenphone
and the Internet to instantly access interactive information on area
business and their current product and services, special promotions and
other source information. Phon-Net Corporation provides information
services in a published directory format or through telephone information
input to locate a business, product or service, by either a generic
category search, or by entering a specific ad number listed in the
Company's director.
Phon-Net Corporation is in the development stage; therefore recovery of its
assets is dependent upon future events, the outcome of which is
indeterminable. In addition, successful completion of Phon-Net
Corporation's development program and its transition, ultimately to the
attainment of profitable operations is dependent upon obtaining adequate
financing to fulfil its development activities and achieve a level of sales
adequate to support its cost structure.
2. SIGNIFICANT ACCOUNTING POLICIES
The financial statements of the Company have been prepared in accordance
with generally accepted accounting principles in the United States. Because
a precise determination of many assets and liabilities is dependent upon
future events, the preparation of financial statements for a period
necessarily involves the use of estimates which have been made using
careful judgement.
The financial statements have, in management's opinion, been properly
prepared within reasonable limits of materiality and within the framework
of the significant accounting policies summarized below:
a) Consolidation
These financial statements include the accounts of the Company and its
wholly-owned subsidiaries, Phon-Net Corp., (incorporated in Nevada,
U.S.A.), Piedmont Technologies Inc., The National For Sale Phone
Company Inc., and V NETT Enterprises Inc., all incorporated in Canada.
b) Revenue Recognition
Revenue is recognized in full at the invoice date. Fees are invoiced on
an annual basis, payable in advance and are non-refundable.
F-8
<PAGE>
PHON-NET CORPORATION
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 1999 AND JULY 31, 1998 AND 1997
(Stated in U.S. Dollars)
2. SIGNIFICANT ACCOUNTING POLICIES (Continued)
c) Capital Assets
Capital assets are recorded at cost and amortized as follows:
Computer equipment 3 years straight line basis
Computer software 3 years straight line basis
Telephone and equipment 2 and 3 years straight line basis
Leasehold improvements Lease term
d) Intangibles
Intangibles are recorded at cost and amortized as follows:
Goodwill 5 years straight line basis
Technology costs 5 years straight line basis
e) Income Taxes
The Company has adopted Statement of Financial Accounting Standards No.
109 - "Accounting for Income Taxes" (SFAS 109). This standard requires
the use of an asset and liability approach for financial accounting and
reporting on income taxes. If it is more likely than not that some
portion of all of a deferred tax asset will not be realized, a
valuation allowance is recognized.
f) Foreign Currency Translation
The Company's subsidiary's operations are located in Canada, and its
functional currency is the Canadian dollar. The financial statements of
the subsidiary have been translated using the current method whereby
the assets and liabilities are translated at the year end exchange
rate, capital accounts at the historical exchange rate, and revenues
and expenses at the average exchange rate for the period. Adjustments
arising from the translation of the Company's subsidiary's financial
statements are included as a separate component of shareholders'
equity.
g) Financial Instruments
The Company's financial instruments consist of cash, accounts and
advances receivable, accounts payable, and amounts due to and from
related parties.
Unless otherwise noted, it is management's opinion that this Company is
not exposed to significant interest or credit risks arising from these
financial instruments. The fair value of these financial instruments
approximate their carrying values, unless otherwise noted.
F-9
<PAGE>
PHON-NET CORPORATION
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 1999 AND JULY 31, 1998 AND 1997
(Stated in U.S. Dollars)
2. SIGNIFICANT ACCOUNTING POLICIES (Continued)
h) Loss Per Share
The loss per share is calculated using the weighted average number of
common shares outstanding during the period.
3. ACQUISITION OF SUBSIDIARIES
Effective October 5, 1998, Phon-Net Corporation ("Phon-Net") acquired 100%
of the issued and outstanding shares of Phon-Net Corp. and Piedmont
Technologies Inc. ("Piedmont") and its subsidiaries by issuing 11,410,000
common shares. Since the transaction resulted in the former shareholders of
Piedmont owing the majority of the issued shares of Phon-Net, and after
considering qualitative and quantitative factors, the transaction, which is
referred to as a "reverse take-over", has been treated for accounting
purposes as an acquisition by Piedmont of the net assets and liabilities of
Phon-Net. Under this purchase method of accounting, the results of
operations of Phon-Net are included in these financial statements from
October 5, 1998.
Piedmont is deemed to be the purchaser for accounting purposes.
Accordingly, its net assets are included in the balance sheet at their
previously recorded values.
The statements of operations and cash flows consist of the operation of
Phon-Net Corporation from October 5, 1998. Prior to that date, the
operations are those of Piedmont.
<TABLE>
<CAPTION>
4. CAPITAL ASSETS
(i) Audited
-------------------------------------------------------------------------------
JULY 31
1998 1997 1996
Accumulated Net Book Net Book Net Book
Cost Amortization Value Value Value
-------------- --------------- --------------- ------------- ---------------
<S> <C> <C> <C> <C> <C>
Computer equipment $ 60,303 $ 25,696 $ 34,607 $ 14,224 $ 22,845
Telephone and
equipment 28,168 6,304 21,864
Computer software 154,620 52,209 102,411 24,036 35,602
Leasehold
improvements 3,458 1,615 1,843 2,535 3,292
-------------- --------------- --------------- ------------- ---------------
$ 246,549 $ 85,824 $ 160,725 $ 40,795 $ 61,739
============== =============== =============== ============= ===============
</TABLE>
F-10
<PAGE>
<TABLE>
<CAPTION>
PHON-NET CORPORATION
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 1999 AND JULY 31, 1998 AND 1997
(Stated in U.S. Dollars)
4. CAPITAL ASSETS (Continued)
(ii) Unaudited
-------------------------------------------------- ---------------
APRIL 30 APRIL 30
1999 1998
-------------------------------------------------- ---------------
Accumulated Net Book Net Book
Cost Amortization Value Value
--------------- ------------------- -------------- ---------------
<S> <C> <C> <C> <C>
Computer equipment $ 66,541 $ 41,620 $ 24,921 $ 38,187
Telephones and equipment 28,168 16,506 11,662 23,440
Computer software 154,620 89,663 64,957 110,656
Leasehold improvements 3,458 2,134 1,324 2,016
----------------- ----------------- -------------- ---------------
$ 252,787 $ 149,923 $ 102,864 $ 174,299
================= ================= ============== === ===========
5. INTANGIBLES
---------------------------------- ---------------------------------
APRIL 30 JULY 31
1999 1998 1998 1997
----------------- ---------------- ---------------- ----------------
(unaudited)
Goodwill, at cost $ 334,682 $ 334,682 $ 334,682 $ 334,682
Technology, at cost 8,085 - - -
----------------- ---------------- ---------------- ----------------
342,767 334,682 334,682 334,682
Less, accumulated
amortization (207,599) (139,450) (156,184) 89,248
----------------- ---------------- ---------------- ----------------
$ 135,168 $ 195,232 $ 178,498 $ 245,434
================= ================ ================ ================
6. NOTES PAYABLE
---------------------------------- ---------------------------------
APRIL 30 JULY 31
1999 1998 1998 1997
----------------- ---------------- ---------------- ----------------
(unaudited)
Unsecured and due
August 31, 1999, with
interest at 5% p.a. $ 36,702 $ 37,471 $ 35,486 $ 38,829
================= ================ ================ ================
</TABLE>
F-11
<PAGE>
PHON-NET CORPORATION
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 1999 AND JULY 31, 1998 AND 1997
(Stated in U.S. Dollars)
7. RELATED PARTY TRANSACTIONS
(i) During the period ended April 30, 1999, the Company paid and
accrued $146,216 (1998 - $39,695) to a director for management
fees. (unaudited)
(ii) During the year ended July 31, 1998, the Company paid $52,926
(1997 - $21,899; 1996 - $16,788) to a director for management
fees.
(iii) Amounts due to and from related parties are to a director of the
Company and the director of a subsidiary company.
8. SUBSEQUENT EVENTS (Unaudited)
Subsequent to April 30, 1999:
a) The Company entered into an employment agreement dated July 1, 1999
with a director for a period of three years at an annual
remuneration of $150,000. In addition, and as an inducement to
enter into the employment contract, the Company has agreed to issue
to the director, 5,000,000 common shares. The employment agreement
also grants the director an annual Stock Appreciation Right
("SAR"), pursuant to which, on (i) February 15, 2000, the director
shall be entitled to receive a sum of money in an amount equal to
four hundred thousand (400,000) times the difference between the
"fair market value" of the Company's common stock at the close of
trading on June 30, 1999 and February 1, 2000, (ii) on February 15,
2001, the director shall be entitled to receive a sum of money in
an amount equal to six hundred thousand (600,000) times the
difference between the "fair market value" of the Company's common
stock at the close of trading on February 1, 2000 and February 1,
2001, and (iii) on February 15, 2002, the director shall be
entitled to receive a sum of money in an amount equal to six
hundred thousand (600,000) times the difference between the "fair
market value" of the Company's common stock at the close of trading
on February 1, 2001 and February 1, 2002.
b) The Company has granted stock options to purchase common shares of
the Company as follows:
(i) 2,000,000 common shares at $0.40 per share expiring
May 26, 2009;
(ii) 400,000 common shares at $0.36 per share expiring May 26, 2009
with the options being exercisable at the rate of up to 40,000
shares per year;
(iii) 2,000,000 common shares at $0.40 per share expiring June 30,
2001.
F-12
<PAGE>
PHON-NET CORPORATION
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 1999 AND JULY 31, 1998 AND 1997
(Stated in U.S. Dollars)
8. SUBSEQUENT EVENTS (Unaudited) (Continued)
c) The Company issued 9,660,000 common shares from treasury, for debt and
services to be provided as to 4,660,000 shares and pursuant to the
agreement referred to in Note 8(a) as to 5,000,000 shares.
d) The Company changed its name to Phon-Net.Com, Inc.
9. UNCERTAINTY DUE TO THE YEAR 2000 ISSUE
The Year 2000 Issue arises because many computerized systems use two digits
rather than four to identify a year. Date-sensitive systems may recognize
the year 2000 as 1900 or some other date, resulting in errors when
information using year 2000 dates is processed. In addition, similar
problems may arise in some systems which use certain dates in 1999 to
represent something other than a date. The effects of the Year 2000 Issue
may be experienced before, on, or after January 1, 2000, and, if not
addressed, the impact on operations and financial reporting may range from
minor errors to significant systems failure which could affect an entity's
ability to conduct normal business operations. It is not possible to be
certain that all aspects of the Year 2000 Issue affecting the entity,
including those related to the efforts of customers, suppliers, or other
third parties, will be fully resolved.
F-13
<PAGE>
No dealer, sales representative or any other person has been authorized to give
any information or to make any representations other than those contained in
this prospectus and, if given or made, such information or representation must
not be relied upon as having been authorized by the company or any of the
underwriters. This prospectus does not constitute an offer of any securities
other than those to which it relates or an offer to sell, or a solicitation of
any offer to buy, to any person in any jurisdiction where such an offer or
solicitation would be unlawful. Neither the delivery of this prospectus nor any
sale made hereunder shall, under any circumstances, create an implication that
the information set forth herein is correct as of any time subsequent to the
date hereof.
TABLE OF CONTENTS
Page
----
Available Information.................... 2
Prospectus Summary....................... 3
Risk Factors............................. 7
Capitalization...........................13
Use of Proceeds..........................13
Price Range of Common Stock 5,985,000 SHARES
and Dividend Policy...................13
Forward-Looking Statements...............14 PHON-NET.COM, INC.
Management's Discussion and
Analysis or Plan of Operation.........14
Business.................................16
Management...............................19
Executive Compensation...................20
Certain Transactions.....................23 PROSPECTUS
Principal Shareholders...................23
Description of Securities................24
Selling Securityholders..................25
Plan of Distribution ....................27
Shares Eligible for Future Sale..........28 ________________, 1999
Legal Matters............................28
Experts..................................28
Additional Information...................29
Financial Statements.....................F-1
Until _________, 199___ (25 days after the date of this Prospectus),
all dealers effecting transactions in the registered securities, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This delivery requirement is in addition to the obligations of dealers to
deliver a Prospectus when acting as underwriters and with respect to their
unsold allotments or subscriptions.
<PAGE>
PART TWO
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Florida Business Corporation Act (the "Corporation Act") permits
the indemnification of directors, employees, officers and agents of Florida
corporations. The Company's Articles of Incorporation (the "Articles") and
Bylaws provide that the Company shall indemnify its directors and officers to
the fullest extent permitted by the Corporation Act.
The provisions of the Corporation Act that authorize indemnification do
not eliminate the duty of care of a director, and in appropriate circumstances
equitable remedies such as injunctive or other forms of non-monetary relief will
remain available under Florida law. In addition, each director will continue to
be subject to liability for (i) violations of criminal laws, unless the director
had reasonable cause to believe his conduct was lawful or had no reasonable
cause to believe his conduct was unlawful, (ii) deriving an improper personal
benefit from a transaction, (iii) voting for or assenting to an unlawful
distribution and (iv) willful misconduct or conscious disregard for the best
interests of the Company in a proceeding by or in the right of a shareholder.
The statute does not affect a director's responsibilities under any other law,
such as the Federal securities laws.
The effect of the foregoing is to require the Company to indemnify the
officers and directors of the Company for any claim arising against such persons
in their official capacities if such person acted in good faith and in a manner
that he reasonably believed to be in or not opposed to the best interests of the
corporation and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers or persons controlling the
Company pursuant to the foregoing provisions, the Company has been informed that
in the opinion of the Securities and Exchange Commission, such indemnification
is against public policy as expressed in the act and is therefore unenforceable.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The estimated expenses payable by the Company in connection with the
distribution of the securities being registered are as follows:
SEC Registration and Filing Fee..................................... $ 333
Legal Fees and Expenses*............................................ 20,000
Accounting Fees and Expenses*....................................... 7,500
Financial Printing*................................................. 3,000
Transfer Agent Fees*................................................ 1,250
Blue Sky Fees and Expenses*......................................... 750
Miscellaneous*...................................................... 2,167
------
TOTAL..................................................... $35,000
II-1
<PAGE>
* Estimated
None of the foregoing expenses are being paid by the selling securityholders.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
Effective October 5, 1998, the Company acquired all of the outstanding
shares of Phon-Net Corp., a Nevada corporation, and issued an aggregate of
11,410,000 shares of our common stock to the former shareholders of Phon-Net
Corp. Each of such persons had access to information concerning the Company and,
since the Company's business operations following the acquisition were those of
Phon-Net Corp., their pre-existing relationship with Phon-Net Corp. enabled them
to evaluate the risks and merits of the business combination with the Company.
As a result, the transaction was exempt from the registration requirements of
the Securities Act of 1933, as amended (the "Act"), by reason of Section 4(2) of
the Act and the rules and regulations thereunder.
On or about November 1, 1998, the Company issued an aggregate of
550,000 shares of common stock to RCS Financial Group (as to 200,000 shares) and
New Iberian Equity (as to 350,000 shares), as consideration for services
provided to the Company valued at $55,000 or $.10 per share. These persons had
access to information concerning the Company and has such experience in
financial and business matters to enable it to evaluate the risks and merits of
acquiring such shares. Accordingly, the issuance of these shares was exempt from
the registration requirements of the Act by reason of Sections 3(b) and/or 4(2)
of the Act and the rules and regulations thereunder.
On or about January 15, 1999, the Company issued an aggregate of
115,000 shares of common stock to Patrick Braid (as to 45,000 shares), James
Kyle (as to 45,000 shares) and Todd Violet (as to 25,000 shares), as
consideration for services provided to the Company valued at $11,500 or $.10 per
share. These persons had access to information concerning the Company and has
such experience in financial and business matters to enable it to evaluate the
risks and merits of acquiring such shares. Accordingly, the issuance of these
shares was exempt from the registration requirements of the Act by reason of
Sections 3(b) and/or 4(2) of the Act and the rules and regulations thereunder.
On or about January 15, 1999, the Company issued 10,000 shares of
common stock to L. J. Hassey for a purchase price of $5,000 or $.50 per share.
L. J. Hassey had access to information concerning the Company and has such
experience in financial and business matters to enable it to evaluate the risks
and merits of acquiring such shares. Accordingly, the issuance of these shares
was exempt from the registration requirements of the Act by reason of Sections
3(b) and/or 4(2) of the Act and the rules and regulations thereunder.
Between February 9 and 12, 1999, the Company issued 230,000 shares of
common stock to J. Prince, Inc., for a purchase price of $100,000 or
approximately $.435 per share. J. Prince, Inc. had access to information
concerning the Company and has such knowledge and experience in financial and
business matters that it was able to evaluate the risks and merits of acquiring
such shares.
II-2
<PAGE>
Accordingly, the issuance of these shares was exempt from the registration
requirements of the Act by reason of Sections 3(b) and 4(2) of the Act and the
rules and regulations thereunder.
On or about March 5, 1999, the Company issued 220,000 shares of common
stock to Roger Betterton for a purchase price of $50,000 or approximately $.23
per share. Mr. Betterton had access to information concerning the Company and
has such experience in financial and business matters to enable it to evaluate
the risks and merits of acquiring such shares. Accordingly, the issuance of
these shares was exempt from the registration requirements of the Act by reason
of Sections 3(b) and/or 4(2) of the Act and the rules and regulations
thereunder.
On or about March 5, 1999, the Company issued 40,000 shares of common
stock to Bryce Boucher as consideration for printing services provided to the
Company valued at $20,000 or $.50 per share. These persons had access to
information concerning the Company and has such experience in financial and
business matters to enable it to evaluate the risks and merits of acquiring such
shares. Accordingly, the issuance of these shares was exempt from the
registration requirements of the Act by reason of Sections 3(b) and/or 4(2) of
the Act and the rules and regulations thereunder.
On or about March 24, 1999, the Company issued convertible promissory
notes in the aggregate principal amount of $737,000 to five accredited
investors, pursuant to Rule 504 of Regulation D of the Act. The notes bear
interest at the rate of 10% per annum and are convertible into shares of the
Company's common stock at the lower of $.50 per share or 70% of the average
closing price for the common stock over the five trading days immediately
preceding the conversion date. As of April 30, 1999 all of the notes had been
converted into an aggregate of 2,707,430 shares of common stock. The Company
paid $4,278.91 in interest on the notes.
On or about April 15, 1999, the Company issued 8,085,000 shares of
common stock to Brian Collins, the Company's President, CEO and sole director,
an accredited investor. The shares were issued pursuant to the Company's
acquisition of Phon-Net Corp., as consideration for the satisfaction of certain
obligations contained in the acquisition agreement. The shares were issued in
reliance upon exemptions under Sections 4(2) and/or 4(6) of the Act and the
rules and regulations thereunder.
On or about April 15, 1999, the Company issued 200,000 shares of common
stock to ITI International Technology Integration, Inc., as consideration for
the conversion of approximately $132,000 of indebtedness owed to ITI
International Technology Integration, Inc. by the Company. ITI International
Technology Integration, Inc. had access to information concerning the Company
and has such knowledge and experience in financial and business matters that it
was able to evaluate the risks and merits of acquiring such shares. Accordingly,
the issuance of these shares was exempt from the registration requirements of
the Act by reason of Section 4(2) of the Act and the rules and regulations
thereunder.
On or about May 19, 1999, the Company issued 400,000 shares of common
stock to Market Survey's International, Inc., as consideration for public
relations services to be provided to the Company. Market Survey's International,
Inc. had access to information concerning the Company
II-3
<PAGE>
and has such experience in financial and business matters to enable it to
evaluate the risks and merits of acquiring such shares. Accordingly, this
transaction was exempt from the registration requirements of the Act by reason
of Section 4(2) of the Act and the rules and regulations thereunder.
On or about May 28, 1999, the Company issued 60,000 shares to 1st Net
Technologies, Inc., as partial consideration for public relations, marketing and
database services to be provided for the Company. 1st Net Technologies, Inc. had
access to information concerning the Company and has such experience in
financial and business matters to enable it to evaluate the risks and merits of
acquiring such shares. Accordingly, this transaction was exempt from the
registration requirements of the Act by reason of Section 4(2) of the Act and
the rules and regulations thereunder.
On or about March 5, 1999, June 7, 1999 and July 6, 1999, the Company
issued 250,000 shares, 200,000 shares and 500,000 shares of common stock,
respectively, to KASON, Inc., in consideration of services rendered to the
Company, 500,000 of which shares were dependent upon performance by KASON, Inc.
under an agreement with the Company. KASON, Inc. had a pre-existing business
relationship with the Company, had access to information concerning the Company
and has such knowledge and experience in financial and business matters to
enable it to evaluate the risks and merits of acquiring such shares.
Accordingly, the issuance of these shares is exempt from the registration
requirements of the Act by reason of Section 4(2) of the Act and the rules and
regulations thereunder.
On or about May 28, 1999, the Company issued an aggregate of 400,000
shares of common stock to BCD Online and two of its principals, in consideration
of product marketing services rendered to the Company. BCD Online had a
pre-existing business relationship with the Company, had access to information
concerning the Company and has such knowledge and experience in financial and
business matters to enable it to evaluate the risks and merits of acquiring such
shares. Accordingly, the issuance of these shares is exempt from the
registration requirements of the Act by reason of Section 4(2) of the Act and
the rules and regulations thereunder.
On or about July 1, 1999, the Company issued 5,000,000 shares of common
stock to Brian Collins, as an inducement to provide his employment services to
the Company. Mr. Collins is an executive officer and director of the Company and
is fully familiar with the business of the Company. Accordingly, the issuance of
these shares is exempt from the registration requirements of the Act by reason
of Sections 4(2) and 4(6) of the Act and the rules and regulations thereunder.
On or about July 1, 1999, the Company issued an aggregate of 3,000,000
shares of common stock to Quad-Linq Software, Inc. and three of its principals,
in consideration of software development services rendered to the Company.
Quad-Linq Software, Inc. had a pre-existing business relationship with the
Company, had access to information concerning the Company and has such knowledge
and experience in financial and business matters to enable it to evaluate the
risks and merits of acquiring such shares. Accordingly, the issuance of these
shares is exempt from the registration requirements of the Act by reason of
Section 4(2) of the Act and the rules and regulations thereunder.
II-4
<PAGE>
On or about July 1, 1999, the Company issued 100,000 shares of common
stock to Atlas, Pearlman, Trop & Borkson, P.A. ("APTB"), counsel to the Company,
in consideration of legal services rendered to the Company. APTB had a
pre-existing business relationship with the Company, had access to information
concerning the Company and has such knowledge and experience in financial and
business matters to enable it to evaluate the risks and merits of acquiring such
shares. Accordingly, the issuance of these shares is exempt from the
registration requirements of the Act by reason of Section 4(2) of the Act and
the rules and regulations thereunder.
ITEM 27. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
Exhibit No. Description of Document
2 Agreement of Share Exchange between XGA Golf International,
Inc. and Phon-Net Corp.
3.1(a) Articles of Incorporation of XGA Golf International, Inc.
3.1(b) Articles of Amendment changing name to Agrosol, Inc.
3.1(c) Articles of Amendment changing name to Phon-Net Corporation
3.1(d) Articles of Amendment changing name to Phon-Net.com, Inc.
3.1(e) Articles of Amendment increasing authorized capital
3.2 Bylaws
5 Opinion and Consent of Atlas, Pearlman, Trop & Borkson, P.A.
10.1 Stock Option Plan
10.2 Employment Agreement between the Company and Brian Collins
10.3 Office Lease for 750 Pender Street
10.4 Agreement, as amended, with Quad-Linq Software, Inc.
23(i) Consent of Atlas, Pearlman, Trop & Borkson, P.A.
(see Exhibit 5)
23(ii) Consent of Morgan & Company
21 Subsidiaries of Registrant
27 Financial Data Schedule
ITEM 28. UNDERTAKINGS
The undersigned Registrant hereby undertakes to provide to
participating broker-dealers, at the closing, certificates in such denominations
and registered in such names as required by the participating broker-dealers, to
permit prompt delivery to each purchaser.
The undersigned Registrant also undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of
the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the
most recent post-effective amendment thereof)
II-5
<PAGE>
which, individually or in the aggregate, represent a
fundamental change in the information set forth in the
registration statement;
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the
registration statement or any material change to such
information in the registration statement;
Provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if the
registration statement is on Form S-3 or Form S-8, and the information required
to be included in a post-effective amendment by those paragraphs is contained in
periodic reports filed by the registrant pursuant to section 13 or section 15(d)
of the Securities Exchange Act of 1934 that are incorporated by reference in the
registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Securities Act") may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission (the "Commission") such indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or preceding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned Registrant also undertakes that it will:
(1) For determining any liability under the Securities Act, treat the
information omitted from the form of prospectus filed as a part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant under Rule 424(b)(1), or (4) or 497(h) under
the Securities Act as part of this registration statement as of the time the
Commission declared it effective.
(2) For determining any liability under the Securities Act, treat each
post-effective amendment that contains a form of prospectus as a new
registration statement for the securities offered in the registration statement,
and that offering of the securities at that time as the initial bona fide
offering of those securities.
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in Vancouver, British Columbia on August 26, 1999.
PHON-NET.COM, INC.
By: /s/ Brian Collins
-----------------------------
Brian Collins
Chairman, Chief Executive
Officer, Principal Financial
and Accounting Officer
Pursuant to the requirements of the Securities Act of 1933, this Form
SB-2 registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Brian Collins Chairman of the Board, Chief August 26, 1999
- ------------------------------------ Executive Officer, President and
Brian Collins Sole Director (Principal Financial
Officer and Principal Accounting
Officer)
/s/ Sloan Young Vice President of Technology August 26, 1999
- ------------------------------------ and Operations
Sloan Young
</TABLE>
<PAGE>
EXHIBIT INDEX
-------------
Exhibit No. Description of Document
- ----------- -----------------------
2 Agreement of Share Exchange between XGA Golf International,
Inc. and Phon-Net Corp.
3.1(a) Articles of Incorporation of XGA Golf International, Inc.
3.1(b) Articles of Amendment changing name to Agrosol, Inc.
3.1(c) Articles of Amendment changing name to Phon-Net Corporation
3.1(d) Articles of Amendment changing name to Phon-Net.com, Inc.
3.1(e) Articles of Amendment increasing authorized capital
3.2 Bylaws
5 Opinion and Consent of Atlas, Pearlman, Trop & Borkson, P.A.
10.1 Stock Option Plan
10.2 Employment Agreement between the Company and Brian Collins
10.3 Office Lease for 750 Pender Street
10.4 Agreement, as amended, with Quad-Linq Software, Inc.
23(i) Consent of Atlas, Pearlman, Trop & Borkson, P.A.
(see Exhibit 5)
23(ii) Consent of Morgan & Company
21 Subsidiaries of Registrant
27 Financial Data Schedule
THE SECURITIES WHICH ARE THE SUBJECT OF THIS AGREEMENT HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 (THE "1933 ACT"), NOR REGISTERED UNDER ANY
SECURITIES LAW, AND ARE "RESTRICTED SECURITIES" AS THAT TERM IS DEFINED IN RULE
144 UNDER THE 1934 SECURITIES AND EXCHANGE ACT. THE SECURITIES MAY NOT BE
OFFERED FOR SALE, SOLD OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE 1933 ACT, OR PURSUANT TO AN EXEMPTION FROM
REGISTRATION UNDER THE 1933 ACT, THE AVAILABILITY OF WHICH IS TO BE ESTABLISHED
TO THE SATISFACTION OF THE COMPANY.
AGREEMENT FOR THE EXCHANGE OF COMMON STOCK
AGREEMENT made this 5th day of October, 1998, by and between XGA Golf
International, Inc., a Florida corporation (the "ISSUER"); all the shareholders
("THE SHAREHOLDERS") of Phon-Net Corporation, a Nevada corporation; and Phon-Net
Corporation, a Nevada Corporation ("PHON-NET").
In consideration of the mutual promises, covenant, and representations
contained herein, and other good and valuable consideration
THE PARTIES HERETO AGREE AS FOLLOWS:
1. EXCHANGE OF SECURITIES. Subject to the terms and conditions of this
Agreement, the ISSUER agrees to issue to THE SHAREHOLDERS on a pro rata
basis to their shareholders in PHON-NET, 7,700,000 shares of common
stock $0.001 par value (the "Shares"), of the ISSUER in exchange for
100% of the issued and outstanding shares of PHON-NET such that
PHON-NET shall become a wholly owned subsidiary of the ISSUER. The
ISSUER agrees to use its best efforts to arrange an option for THE
SHAREHOLDERS to acquire up to 800,000 shares of the ISSUER from
existing shareholders at $1.00 if exercised any time up to 6 months
after the closing date of this Agreement and at a price of $2.00 if
exercised within 90 days following the 6 months period.
2. REPRESENTATIONS AND WARRANTIES. ISSUER represents and warrants to
THE SHAREHOLDERS and PHON-NET as follows:
i. Organization. ISSUER is a corporation duly organized, validly
existing and in good standing under the laws of the State of Florida,
and has all necessary corporate powers to own properties and carry on a
business, and is duly qualified to do business in Florida. All actions
taken by the incorporators, directors and shareholders of ISSUER have
been valid and in accordance with the laws of the State of Florida.
<PAGE>
ii. Capital. The authorized capital stock of ISSUER consists of
30,000,000 shares of common stock, $0.001 par value, of which not more
than 3,650,000 shares will be issued and outstanding at the time of
closing. All outstanding shares are fully paid and non-assessable, free
of liens, encumbrances, options, restrictions and legal or equitable
rights of others not a party to this Agreement. At closing, there will
be not outstanding subscriptions, options, rights, warrants,
convertible securities, or other agreements or commitments obligating
ISSUER to issue to or transfer from treasury any additional shares of
its capital stock. None of the outstanding shares of ISSUER are subject
to any stock restriction agreements. All of the shareholders of ISSUER
have valid title to such shares and acquired their shares in a lawful
transaction and in accordance with the laws of Florida.
iii. Financial Statement. Annexed hereto as Exhibit A to this Agreement
are the audited financial statements of the ISSUER as of May 31, 1997,
and the related statements of income and retained earnings for the
period then ended. The financial statements have been prepared in
accordance with generally accepted accounting principals consistently
followed by ISSUER throughout the periods indicated, and fairly present
the financial position of ISSUER as of the date of the financial
statements.
iv. Liabilities. ISSUER does not have any debt, liability, or
obligation of any nature, whether accrued, absolute, contingent, or
otherwise, and whether due or to become due, that is not reflected on
the ISSUER financial statements. ISSUER is not aware of any pending,
threatened or asserted claims, lawsuits or contingencies involving
ISSUER or its common stock. There is no dispute of any kind between
ISSUER and any third party, and no such dispute will exist at the
closing of this Agreement. At closing, ISSUER will be free from any and
all liabilities, liens, claims and/or commitments.
v. Absence of Changes. Since the date of the financial statements,
there has not been any change in the financial condition or operations
of ISSUER, except changes in the ordinary course of business, which
changes have not in the aggregate been materially adverse. The ordinary
course of business has been identified to THE SHAREHOLDERS.
vi. Ability to Carry Out Obligations. ISSUER has the right, power, and
authority to enter into and perform its obligations under this
Agreement. The execution and delivery of this Agreement by ISSUER and
the performance by ISSUER of its obligations hereunder will not cause,
constitute, or conflict with ro result in (1) any breach or violation
of any of the provisions of or constitute a default under any license,
indenture, mortgage, charter, instrument, articles of incorporation,
bylaw, or other agreement or instrument to which ISSUER or its
shareholders are a party, or by which they may be bound, nor will any
consents or authorizations of any party other than those hereto be
required, (2) an event that would cause ISSUER to be liable to any
third party, or (3) an event that would result in the creation or
imposition of any lien, charge or encumbrance
2
<PAGE>
on any asset of ISSUER or upon the securities of ISSUER to be acquired
by THE SHAREHOLDERS.
vii. Full Disclosures. None of the representations and warranties made
by the ISSUER, or in any certificate or memorandum furnished or to be
furnished by the ISSUER contains or will contain any untrue statement
of a material fact, or omit any material fact the omissions of which
would be misleading.
viii. Contract and Leases. ISSUER is not currently carrying on any
business and is not a party to any contract, agreement or lease. No
person holds a power of attorney from ISSUER.
ix. Compliance with Laws. To the best of its knowledge, ISSUER has
complied with, and is not in violation of any federal, state, or local
statute law, and/or regulation.
x. Litigation. ISSUER is not (and has not been) a party in any suit,
action, arbitration, or legal, administrative, or other proceeding, or
pending governmental investigation other than as described. With
respect to the single suit filed, ISSUER is not a party to the
litigation and removal of ISSUER's name from litigation is in process
and will be at not cost to the ISSUER. To the best knowledge of the
ISSUER, there is no basis for any other action or proceeding and not
such action or proceeding is threatened against the ISSUER and ISSUER
is not subject to or in default with respect to any order, writ,
injunction, or decree of any federal, state, or local or foreign court,
department, agency or instrumentality.
xi. Conduct of Business. Prior to the closing, ISSUER shall conduct its
business in the normal course, and shall not (1) sell, pledge, or
assign any assets (2) amend its Articles of incorporation or Bylaws,
(3) declare any dividends, redeem or sell stock or other securities,
(4) incur any liabilities, (5) acquire or dispose of any assets, enter
into any contract, or guarantee obligations of any third party, or (6)
enter into any other transaction.
xii. Corporate Documents. Copies of each of the following documents
which are true, complete and correct in all material respects, will be
attached to and made a part of this Agreement:
1. Articles of Incorporation;
2. ByLaws;
3. Minutes of Shareholders Meetings;
4. Minutes of Directors Meetings;
5. Lists of Officers and Directors;
6. Audited Financial Statements of the ISSUER dated May 31,
1997 as described in Section 2(iii).
3
<PAGE>
7. Stock register and stock records of ISSUER and a current,
accurate list of ISSUER's shareholder.
xiii. Documents. All minutes, consents or other documents pertaining to
ISSUER to be delivered at closing shall be valid and in accordance with
the laws of the State of Florida.
xiv. Title. The Shares will not have been registered under the
Securities Act of 1933 (the "1933 Act") nor registered under any
securities law and are "Restricted Securities" as that term is defined
in Rule 144 under the 1934 Securities and Exchange Act. None of the
Shares are, or will be, subject to any voting trust or agreement. No
person holds or has the right to receive any proxy or similar
instrument with respect to the Shares, except as provided in this
Agreement. The ISSUER is not a party to any agreement which offers or
grants to any person the right to purchase or acquire any of the
Shares. There are not any applicable local, state or federal laws,
rules, regulations, or decrees which would, as a result of the issuance
of the Shares, impair, restrict or delay any voting rights, with
respect to the Shares.
3. THE SHAREHOLDERS and PHON-NET represent and warrant to the ISSUER
the following.
i. PHON-NET Corporation is a corporation duly organized, validly
existing, and in good standing under the laws of Nevada and has all
necessary corporate powers to own properties and carry on a business,
and is duly qualified to do business and is in good standing in Nevada.
All actions taken by the incorporators, directors and shareholders of
PHON-NET have been valid and in accordance with the laws of Nevada.
PHON-NET has a 100% wholly owned subsidiary known as Piedmont
Technologies, Inc. (d/b/a Phon-Net in B.C.) registered in the Canadian
province of British Columbia.
ii. Counsel. THE SHAREHOLDERS and PHON-NET represent and warrant that
prior to closing, they have been represented by independent counsel.
iii. Liabilities. PHON-NET does not have any debt, liability, or
obligation of any nature, whether accrued, absolute, contingent, or
otherwise, and whether due or to become due, that is not reflected in
the PHON-NET financial statements. PHON-NET is now aware of any
pending, threatened or asserted claims, lawsuits or contingencies
involving PHON-NET and any third party, and no such dispute will exist
at the closing of this Agreement. At closing, PHON-NET will be free
from any and all liabilities, liens, claims and/or commitments.
iv. Ability to Carry Out Obligations. PHON-NET has the right, power,
and authority to enter into and perform its obligations under this
Agreement. The execution and delivery of this Agreement by THE
SHAREHOLDERS and PHON-NET and the performance by THE SHAREHOLDERS and
PHON-NET of their obligations hereunder will not cause,
4
<PAGE>
constitute, or conflict with or result in (1) any breach or violation
of any of the provisions of or constitute a default under any license,
indenture, mortgage, charter, instrument, articles of incorporation,
bylaw, or other agreement or instrument to which PHON-NET is a party,
or by which they may be bound, nor will any consents or authorizations
of any party other than those hereto be required, (2) an event that
would cause PHON-NET to be liable to any third party, or (3) an event
that would result in the creation or imposition or any lien, charge or
encumbrance on any asset of PHON-NET or upon the securities of PHON-NET
to be acquired by ISSUER.
v. Full Disclosure. None of the representations and warranties made by
the THE SHAREHOLDERS and PHON-NET or in any certificate or memorandum
furnished or to be furnished by THE SHAREHOLDERS and PHON-NET, contains
or will contain any untrue statement of a material fact, or omit any
material fact the omission of which would be misleading.
vi. Compliance with Laws. To the best of its knowledge, PHON-NET has
complied with, and is not in violation of any federal, state, ro local
statute law, and/or regulations.
vii. Litigation. PHON-NET is not (and has not been) a party to any
suit, action, arbitration, or legal administrative, or other
proceeding, or pending governmental investigation. To the best
knowledge of the PHON-NET, there is no basis for any such action or
proceeding and no such action or proceeding is threatened against the
PHON-NET and PHON-NET is not subject to or in default with respect to
any order, writ, injunction, or decree of any federal, state, or local
or foreign court, department, agency or instrumentality.
viii. Conduct of Business. Prior to the closing PHON-NET shall conduct
its business in the normal course, and shall not (1) sell, pledge, or
assign any assets (2) amend its Articles of Incorporation or By-Laws,
(3) declare any dividends, redeem or sell stock o other securities, (4)
incur any liabilities, (5) acquire or dispose of any assets, enter into
any contract, or guarantee obligations of any third party, or (6) enter
into any other transaction.
ix. Corporate Documents. copies of each of the following documents
which are true, complete and correct in all material respects, will be
made available prior to closing of this agreement:
1. Articles of incorporation;
2. By-Laws;
3. Minutes of Shareholders Meetings
4. Minutes of Directors Meetings;
5. Lists of Officers and Directors;
5
<PAGE>
6. Audited Financial Statements of PHON-NET (including
PIEDMONT TECHNOLOGIES July 97 and July 98 year ends.
July 97 due October 15, 1998. July 98 due November
1998.
7. Stock register and stock records of PHON-NET and a
current, accurate list of PHON-NET's shareholders.
x. Upon Vend In. THE SHAREHOLDERS agree to undertake a financing of the
ISSUER in an amount of not less than $600,000.00 U.S. within 60 days
from date of signing the Share Purchase Agreement. If such financing is
not completed to such terms, both the ISSUER and THE SHAREHOLDERS agree
to re-negotiate the terms of the transaction.
xi. Title. The shares of PHON-NET to be provided to the ISSUER pursuant
to this Agreement will be free and clear of all liens, security
interests, pledges, charges, claims, encumbrances and restrictions of
any kind. None of such PHON-NET shares are, or will be, subject to any
voting trust or agreement. No person holds or has the right to receive
any proxy or similar instrument with respect to such PHON-NET shares,
except as provided in this Agreement. PHON-NET is not a party to any
agreement which offers or grants to any person the right to purchase or
acquire any of the securities to be issued pursuant to this Agreement.
There are not any applicable local, state or federal laws, rules,
regulations, or decrees which would, as a result of the delivery of the
PHON-NET Shares, impair, restrict or delay any voting rights, with
respect to the PHON-NET Shares.
4. INVESTMENT INTENT. THE SHAREHOLDERS are acquiring the Shares for
their own account for purposes of investment and without expectation,
desire, or need for resale and not with the view toward distribution,
resale, subdivision, or fractionalization of the Shares.
5. CLOSING. The closing of this transaction shall take place at the
offices of PHON-NET Corporation, Carson City, Nevada.
6. DOCUMENTS TO BE DELIVERED WITHIN 60 DAYS OF CLOSING.
i. By the ISSUER.
(1) Board of Directors Minutes authorizing the issuance of a
certificate or certificates for the 7,700,000 Shares to be
issued pursuant to this Agreement
(2) A Board of Directors resolution appointment such person as
THE SHAREHOLDERS designate as a director of ISSUER and an
additional director appointed by the ISSUER.
(3) Audited financial statements of ISSUER for the period
ending May 31, 1997.
6
<PAGE>
(4) All of the business and corporation records of ISSUER,
including but not limited to correspondence files, bank
statements, checkbooks, savings account books, minutes of
shareholder and directors meetings, financial statements,
shareholder listings, stock transfer records, agreements and
contracts.
ii. BY THE SHAREHOLDERS and PHON-NET.
---------------------------------
(1) Delivery to the ISSUER, or to its Transfer Agent, the
certificates representing 100% of the issued and outstanding
stock of PHON-NET.
(2) Board of Directors Minutes of PHON-NET authorizing the
acceptance of this Agreement and ability to proceed with the
Agreement.
(3) Audited financial statements of PHON-NET.
(4) All of the business and corporate records of PHON-NET,
including but not limited to correspondence files, bank
statements, checkbooks, savings account books, minutes of
shareholder and directors meetings, financial statements,
shareholder listings, stock transfer records, agreements and
contracts.
7. COVENANT. The ISSUER and THE SHAREHOLDERS agree that there shall be
no reverse split of the ISSUER's common stock for a minimum period of
12 months from the date of this Agreement.
8. REMEDIES.
---------
i. Captions and Headings. The Article and paragraph headings throughout
this Agreement are for convenience and reference only, and shall in no
way be deemed to define, limit, or add to the meaning of any provision
of this Agreement.
ii. No Oral Change. This Agreement and any provision hereof, may not be
waived, changed, modified, or discharged orally, but only by an
agreement in writing signed by the party against whom enforcement of
any waiver, change, modification, or discharge is sought.
iii. Non Waiver. Except as otherwise expressly provided herein, no
waiver of any covenant, condition, or provision of this Agreement shall
be deemed to have been made unless expressly in writing and signed by
the party against whom such waiver is charged; and (1) the failure of
any party to insist in any one or more ______ upon the performance of
any of the provisions, covenants, ro conditions of this Agreement or to
exercise any option herein contained shall not be construed as a waiver
or relinquishment for the future of any such provisions, covenants, or
conditions, (2) the acceptance of performance of anything required by
this Agreement to be performed with knowledge of the breach or failure
of a covenant, conditions, or provision hereof shall not be deemed a
waiver of such breach or
7
<PAGE>
failure, and (3) no waiver by any party of one breach by another party
shall be construed as a waiver with respect to any other or subsequent
breach.
iv. Time of Essence. Time is of the essence in the performance of this
Agreement and of each and every provision hereof.
v. Entire Agreement. This Agreement contains the entire Agreement and
understanding between the parties hereto, and supersedes all prior
agreements and understandings.
vi. Counterparts. This Agreement may be executed simultaneously in one
or more counterparts, each of which shall be deemed an original, but
all of which together shall constitute one and the same instrument.
vii. Governance. This Agreement shall be governed, construed and
enforced in accordance with the laws of the State of Florida, U.S.A.
viii. Notices. All notices, requests, demands, and other communications
under this Agreement shall be in writing and shall be deemed to have
been duly given on the date of service if served personally on the
party to whom notice is to be given, or on the third day after mailing
if mailed to the party to whom notice is to be given, by first class
mail, registered, or certified, postage prepaid, and properly
addressed, and by fax, as follows:
ISSUER: XGA Golf International, Inc.
c/o Lana Bea Turner, Director
#830 355 Burrard Street
Vancouver, BC V6C 2G8
Tel: (604) 687-7828
Fax: (604) 687-7848
PHON-NET PHON-NET Corporation
5694 Imperial Street
Burnaby, BC V5J IG2
Telephone (604) 437-3787
Facsimile (604) 437-3070
Copy to: Brian Collins
5694 Imperial Street
Burnaby, BC V5J 1G2
Telephone (604) 437-3787
Facsimile (604) 437-3070
8
<PAGE>
IN WITNESS WHEREOF the undersigned has executed this Agreement this 5th
day of Oct., 1998, per agreement Sept. 16/98.
ISSUER PHON-NET
By: /s/ Lana Bea Turner By: /s/ Brian Collins
----------------------------- ------------------------
Title: President/Director Title: Director
--------------------------- --------------------
The Corporate Seal of The Corporate Seal of
XGA Golf International, Inc. Phon-Net Corporation
was affixed hereto in the was affixed hereto in the
presence of: presence of:
- ----------------------------- ---------------------------
Witness: /s/ Brent Silver Witness: /s/ James D. Hall
--------------------- -------------------
Print name: Brent Silver Print name: James D. Hall
------------------ ----------------
THE SHAREHOLDERS
- ----------------
By: /s/ Brian Collins
-------------------------
Witness: James D. Hall
---------------------
Print name: /s/ James D. Hall
------------------
Sworn and subscribed before me this 5 day of October, 1998.
In Victoria British Columbia
--------------------------
By: /s/ James D. Hall
---------------------------
Notary Public
SEE ADDENDUM
9
<PAGE>
ADDENDUM
A.
The ISSUER acknowledges that PHON-NET has entered into an agreement whereby
subsequent to the execution of this Agreement five million of the twelve million
shares outstanding in PHON-NET and pledged hereunder for 7,700,000 shares in the
ISSUER will be transferred to shareholders of Piedmont Technologies, Inc. to
enable PHON-NET to acquire 100% of the issued and outstanding shares of Piedmont
Technologies, Inc.. As a term of the agreement with the shareholders of Piedmont
all five million of the above noted PHON-NET shares will be tendered to the
ISSUER in exchange for shares in the ISSUER on a pro rats basis.
B.
The ISSUER further acknowledges that its shares are currently listed and trading
on the N.A.S.D. Bulletin Board and that the ISSUER is in good standing with the
N.A.S.D. Bulleting Board.
10
ARTICLES OF INCORPORATION
OF
XGA GOLF INTERNATIONAL, INC.
----------------------------
The undersigned, a natural person competent to contract, does hereby
make, subscribe and file these Articles of Incorporation for the purpose of
organizing a corporation under the laws of the State of Florida.
ARTICLE I
CORPORATE NAME
--------------
The name of this Corporation shall be: XGA GOLF INTERNATIONAL, INC.
ARTICLE II
PRINCIPAL OFFICE AND MAILING ADDRESS
------------------------------------
The principal office and mailing address of the Corporation is 73-929
Larrea, Suite 1B, Palm Desert, California 92260.
ARTICLE III
NATURE OF CORPORATE BUSINESS AND POWERS
---------------------------------------
The general nature of the business to be transacted by this Corporation
shall be to engage in any and all lawful business permitted under the laws of
the United States and the State of Florida.
JAMES M. SCHNEIDER, ESQ., FL BAR # 214338
Atlas, Pearlman, Trop & Borkson, P.A.
200 East Las Olas Boulevard, Suite 1900
Fort Lauderdale, FL 33301
Phone No.: (954) 763-1200
1
<PAGE>
ARTICLE IV
CAPITAL STOCK
-------------
The maximum number of shares of stock that this Corporation shall be
authorized to issue and have outstanding at any one time shall be Thirty Million
(30,000,000) shares of Common Stock, $.001 par value per share and Three Million
(3,000,000) shares of Preferred Stock at $.01 par value per share.
Series of Preferred Stock may be created and issued from time to time,
with such designations, preferences, conversion rights, cumulative, relative,
participating, optional or other rights, including voting rights,
qualifications, limitations or restrictions thereof as shall be stated and
expressed in the resolution or resolutions providing for the creation and
issuance of such series of Preferred Stock as adopted by the Board of Directors
pursuant to the authority in this paragraph given.
ARTICLE V
TERM OF EXISTENCE
-----------------
This Corporation shall have perpetual existence.
ARTICLE VI
REGISTERED AGENT AND
INITIAL REGISTERED OFFICE IN FLORIDA
------------------------------------
The Registered Agent and the street address of the initial Registered
Office of this Corporation in the State of Florida shall be:
South Florida Registered Agents
c/o Atlas, Pearlman, Trop & Borkson, P.A.
200 East Las Olas Boulevard, Suite 1900
Fort Lauderdale, Florida 33301
2
<PAGE>
ARTICLE VII
BOARD OF DIRECTORS
------------------
This Corporation shall have three (3) directors initially.
ARTICLE VIII
INITIAL DIRECTORS
-----------------
The name and address of the initial Directors of the Corporation are:
Robert Carl Silzer
489 Granville Street, Suite 555
Vancouver, BC VGY 1T2
Eric Redd
#74 940 Highway 111
Room 113
Indian Wells, California 92260
Randy Saunders
1004-750 West Pender Street
Vancouver, BC V6C 2T8
The persons named as initial Directors shall hold office for the first
year of existence of this Corporation, or until their successors are elected or
appointed and have qualified, whichever occurs first.
ARTICLE IX
INCORPORATOR
------------
The name and address of the person signing these Articles of
Incorporation as the Incorporator is Roxanne K. Beilly, c/o Atlas, Pearlman,
Trop & Borkson, P.A., 200 East Las Olas Blvd., Fort Lauderdale, Florida 33301.
3
<PAGE>
ARTICLE X
INDEMNIFICATION
---------------
This Corporation may indemnify any director, officer, employee or agent
of the Corporation to the fullest extent permitted by Florida law.
ARTICLE X
AFFILIATED TRANSACTIONS
-----------------------
This Corporation expressly elects not to be governed by Section
607.0901 of the Florida Business Corporation Act, as amended from time to time,
relating to affiliated transactions.
IN WITNESS WHEREOF, the undersigned Incorporator has executed the
foregoing Articles of Incorporation on the 15th of January, 1997.
/s/ Roxanne K. Beilly
-------------------------------
Roxanne K. Beilly, Incorporator
4
<PAGE>
CERTIFICATE DESIGNATING REGISTERED AGENT
AND OFFICE FOR SERVICE OF PROCESS
XGA GOLF INTERNATIONAL, INC., a corporation existing under the laws of
the State of Florida with its principal office and mailing address at 73-929
Larrea, Suite 1B. Palm Desert, California 92260, has named South Florida
Registered Agents, Inc., whose address is 200 East Las Olas Boulevard, Suite
1900, Fort Lauderdale, Florida 33301, as its agent to accept service of process
within the State of Florida.
ACCEPTANCE:
-----------
Having been named to accept service of process for the above named
Corporation, at the place designated in this Certificate, I hereby accept the
appointment as Registered Agent, and agree to comply with all applicable
provisions of law. In addition, I hereby am familiar with and accept the duties
and responsibilities as Registered Agent for said Corporation.
SOUTH FLORIDA REGISTERED AGENTS, INC.
By: /s/ Beverly F. Bryan, President
-------------------------------
Beverly F. Bryan, President
5
ARTICLES OF AMENDMENT
TO
ARTICLES OF INCORPORATION
OF
XGA GOLF INTERNATIONAL, INC.
- --------------------------------------------------------------------------------
(present name)
Pursuant to the provisions of section 607.1006, Florida Statutes, this Florida
profit corporation adopts the following articles of amendment to its articles of
incorporation:
FIRST: Amendment adopted: (indicate article number(s) being amended, added or
deleted)
Article Number One shall be amended as follows:
The name of the corporation shall be changed from XGA Golf
International, Inc. to AGROSOL, INC.
This amendment was approved by the unanimous Joint Written Consent of
the Shareholders of the Company.
SECOND: If an amendment provides for an exchange, reclassification or
cancellation of issued shares, provisions for implementing the
amendment if not contained in the amendment itself, are as follows:
THIRD: The date of each amendment's adoption: June 16, 1998 .
FOURTH: Adoption of Amendment(s) (CHECK ONE)
X The amendment(s) was/were approved by the shareholders. The number of
--- votes cast for the amendment(s) was/were sufficient for approval.
Theamendment(s) was/were approved by the shareholders through
voting groups. The following statement must be separately
provided for each voting group entitled to vote separately on
the amendment(s):
"The number of votes cast for the amendment(s)
was/were sufficient for approval by ___________
---------------."
(voting group)
The amendment(s) was/were adopted by the board of directors
--- without shareholder action and shareholder action was not
required.
The amendment(s) was/were adopted by the incorporators without
shareholder action and shareholder action was not required.
<PAGE>
Signed this 16th day of June , 1998.
------- ------ --
Signature /s/ Ronald Williams
------------------------------------------------
Ronald Williams, Secretary
(By the Chairman or Vice-Chairman of the Board of Directors,
President or other officer if adopted by the shareholders)
OR
(By a director if adopted by the directors)
OR
(By an incorporator if adopted by the incorporators)
------------------------------------------------
Typed or printed name
------------------------------------------------
Title
2
ARTICLES OF AMENDMENT
TO THE
ARTICLES OF INCORPORATION
OF
AGROSOL, INC.
Pursuant to Section 607.1006 of the Business Corporation Act of the
State of Florida, the undersigned, the President of Agrosol, Inc., a corporation
organized and existing under and by virtue of the Business Corporation Act of
the State of Florida, bearing document number P97000004369, does hereby certify:
First: That pursuant to Unanimous Written Consent of the Board of
Directors and majority consent of the shareholders of said Corporation dated
November 7, 1998, the Directors and shareholders approved the Amendment to the
Corporation's Articles of Incorporation as follows:
Article I shall be deleted in its entirety and substituted with the
following:
ARTICLE I
CORPORATE NAME
--------------
The name of the Corporation shall be "PHON-NET CORPORATION".
The foregoing amendment was adopted by the Board of Directors of the
Corporation pursuant to a Unanimous Written Consent of the Board of Directors
and by a majority of the shareholders of the Common Stock of the Corporation
dated October 5, 1998, acting by Written Consent pursuant to Sections 607.0821
and 607.0704 of the Florida Business Corporation Act. Therefore, the number of
votes cast for the amendment to the Corporation's Articles of Incorporation was
sufficient for approval.
IN WITNESS WHEREOF, the undersigned, being the President of this
Corporation, has executed these Articles of Amendment as of November 7, 1998.
AGROSOL, INC.
By: /s/ Brian Collins
------------------------
Brian Collins, President
James M. Schneider, Esq., Florida Bar No. 214338
Atlas, Pearlman, Trop & Borkson, P.A.
200 East Las Olas Blvd., Suite 1900
Fort Lauderdale, Florida 33301
(954) 763-1200
ARTICLES OF AMENDMENT
TO THE
ARTICLES OF INCORPORATION
OF
PHON-NET CORPORATION
--------------------
Pursuant to Section 607.1006 of the Business Corporation Act of the
State of Florida, the undersigned President of PHON-NET CORPORATION, a
corporation organized and existing under and by virtue of the Business
Corporation Act of the State of Florida ("Corporation"), bearing document number
P97000004369, does hereby certify:
That pursuant to written consent of the majority of the Shareholders
and all of the Directors of said Corporation on June 2, 1999, the Shareholders
and Directors approved the amendment to the Corporation's Articles of
Incorporation as follows:
ARTICLE I
CORPORATE NAME
--------------
The name of the Corporation shall be "PHON-NET.COM, INC."
The foregoing amendment was adopted, pursuant to the Florida Business
Corporation Act, by all of the Directors and a majority of the Shareholders of
the Common Stock of the Corporation, which shares consenting and voted
represented a majority of the total issued and outstanding capital stock of the
Corporation entitled to vote, pursuant to written consent dated June 2, 1999.
Therefore, the number of votes cast by the
<PAGE>
Shareholders of the Corporation for the amendment to the Corporation's Articles
of Incorporation was sufficient for approval.
IN WITNESS WHEREOF, the undersigned, being the President of this
Corporation, has executed these Articles of Amendment as of June 2, 1999.
PHON-NET CORPORATION
By: /s/ Brian Collins
----------------------------
Brian Collins, President
2
ARTICLES OF AMENDMENT
TO THE
ARTICLES OF INCORPORATION
OF
PHON-NET CORPORATION
Pursuant to Section 607.1006 of the Business Corporation Act of the
State of Florida, the undersigned President of PHON-NET CORPORATION, a
corporation organized and existing under and by virtue of the Business
Corporation Act of the State of Florida ("Corporation"), bearing document number
P97000004369, does hereby certify:
First: That pursuant to written consent of the majority of the
Shareholders and all of the Directors of said Corporation on April 9, 1999, the
Shareholders and Directors approved the amendment to the Corporation's Articles
of Incorporation as follows:
ARTICLE IV
CAPITAL STOCK
-------------
The maximum number of shares of stock that this Corporation shall be
authorized to issue and have outstanding at any one time shall be 90,000,000
shares of capital stock, consisting of: (a) 80,000,000 shares of Common Stock
having a par value of $.001 per share, and (b) 10,000,000 shares of Preferred
Stock, having a par value of $.01 per share. Shareholders of the Corporation
shall not be entitled to pre-emptive rights and shall not be entitled to
cumulative voting rights.
The Preferred Stock may be issued from time to time, with such
designations, preferences, conversion rights, cumulative, relative,
participating, optional or other rights, including voting rights,
qualifications, limitations or restrictions thereof as shall be stated and
expressed in the resolution or resolutions providing for the creation and
issuance of
<PAGE>
such series of Preferred Stock as adopted by the Board of Directors
pursuant to the authority in this paragraph given";
The foregoing amendment was adopted, pursuant to the Florida Business
Corporation Act, by all of the Directors and a majority of the Shareholders of
the Common Stock of the Corporation, which shares consenting and voted
represented a majority of the total issued and outstanding capital stock of the
Corporation entitled to vote, pursuant to written consent dated April 9, 1999.
Therefore, the number of votes cast by the Shareholders of the Corporation for
the amendment to the Corporation's Articles of Incorporation was sufficient for
approval.
IN WITNESS WHEREOF, the undersigned, being the President of this
Corporation, has executed these Articles of Amendment as of April 9, 1999.
PHON-NET CORPORATION
By: /s/ Brian Collins
-----------------------------
Brian Collins, President
BY-LAWS
OF
PHON-NET.COM, INC.
a Florida corporation
1
<PAGE>
<TABLE>
<CAPTION>
INDEX
ARTICLE I
Offices
<S> <C> <C>
Section 1.01 Principal Office........................................................ 1
Section 1.02 Registered Office....................................................... 1
Section 1.03 Other Offices........................................................... 1
ARTICLE II
Meetings of Shareholders
Section 2.01 Annual Meeting.......................................................... 1
Section 2.02 Special Meetings........................................................ 2
Section 2.03 Shareholders' List for Meeting.......................................... 2
Section 2.04 Record Date............................................................. 3
Section 2.05 Notice of Meetings and Adjournment...................................... 3
Section 2.06 Waiver of Notice........................................................ 4
ARTICLE III
Shareholder Voting
Section 3.01 Voting Group Defined.................................................... 5
Section 3.02 Quorum and Voting Requirements for
Voting Groups........................................................... 5
Section 3.03 Action by Single and Multiple Voting
Groups.................................................................. 5
Section 3.04 Shareholder Quorum and Voting; Greater
or Lesser Voting Requirements........................................... 6
i
<PAGE>
Section 3.05 Voting for Directors; Cumulative Voting................................. 6
Section 3.06 Voting Entitlement of Shares............................................ 7
Section 3.07 Proxies................................................................. 8
Section 3.08 Shares Held by Nominees................................................. 9
Section 3.09 Corporation's Acceptance of Votes....................................... 10
Section 3.10 Action by Shareholders Without Meeting.................................. 11
ARTICLE IV
Board of Directors and Officers
Section 4.01 Qualifications of Directors............................................. 11
Section 4.02 Number of Directors..................................................... 11
Section 4.03 Terms of Directors Generally............................................ 12
Section 4.04 Staggered Terms for Directors........................................... 12
Section 4.05 Vacancy on Board........................................................ 12
Section 4.06 Compensation of Directors............................................... 12
Section 4.07 Meetings................................................................ 13
Section 4.08 Action by Directors Without a Meeting................................... 13
Section 4.09 Notice of Meetings...................................................... 13
Section 4.10 Waiver of Notice........................................................ 13
Section 4.11 Quorum and Voting....................................................... 14
Section 4.12 Committees.............................................................. 14
Section 4.13 Loans to Officers, Directors and
Employees; Guaranty of Obligations...................................... 15
ii
<PAGE>
Section 4.14 Required Officers....................................................... 15
Section 4.15 Duties of Officers...................................................... 16
Section 4.16 Resignation and Removal of Officers..................................... 16
Section 4.17 Contract Rights of Officers............................................. 16
Section 4.18 General Standards for Directors......................................... 16
Section 4.19 Director Conflicts of Interest.......................................... 17
Section 4.20 Resignation of Directors................................................ 18
ARTICLE V
Indemnification of Directors, Officers,
Employees and Agents
Section 5.01 Directors, Officers, Employees
and Agents.............................................................. 18
ARTICLE VI
Office and Agent
Section 6.01 Registered Office and Registered Agent.................................. 22
Section 6.02 Change of Registered Office or Registered
Agent; Resignation of Registered Agent.................................. 23
ARTICLE VII
Shares, Option, Dividends and Distributions
Section 7.01 Authorized Shares....................................................... 24
Section 7.02 Terms of Class or Series Determined
by Board of Directors................................................... 24
Section 7.03 Issued and Outstanding Shares........................................... 25
Section 7.04 Issuance of Shares...................................................... 25
iii
<PAGE>
Section 7.05 Form and Content of Certificates........................................ 26
Section 7.06 Shares Without Certificates............................................. 27
Section 7.07 Restriction on Transfer of Shares
and Other Securities.................................................... 27
Section 7.08 Shareholder's Pre-emptive Rights........................................ 27
Section 7.09 Corporation's Acquisition of its
Own Shares.............................................................. 28
Section 7.10 Share Options........................................................... 28
Section 7.11 Terms and Conditions of Stock Rights
and Options............................................................. 28
Section 7.12 Share Dividends......................................................... 29
Section 7.13 Distributions to Shareholders........................................... 29
ARTICLE VIII
Amendment of Articles and Bylaws
Section 8.01 Authority to Amend the Articles of
Incorporation........................................................... 31
Section 8.02 Amendment by Board of Directors......................................... 31
Section 8.03 Amendment of Bylaws by Board of
Directors............................................................... 32
Section 8.04 Bylaw Increasing Quorum or Voting
Requirements for Directors.............................................. 32
ARTICLE IX
Records and Report
Section 9.01 Corporate Records....................................................... 33
Section 9.02 Financial Statements for Shareholders................................... 34
iv
<PAGE>
Section 9.03 Other Reports to Shareholders........................................... 34
Section 9.04 Annual Report for Department of State................................... 35
ARTICLE X
Miscellaneous
Section 10.01 Definition of the "Act"................................................. 35
Section 10.02 Application of Florida Law.............................................. 36
Section 10.03 Fiscal Year............................................................. 36
Section 10.04 Conflicts with Articles of
Incorporation........................................................... 36
</TABLE>
v
<PAGE>
ARTICLE I
Offices
Section 1.01. Principal Office.
The principal office of the corporation in the State of Florida shall
be established at such places as the board of directors from time to time
determine.
Section 1.02. Registered Office.
The registered office of the corporation in the State of Florida shall
be at the office of its registered agent as stated in the articles of
incorporation or as the board of directors shall from time to time determine.
Section 1.03. Other Offices.
The corporation may have additional offices at such other places,
either within or without the State of Florida, as the board of directors may
from time to time determine or the business of the corporation may require.
ARTICLE II
Meetings of Shareholders
Section 2.01. Annual Meeting.
(1) The corporation shall hold a meeting of shareholders annually, for
the election of directors and for the transaction of any proper business, at a
time stated in or fixed in accordance with a resolution of the board of
directors.
(2) Annual shareholders' meeting may be held in or out of the State of
Florida at a place stated in or fixed in accordance with a resolution by the
board of directors or, when not inconsistent with the board of directors'
resolution stated in the notice of the annual meeting. If no place is stated in
or fixed in accordance with these bylaws, or stated in the notice of the annual
meeting, annual meetings shall be held at the corporation's principal office.
(3) The failure to hold the annual meeting at the time stated in or
fixed in accordance with these bylaws or pursuant to the Act does not affect the
validity of any corporate action and shall not work a forfeiture of or
dissolution of the corporation.
1
<PAGE>
Section 2.02. Special Meeting.
(1) The corporation shall hold a special meeting of shareholders:
(a) On call of its board of directors or the person or persons
authorized to do so by the board of directors; or
(b) If the holders of not less than 10% of all votes entitled
to be cast on any issue proposed to be considered at the proposed special
meeting sign, date and deliver to the corporation's secretary one or more
written demands for the meeting describing the purpose or purposes for which it
is to be held.
(2) Special shareholders' meetings may be held in or out of the State
of Florida at a place stated in or fixed in accordance with a resolution of the
board of directors, or, when not inconsistent with the board of directors'
resolution, in the notice of the special meeting. If no place is stated in or
fixed in accordance with these bylaws or in the notice of the special meeting,
special meetings shall be held at the corporation's principal office.
(3) Only business within the purpose or purposes described in the
special meeting notice may be conducted at a special shareholders' meeting.
Section 2.03. Shareholders' List for Meeting.
(1) After fixing a record date for a meeting, a corporation shall
prepare a list of the names of all its shareholders who are entitled to notice
of a shareholders' meeting, in accordance with the Florida Business Corporation
Act (the "Act"), or arranged by voting group, with the address of, and the
number and class and series, if any, of shares held by, each.
(2) The shareholders' list must be available for inspection by any
shareholder for a period of ten days prior to the meeting or such shorter time
as exists between the record date and the meeting and continuing through the
meeting at the corporation's principal office, at a place identified in the
meeting notice in the city where the meeting will be held, or at the office of
the corporation's transfer agent or registrar. A shareholder or his agent or
attorney is entitled on written demand to inspect the list (subject to the
requirements of Section 607.1602(3) of the Act), during regular business hours
and at his expense, during the period it is available for inspection.
(3) The corporation shall make the shareholders' list available at the
meeting, and any shareholder or his agent or attorney is entitled to inspect the
list at any time during the meeting or any adjournment.
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Section 2.04. Record Date.
(1) The board of directors may set a record date for purposes of
determining the shareholders entitled to notice of and to vote at a
shareholders' meeting; however, in no event may a record date fixed by the board
of directors be a date preceding the date upon which the resolution fixing the
record date is adopted.
(2) Unless otherwise fixed by the board of directors, the record date
for determining shareholders entitled to demand a special meeting is the date
the first shareholder delivers his demand to the corporation. In the event that
the board of directors sets the record date for a special meeting of
shareholders, it shall not be a date preceding the date upon which the
corporation receives the first demand from a shareholder requesting a special
meeting.
(3) If no prior action is required by the board of directors pursuant
to the Act, and, unless otherwise fixed by the board of directors, the record
date for determining shareholders entitled to take action without a meeting is
the date the first signed written consent is delivered to the corporation under
Section 607.0704 of the Act. If prior action is required by the board of
directors pursuant to the Act, the record date for determining shareholders
entitled to take action without a meeting is at the close of business on the day
on which the board of directors adopts the resolution taking such prior action.
(4) Unless otherwise fixed by the board of directors, the record date
for determining shareholders entitled to notice of and to vote at an annual or
special shareholders' meeting is the close of business on the day before the
first notice is delivered to shareholders.
(5) A record date may not be more than 70 days before the meeting or
action requiring a determination of shareholders.
(6) A determination of shareholders entitled to notice of or to vote at
a shareholders' meeting is effective for any adjournment of the meeting unless
the board of directors fixes a new record date, which it must do if the meeting
is adjourned to a date more than one 120 days after the date fixed for the
original meeting.
Section 2.05. Notice of Meetings and Adjournment.
(1) The corporation shall notify shareholders of the date, time and
place of each annual and special shareholders' meeting no fewer than 10 or more
than 60 days before the meeting date. Unless the Act requires otherwise, the
corporation is required to give notice only to shareholders entitled to vote at
the meeting. Notice shall be given in the manner provided in Section 607.0141 of
the Act, by or at the direction of the president, the secretary, of the officer
or persons calling the meeting. If the notice is mailed at least 30
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days before the date of the meeting, it may be done by a class of United States
mail other than first class. Notwithstanding Section 607.0141, if mailed, such
notice shall be deemed to be delivered when deposited in the United Statement
mail addressed to the shareholder at his address as it appears on the stock
transfer books of the corporation, with postage thereon prepaid.
(2) Unless the Act or the articles of incorporation requires otherwise,
notice of an annual meeting need not include a description of the purpose or
purposes for which the meeting is called.
(3) Notice of a special meeting must include a description of the
purpose or purposes for which the meeting is called.
(4) If an annual or special shareholders meeting is adjourned to a
different date, time, or place, notice need not be given of the new date, time,
or place if the new date, time or place is announced at the meeting before
adjournment is taken, and any business may be transacted at the adjourned
meeting that might have been transacted on the original date of the meeting. If
a new record date is or must be fixed under Section 607.0707 of the Act,
however, notice of the adjourned meeting must be given under this section to
persons who are shareholders as of the new record date who are entitled to
notice of the meeting.
(5) Notwithstanding the foregoing, no notice of a shareholders' meeting
need be given if: (a) an annual report and proxy statements for two consecutive
annual meetings of shareholders, or (b) all, and at least two checks in payment
of dividends or interest on securities during a 12-month period, have been sent
by first-class United States mail, addressed to the shareholder at his address
as it appears on the share transfer books of the corporation, and returned
undeliverable. The obligation of the corporation to give notice of a
shareholders' meeting to any such shareholder shall be reinstated once the
corporation has received a new address for such shareholder for entry on its
share transfer books.
Section 2.06. Waiver of Notice.
(1) A shareholder may waive any notice required by the Act, the
articles of incorporation, or bylaws before or after the date and time stated in
the notice. The waiver must be in writing, be signed by the shareholder entitled
to the notice, and be delivered to the corporation for inclusion in the minutes
or filing with the corporate records. Neither the business to be transacted at
nor the purpose of any regular or special meeting of the shareholders need be
specified in any written waiver of notice.
(2) A shareholder's attendance at a meeting: (a) Waives objection to
lack of notice or defective notice of the meeting, unless the shareholder at the
beginning of the
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meeting objects to holding the meeting or transacting business at the meeting;
or (b) waives objection to consideration of a particular matter at the meeting
that is not within the purpose or purposes described in the meeting notice,
unless the shareholder objects to considering the matter when it is presented.
ARTICLE III
Shareholder Voting
Section 3.01. Voting Group Defined.
A "voting group" means all shares of one or more classes or series that
under the articles of incorporation or the Act are entitled to vote and be
counted together collectively on a matter at a meeting of shareholders. All
shares entitled by the articles of incorporation or the Act to vote generally on
the matter are for that purpose a single voting group.
Section 3.02. Quorum and Voting Requirements for Voting Groups.
(1) Shares entitled to vote as a separate voting group may take action
on a matter at a meeting only if a quorum of those shares exists with respect to
that matter. Unless the articles of incorporation or the Act provides otherwise,
a majority of the votes entitled to be cast on the matter by the voting group
constitutes a quorum of that voting group for action on that matter.
(2) Once a share is represented for any purpose at a meeting, it is
deemed present for quorum purposes for the remainder of the meeting and for any
adjournment of that meeting unless a new record date is or must be set for that
adjourned meeting.
(3) If a quorum exists, action on a matter (other than the election of
directors) by a voting group is approved if the votes cast within the voting
group favoring the action exceed the votes cast opposing the action, unless the
articles of incorporation or the Act requires a greater number of affirmative
votes.
Section 3.03. Action by Single and Multiple Voting Groups.
(1) If the articles of incorporation or the Act provides for voting by
a single voting group on a matter, action on that matter is taken when voted
upon by that voting group as provided in Section 3.02 of these bylaws.
(2) If the articles of incorporation or the Act provides for voting by
two or more voting groups on a matter, action on that matter is taken only when
voted upon by each of those voting groups counted separately as provided in
Section 3.02 of these bylaws.
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Action may be taken by one voting group on a matter even though no action is
taken by another voting group entitled to vote on the matter.
Section 3.04. Shareholder Quorum and Voting; Greater or Lesser Voting
Requirements.
(1) A majority of the shares entitled to vote, represented in person or
by proxy, shall constitute a quorum at a meeting of shareholders, but in no
event shall a quorum consist of less than one-third of the shares entitled to
vote. When a specified item of business is required to be voted on by a class or
series of stock, a majority of the shares of such class or series shall
constitute a quorum for the transaction of such item of business by that class
or series.
(2) An amendment to the articles of incorporation that adds, changes or
deletes a greater or lesser quorum or voting requirement must meet the same
quorum requirement and be adopted by the same vote and voting groups required to
take action under the quorum and voting requirements then in effect or proposed
to be adopted, whichever is greater.
(3) If a quorum exists, action on a matter, other than the election of
directors, is approved if the votes cast by the holders of the shares
represented at the meeting and entitled to vote on the subject matter favoring
the action exceed the votes cast opposing the action, unless a greater number of
affirmative votes or voting by classes is required by the Act or the articles of
incorporation.
(4) After a quorum has been established at a shareholders' meeting, the
subsequent withdrawal of shareholders, so as to reduce the number of shares
entitled to vote at the meeting below the number required for a quorum, shall
not affect the validity of any action taken at the meeting or any adjournment
thereof.
(5) The articles of incorporation may provide for a greater voting
requirement or a greater or lesser quorum requirement for shareholders (or
voting groups of shareholders) than is provided by the Act, but in no event
shall a quorum consist of less than one-third of the shares entitled to vote.
Section 3.05. Voting for Directors; Cumulative Voting.
(1) Directors are elected by a plurality of the votes cast by the
shares entitled to vote in the election at a meeting at which a quorum is
present.
(2) Each shareholder who is entitled to vote at an election of
directors has the right to vote the number of shares owned by him for as many
persons as there are directors to be elected and for whose election he has a
right to vote. Shareholders do not
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have a right to cumulate their votes for directors unless the articles of
incorporation so provide.
Section 3.06. Voting Entitlement of Shares.
(1) Unless the articles of incorporation or the Act provides otherwise,
each outstanding share, regardless of class, is entitled to one vote on each
matter submitted to a vote at a meeting of shareholders. Only shares are
entitled to vote.
(2) The shares of the corporation are not entitled to vote if they are
owned, directly or indirectly, by a second corporation, domestic or foreign, and
the first corporation owns, directly or indirectly, a majority of shares
entitled to vote for directors of the second corporation.
(3) This section does not limit the power of the corporation to vote
any shares, including its own shares, held by it in a fiduciary capacity.
(4) Redeemable shares are not entitled to vote on any matter, and shall
not be deemed to be outstanding, after notice of redemption is mailed to the
holders thereof and a sum sufficient to redeem such shares has been deposited
with a bank, trust company, or other financial institution upon an irrevocable
obligation to pay the holders the redemption price upon surrender of the shares.
(5) Shares standing in the name of another corporation, domestic or
foreign, may be voted by such officer, agent, or proxy as the bylaws of the
corporate shareholder may prescribe or, in the absence of any applicable
provision, by such person as the board of directors of the corporate shareholder
may designate. In the absence of any such designation or in case of conflicting
designation by the corporate shareholder, the chairman of the board, the
president, any vice president, the secretary, and the treasurer of the corporate
shareholder, in that order, shall be presumed to be fully authorized to vote
such shares.
(6) Shares held by an administrator, executor, guardian, personal
representative, or conservator may be voted by him, either in person or by
proxy, without a transfer of such shares into his name. Shares standing in the
name of a trustee may be voted by him, either in person or by proxy, but no
trustee shall be entitled to vote shares held by him without a transfer of such
shares into his name or the name of his nominee.
(7) Shares held by or under the control of a receiver, a trustee in
bankruptcy proceedings, or an assignee for the benefit of creditors may be voted
by him without the transfer thereof into his name.
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(8) If a share or shares stand of record in the names of two or more
persons, whether fiduciaries, members of a partnership, joint tenants, tenants
in common, tenants by the entirety, or otherwise, or if two or more persons have
the same fiduciary relationship respecting the same shares, unless the secretary
of the corporation is given notice to the contrary and is furnished with a copy
of the instrument or order appointing them or creating the relationship wherein
it is so provided, then acts with respect to voting have the following effect:
(a) If only one votes, in person or in proxy, his act binds
all;
(b) If more than one vote, in person or by proxy, the act of
the majority so voting binds all;
(c) If more than one vote, in person or by proxy, but the vote
is evenly split on any particular matter, each faction is entitled to vote the
share or shares in question proportionally;
(d) If the instrument or order so filed shows that any such
tenancy is held in unequal interest, a majority or a vote evenly split for
purposes of this subsection shall be a majority or a vote evenly split in
interest;
(e) The principles of this subsection shall apply, insofar as
possible, to execution of proxies, waivers, consents, or objections and for the
purpose of ascertaining the presence of a quorum;
(f) Subject to Section 3.08 of these bylaws, nothing herein
contained shall prevent trustees or other fiduciaries holding shares registered
in the name of a nominee from causing such shares to be voted by such nominee as
the trustee or other fiduciary may direct. Such nominee may vote shares as
directed by a trustee or their fiduciary without the necessity of transferring
the shares to the name of the trustee or other fiduciary.
Section 3.07. Proxies.
(1) A shareholder, other person entitled to vote on behalf of a
shareholder pursuant to Section 3.06 of these bylaws, or attorney in fact may
vote the shareholder's shares in person or by proxy.
(2) A shareholder may appoint a proxy to vote or otherwise act for him
by signing an appointment form, either personally or by his attorney in fact. An
executed telegram or cablegram appearing to have been transmitted by such
person, or a photographic, photostatic, or equivalent reproduction of an
appointment form, is a sufficient appointment form.
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(3) An appointment of a proxy is effective when received by the
secretary or other officer or agent authorized to tabulate votes. An appointment
is valid for up to 11 months unless a longer period is expressly provided in the
appointment form.
(4) The death or incapacity of the shareholder appointing a proxy does
not affect the right of the corporation to accept the proxy's authority unless
notice of the death or incapacity is received by the secretary or other officer
or agent authorized to tabulate votes before the proxy exercises his authority
under the appointment.
(5) An appointment of a proxy is revocable by the shareholder unless
the appointment form conspicuously states that it is irrevocable and the
appointment is coupled with an interest. Appointments coupled with an interest
include the appointment of: (a) a pledgee; (b) a person who purchased or agreed
to purchase the shares; (c) a creditor of the corporation who extended credit to
the corporation under terms requiring the appointment; (d) an employee of the
corporation whose employment contract requires the appointment; or (e) a party
to a voting agreement created in accordance with the Act.
(6) An appointment made irrevocable under this section becomes
revocable when the interest with which it is coupled is extinguished and, in a
case provided for in Subsection 5(c) or 5(d), the proxy becomes revocable three
years after the date of the proxy or at the end of the period, if any, specified
herein, whichever is less, unless the period of irrevocability is renewed from
time to time by the execution of a new irrevocable proxy as provided in this
section. This does not affect the duration of a proxy under subsection (3).
(7) A transferee for value of shares subject to an irrevocable
appointment may revoke the appointment if he did not know of its existence when
he acquired the shares and the existence of the irrevocable appointment was not
noted conspicuously on the certificate representing the shares or on the
information statement for shares without certificates.
(8) Subject to Section 3.09 of these bylaws and to any express
limitation on the proxy's authority appearing on the face of the appointment
form, a corporation is entitled to accept the proxy's vote or other action as
that of the shareholder making the appointment.
(9) If an appointment form expressly provides, any proxy holder may
appoint, in writing, a substitute to act in his place.
Section 3.08. Shares Held by Nominees.
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(1) The corporation may establish a procedure by which the beneficial
owner of shares that are registered in the name of a nominee is recognized by
the corporation as the shareholder. The extent of this recognition may be
determined in the procedure.
(2) The procedure may set forth (a) the types of nominees to which it
applies; (b) the rights or privileges that the corporation recognizes in a
beneficial owner; (c) the manner in which the procedure is selected by the
nominee; (d) the information that must be provided when the procedure is
selected; (e) the period for which selection of the procedure is effective; and
(f) other aspects of the rights and duties created.
Section 3.09. Corporation's Acceptance of Votes.
(1) If the name signed on a vote, consent, waiver, or proxy appointment
corresponds to the name of a shareholder, the corporation if acting in good
faith is entitled to accept the vote, consent waiver, or proxy appointment and
give it effect as the act of the shareholder.
(2) If the name signed on a vote, consent, waiver, or proxy appointment
does not correspond to the name of its shareholder, the corporation if acting in
good faith is nevertheless entitled to accept the vote, consent, waiver, or
proxy appointment and give it effect as the act of the shareholder if: (a) the
shareholder is an entity and the name signed purports to be that of an officer
or agent of the entity; (b) the name signed purports to be that of an
administrator, executor, guardian, personal representative, or conservator
representing the shareholder and, if the corporation requests, evidence of
fiduciary status acceptable to the corporation has been presented with respect
to the vote, consent, waiver, or proxy appointment; (c) the name signed purports
to be that of a receiver, trustee in bankruptcy, or assignee for the benefit of
creditors of the shareholder and, if the corporation requests, evidence of this
status acceptable to the corporation has been presented with respect to the
vote, consent, waiver, or proxy appointment; (d) the name signed purports to be
that of a pledgee, beneficial owner, or attorney in fact of the shareholder and,
if the corporation requests, evidence acceptable to the corporation of the
signatory's authority to sign for the shareholder has been presented with
respect to the vote, consent, waiver, or proxy appointment; or (e) two or more
persons are the shareholder as covenants or fiduciaries and the name signed
purports to be the name of at least one of the co-owners and the person signing
appears to be acting on behalf of all the co-owners.
(3) The corporation is entitled to reject a vote, consent, waiver, or
proxy appointment if the secretary or other officer or agent authorized to
tabulate votes, acting in good faith, has reasonable basis for doubt about the
validity of the signature on it or about the signatory's authority to sign for
the shareholder.
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(4) The corporation and its officer or agent who accepts or rejects a
vote, consent, waiver, or proxy appointment in good faith and in accordance with
the standards of this section are not liable in damages to the shareholder for
the consequences of the acceptance or rejection.
(5) Corporate action based on the acceptance or rejection of a vote,
consent, waiver, or proxy appointment under this section is valid unless a court
of competent jurisdiction determines otherwise.
Section 3.10. Action by Shareholders Without Meeting.
(1) Any action required or permitted by the Act to be taken at any
annual or special meeting of shareholders of the corporation may be taken
without a meeting, without prior notice and without a vote, if the action is
taken by the holders of outstanding stock of each voting group entitled to vote
thereon having not less than the minimum number of votes with respect to each
voting group that would be necessary to authorize or take such action at a
meeting at which all voting groups and shares entitled to vote thereon were
present and voted. In order to be effective, the action must by evidenced by one
or more written consents describing the action taken, dated and signed by
approving shareholders having the requisite number of votes of each voting group
entitled to vote thereon, and delivered to the corporation by delivery to its
principal office in this state, its principal place of business, the corporate
secretary, or another office or agent of the corporation having custody of the
book in which proceedings of meetings of shareholders are recorded. No written
consent shall be effective to take the corporate action referred to therein
unless, within 60 days of the date of the earliest dated consent is delivered in
the manner required by this section, written consent signed by the number of
holders required to take action is delivered to the corporation by delivery as
set forth in this section.
(2) Within 10 days after obtaining such authorization by written
consent, notice in accordance with Section 607.0704(3) of the Act must be given
to those shareholders who have not consented in writing.
ARTICLE IV
Board of Directors and Officers
Section 4.01. Qualifications of Directors.
Directors must be natural persons who are 18 years of age or older but
need not be residents of the State of Florida or shareholders of the
corporation.
Section 4.02. Number of Directors.
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(1) The board of directors shall consist of not less than one nor more
than nine individuals.
(2) The number of directors may be increased or decreased from time to
time by amendment to these bylaws.
(3) Directors are elected at the first annual shareholders' meeting and
at each annual meeting thereafter unless their terms are staggered under Section
4.04 of these bylaws.
Section 4.03. Terms of Directors Generally.
(1) The terms of the initial directors of the corporation expire at the
first shareholders' meeting at which directors are elected.
(2) The terms of all other directors expire at the next annual
shareholders' meeting following their election unless their terms are staggered
under Section 4.04 of these bylaws.
(3) A decrease in the number of directors does not shorten an incumbent
director's term.
(4) The term of a director elected to fill a vacancy expires at the
next shareholders' meeting at which directors are elected.
(5) Despite the expiration of a director's term, he continues to serve
until his successor is elected and qualifies or until there is a decrease in the
number of directors.
Section 4.04. Staggered Terms for Directors.
The directors of any corporation organized under the Act may, by the
articles of incorporation, or by amendment to these bylaws adopted by a vote of
the shareholders, be divided into one, two or three classes with the number of
directors in each class being as nearly equal as possible; the term of office of
those of the first class to expire at the annual meeting next ensuing; of the
second class one year thereafter; at the third class two years thereafter; and
at each annual election held after such classification and election, directors
shall be chosen for a full term, as the case may be, to succeed those whose
terms expire. If the directors have staggered terms, then any increase or
decrease in the number of directors shall be so apportioned among the classes as
to make all classes as nearly equal in number as possible.
Section 4.05. Vacancy on Board.
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(1) Whenever a vacancy occurs on a board of directors, including a
vacancy resulting from an increase in the number of directors, it may be filled
by the affirmative vote of a majority of the remaining directors.
(2) A vacancy that will occur at a specific later date (by reason of a
resignation effective at a later date may be filled before the vacancy occurs
but the new director may not take office until the vacancy occurs.
Section 4.06. Compensation of Directors.
The board of directors may fix the compensation of directors.
Section 4.07. Meetings.
(1) The board of directors may hold regular or special meetings in or
out of the State of Florida.
(2) A majority of the directors present, whether or not a quorum
exists, may adjourn any meeting of the board of directors to another time and
place. Notice of any such adjourned meeting shall be given to the directors who
were not present at the time of the adjournment and, unless the time and place
of the adjourned meeting are announced at the time of the adjournment, to the
other directors.
(3) Meetings of the board of directors may be called by the chairman of
the board or by the president.
(4) The board of directors may permit any or all directors to
participate in a regular or special meeting by, or conduct the meeting through
the use of, any means of communication by which all directors participating may
simultaneously hear each other during the meeting. A director participating in a
meeting by this means is deemed to be present in person at the meeting.
Section 4.08. Action by Directors Without a Meeting.
(1) Action required or permitted by the Act to be taken at a board of
directors' meeting or committee meeting may be taken without a meeting if the
action is taken by all members of the board or of the committee. The action must
be evidenced by one or more written consents describing the action taken and
signed by each director or committee member.
(2) Action taken under this section is effective when the last director
signs the consent, unless the consent specifies a different effective date.
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(3) A consent signed under this section has the effect of a meeting
vote and may be described as such in any document.
Section 4.09. Notice of Meetings.
Regular and special meetings of the board of directors may be held
without notice of the date, time, place, or purpose of the meeting.
Section 4.10. Waiver of Notice.
Notice of a meeting of the board of directors need not be given to any
director who signs a waiver of notice either before or after the meeting.
Attendance of a director at a meeting shall constitute a waiver of notice of
such meeting and a waiver of any and all objections to the place of the meeting,
the time of the meeting, or the manner in which it has been called or convened,
except when a director states, at the beginning of the meeting or promptly upon
arrival at the meeting, any objection to the transaction of business because the
meeting is not lawfully called or convened.
Section 4.11. Quorum and Voting.
(1) A quorum of a board of directors consists of a majority of the
number of directors prescribed by the articles of incorporation or these bylaws.
(2) If a quorum is present when a vote is taken, the affirmative vote
of a majority of directors present is the act of the board of directors.
(3) A director of a corporation who is present at a meeting of the
board of directors or a committee of the board of directors when corporate
action is taken is deemed to have assented to the action taken unless:
(a) He objects at the beginning of the meeting (or promptly
upon his arrival) to holding it or transacting specified business at the
meeting; or
(b) He votes against or abstains from the action taken.
Section 4.12. Committees.
(1) The board of directors, by resolution adopted by a majority of the
full board of directors, may designate from among its members an executive
committee and one or more other committees each of which, to the extent provided
in such resolution, shall have and may exercise all the authority of the board
of directors, except that no such committee shall have the authority to:
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(a) Approve or recommend to shareholders actions or proposals
required by the Act to be approved by shareholders.
(b) Fill vacancies on the board of directors or any committee
thereof.
(c) Adopt, amend, or repeal these bylaws.
(d) Authorize or approve the reacquisition of shares unless
pursuant to a general formula or method specified by the board of directors.
(e) Authorize or approve the issuance or sale or contract for
the sale of shares, or determine the designation and relative rights,
preferences, and limitations of a voting group except that the board of
directors may authorize a committee (or a senior executive officer of the
corporation) to do so within limits specifically prescribed by the board of
directors.
(2) The sections of these bylaws which govern meetings, notice and
waiver of notice, and quorum and voting requirements of the board of directors
apply to committees and their members as well.
(3) Each committee must have two or more members who serve at the
pleasure of the board of directors. The board, by resolution adopted in
accordance herewith, may designate one or more directors as alternate members of
any such committee who may act in the place and stead of any absent member or
members at any meeting of such committee.
(4) Neither the designation of any such committee, the delegation
thereto of authority, nor action by such committee pursuant to such authority
shall alone constitute compliance by any member of the board of directors not a
member of the committee in question with his responsibility to act in good
faith, in a manner he reasonably believes to be in the best interests of the
corporation, and with such care as an ordinarily prudent person in a like
position would use under similar circumstances.
Section 4.13. Loans to Officers, Directors, and Employees; Guaranty of
Obligations.
The corporation may lend money to, guaranty any obligation of, or
otherwise assist any officer, director, or employee of the corporation or of a
subsidiary, whenever, in the judgment of the board of 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 in this section shall be deemed to deny, limit, or restrict the powers
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of guaranty or warranty of any corporation at common law or under any statute.
Loans, guaranties, or other types of assistance are subject to section 4.19.
Section 4.14. Required Officers.
(1) The corporation shall have such officers as the board of directors
may appoint from time to time.
(2) A duly appointed officer may appoint one or more assistant
officers.
(3) The board of directors shall delegate to one of the officers
responsibility for preparing minutes of the directors' and shareholders'
meetings and for authenticating records of the corporation.
(4) The same individual may simultaneously hold more than one office in
the corporation.
Section 4.15. Duties of Officers.
Each officer has the authority and shall perform the duties set forth
in a resolution or resolutions of the board of directors or by direction of any
officer authorized by the board of directors to prescribe the duties of other
officers.
Section 4.16. Resignation and Removal of Officers.
(1) An officer may resign at any time by delivering notice to the
corporation. A resignation is effective when the notice is delivered unless the
notice specifies a later effective date. If a resignation is made effective at a
later date and the corporation accepts the future effective date, the board of
directors may fill the pending vacancy before the effective date if the board of
directors provides that the successor does not take office until the effective
date.
(2) The board of directors may remove any officer at any time with or
without cause. Any assistant officer, if appointed by another officer, may
likewise be removed by the board of directors or by the officer which appointed
him in accordance with these bylaws.
Section 4.17. Contract Rights of Officers.
The appointment of an officer does not itself create contract rights.
Section 4.18. General Standards for Directors.
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(1) A director shall discharge his duties as a director, including his
duties as a member of a committee:
(a) In good faith;
(b) With the care an ordinarily prudent person in a like
position would exercise under similar circumstances; and
(c) In a manner he reasonably believes to be in the best
interests of the corporation.
(2) In discharging his duties, a director is entitled to rely on
information, opinions, reports or statements, including financial statements and
other financial data, if prepared or presented by:
(a) One or more officers or employees of the corporation whom
the director reasonably believes to be reliable and competent in the matters
presented;
(b) Legal counsel, public accountants, or other persons as to
matters the director reasonably believes are within the persons' professional or
expert competence; or
(c) A committee of the board of directors of which he is not a
member if the director reasonably believes the committee merits confidence.
(3) In discharging his duties, a director may consider such factors as
the director deems relevant, including the long-term prospects and interests of
the corporation and its shareholders, and the social, economic, legal, or other
effects of any action on the employees, suppliers, customers of the corporation
or its subsidiaries, the communities and society in which the corporation or its
subsidiaries operate, and the economy of the state and the nation.
(4) A director is not acting in good faith if he has knowledge
concerning the matter in question that makes reliance otherwise permitted by
subsection (2) unwarranted.
(5) A director is not liable for any action taken as a director, or any
failure to take any action, if he performed the duties of his office in
compliance with this section.
Section 4.19. Director Conflicts of Interest.
No contract or other transaction between a corporation and one or more
interested directors shall be either void or voidable because of such
relationship or interest, because such director or directors are present at the
meeting of the board of directors or a
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committee thereof which authorizes, approves or ratifies such contract or
transaction, or because his or their votes are counted for such purpose, if:
(1) The fact of such relationship or interest is disclosed or known to
the board of directors or committee which authorizes, approves or ratifies the
contract or transactions by a vote or consent sufficient for the purpose without
counting the votes or consents of such interested directors;
(2) The fact of such relationship or interest is disclosed or known to
the shareholders entitled to vote and they authorize, approve or ratify such
contract or transaction by vote or written consent; or
(3) The contract or transaction is fair and reasonable as to the
corporation at the time it is authorized by the board, a committee or the
shareholders.
Common or interested directors may be counted in determining the
presence of a quorum at the meeting of the board of directors or a committee
thereof which authorizes, approves or ratifies such contract or transaction.
For the purpose of paragraph (2) above, a conflict of interest
transaction is authorized, approved or ratified if it receives the vote of a
majority of the shares entitled to be counted under this subsection. Shares
owned by or voted under the control of a director who has a relationship or
interest in the conflict of interest transaction may not be counted in a vote of
shareholders to determine whether to authorize, approve or ratify a conflict of
interest transaction under paragraph (2). The vote of those shares, however, is
counted in determining whether the transaction is approved under other sections
of the Act. A majority of the shares, whether or not present, that are entitled
to be counted in a vote on the transaction under this subsection constitutes a
quorum for the purpose of taking action under this section.
Section 4.20. Resignation of Directors.
A director may resign at any time by delivering written notice to the
board of directors or its chairman or to the corporation.
A resignation is effective when the notice is delivered unless the
notice specifies a later effective date. If a resignation is made effective at a
later date, the board of directors may fill the pending vacancy before the
effective date if the board of directors provides that the successor does not
take office until the effective date.
ARTICLE V
Indemnification of Directors, Officers,
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Employees and Agents
Section 5.01. Directors, Officers, Employees and Agents.
(1) The corporation shall have power to indemnify any person who was or
is a party to any proceeding (other than an action by, or in the right of, the
corporation), by reason of the fact that he is or was a director, officer,
employee, or agent of the corporation or is or was serving at the request of the
corporation as a director, officer, employee, or agent of another corporation,
partnership, joint venture, trust, or other enterprise against liability
incurred in connection with such proceeding, including any appeal thereof, if he
acted in good faith and in a manner he reasonably believed to be in, or not
opposed to, the best interests of the corporation, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his conduct
was unlawful. The termination of any proceeding by judgment, order, settlement,
or conviction or upon a plea of nolo contendere or its equivalent shall not, of
itself, create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in, or not opposed to, the best
interests of the corporation or, with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was unlawful.
(2) The corporation shall have power to indemnify any person, who was
or is a party to any proceeding by or in the right of the corporation to procure
a judgment in its favor by reason of the fact that he is or was a director,
officer, employee, or agent of the corporation or is or was serving at the
request of the corporation as a director, officer, employee, or agent of another
corporation, partnership, joint venture, trust, or other enterprise, against
expenses and amounts paid in settlement not exceeding, in the judgment of the
board of directors, the estimated expense of litigating the proceeding to
conclusion, actually and reasonably incurred in connection with the defense or
settlement of such proceeding, including any appeal thereof. Such
indemnification shall be authorized if such person acted in good faith and in a
manner he reasonably believed to be in, or not opposed to, the best interests of
the corporation, except that no indemnification shall be made under this
subsection in respect of any claim, issue, or matter as to which such person
shall have been adjudged to be liable unless, and only to the extent that, the
court in which such proceeding was brought, or any other court of competent
jurisdiction, shall determine upon application that, despite the adjudication of
liability but in view of all circumstances of the case, such person is fairly
and reasonably entitled to indemnity for such expenses which such court shall
deem proper.
(3) To the extent that a director, officer, employee, or agent of the
corporation has been successful on the merits or otherwise in defense of any
proceeding referred to in subsections (1) or (2), or in defense of any claim,
issue, or matter therein, he shall be indemnified against expenses actually and
reasonably incurred by him in connection therewith.
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(4) Any indemnification under subsections (1) or (2), unless pursuant
to a determination by a court, shall be made by the corporation only as
authorized in the specific case upon a determination that indemnification of the
director, officer, employee, or agent is proper in the circumstances because he
has met the applicable standard of conduct set forth in subsections (1) or (2).
Such determination shall be made:
(a) By the board of directors by a majority vote of a quorum
consisting of directors who were not parties to such proceeding;
(b) If such a quorum is not obtainable or, even if obtainable,
by majority vote of a committee duly designated by the board of directors (in
which directors who are parties may participate) consisting solely of two or
more directors not at the time parties to the proceeding;
(c) By independent legal counsel:
(i) Selected by the board of directors prescribed in
paragraph (a) or the committee prescribed in paragraph (b); or
(ii) If a quorum of the directors cannot be obtained
for paragraph (a) and the committee cannot be designed under paragraph (b),
selected by majority vote of the full board of directors (in which directors who
are parties may participate); or
(d) By the shareholders by a majority vote of a quorum
consisting of shareholders who were not parties to such proceeding or, if no
such quorum is obtainable, by a majority vote of shareholders who were not
parties to such proceeding.
(5) Evaluation of the reasonableness of expenses and authorization of
indemnification shall be made in the same manner as the determination that
indemnification is permissible. However, if the determination of permissibility
is made by independent legal counsel, persons specified by paragraph (4)(c)
shall evaluate the reasonableness of expenses and may authorize indemnification.
(6) Expenses incurred by an officer or director in defending a civil or
criminal proceeding may be paid by the corporation in advance of the final
disposition of such proceeding upon receipt of an undertaking by or on behalf of
such director or officer to repay such amount if he is ultimately found not to
be entitled to indemnification by the corporation pursuant to this section.
Expenses incurred by other employees and agents may be paid in advance upon such
terms or conditions that the board of directors deems appropriate.
(7) The indemnification and advancement of expenses provided pursuant
to this section are not exclusive, and the corporation may make any other or
further
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indemnification or advancement of expenses of any of its directors, officers,
employees, or agents, under any bylaw, agreement, vote of shareholders or
disinterested directors, or otherwise, both as to action in his official
capacity and as to action in another capacity while holding such office.
However, indemnification or advancement of expenses shall not be made to or on
behalf of any director, officer, employee, or agent if a judgment or other final
adjudication establishes that his actions, or omissions to act, were material to
the cause of action so adjudicated and constitute:
(a) A violation of the criminal law, unless the director,
officer, employee, or agent had reasonable cause to believe his conduct was
lawful or had no reasonable cause to believe his conduct was unlawful;
(b) A transaction from which the director, officer, employee,
or agent derived an improper personal benefit;
(c) In the case of a director, a circumstance under which the
liability provisions of Section 607.0834 under the Act are applicable; or
(d) Willful misconduct or a conscious disregard for the best
interests of the corporation in a proceeding by or in the right of the
corporation to procure a judgment in its favor or in a proceeding by or in the
right of a shareholder.
(8) Indemnification and advancement of expenses as provided in this
section shall continue as, unless otherwise provided when authorized or
ratified, 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, unless otherwise provided when authorized or ratified.
(9) Notwithstanding the failure of the corporation to provide
indemnification, and despite any contrary determination of the board or of the
shareholders in the specific case, a director, officer, employee, or agent of
the corporation who is or was a party to a proceeding may apply for
indemnification or advancement of expenses, or both, to the court conducting the
proceeding, to the circuit court, or to another court of competent jurisdiction.
On receipt of an application, the court, after giving any notice that it
considers necessary, may order indemnification and advancement of expenses,
including expenses incurred in seeking court-ordered indemnification or
advancement of expenses, if it determines that:
(a) The director, officer, employee, or agent if entitled to
mandatory indemnification under subsection (3), in which case the court shall
also order the corporation to pay the director reasonable expenses incurred in
obtaining court-ordered indemnification or advancement of expenses;
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(b) The director, officer, employee, or agent is entitled to
indemnification or advancement of expenses, or both, by virtue of the exercise
by the corporation of its power pursuant to subsection (7); or
(c) The director, officer, employee, or agent is fairly and
reasonably entitled to indemnification or advancement of expenses, or both, in
view of all the relevant circumstances, regardless of whether such person met
the standard of conduct set forth in subsection (1), subsection (2) or
subsection (7).
(10) For purposes of this section, the term "corporation" includes, in
addition to the resulting corporation, any constituent corporation (including
any constituent of a constituent) absorbed in a consolidation or merger, so that
any person who is or was a director, officer, employee, or agent of a
constituent corporation, or is or was serving at the request of a constituent
corporation as a director, officer, employee, or agent of another corporation,
partnership, joint venture, trust or other enterprise, is in the same position
under this section with respect to the resulting or surviving corporation as he
would have with respect to such constituent corporation if its separate
existence had continued.
(11) For purposes of this section:
(a) The term "other enterprises" includes employee benefit
plans;
(b) The term "expenses" includes counsel fees, including those
for appeal;
(c) The term "liability" includes obligations to pay a
judgment, settlement, penalty, fine (including an excise tax assessed with
respect to any employee benefit plan), and expenses actually and reasonably
incurred with respect to a proceeding;
(d) The term "proceeding" includes any threatened, pending, or
completed action, suit or other type of proceeding, whether civil, criminal,
administrative, or investigative and whether formal or informal;
(e) The term "agent" includes a volunteer;
(f) The term "serving at the request of the corporation"
includes any service as a director, officer, employee, or agent of the
corporation that imposes duties on such persons, including duties relating to an
employee benefit plan and its participants or beneficiaries; and
(g) The term "not opposed to the best interest of the
corporation" describes the actions of a person who acts in good faith and in a
manner he reasonably believes to be in the best interests of the participants
and beneficiaries of an employee benefit plan.
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(12) The corporation shall have power to purchase and maintain
insurance on behalf of any person who 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 any liability
asserted against him and incurred by him in any such capacity or arising out of
his status as such, whether or not the corporation would have the power to
indemnify him against such liability under the provisions of this section.
ARTICLE VI
Office and Agent
Section 6.01. Registered Office and Registered Agent.
(1) The corporation shall have and continuously maintain in the State
of Florida:
(a) A registered office which may be the same as its place of
business; and
(b) A registered agent, who, may be either:
(i) An individual who resides in the State of Florida
whose business office is identical with such registered office; or
(ii) Another corporation or not-for-profit
corporation as defined in Chapter 617 of the Act, authorized to transact
business or conduct its affairs in the State of Florida, having a business
office identical with the registered office; or
(iii) A foreign corporation or not-for-profit foreign
corporation authorized pursuant to chapter 607 or chapter 617 of the Act to
transact business or conduct its affairs in the State of Florida, having a
business office identical with the registered office.
Section 6.02. Change of Registered Office or Registered Agent; Resignation
of Registered Agent.
(1) The corporation may change its registered office or its registered
agent upon filing with the Department of State of the State of Florida a
statement of change setting forth:
(a) The name of the corporation;
(b) The street address of its current registered office;
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(c) If the current registered office is to be changed, the
street address of the new registered office;
(d) The name of its current registered agent;
(e) If its current registered agent is to be changed, the name
of the new registered agent and the new agent's written consent (either on the
statement or attached to it) to the appointment;
(f) That the street address of its registered office and the
street address of the business office of its registered agent, as changed, will
be identical;
(g) That such change was authorized by resolution duly adopted
by its board of directors or by an officer of the corporation so authorized by
the board of directors.
ARTICLE VII
Shares, Options, Dividends and Distributions
Section 7.01. Authorized Shares.
(1) The articles of incorporation prescribe the classes of shares and
the number of shares of each class that the corporation is authorized to issue,
as well as a distinguishing designation for each class, and prior to the
issuance of shares of a class the preferences, limitations, and relative rights
of that class must be described in the articles of incorporation.
(2) The articles of incorporation must authorize:
(a) One or more classes of shares that together have unlimited
voting rights, and
(b) One or more classes of shares (which may be the same class
or classes as those with voting rights) that together are entitled to receive
the net assets of the corporation upon dissolution.
(3) The articles of incorporation may authorize one or more classes of
shares that have special, conditional, or limited voting rights, or no rights,
or no right to vote, except to the extent prohibited by the Act;
(a) Are redeemable or convertible as specified in the articles
of incorporation;
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(b) Entitle the holders to distributions calculated in any
manner, including dividends that may be cumulative, non-cumulative, or partially
cumulative;
(c) Have preference over any other class of shares with
respect to distributions, including dividends and distributions upon the
dissolution of the corporation.
(4) Shares which are entitled to preference in the distribution of
dividends or assets shall not be designated as common shares. Shares which are
not entitled to preference in the distribution of dividends or assets shall be
common shares and shall not be designated as preferred shares.
Section 7.02. Terms of Class or Series Determined by Board of Directors.
(1) If the articles of incorporation so provide, the board of directors
may determine, in whole or part, the preferences, limitations, and relative
rights (within the limits set forth in Section 7.01) of:
(a) Any class of shares before the issuance of any shares of
that class, or
(b) One or more series within a class before the issuance of
any shares of that series.
(2) Each series of a class must be given a distinguishing designation.
(3) All shares of a series must have preferences, limitations, and
relative rights identical with those of other shares of the same series and,
except to the extent otherwise provided in the description of the series, of
those of other series of the same class.
(4) Before issuing any shares of a class or series created under this
section, the corporation must deliver to the Department of State of the State of
Florida for filing articles of amendment, which are effective without
shareholder action, in accordance with Section 607.0602 of the Act.
Section 7.03. Issued and Outstanding Shares.
(1) A corporation may issue the number of shares of each class or
series authorized by the articles of incorporation. Shares that are issued are
outstanding shares until they are reacquired, redeemed, converted, or canceled.
(2) The reacquisition, redemption, or conversion of outstanding shares
is subject to the limitations of subsection (3) and to Section 607.06401 of the
Act.
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(3) At all times that shares of the corporation are outstanding, one or
more shares that together have unlimited voting rights and one or more shares
that together are entitled to receive the net assets of the corporation upon
dissolution must be outstanding.
Section 7.04. Issuance of Shares.
(1) The board of directors may authorize shares to be issued for
consideration consisting of any tangible or intangible property or benefit to
the corporation, including cash, promissory notes, services performed, promises
to perform services evidenced by a written contract, or other securities of the
corporation.
(2) Before the corporation issues shares, the board of directors must
determine that the consideration received or to be received for shares to be
issued is adequate. That determination by the board of directors is conclusive
insofar as the adequacy of consideration for the issuance of shares relates to
whether the shares are validly issued, fully paid, and non-assessable. When it
cannot be determined that outstanding shares are fully paid and non-assessable,
there shall be a conclusive presumption that such shares are fully paid and
non-assessable if the board of directors makes a good faith determination that
there is no substantial evidence that the full consideration for such shares has
not been paid.
(3) When the corporation receives the consideration for which the board
of directors authorized the issuance of shares, the shares issued therefor are
fully paid and non-assessable. Consideration in the form of a promise to pay
money or a promise to perform services is received by the corporation at the
time of the making of the promise, unless the agreement specifically provides
otherwise.
(4) The corporation may place in escrow shares issued for a contract
for future services or benefits or a promissory note, or make other arrangements
to restrict the transfer of the shares, and may credit distributions in respect
of the shares against their purchase price, until the services are performed,
the note is paid, or the benefits received. If the services are not performed,
the shares escrowed or restricted and the distributions credited may be canceled
in whole or part.
Section 7.05. Form and Content of Certificates.
(1) Shares may but need not be represented by certificates. Unless the
Act or another statute expressly provides otherwise, the rights and obligations
of shareholders are identical whether or not their shares are represented by
certificates.
(2) At a minimum, each share certificate must state on its face:
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(a) The name of the issuing corporation and that the
corporation is organized under the laws of the State of Florida;
(b) The name of the person to whom issued; and
(c) The number and class of shares and the designation of the
series, if any, the certificate represents.
(3) If the shares being issued are of different classes of shares or
different series within a class, the designations, relative rights, preferences,
and limitations applicable to each class and the variations in rights,
preferences, and limitations determined for each series (and the authority of
the board of directors to determine variations for future series) must be
summarized on the front or back of each certificate. Alternatively, each
certificate may state conspicuously on its front or back that the corporation
will furnish the shareholder a full statement of this information on request and
without charge.
(4) Each share certificate:
(a) Must be signed (either manually or in facsimile) by an
officer or officers designated by the board of directors, and
(b) May bear the corporate seal or its facsimile.
(5) If the person who signed (either manually or in facsimile) a share
certificate no longer holds office when the certificate is issued, the
certificate is nevertheless valid.
(6) Nothing in this section may be construed to invalidate any share
certificate validly issued and outstanding under the Act on July 1, 1990.
Section 7.06. Shares Without Certificates.
(1) The board of directors of the corporation may authorize the issue
of some or all of the shares of any or all of its classes or series without
certificates. The authorization does not affect shares already represented by
certificates until they are surrendered to the corporation.
(2) Within a reasonable time after the issue or transfer of shares
without certificates, the corporation shall send the shareholder a written
statement of the information required on certificates by the Act.
Section 7.07. Restriction on Transfer of Shares and Other Securities.
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(1) The articles of incorporation, these bylaws, an agreement among
shareholders, or an agreement between shareholders and the corporation may
impose restrictions on the transfer or registration of transfer of shares of the
corporation. A restriction does not affect shares issued before the restriction
was adopted unless the holders of such shares are parties to the restriction
agreement or voted in favor of the restriction.
(2) A restriction on the transfer or registration of transfer of shares
is valid and enforceable against the holder or a transferee of the holder if the
restriction is authorized by this section, and effected in compliance with the
provisions of the Act, including having a proper purpose as referred to in the
Act.
Section 7.08. Shareholder's Pre-emptive Rights.
The shareholders of the corporation do not have a pre-emptive right to
acquire the corporation's unissued shares.
Section 7.09. Corporation's Acquisition of its Own Shares.
(1) The corporation may acquire its own shares, and, unless otherwise
provided in the articles of incorporation or except as provided in subsection
(4), shares so acquired constitute authorized but unissued shares of the same
class but undesignated as to series.
(2) If the articles of incorporation prohibit the reissue of acquired
shares, the number of authorized shares is reduced by the number of shares
acquired, effective upon amendment of the articles of incorporation.
(3) Articles of amendment may be adopted by the board of directors
without shareholder action, shall be delivered to the Department of State of the
State of Florida for filing, and shall set forth the information required by
Section 607.0631 of the Act.
(4) Shares of the corporation in existence on June 30, 1990, which are
treasury shares under Section 607.004(18), Florida Statutes (1987), shall be
issued, but not outstanding, until canceled or disposed of by the corporation.
Section 7.10. Share Options.
(1) Unless the articles of incorporation provide otherwise, the
corporation may issue rights, options, or warrants for the purchase of shares of
the corporation. The board of directors shall determine the terms upon which the
rights, options, or warrants are issued, their form and content, and the
consideration for which the shares are to be issued.
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(2) The terms and conditions of stock rights and options which are
created and issued by the corporation, or its successor, and which entitle the
holders thereof to purchase from the corporation shares of any class or classes,
whether authorized by unissued shares, treasury shares, or shares to be
purchased or acquired by the corporation, may include, without limitation,
restrictions, or conditions that preclude or limit the exercise, transfer,
receipt, or holding of such rights or options by any person or persons,
including any person or persons owning or offering to acquire a specified number
or percentage of the outstanding common shares or other securities of the
corporation, or any transferee or transferees of any such person or persons, or
that invalidate or void such rights or options held by any such person or
persons or any such transferee or transferees.
Section 7.11. Terms and Conditions of Stock Rights and Options.
The terms and conditions of the stock rights and options which are
created and issued by the corporation [or its successor], and which entitle the
holders thereof to purchase from the corporation shares of any class or classes,
whether authorized but unissued shares, treasury shares, or shares to be
purchased or acquired by the corporation, may include, without limitation,
restrictions or conditions that preclude or limit the exercise, transfer,
receipt or holding of such rights or options by any person or persons, including
any person or persons owning or offering to acquire a specified number or
percentage of the outstanding common shares or other securities of the
corporation, or any transferee or transferees of any such person or persons, or
that invalidate or void such rights or options held by any such person or
persons or any such transferee or transferees.
Section 7.12. Share Dividends.
(1) Shares may be issued pro rata and without consideration to the
corporation's shareholders or to the shareholders of one or more classes or
series. An issuance of shares under this subsection is a share dividend.
(2) Shares of one class or series may not be issued as a share dividend
in respect of shares of another class or series unless:
(a) The articles of incorporation so authorize,
(b) A majority of the votes entitled to be cast by the class
or series to be issued approves the issue, or
(c) There are no outstanding shares of the class or series to
be issued.
(3) If the board of directors does not fix the record date for
determining shareholders entitled to a share dividend, it is the date of the
board of directors authorizes the share dividend.
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Section 7.13. Distributions to Shareholders.
(1) The board of directors may authorize and the corporation may make
distributions to its shareholders subject to restriction by the articles of
incorporation and the limitations in subsection (3).
(2) If the board of directors does not fix the record date for
determining shareholders entitled to a distribution (other than one involving a
purchase, redemption, or other acquisition of the corporation's shares), it is
the date the board of directors authorizes the distribution.
(3) No distribution may be made if, after giving it effect:
(a) The corporation would not be able to pay its debts as they
become due in the usual course of business; or
(b) The corporation's total assets would be less than the sum
of its total liabilities plus (unless the articles of incorporation permit
otherwise) the amount that would be needed, if the corporation were to be
dissolved at the time of the distribution, to satisfy the preferential rights
upon dissolution of shareholders whose preferential rights are superior to those
receiving the distribution.
(4) The board of directors may base a determination that a distribution
is not prohibited under subsection (3) either on financial statements prepared
on the basis of accounting practices and principles that are reasonable in the
circumstances or on a fair valuation or other method that is reasonable in the
circumstances. In the case of any distribution based upon such a valuation, each
such distribution shall be identified as a distribution based upon a current
valuation of assets, and the amount per share paid on the basis of such
valuation shall be disclosed to the shareholders concurrent with their receipt
of the distribution.
(5) Except as provided in subsection (7), the effect of a distribution
under subsection (3) is measured;
(a) In the case of distribution by purchase, redemption, or
other acquisition of the corporation's shares, as of the earlier of:
(i) The date money or other property is transferred
or debt incurred by the corporation, or
(ii) The date the shareholder ceases to be a
shareholder with respect to the acquired shares;
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(b) In the case of any other distribution of indebtedness, as
of the date the indebtedness is distributed;
(c) In all other cases, as of:
(i) The date the distribution is authorized if the
payment occurs within 120 days after the date of authorization, or
(ii) The date the payment is made if it occurs more
than 120 days after the date of authorization.
(6) A corporation's indebtedness to a shareholder incurred by reason of
a distribution made in accordance with this section is at parity with the
corporation's indebtedness to its general, unsecured creditors except to the
extent subordinated by agreement.
(7) Indebtedness of the corporation, including indebtedness issued as a
distribution, is not considered a liability for purposes of determinations under
subsection (3) if its terms provide that payment of principal and interest are
made only if and to the extent that payment of a distribution to shareholders
could then be made under this section. If the indebtedness is issued as a
distribution, each payment of principal or interest is treated as a
distribution, the effect of which is measured on the date the payment is
actually made.
ARTICLE VIII
Amendment of Articles and Bylaws
Section 8.01. Authority to Amend the Articles of Incorporation.
(1) The corporation may amend its articles of incorporation at any time
to add or change a provision that is required or permitted in the articles of
incorporation or to delete a provision not required in the articles of
incorporation. Whether a provision is required or permitted in the articles of
incorporation is determined as of the effective date of the amendment.
(2) A shareholder of the corporation does not have a vested property
right resulting from any provision in the articles of incorporation, including
provisions relating to management, control, capital structure, dividend
entitlement, or purpose or duration of the corporation.
31
<PAGE>
Section 8.02. Amendment by Board of Directors.
The corporation's board of directors may adopt one or more amendments
to the corporation's articles of incorporation without shareholder action:
(1) To extend the duration of the corporation if it was incorporated at
a time when limited duration was required by law;
(2) To delete the names and addresses of the initial directors;
(3) To delete the name and address of the initial registered agent or
registered office, if a statement of change is on file with the Department of
State of the State of Florida;
(4) To delete any other information contained in the articles of
incorporation that is solely of historical interest;
(5) To change each issued and unissued authorized share of an
outstanding class into a greater number of whole shares if the corporation has
only shares of that class outstanding;
(6) To delete the authorization for a class or series of shares
authorized pursuant to Section 607.0602 of the Act, if no shares of such class
or series have been issued;
(7) To change the corporate name by substituting the word
"corporation," "incorporated," or "company," or the abbreviation "corp.," Inc.,"
or Co.," for a similar word or abbreviation in the name, or by adding, deleting,
or changing a geographical attribution for the name; or
(8) To make any other change expressly permitted by the Act to be made
without shareholder action.
Section 8.03. Amendment of Bylaws by Board of Directors.
The corporation's board of directors may amend or repeal the
corporation's bylaws unless the Act reserves the power to amend a particular
bylaw provision exclusively to the shareholders.
Section 8.04. Bylaw Increasing Quorum or Voting Requirements for Directors.
(1) A bylaw that fixes a greater quorum or voting requirement for the
board of directors may be amended or repealed:
32
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(a) If originally adopted by the shareholders, only by the
shareholders;
(b) If originally adopted by the board of directors, either by
the shareholders or by the board of directors.
(2) A bylaw adopted or amended by the shareholders that fixes a greater
quorum or voting requirement for the board of directors may provide that it may
be amended or repealed only by a specified vote of either the shareholders or
the board of directors.
(3) Action by the board of directors under paragraph (1)(b) to adopt or
amend a bylaw that changes the quorum or voting requirement for the board of
directors must meet the same quorum requirement and be adopted by the same vote
required to take action under the quorum and voting requirement then in effect
or proposed to be adopted, whichever is greater.
ARTICLE IX
Records and Reports
Section 9.01. Corporate Records.
(1) The corporation shall keep as permanent records minutes of al
meetings of its shareholders and board of directors, a record of all actions
taken by the shareholders or board of directors without a meeting, and a record
of all actions taken by a committee of the board of directors in place of the
board of directors on behalf of the corporation.
(2) The corporation shall maintain accurate accounting records.
(3) The corporation or its agent shall maintain a record of its
shareholders in a form that permits preparation of a list of the names and
addresses of all shareholders in alphabetical order by class of shares showing
the number and series of shares held by each.
(4) The corporation shall maintain its records in written form or in
another form capable of conversion into written form within a reasonable time.
(5) The corporation shall keep a copy of the following records:
(a) Its articles or restated articles of incorporation and all
amendments to them currently in effect;
(b) Its bylaws or restated bylaws and all amendments to them
currently in effect;
33
<PAGE>
(c) Resolutions adopted by the board of directors creating one
or more classes or series of shares and finding their relative rights,
preferences, and limitations, if shares issued pursuant to those resolutions are
outstanding;
(d) The minutes of all shareholders' meetings and records of
all action taken by shareholders without a meeting for the past three years;
(e) Written communications to all shareholders generally or
all shareholders of a class or series within the past three years, including the
financial statements furnished for the past three years;
(f) A list of the names and business street addresses of its
current directors and officers; and
(g) Its most recent annual report delivered to the Department
of State of the State of Florida.
Section 9.02. Financial Statements for Shareholders.
(1) Unless modified by resolution of the shareholders within 120 days
of the close of each fiscal year, the corporation shall furnish its shareholders
annual financial statements which may be consolidated or combined statements of
the corporation and one or more of its subsidiaries, as appropriate, that
include a balance sheet as of the end of the fiscal year, an income statement
for that year, and a statement of cash flows for that year. If financial
statements are prepared for the corporation on the basis of generally-accepted
accounting principles, the annual financial statements must also be prepared on
that basis.
(2) If the annual financial statements are reported upon by a public
accountant, his report must accompany them. If not, the statements must be
accompanied by a statement of the president or the person responsible for the
corporation's accounting records:
(a) Stating his reasonable belief whether the statements were
prepared on the basis of generally-accepted accounting principles and, if not,
describing the basis of preparation; and
(b) Describing any respects in which the statements were not
prepared on a basis of accounting consistent with the statements prepared for
the preceding year.
(3) The corporation shall mail the annual financial statements to each
shareholder within 120 days after the close of each fiscal year or within such
additional time thereafter as is reasonably necessary to enable the corporation
to prepare its financial statements, if for reasons beyond the corporation's
control, it is unable to prepare its
34
<PAGE>
financial statements within the prescribed period. Thereafter, on written
request from a shareholder who was not mailed the statements, the corporation
shall mail him the latest annual financial statements.
Section 9.03. Other Reports to Shareholders.
(1) If the corporation indemnifies or advances expenses to any
director, officer, employee or agent otherwise than by court order or action by
the shareholders or by an insurance carrier pursuant to insurance maintained by
the corporation, the corporation shall report the indemnification or advance in
writing to the shareholders with or before the notice of the next shareholders'
meeting, or prior to such meeting if the indemnification or advance occurs after
the giving of such notice but prior to the time such meeting is held, which
report shall include a statement specifying the persons paid, the amounts paid,
and the nature and status at the time of such payment of the litigation or
threatened litigation.
(2) If the corporation issues or authorizes the issuance of shares for
promises to render services in the future, the corporation shall report in
writing to the shareholders the number of shares authorized or issued, and the
consideration received by the corporation, with or before the notice of the next
shareholders' meeting.
Section 9.04. Annual Report for Department of State.
(1) The corporation shall deliver to the Department of State of the
State of Florida for filing a sworn annual report on such forms as the
Department of State of the State of Florida prescribes that sets forth the
information prescribed by Section 607.1622 of the Act.
(2) Proof to the satisfaction of the Department of State of the State
of Florida on or before July 1 of each calendar year that such report was
deposited in the United States mail in a sealed envelope, properly addressed
with postage prepaid, shall be deemed in compliance with this requirement.
(3) Each report shall be executed by the corporation by an officer or
director or, if the corporation is in the hands of a receiver or trustee, shall
be executed on behalf of the corporation by such receiver or trustee, and the
signing thereof shall have the same legal effect as if made under oath, without
the necessity of appending such oath thereto.
(4) Information in the annual report must be current as of the date the
annual report is executed on behalf of the corporation.
(5) Any corporation failing to file an annual report which complies
with the requirements of this section shall not be permitted to maintain or
defend any action in any court of this state until such report is filed and all
fees and taxes due under the Act are paid
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<PAGE>
and shall be subject to dissolution or cancellation of its certificate of
authority to do business as provided in the Act.
ARTICLE X
Miscellaneous
Section 10.01. Definition of the "Act".
All references contained herein to the "Act" or to sections of the
"Act" shall be deemed to be in reference to the Florida Business Corporation
Act.
Section 10.02. Application of Florida Law.
Whenever any provision of these bylaws is inconsistent with any
provision of the Florida Business Corporation Act, Statutes 607, as they may be
amended from time to time, then in such instance Florida law shall prevail.
Section 10.03. Fiscal Year.
The fiscal year of the corporation shall be determined by resolution of
the board of directors.
Section 10.04. Conflicts with Articles of Incorporation.
In the event that any provision contained in these bylaws conflicts
with any provision of the corporation's articles of incorporation, as amended
from time to time, the provisions of the articles of incorporation shall prevail
and be given full force and effect, to the full extent permissible under the
Act.
36
EXHIBIT 5
ATLAS, PEARLMAN, TROP & BORKSON, P.A.
200 East Las Olas Boulevard, Suite 1900
Fort Lauderdale, Florida 33301
August 27, 1999
Phon-Net.com, Inc.
750 West Pender Street
Suite 600
Vancouver, British Columbia V6C 2T7
Re: Registration Statement on Form SB-2; Phon-Net.com, Inc., a Florida
corporation (the "Company")
Gentlemen:
This opinion is submitted pursuant to the applicable rules of the
Securities and Exchange Commission with respect to the registration for public
sale of 5,985,000 shares (the "Shares") of the Company's Common Stock, $.001 par
value ("Common Stock").
In connection therewith, we have examined and relied upon original,
certified, conformed, photostat or other copies of (i) the Articles of
Incorporation, as amended, and Bylaws of the Company; (ii) resolutions of the
Board of Directors of the Company authorizing the offering and related matters;
(iii) the Registration Statement and the exhibits thereto; and (iv) such other
matters of law as we have deemed necessary for the expression of the opinion
herein contained. In all such examinations, we have assumed the genuineness of
all signatures on original documents, and the conformity to originals or
certified documents of all copies submitted to us as conformed, photostat or
other copies. In passing upon certain corporate records and documents of the
Company, we have necessarily assumed the correctness and completeness of the
statements made or included therein by the Company, and we express no opinion
thereon. As to the various questions of fact material to this opinion, we have
relied, to the extent we deemed reasonably appropriate, upon representations or
certificates of officers or directors of the Company and upon documents, records
and instruments furnished to us by the Company, without independently checking
or verifying the accuracy of such documents, records and instruments.
Based upon the foregoing, we are of the opinion under the laws of the
State of Florida, that the Shares have been duly and validly issued and are
fully paid and non-assessable.
<PAGE>
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to use our name under the caption "Legal Matters" in
the prospectus comprising part of the Registration Statement.
Sincerely,
ATLAS, PEARLMAN, TROP & BORKSON, P.A.
/s/ Atlas, Pearlman, Trop & Borkson, P.A.
-------------------------------------------
PHON-NET.COM, INC. CORPORATION
1999 STOCK OPTION PLAN
----------------------
1. Grant of Options; Generally. In accordance with the provisions
hereinafter set forth in this stock option plan, the name of which is
the PHON-NET.COM, INC. 1999 STOCK OPTION PLAN (the "Plan"), the Board
of Directors (the "Board") or, the Compensation Committee (the "Stock
Option Committee") of PHON-NET.COM, INC. (the "Corporation") is hereby
authorized to issue from time to time on the Corporation's behalf to
any one or more Eligible Persons, as hereinafter defined, options to
acquire shares of the Corporation's $.001 par value common stock (the
"Stock").
2. Type of Options. The Board or the Stock Option Committee is authorized
to issue options which meet the requirements of Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"), which options
are hereinafter referred to collectively as ISOs, or singularly as an
ISO. The Board or the Stock Option Committee is also, in its
discretion, authorized to issue options which are not ISOs, which
options are hereinafter referred to collectively as NSOs, or singularly
as an NSO. The Board or the Stock Option Committee is also authorized,
but not obligated, to issue "Reload Options" in accordance with
Paragraph 8 herein, which options are hereinafter referred to
collectively as Reload Options, or singularly as a Reload Option.
Except where the context indicates to the contrary, the term "Option"
or "Options" means ISOs, NSOs and Reload Options.
3. Amount of Stock. The aggregate number of shares of Stock which may be
purchased pursuant to the exercise of Options shall be 3,000,000
shares. Of this amount, the Board or the Stock Option Committee shall
have the power and authority to designate whether any Options so issued
shall be ISOs or NSOs, subject to the restrictions on ISOs contained
elsewhere herein. If an Option ceases to be exercisable, in whole or in
part, the shares of Stock underlying such Option shall continue to be
available under this Plan. Further, if shares of Stock are delivered to
the Corporation as payment for shares of Stock purchased by the
exercise of an Option granted under this Plan, such shares of Stock
shall also be available under this Plan. If there is any change in the
number of shares of Stock on account of the declaration of stock
dividends, recapitalization resulting in stock split-ups, or
combinations or exchanges of shares of Stock, or otherwise, the number
of shares of Stock available for purchase upon the exercise of Options,
the shares of Stock subject to any Option and the exercise price of any
outstanding Option shall be appropriately adjusted by the Board or the
Stock Option Committee. The Board or the Stock Option Committee shall
give notice of any adjustments to each Eligible Person granted an
Option under this Plan, and such adjustments shall be effective and
binding on all Eligible Persons. If because of one or more
re-capitalizations, reorganizations or other corporate events, the
holders of outstanding
<PAGE>
Stock receive something other than shares of Stock then, upon exercise
of an Option, the Eligible Person will receive what the holder would
have owned if the holder had exercised the Option immediately before
the first such corporate event and not disposed of anything the holder
received as a result of the corporate event.
4. Eligible Persons.
-----------------
(a) With respect to ISOs, an Eligible Person means any individual
who has been employed by the Corporation or by any subsidiary
of the Corporation, for a continuous period of at least sixty
(60) days.
(b) With respect to NSOs, an Eligible Person means (i) any
individual who has been employed by the Corporation or by any
subsidiary of the Corporation, for a continuous period of at
least sixty (60) days, (ii) any director of the Corporation or
any subsidiary of the Corporation, (iii) any member of the
Corporation's advisory board member or of any of the
Corporation's subsidiar(ies), or (iv) any consultant of the
Corporation or by any subsidiary of the Corporation.
5. Grant of Options. The Board or the Stock Option Committee has the right
to issue the Options established by this Plan to Eligible Persons. The
Board or the Stock Option Committee shall follow the procedures
prescribed for it elsewhere in this Plan. A grant of Options shall be
set forth in a writing signed on behalf of the Corporation or by a
majority of the members of the Stock Option Committee. The writing
shall identify whether the Option being granted is an ISO or an NSO and
shall set forth the terms which govern the Option. The terms shall be
determined by the Board or the Stock Option Committee, and may include,
among other terms, the number of shares of Stock that may be acquired
pursuant to the exercise of the Options, when the Options may be
exercised, the period for which the Option is granted and including the
expiration date, the effect on the Options if the Eligible Person
terminates employment and whether the Eligible Person may deliver
shares of Stock to pay for the shares of Stock to be purchased by the
exercise of the Option. However, no term shall be set forth in the
writing which is inconsistent with any of the terms of this Plan. The
terms of an Option granted to an Eligible Person may differ from the
terms of an Option granted to another Eligible Person, and may differ
from the terms of an earlier Option granted to the same Eligible
Person.
6. Option Price. The Option price per share shall be determined by the
Board or the Stock Option Committee at the time any Option is granted,
and shall be not less than (a) in the case of an ISO, the fair market
value, (b) in the case of an ISO granted to a ten percent or greater
stockholder, 110% of the fair market value, or (c in the case of an
NSO, not less than 75% of the fair market value (but in no event
2
<PAGE>
less than the par value) of one share of Stock on the date the Option
is granted, as determined by the Board or the Stock Option Committee.
Fair market value as used herein shall be:
(a) If shares of Stock shall be traded on an exchange or
over-the-counter market, the closing price or the closing bid
price of such Stock on such exchange or over-the-counter
market on which such shares shall be traded on that date, or
if such exchange or over-the-counter market is closed or if no
shares shall have traded on such date, on the last preceding
date on which such shares shall have traded.
(b) If shares of Stock shall not be traded on an exchange or
over-the-counter market, the value as determined by the Board
of Directors or the Stock Option Committee of the Corporation.
7. Purchase of Shares. An Option shall be exercised by the tender to the
Corporation of the full purchase price of the Stock with respect to
which the Option is exercised and written notice of the exercise. The
purchase price of the Stock shall be in United States dollars, payable
in cash or by check, or in property or Corporation stock, if so
permitted by the Board or the Stock Option Committee in accordance with
the discretion granted in Paragraph 5 hereof, having a value equal to
such purchase price. The Corporation shall not be required to issue or
deliver any certificates for shares of Stock purchased upon the
exercise of an Option prior to (a) if requested by the Corporation, the
filing with the Corporation by the Eligible Person of a representation
in writing that it is the Eligible Person's then present intention to
acquire the Stock being purchased for investment and not for resale,
and/or (b) the completion of any registration or other qualification of
such shares under any government regulatory body, which the Corporation
shall determine to be necessary or advisable.
8. Grant of Reload Options. In granting an Option under this Plan, the
Board or the Stock Option Committee may, but shall not be obligated to
include, a Reload Option provision therein, subject to the provisions
set forth in Paragraphs 20 and 21 herein. A Reload Option provision
provides that if the Eligible Person pays the exercise price of shares
of Stock to be purchased by the exercise of an ISO, NSO or another
Reload Option (the "Original Option") by delivering to the Corporation
shares of Stock already owned by the Eligible Person (the "Tendered
Shares"), the Eligible Person shall receive a Reload Option which shall
be a new Option to purchase shares of Stock equal in number to the
tendered shares. The terms of any Reload Option shall be determined by
the Board or the Stock Option Committee consistent with the provisions
of this Plan.
3
<PAGE>
9. Stock Option Committee. The Stock Option Committee may be appointed
from time to time by the Corporation's Board of Directors. The Board
may from time to time remove members from or add members to the Stock
Option Committee. The Stock Option Committee shall be constituted so as
to permit the Plan to comply in all respects with the provisions set
forth in Paragraph 20 herein. The members of the Stock Option Committee
may elect one of its members as its chairman. The Stock Option
Committee shall hold its meetings at such times and places as its
chairman shall determine. A majority of the Stock Option Committee's
members present in person shall constitute a quorum for the transaction
of business. All determinations of the Stock Option Committee will be
made by the majority vote of the members constituting the quorum. The
members may participate in a meeting of the Stock Option Committee by
conference telephone or similar communications equipment by means of
which all members participating in the meeting can hear each other.
Participation in a meeting in that manner will constitute presence in
person at the meeting. Any decision or determination reduced to writing
and signed by all members of the Stock Option Committee will be
effective as if it had been made by a majority vote of all members of
the Stock Option Committee at a meeting which is duly called and held.
10. Administration of Plan. In addition to granting Options and to
exercising the authority granted to it elsewhere in this Plan, the
Board or the Stock Option Committee is granted the full right and
authority to interpret and construe the provisions of this Plan,
promulgate, amend and rescind rules and procedures relating to the
implementation of the Plan and to make all other determinations
necessary or advisable for the administration of the Plan, consistent,
however, with the intent of the Corporation that Options granted or
awarded pursuant to the Plan comply with the provisions of Paragraph 20
and 21 herein. All determinations made by the Board or the Stock Option
Committee shall be final, binding and conclusive on all persons
including the Eligible Person, the Corporation and its stockholders,
employees, officers and directors and consultants. No member of the
Board or the Stock Option Committee will be liable for any act or
omission in connection with the administration of this Plan unless it
is attributable to that member's willful misconduct.
11. Provisions Applicable to ISOs. The following provisions shall apply to
all ISOs granted by the Board or the Stock Option Committee and are
incorporated by reference into any writing granting an ISO:
(a) An ISO may only be granted within ten (10) years from May 27,
1999, the date that this Plan was originally adopted by the
Corporation's Board of Directors.
4
<PAGE>
(b) An ISO may not be exercised after the expiration of ten (10)
years from the date the ISO is granted.
(c) The option price may not be less than the fair market value of
the Stock at the time the ISO is granted.
(d) An ISO is not transferable by the Eligible Person to whom it
is granted except by will, or the laws of descent and
distribution, and is exercisable during his or her lifetime
only by the Eligible Person.
(e) If the Eligible Person receiving the ISO owns at the time of
the grant stock possessing more than ten (10%) percent of the
total combined voting power of all classes of stock of the
employer corporation or of its parent or subsidiary
corporation (as those terms are defined in the Code), then the
option price shall be at least one hundred and ten (110%)
percent of the fair market value of the Stock, and the ISO
shall not be exercisable after the expiration of five (5)
years from the date the ISO is granted.
(f) The aggregate fair market value (determined at the time the
ISO is granted) of the Stock with respect to which the ISO is
first exercisable by the Eligible Person during any calendar
year (under this Plan and any other incentive stock option
plan of the Corporation) shall not exceed $100,000.
(g) Even if the shares of Stock which are issued upon exercise of
an ISO are sold within one year following the exercise of such
ISO so that the sale constitutes a disqualifying disposition
for ISO treatment under the Code, no provision of this Plan
shall be construed as prohibiting such a sale.
12. Determination of Fair Market Value. In granting ISOs under this Plan,
the Board or the Stock Option Committee shall make a good faith
determination as to the fair market value of the Stock at the time of
granting the ISO.
13. Restrictions on Issuance of Stock. The Corporation shall not be
obligated to sell or issue any shares of Stock pursuant to the exercise
of an Option unless the Stock with respect to which the Option is being
exercised is at that time effectively registered or exempt from
registration under the Securities Act of 1933, as amended, and any
other applicable laws, rules and regulations. The Corporation may
condition the exercise of an Option granted in accordance herewith upon
receipt from the Eligible Person, or any other purchaser thereof, of a
written representation that at the time of such exercise it is his or
her then present intention to acquire the shares of Stock for
investment and not with a view to, or for sale in connection with, any
distribution thereof; except that, in the case of a legal
representative of an Eligible Person, "distribution" shall be defined
to exclude
5
<PAGE>
distribution by will or under the laws of descent and distribution.
Prior to issuing any shares of Stock pursuant to the exercise of an
Option, the Corporation shall take such steps as it deems necessary to
satisfy any withholding tax obligations imposed upon it by any level of
government.
14. Exercise in the Event of Death or Termination of Employment.
------------------------------------------------------------
(a) If an optionee shall die (i) while an employee of the
Corporation or a Subsidiary or (ii) within three (iii) months
after termination of his employment with the Corporation or a
Subsidiary, the Options may be exercised, to the extent that
the optionee shall have been entitled to do so on the date of
his or her death or such termination of employment, by the
person or persons to whom the optionee's right under the
Options pass by will or applicable law, or if no such person
has such right, by his executors or administrators, at any
time, or from time to time. In the event an optionee is an
employee of the Corporation or a Subsidiary at the time of his
or her death, the Options may be exercised not later than the
expiration date specified in Paragraph 5 or one (1) year after
the optionee's death, whichever date is earlier.
(b) Notwithstanding Section 14(a), above, if an optionee's
employment with the Corporation or a Subsidiary terminates
because of his or her disability, he or she may exercise the
Options, to the extent that he or she shall have been entitled
to do so at the date of the termination of employment, at any
time, or from time to time, but not later than the expiration
date specified in Paragraph 5 hereof or one (1) year after
termination of employment, whichever date is earlier.
(c) If an optionee's employment shall terminate for any reason
other than death or disability, optionee may exercise the
Options to the same extent that the Options were exercisable
on the date of termination, for up to three (3) months
following such termination, or on or before the expiration
date of the Options, whichever occurs first. In the event that
the optionee was not entitled to exercise the Options at the
date of termination or if the optionee does not exercise such
Options (which he or she was entitled to exercise) within the
time specified herein, the Options shall terminate.
15. Corporate Events. In the event of the proposed dissolution or
liquidation of the Corporation, a proposed sale of all or substantially
all of the assets of the Corporation, a merger or tender for the
Corporation's shares of Common Stock the Board of Directors shall
declare that each Option granted under this Plan shall terminate as of
a date to be fixed by the Board of Directors; provided that not less
than thirty (30) days written notice of the date so fixed shall be
given to each Eligible Person holding an Option, and each such Eligible
Person shall have the right,
6
<PAGE>
during the period of thirty (30) days preceding such termination, to
exercise his Option as to all or any part of the shares of Stock
covered thereby, including shares of Stock as to which such Option
would not otherwise be exercisable. Nothing set forth herein shall
extend the term set for purchasing the shares of Stock set forth in the
Option.
16. No Guarantee of Employment. Nothing in this Plan or in any writing
granting an Option will confer upon any Eligible Person the right to
continue in the employ of the Eligible Person's employer, or will
interfere with or restrict in any way the right of the Eligible
Person's employer to discharge such Eligible Person at any time for any
reason whatsoever, with or without cause.
17. Non-transferability. No Option granted under the Plan shall be
transferable other than by will or by the laws of descent and
distribution. During the lifetime of the optionee, an Option shall be
exercisable only by him.
18. No Rights as Stockholder. No optionee shall have any rights as a
stockholder with respect to any shares subject to his Option prior to
the date of issuance to him of a certificate or certificates for such
shares.
19. Amendment and Discontinuance of Plan. The Corporation's Board of
Directors may amend, suspend or discontinue this Plan at any time.
However, no such action may prejudice the rights of any Eligible Person
who has prior thereto been granted Options under this Plan. Further, no
amendment to this Plan which has the effect of (a) increasing the
aggregate number of shares of Stock subject to this Plan (except for
adjustments pursuant to Paragraph 3 herein), or (b) changing the
definition of Eligible Person under this Plan, may be effective unless
and until approval of the stockholders of the Corporation is obtained
in the same manner as approval of this Plan is required. The
Corporation's Board of Directors is authorized to seek the approval of
the Corporation's stockholders for any other changes it proposes to
make to this Plan which require such approval, however, the Board of
Directors may modify the Plan, as necessary, to effectuate the intent
of the Plan as a result of any changes in the tax, accounting or
securities laws treatment of Eligible Persons and the Plan, subject to
the provisions set forth in this Paragraph 19, and Paragraphs 20 and
21.
20. Compliance with Rule 16b-3. This Plan is intended to comply in all
respects with Rule 16b-3 ("Rule 16b-3") promulgated by the Securities
and Exchange Commission under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), with respect to participants who are
subject to Section 16 of the Exchange Act, and any provision(s) herein
that is/are contrary to Rule 16b-3 shall be deemed null and void to the
extent appropriate by either the Stock Option Committee or the
Corporation's Board of Directors.
7
<PAGE>
21. Compliance with Code. The aspects of this Plan on ISOs are intended to
comply in every respect with Section 422 of the Code and the
regulations promulgated thereunder. In the event any future statute or
regulation shall modify the existing statute, the aspects of this Plan
on ISOs shall be deemed to incorporate by reference such modification.
Any stock option agreement relating to any Option granted pursuant to
this Plan outstanding and unexercised at the time any modifying statute
or regulation becomes effective shall also be deemed to incorporate by
reference such modification and no notice of such modification need be
given to optionee.
If any provision of the aspects of this Plan on ISOs is determined to
disqualify the shares purchasable pursuant to the Options granted under
this Plan from the special tax treatment provided by Code Section 422,
such provision shall be deemed null and void and to incorporate by
reference the modification required to qualify the shares for said tax
treatment.
22. Compliance With Other Laws and Regulations. The Plan, the grant and
exercise of Options thereunder, and the obligation of the Corporation
to sell and deliver Stock under such options, shall be subject to all
applicable federal and state laws, rules, and regulations and to such
approvals by any government or regulatory agency as may be required.
The Corporation shall not be required to issue or deliver any
certificates for shares of Stock prior to (a) the listing of such
shares on any stock exchange or over-the-counter market on which the
Stock may then be listed and (b) the completion of any registration or
qualification of such shares under any federal or state law, or any
ruling or regulation of any government body which the Corporation
shall, in its sole discretion, determine to be necessary or advisable.
Moreover, no Option may be exercised if its exercise or the receipt of
Stock pursuant thereto would be contrary to applicable laws.
23. Disposition of Shares. In the event any share of Stock acquired by an
exercise of an Option granted under the Plan shall be transferable
other than by will or by the laws of descent and distribution within
two years of the date such Option was granted or within one year after
the transfer of such Stock pursuant to such exercise, the optionee
shall give prompt written notice thereof to the Corporation or the
Stock Option Committee.
24. Name. The Plan shall be known as the "Phon-Net.com, Inc. 1999 Stock
Option Plan."
25. Notices. Any notice hereunder shall be in writing and sent by certified
mail, return receipt requested or by facsimile transmission (with
electronic or written confirmation of receipt) and when addressed to
the Corporation and/or the Committee shall be sent to it at its office,
750 West Pender Street, Vancouver,
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British Columbia, V6C 2T7 Canada, and when addressed to an optionee, at
its last known address on the books and records of the Corporation,
subject to the right of either party to designate at any time hereafter
in writing some other address, facsimile number or person to whose
attention such notice shall be sent.
26. Headings. The headings preceding the text of Sections and subparagraphs
hereof are inserted solely for convenience of reference, and shall not
constitute a part of this Plan nor shall they affect its meaning,
construction or effect.
27. Effective Date. The Phon-Net.com, Inc. 1999 Stock Option Plan was
adopted by the Board of Directors and holders of a majority of the
Corporation's outstanding common stock. The effective date of the Plan
shall be the same date.
Dated as Of May 27, 1999.
PHON-NET.COM, INC.
/s/ Brian Collins
------------------------
Brian Collins, President
EMPLOYMENT AGREEMENT FOR SENIOR EXECUTIVE
THIS EMPLOYMENT AGREEMENT FOR SENIOR EXECUTIVE is made and entered into
as of July 1, 1999, between PHON-NET.COM, INC., a Florida corporation (the
"Company"), and BRIAN COLLINS, whose residence address is 762 Piedmont Drive,
Victoria, British Columbia V8Y 1L8 ("Executive").
WHEREAS, the Company desires to employ Executive, and Executive desires
to serve as an officer and employee of the Company, on the terms and conditions
hereinafter set forth; and
WHEREAS, the parties intend that this Employment Agreement for Senior
Executive supersedes any prior understandings of the parties pertaining to the
Executive's employment by the Company.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company and Executive do
hereby mutually covenant and agree as follows:
1. Employment. The Company agrees to employ Executive to perform the
duties described in this Agreement, and Executive accepts such employment on the
terms and subject to the conditions stated in this Agreement.
2. Position and Responsibilities. During the period of his employment
under this Agreement, Executive agrees to serve as President and Chief Executive
Officer of the Company. The Executive shall report to the Board of Directors of
the Company. The Executive agrees to perform services not inconsistent with his
position and involving duties of comparable scope, dignity and importance as
shall from time to time be assigned to him by the Board of Directors of the
Company. During the term of his employment, Executive also agrees to serve, as
determined by the Board of Directors, as an officer and/or director of any
subsidiary or affiliate of the Company, however, Executive shall not receive
additional compensation for such services.
3. Term and Duties.
(a) Term of Employment. The period of Executive's employment
under this Agreement shall be deemed to have begun on the date written
above and shall continue, unless sooner terminated, for a period of
three (3) years (the "Initial Term"). Subject to the provisions for
termination set forth in this Agreement, beginning on the date of
expiration of the Initial Term, Executive's employment under this
Agreement shall automatically be renewed for two (2) additional two (2)
year terms, unless either party gives written notice of intention not
to renew not less
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than ninety (90) days prior to the expiration of the applicable Initial
Term or renewal term. If the Company elects not to renew other than
"for cause" (as hereinafter defined), the Executive shall receive a
lump sum payment equivalent to the full amount of compensation received
by Executive in the immediately preceding year of the term hereof. (The
Initial Term and both additional two (2) year terms shall be referred
to collectively as the "Term".) If Executive's employment under this
Agreement is terminated for any reason by either party, the effective
date of that termination shall be referred to herein as the
"Termination Date."
(b) Duties. During the period of his employment under this
Agreement and except for illness, vacation periods, and reasonable
leaves of absence, Executive shall devote substantially all of his
business time, attention, skill and efforts to the faithful performance
of his duties under this Agreement.
4. Compensation. For all services rendered by Executive in any capacity
during his employment under this Agreement, including, without limitation,
services as an executive, officer or member of any committee of the Company or
any subsidiary or affiliate of the Company, the Company shall compensate
Executive as follows:
(a) Basic Compensation. The Company shall pay to Executive
basic salary compensation at the rate of not less than One Hundred
Fifty Thousand U.S. Dollars ($150,000) per year ("Basic Compensation")
during the Term of this Agreement. Executive's Basic Compensation shall
be paid in equal weekly, semi-monthly or biweekly installments
throughout the Term of this Agreement, in accordance with its standard
payroll practice.
(b) Bonuses. The Company's Board of Directors, or a duly
established committee thereof, shall meet annually and, in its
discretion, authorize payment of an annual bonus to the Executive based
upon their evaluation of factors including revenues generated, net
income achieved and such other financial and operational factors as the
Board of Directors deems appropriate. To the extent authorized by the
Board of Directors, such bonus may be computed based upon a percentage
of pre-tax income achieved by the Company, as reflected on the
Company's audited financial statements.
(c) Confirmation of Option Grant. The Company hereby confirms
(i) its prior grant to the Executive of options to purchase two million
(2,000,000) shares of the Company's common stock, exercisable at $.40
per share (in excess of 110% of fair market value on the dat of grant)
for a period of ten (10) years, and (ii) that the grant of such options
was intended as an inducement to enter into this Agreement.
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(d) Award of SARs. The company hereby grants the Executive an
annual Stock Appreciation Right ("SAR"), pursuant to which, on (i)
February 15, 2000, the Executive shall be entitled to receive a sum of
money in an amount equal to four hundred thousand (400,000) times the
difference between the "fair market value" of the Company's common
stock at the close of trading on June 30, 1999 and February 1, 2000,
(ii) on February 15, 2001, the Executive shall be entitled to receive a
sum of money in an amount equal to six hundred thousand (600,000) times
the difference between the "fair market value" of the Company's common
stock at the close of trading on February 1, 2000 and February 1, 2001,
and (iii) on February 15, 2002, the Executive shall be entitled to
receive a sum of money in an amount equal to six hundred thousand
(600,000) times the difference between the "fair market value" of the
Company's common stock at the close of trading on February 1, 2001 and
February 1, 2002. For purposes of this provision, "fair market value"
shall be determined in the manner contemplated by Section 13(c), below.
(e) Grant of Common Stock. Upon execution of this Agreement,
and as an inducement to the Executive to enter into this Agreement, the
Company shall issue to Executive five million (5,000,000) shares of the
Company's common stock. The shares issuable pursuant to this provision
shall not be registered under the Securities Act of 1933, as amended,
except to the extent that the Board of Directors determines to file a
registration statement registering such shares.
(f) Vacations. During the term of his employment hereunder,
Executive shall be entitled to twenty-eight (28) business days,
excluding Company holidays, of paid vacation during each year of
employment. Vacations shall be scheduled at such times as are mutually
acceptable to the Company and Executive.
(g) Stock Options. The Company shall establish and maintain
one or more stock option plans in which Executive shall be entitled to
participate. The terms and conditions of such plans shall be
established and administered by the Board of Directors of the Company.
5. Reimbursement of Expenses. The Company shall pay or reimburse Execu
tive for all reasonable travel and other expenses incurred by Executive in
performing his obligations under this Agreement. In addition, the Company shall
pay to Executive an automobile allowance of a minimum of Seven Hundred Dollars
($700) per month to reimburse Executive for the use of his personal automobile
in discharging his obligations under this Agreement.
6. Participation in Benefit Plans. The payments provided for in
Paragraph 7 of this Agreement are in addition to any benefits to which Executive
may be, or may become, entitled under any group hospitalization, health, dental
care, or sick leave plan, life or other insurance or death benefit plan, travel
or accident insurance, auto allowance
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or auto lease plan, or executive contingent compensation plan, including,
without limitation, capital accumulation and termination pay programs,
restricted or stock purchase plan, stock option plan, retirement income or
pension plan, or other present or future group employee benefit plan or program
of the Company for which key executives are or shall become eligible, and
Executive shall be eligible to receive during the period of his employment under
this Agreement all benefits and emoluments for which key executives are eligible
under every such plan or program in accordance with and to the extent
permissible under the general terms and provisions of these plans or programs.
7. Benefits Relating to Disability or Death.
(a) Disability Benefits. In the event of the disability (as
defined in this Agreement) of Executive, the Company shall, subject to
the provisions of Paragraph 14 hereof, continue to pay Basic
Compensation to Executive during the period of his disability to the
extent that disability benefits payable to Executive under
Company-sponsored insurance policies are less than Executive's Basic
Compensation. As used in this Agreement, the term "disability" shall
mean the substantial inability of Executive to perform his duties, as
defined by the Company disability insurance plan applicable to
Executive and as determined by an independent physician selected with
the approval of the Company and Executive. If the parties are unable to
agree on such independent physician, each party shall select a
physician and those physicians shall select a third independent
physician to determine whether Executive is disabled.
(b) Services During Disability. During the period in which
Executive is entitled to receive payments under Paragraph 7(a) above,
to the extent that he is physically and mentally able to do so, he
shall furnish information and assistance to the Company and comply with
the provisions of Paragraph 14 hereof, and, in addition, upon
reasonable request in writing on behalf of the Board of Directors or an
executive officer designated by such Board from time to time, he shall
make himself available to the Company to undertake reasonable
assignments consistent with the dignity, importance and scope of his
prior position and his physical and mental health.
(c) Reimbursement for Life Insurance. The Company shall
reimburse Executive for the cost of a term life insurance policy in a
face amount not to exceed One Million Dollars ($1,000,000), provided
that the cost of such policy does not exceed the standard charge for
insurance of this type. Executive shall be the owner of such policy and
shall have the right to select the beneficiary of such policy.
8. Relocation Expenses. If Executive's principal place of employment is
relocated outside of British Columbia, and if Executive consents in writing to
such relocation notwithstanding his rights under Paragraph 9(d) of this
Agreement, the Company
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shall reimburse Executive for all usual relocation expenses incurred by
Executive in moving himself and his family from British Columbia to the new
location of his principal place of employment, including, without limitation,
moving expenses and rental payments for temporary living quarters in the area of
relocation for a period not to exceed six (6) months.
9. Termination by Executive With Good Reason.
(a) Executive shall have the right to resign from the Company
by terminating his employment for "Good Reason" upon ninety (90) days
written notice to the Company. For purposes of this Agreement, "Good
Reason" shall mean:
(i) the occurrence of any one or more of the
following events:
(A) the Company's failure to elect or
reelect, or to appoint or reappoint,
Executive to offices or positions
with the Company carrying authority,
responsibilities, dignity and
importance and involving duties of a
scope comparable to those of
Executive's most significant offices
or positions held at any time during
the term of this Agreement;
(B) any material change by the Company
in the Executive's function, duties
or responsibilities which would
cause Executive's position with the
Company to become of less dignity,
responsibility, importance or scope
than that associated with
Executive's most significant
position with the Company at any
time during the term of this
Agreement;
(C) Executive's Basic Compensation is
reduced by the Company; or
(D) relocation of the Company's
corporate headquarters or
Executive's principal place of
employment to a place located
outside of British Columbia;
provided that required travel on the
Company's business shall not be
deemed a relocation so long as
Executive is not required to be
outside of British Columbia for more
than forty percent (40%) of his
working days during any consecutive
six (6) month period.
(ii) Subject to the provisions of subparagraph
9(c) hereof, a "Change in Control" of the
Company (as defined below);
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(iii) the failure by the Company to obtain the
assumption of this Agreement by any
successor or assign of the Company; or
(iv) any material breach of this Agreement by the
Company, which breach is not cured within
ten (10) days after written notice of any
such material Breach is delivered to the
Company.
(b) For purposes of this Agreement, the term "Change in
Control" of the Company shall be deemed to have occurred if:
(i) any "person" (as such term is used in
Section 13(d) and 14(d)(2) of the Exchange
Act) shall become the beneficial owner
(within the meaning of Rule 13d-3
promulgated pursuant to the Exchange Act, or
any successor provision thereto), directly
or indirectly, through a transaction or
series of transactions not approved in
advance of the commencement of such
transaction or series of transactions by the
Company's Board of Directors, of securities
of the Company representing twenty-five
percent (25%) or more of the combined voting
power of the Company's then outstanding
securities ordinarily (and apart from rights
accruing under special circumstances) having
the right to vote at an election of
directors; provided, however, that, for
purposes of this Subparagraph 9(b)(i),
"person" shall exclude the Company, its
subsidiaries, any person acquiring such
securities directly from the Company, any
employee benefit plan sponsored by the
Company or any stockholder owning
twenty-five percent (25%) or more of the
combined voting power of the Company's
outstanding securities as of the date of
this Agreement; or
(ii) individuals who, as of the date hereof,
constitute the Board of Directors of the
Company (the "Incumbent Board") cease for
any reason to constitute at least eighty
percent (80%) of the Board of Directors of
the Company, provided (A) that any person
becoming a member of the Board of Directors
of the Company subsequent to the date hereof
whose election, or nomination for election
by the Company's stockholders, was approved
by a vote of at least eighty percent (80%)
of the members then comprising the Incumbent
Board (other than an election or nomination
of an individual whose initial assumption of
office is in connection with an actual or
threatened election contest relating to the
election of the Directors of the Company, as
such terms are used in Rule 14a-11 of
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Regulation 14A promulgated under the
Exchange Act, or any successor provision
thereto) shall be, for purposes of this
Agreement, considered as though such person
were a member of the Incumbent Board, or (B)
that the members of the Board of Directors
of the Company who are nominated in the
definitive proxy statement furnished in
connection with the solicitation of proxies
on behalf of the Board of Directors of the
Company shall be, for purposes of this
Agreement, considered as members of the
Incumbent Board; or
(iii) approval by the stockholders of the Company
and consummation of (A) a reorganization,
merger, consolidation, or sale or other
disposition of all or substantially all of
the assets of the Company, in each case,
with or to a corporation or other person or
entity of which persons who were the
stockholders of the Company immediately
prior to such reorganization, merger,
consolidation or sale do not, immediately
thereafter, own more than sixty percent
(60%) of the combined voting power of the
outstanding voting securities entitled to
vote generally in the election of directors
of the reorganized, merged, consolidated or
purchasing corporation or other person or
entity and eighty percent (80%) of the
members of the Board of Directors of which
corporation or other person or entity were
not members of the Incumbent Board at the
time of the execution of the initial
agreement providing for such reorganization,
merger or consolidation, or (B) a
liquidation or dissolution of the Company.
(c) Upon the occurrence of any event constituting "Good
Reason" under Paragraph 9(b) of this Agreement, Executive shall have
the right to elect to terminate his employment under this Agreement by
resignation on not less than ninety (90) days prior written notice. If
Executive terminates his employment pursuant to the provisions of this
Paragraph 9, he shall be entitled to certain benefits described in
Paragraph 13 of this Agreement, subject to his compliance with the
provisions of Paragraph 13 of this Agreement.
10. Termination by the Company for Cause. The Company shall have the
right to terminate Executive's employment for "Cause," which shall be defined as
any of the following: (a) Executive's gross and willful misconduct injurious to
the Company; (b) Executive's commission of a felony in the course of employment;
or (c) Executive's breach of any material provision of this Agreement, which
breach is not cured within thirty (30) business days after written notice
thereof is delivered to Executive. Notwithstanding the foregoing, no termination
of Executive's employment by the Company under this
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Section 10 shall take place prior to the Company providing Executive with at
least twenty (20) days prior written notice of the Company's intent to so
terminate Executive's employment, and granting to Executive the right to address
the entire Board of Directors concerning the subject matter of Executive's
termination. If Executive's employment is terminated for Cause, the Company will
have no further liability or obligation to Executive except for amounts earned
or accrued prior to termination. Employee acknowledges that, if his employment
is terminated for Cause, he shall be subject to the restrictions described in
Paragraph 12.
11. Termination Upon Executive's Death. The Company's obligations
hereun der shall terminate immediately upon Executive's death, with no further
liability or obligation to Executive (except for amounts earned or accrued prior
to termination and rights under applicable stock option and other benefit
plans).
12. Restrictive Covenants.
(a) During the period commencing on the date of this Agreement
and ending twelve (12) months after the Termination Date, Executive
shall not, directly or indirectly, induce or attempt to induce any of
the Company's employees to leave the employment of the Company;
provided, that the foregoing shall not apply to the exercise of
Executive's supervisory and disciplinary duties during the period of
Executive's employment.
(b) During the period commencing on the date of this Agreement
and ending on the Termination Date, the Executive shall not, except as
a passive investor in publicly-held companies and except for
investments held at the date hereof, own or control any interest in, or
act as a director, officer or employee of, or consultant to, any firm
or corporation doing business in North America which is (i) engaged in
a venture or business substantially similar to that of the Company, or
(ii) in direct competition with or known to be a competitor of the
Company.
(c) During the period commencing on the Terminate Date and
ending twelve (12) months after the Termination Date, Executive shall
not, except as a passive investor in publicly-held companies and except
for investments held as of the date hereof, own or control any interest
in, or act as a director, officer or employee of, or consultant to, any
firm or corporation doing business in North America engaged in direct
competition with or known to be a competitor of the Company.
(d) The provisions of subparagraphs (a), (b) and (c) of this
Section 12 shall not be enforceable to the extent that the Company is
not in material breach of its obligations under this Agreement.
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(e) Executive agrees to regard and preserve as confidential
all proprietary information, whether Executive has such information in
Executive's memory or in writing or other physical form. Executive will
not, without authority from the Company to do so, use for Executive's
own benefit or purposes, or disclose to others, either during the term
of his employment or thereafter, except as required by the conditions
of Executive's employment, any proprietary information. Executive
recognizes that all such documents and objects, whether developed by
Executive or by someone else, are the exclusive property of the
Company. For purposes of this Agreement, "proprietary information"
shall mean any information relating to the business of the Company, or
any entity in which the Company has a controlling interest, that has
not previously been publicly released by duly authorized
representatives of the Company and shall include (but shall not be
limited to) information encompassed in all drawings, designs, plans,
proposals, marketing and sales plans, financial information, menus,
costs, pricing information, customer information, and all methods,
concepts or ideas in or reasonably related to the business of the
Company or any entity in which the Company has a controlling interest.
Notwithstanding the foregoing, the obligation to keep proprietary
information confidential shall not apply to (a) any information which
(i) any party can establish was already in its possession prior to
disclosure thereof by the party furnishing the information; or (ii) was
then generally known to the public; or (iii) became known to the public
through no fault of such party; or (b) disclosures in accordance with
an order of a court of competent jurisdiction.
(f) Executive acknowledges that the injury to the Company
resulting from violation of any of the covenants contained in this
Agreement will be of such character that it cannot be adequately
compensated by money damages, and accordingly the Company may, in
addition to pursuing its other remedies, obtain from any court having
jurisdiction of the matter an injunction or other order restraining any
such violation. Executive further acknowledges and agrees that, if the
covenants contained in this Agreement are deemed to be unenforceable
and Executive fails to comply with any such covenants, the Company has
no obligation to provide any compensation or other benefits described
in Paragraph 13 hereof.
13. Post-Termination Compensation and Other Benefits.
(a) If Executive terminates his employment pursuant to
Paragraph 9 hereof, or the Company elects not to renew Executive's
employment without Cause, the Company shall pay to Executive as
severance pay an amount equal to the Executive's full compensation
earned in the year immediately preceding such termination or
non-renewal. In addition, the Company shall pay to Executive all
compensation under this Agreement that has been earned but unpaid as of
the
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Termination Date. All such amounts shall be paid in one lump sum,
within twenty (20) days following the Termination Date.
(b) If Executive terminates his employment for Good Reason or
the Company elects not to renew Executive's employment without Cause,
the Company and the Executive shall have the following rights and
obligations regarding "supple mentary severance pay" as follows:
(i) Upon written notice to Executive within
thirty (30) days after the Termination Date,
the Company may elect to pay to Executive
supplementary severance pay equal to his
Basic Compensation payable on a monthly
basis during the Non-Competition Period,
provided that Executive agrees to fully
comply with the provisions of Paragraph 12
throughout the Non-Competition Period. In
such event, the Company shall continue to
pay the premiums for Executive's health and
disability insurance coverage during such
Non-Competition Period as if Executive had
continued in his employment by the Company.
(ii) Upon written notice to Executive within
thirty (30) days after the Termination Date,
the Company shall have the right to forego
payment of the amounts described in
Paragraph 13(b)(i), in which event Executive
shall not be bound by the provisions of
Paragraphs 12(b) or 12(c). If the Company
fails to provide the written notices
described in Paragraph 13(b)(i) and in this
Paragraph 13(b)(ii), the Company shall be
deemed to have elected to forego payment
pursuant to the terms of this Paragraph
13(b)(ii).
(c) Unless the Company terminates Executive's employment or
elects not to renew the Term hereof, for cause, Executive shall have
the option to sell to the Company all of the common stock of the
Company owned of record by Executive or the Executive and/or his spouse
and any shares held by Executive and/or his spouse in "street name" or
in trust as of the Termination Date. Said right is referred to as the
"Termination Put". The price at which such stock shall be purchased by
the Company shall be the fair market value of the Company's common
stock as of the Termination Date. For purposes of this Agreement the
"fair market value" of the Company's common stock shall be the weighted
average of the last sale prices of the Company's common stock during
the ten (10) trading days immediately preceding the Termination Date as
quoted on the Automated Quotation System of the National Association of
Securities Dealers ("NASDAQ") or, in the absence of quotations on
NASDAQ, or any other recognized automated quotation system on
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which the Company's common stock is quoted. Any exercise of the
Termination Put by Executive shall be by written notice within thirty
(30) days following the Termination Date. The Company shall make
payment in full in U.S. dollars to Executive for any stock surrendered
to the Company pursuant to the notice exercising the Termination Put
from the Executive. Each notice exercising the Termination Put shall be
accompanied by the certificates representing such shares of stock which
shall be endorsed to the order of the Company, signature guaranteed.
Executive shall represent and warrant that said shares are, and shall
transfer the same, free and clear of all liens, claims and
encumbrances. The Company's obligations under this Paragraph 13(c)
shall be subject to its obligations to comply with:
(i) applicable federal and state securities
laws and regulations;
(ii) loan or financing agreements with banks or
other lenders to which the Company is a
party or by which the Company is bound; and
(iii) applicable state corporate law. If the
Company is prohibited from purchasing such
stock because payment would constitute a
violation of state corporate law, the
Company shall make payment only to the
extent permitted by law; provided, that the
Company shall remain liable for the unpaid
balance and shall pay same when legally
permitted.
(d) If Executive terminates his employment for Good Reason or
the Company terminates Executive's employment without Cause, and at the
Termi nation Date Executive holds stock options which are not then
vested or exercisable, the Company shall pay to the Executive, as
additional severance pay or liquidated damages or both, an amount equal
to the excess above the option price under each such option of the fair
market value of the shares subject to such option. Such amount shall be
paid in one lump sum, within twenty (20) days following the Termination
Date. "Fair market value" as used in this Paragraph 13(d) shall be
determined as described in Paragraph 13(c).
(e) As used in Paragraph 13(b) hereof, the term "Basic
Compensation" refers to Executive's Basic Compensation prior to the
date of a reduction in Basic Compensation which would permit Executive
to terminate his employment for Good Reason under Paragraph 9(c).
(f) Notwithstanding anything else to the contrary contained in
this Agreement, the total amounts payable to Executive pursuant to this
Paragraph 13 shall not exceed 2.99 multiplied times the present value
of his "Base Amount" (as
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defined in Section 280G of the Internal Revenue Code of 1986, as
amended, and the regulations adopted under that section).
14. Executive Warranties. The Executive represents and warrants that
neither the execution and delivery of this Agreement nor the performance of his
duties hereunder violates the provisions of any other agreement to which he is a
party or by which he is bound.
15. Key Man Insurance. The Company shall have the right, in its sole
discre tion, to purchase "key man" insurance on the life of Executive. The
Company shall be the owner and beneficiary of such policy. If Company elects to
purchase such policy, Executive agrees to take physical examinations and to
supply accurate and complete information as may be requested by the insurer.
16. Entire Agreement; Termination of Prior Understandings. This
Agreement constitutes the entire understanding of the parties with respect to
the subject matter hereof, and is intended to supercede and replace all prior
understandings of the parties with respect to the employment of the Executive by
the Company and/or any of its subsidiaries. Except as otherwise set forth
herein, any prior agreements of the parties with respect to the employment of
the Executive by the Company and/or any of its subsidiaries is hereby terminated
and canceled.
17. Miscellaneous.
(a) The Company's obligation to make the payments provided for
in this Agreement and otherwise to perform its obligations under this
Agreement shall not be affected by any set-off, counterclaim,
recoupment, defense or other claim, right or action which the Company
may have against the Executive or others. In no event shall the
Executive be obligated to seek other employment or take any other
action by way of mitigation of the amounts payable to the Executive
under any of the provisions of this Agreement and such amounts shall
not be reduced whether or not the Executive obtains other employment.
The Company agrees to pay promptly as incurred, to the full extent
permitted by law, all legal fees and expenses which the Executive may
reasonably incur as a result of any contest (regardless of the outcome
thereof) by the Company, the Executive or others of the validity or
enforceability of, or liability under, any provision of this Agreement
or any guarantee of performance of such provisions (including as a
result of any contest by the Executive about the amount of any payment
pursuant to this Agreement), plus in each case interest on any delayed
payment at the applicable Federal rate provided for in Section 1274(d)
of the Code, or any successor provision thereto, for an obligation with
a term equal to the length of such delay.
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(b) If there shall be any dispute between the Company and the
Executive (i) in the event of any termination of the Executive's
employment by the Company, whether such termination was for Cause, or
(ii) in the event of any termination of employment by the Executive,
whether Good Reason existed, then, until there is a final,
non-appealable judgment by a court of competent jurisdiction declaring
that such termination was for Cause or that the determination by the
Executive of the existence of Good Reason was not made in good faith,
the Company shall pay all amounts, and provide all benefits, to the
Executive and/or the Executive's family or other beneficiaries, as the
case may be, that the Company would be required to pay or provide
hereunder as though such termination were by the Company without Cause
or by the Executive with Good Reason; provided, however, that the
Company shall not be required to pay any disputed amounts pursuant to
this paragraph except upon receipt of an undertaking by or on behalf of
the Executive to repay, without interest or penalty, all such amounts
to which the Executive is ultimately adjudged by such court not be
entitled, as soon as practicable after the effectiveness of a final
court order with respect to the payment of such disputed amount.
(c) As used herein, the term "Company" shall mean and include
the Company and any subsidiary thereof and any successor or assign
unless the con text indicates otherwise. This Agreement and all rights
hereunder are personal to the Executive and shall not be assignable by
him and any purported assignment shall be null and void and shall not
be binding on the Company; provided, however, that nothing in this
Paragraph 20 shall preclude (i) Executive from designating a
beneficiary to receive any benefit payable hereunder upon his death, or
(ii) the executors, administrators, and other legal representatives of
Executive or his estate from assigning any rights hereunder to the
person or persons entitled thereunto. This Agreement shall be binding
upon, and shall inure to the benefit of, Executive, the Company and
their respective permitted successors and assigns.
(d) Except as required by law, no right to receive payments
under this Agreement shall be subject to anticipation, commutation,
alienation, sale, assignment, encumbrance, charge, pledge, or
hypothecation or to execution, attachment, levy, or similar process or
assignment by operation of law, and any attempt, voluntary or
involuntary, to effect such action shall be null, void, and of no
effect.
(e) This Agreement may not be modified or amended except by an
instrument in writing signed by the parties hereto. No term or
condition of this Agreement shall be deemed to have been waived, nor
shall there be any estoppel against the enforcement of any provision of
this Agreement, except by written instrument of the party charged with
such waiver or estoppel. No such written waiver shall be deemed a
continuing waiver unless specifically stated therein, and
13
<PAGE>
each such waiver shall operate only as to the specific term or
condition waived and shall not constitute a waiver of such term or
condition for the future or as to any act other than specifically
waived.
(f) Unless specifically stated to the contrary herein, all
references to "days" and "months" shall mean calendar days and calendar
months, respectively.
18. Severability. If for any reason any provision of this Agreement is
held invalid, such invalidity shall not affect any other provision of this
Agreement not held so invalid, and each such other provision shall to the full
extent consistent with law continue in full force and effect. If any provision
of this Agreement shall be held invalid in part, such invalidity shall in no way
affect the rest of such provision not held so invalid, and the rest of such
provision, together with all other provisions of this Agreement, shall to the
full extent consistent with law continue in full force and effect. If this
Agreement is held invalid or cannot be enforced, then to the full extent
permitted by law, any prior agreement between the Company (or any predecessor
thereto) and Executive shall be deemed reinstated as if this Agreement had not
been executed.
19. Notices. All notices, requests, demands and other communications
which are required or may be given pursuant to this Agreement shall be in
writing and shall be deemed to have been duly given if delivered personally or
sent by certified mail, postage prepaid, as follows:
(a) If to the Company, to it at:
Phon-Net.com, Inc.
5694 Imperial Street
Burnaby, British Columbia V5J 1G2
Attention: Chairman of the Board
(b) If to Executive, to him at:
Brian Collins
762 Piedmont Drive
Victoria, British Columbia V8Y 1L8
or such other address as any party hereto shall have designated by notice in
writing to the other parties hereto. All such notices, requests, demands and
communications shall be deemed to have been given on the date of delivery, or,
if given by certified mail, on the second business day after mailing.
14
<PAGE>
20. Headings. The headings of paragraphs herein are included solely for
convenience of reference and shall not control the meaning or interpretation of
any provision of this Agreement.
21. Governing Law. This Agreement has been executed and delivered in
the State of Florida, and its validity, interpretation, performance, and
enforcement shall be governed by the laws of Florida, without regard to its
conflicts of laws provisions.
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed by its duly authorized officers, and Executive has signed this
Agreement, all as of the day and year first above written.
PHON-NET.COM, INC.
a Florida corporation
By:/s/ Brian Collins
--------------------
Name:/s/ Brian Collins
----------------------
Its:President
EXECUTIVE:
/s/ Brian Collins
-----------------
Brian Collins
15
P E N D E R P L A C E
7 5 0 W E S T P E N D E R
O F F I C E L E A S E
BETWEEN
PACIFIC CENTRE LEASEHOLDS LIMITED
(Landlord)
- AND -
THE NATIONAL FOR SALE PHONE COMPANY INC.
(Tenant)
- --------------------------------------------------------------------------------
Pender Place
750 West Pender Street
Vancouver, British Columbia
- --------------------------------------------------------------------------------
<PAGE>
LEASE
TABLE OF CONTENTS
ARTICLE I - PREMISES - TERM AND USE ........................................ 1
Section 1.01 Grant and Premises .................................... 1
Section 1.02 Term .................................................. 1
Section 1.03 Construction of Premises .............................. 1
Section 1.04 Use and Conduct of Business ........................... 1
ARTICLE II - RENT ........................................................... 1
Section 2.01 Covenant to Pay ....................................... 1
Section 2.02 Net Rent .............................................. 1
Section 2.03 Payment of Operating Costs ............................ 2
Section 2.04 Payment of Taxes ...................................... 2
Section 2.05 Payment of Estimated Taxes and Operating Costs ........ 2
Section 2.06 Additional Rent ....................................... 3
Section 2.07 Rent Past Due ......................................... 3
Section 2.08 Utilities ............................................. 3
Section 2.09 Adjustment of Areas ................................... 3
Section 2.10 Net Lease ............................................. 3
Section 2.11 Deposit ............................................... 3
ARTICLE III - CONTROL OF BUILDING .......................................... 4
Section 3.01 Landlord's Services ................................... 4
Section 3.02 Alterations by Landlord ............................... 4
ARTICLE IV - ACCESS AND ENTRY .............................................. 4
Section 4.01 Entry for Inspection and Work ......................... 4
Section 4.02 Right to Show Premises ................................ 4
Section 4.03 Entry not Forfeiture .................................. 4
ARTICLE V - MAINTENANCE, REPAIRS AND ALTERATIONS ............................ 5
Section 5.01 Maintenance By Landlord ............................... 5
Section 5.02 Maintenance by Tenant; Compliance with Laws ........... 5
Section 5.03 Tenant's Alterations .................................. 5
Section 5.04 Repair Where Tenant at Fault .......................... 6
Section 5.05 Removal of Improvements and Fixtures .................. 6
Section 5.06 Liens ................................................. 6
Section 5.07 Notice by Tenant ...................................... 6
ARTICLE VI - INSURANCE AND INDEMNITY........................................ 6
Section 6.01 Tenant's Insurance..................................... 6
Section 6.02 Increase in Insurance Premiums......................... 7
Section 6.03 Cancellation of Insurance.............................. 7
Section 6.04 Loss or Damage......................................... 8
Section 6.05 Landlord's Insurance................................... 8
Section 6.06 Indemnification of the Landlord........................ 8
ARTICLE VII - DAMAGE AND DESTRUCTION........................................ 8
Section 7.01 No Abatement or Termination............................ 8
Section 7.02 Damage to Premises..................................... 9
Section 7.03 Right of Termination................................... 9
Section 7.04 Destruction of or Damage to Building................... 9
Section 7.05 Architect's Certificate................................ 10
ARTICLE VIII - ASSIGNMENT, SUBLETTING AND TRANSFERS.......................... 10
Section 8.01 Assignments, Subleases and Transfers................... 10
Section 8.02 Landlord's Rights...................................... 10
Section 8.03 Conditions of Transfer................................. 10
Section 8.04 Change of Control...................................... 11
Section 8.05 No Advertising......................................... 11
Section 8.06 Assignment By Landlord................................. 11
ARTICLE IX - DEFAULT........................................................ 12
Section 9.01 Default and Remedies................................... 12
Section 9.02 Distress............................................... 12
Section 9.03 Damages and Costs...................................... 12
Section 9.04 Allocation of Payments ................................ 13
Section 9.05 Survival of Obligations................................ 13
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ARTICLE X - STATUS STATEMENT, ATTORNMENT AND SUBORDINATION.................. 13
Section 10.01 Status Statement...................................... 13
Section 10.02 Subordination......................................... 13
Section 10.03 Attornment............................................ 13
Section 10.04 Execution of Documents................................ 13
ARTICLE XI - GENERAL PROVISIONS.............................................. 13
Section 11.01 Rules and Regulations................................. 13
Section 11.02 Delay................................................. 13
Section 11.03 Overholding........................................... 14
Section 11.04 Waiver................................................ 14
Section 11.05 Registration.......................................... 14
Section 11.06 Notices............................................... 14
Section 11.07 Successors............................................ 14
Section 11.08 Joint and Several Liability........................... 14
Section 11.09 Captions and Section Numbers.......................... 14
Section 11.10 Extended Meanings..................................... 14
Section 11.11 Partial Invalidity.................................... 14
Section 11.12 Entire Agreement...................................... 15
Section 11.13 Governing Law......................................... 15
Section 11.14 Time of the Essence................................... 15
Section 11.15 Quiet Enjoyment....................................... 15
Section 11.16 Indemnity Agreement................................... 15
Section 11.17 Early Occupancy....................................... 15
Section 11.18 Landlord's Work....................................... 15
Section 11.19 Parking............................................... 15
Section 11.20 Execution............................................. 16
SCHEDULE "A" - LEGAL DESCRIPTION OF THE LANDS................................ 17
SCHEDULE "B" - FLOOR PLAN OF THE PREMISES.................................... 18
SCHEDULE "C" - DEFINITIONS................................................... 19
SCHEDULE "D" - RULES AND REGULATIONS......................................... 24
ii
<PAGE>
THIS LEASE is dated the 9th day of July, 1999.
B E T W E E N:
PACIFIC CENTRE LEASEHOLDS LIMITED
(the "Landlord")
- and -
THE NATIONAL FOR SALE PHONE COMPANY INC.
(the "Tenant")
ARTICLE I - PREMISES - TERM AND USE
Section 1.01 Grant and Premises
In consideration of the performance by the Tenant of its obligations under this
Lease, the Landlord leases the Premises to the Tenant for the Term. The Premises
are located on the sixth (6th) floor of the Building and are shown outlined in
red on the floor plan attached as Schedule "B". The Net Rentable Area of the
Premises is approximately one thousand one hundred and seventy-seven (1,177)
square feet and the Rentable Area of the Premises is approximately one thousand
three hundred and seventy-two (1,372) square feet.
Section 1.02 Term
The Term of this Lease is three (3) years, from the 1st day of August, 1999, to
the 31 day of July, 2002.
Section 1.03 Construction of Premises
The provisions (if any) of the Lease Proposal relating to construction of the
Premises and delay in availability of the Premises for occupancy by the Tenant
shall remain in effect and shall not merge upon the execution of this Lease. The
Tenant shall abide by the provisions of this Lease and the tenant leasehold
improvement manual supplied by the Landlord for any construction it proposes to
do prior to or upon occupancy of the Premises, and any renovations to the
Premises after it takes occupancy. The Tenant agrees to accept the Premises in
their current "as is" condition, subject to any Landlord's work expressly set
out in this Lease.
Section 1.04 Use and Conduct of Business
The Premises shall be used only for conducting the business of general office
use and for no other purpose. The Tenant shall conduct its business in the
Premises in a reputable and first class manner. If the Tenant is a corporation,
the Tenant will be either incorporated or extra-provincially registered in the
Province and will remain in good standing during the Term with the Registrar of
Companies for the Province with respect to filing annual reports.
ARTICLE II - RENT
Section 2.01 Covenant to Pay
(a) Except as otherwise expressly provided in this Lease, the Tenant shall pay
Rent from the Commencement Date without prior demand and without any deduction,
abatement, setoff or compensation. If the Commencement Date is not on the first
day of a calendar month, or the period of time from the Commencement Date to the
end of the first Fiscal Year during the Term is less than 12 calendar months, or
the period of time from the last Fiscal Year end during the Term to the end of
the Term is less than 12 calendar months, then Rent for such month and such
periods shall be pro-rated on a per diem basis, based upon a period of 365 days.
(b) If an Event of Default occurs, at the request of the Landlord the Tenant
will deliver to the Landlord a series of monthly post-dated cheques for the next
ensuing twelve month period, for the total of the monthly payments of Net Rent
and any Additional Rent estimated by the Landlord in advance.
Section 2.02 Net Rent
The Tenant shall pay Net Rent in the sum of SIXTEEN THOUSAND ONE HUNDRED AND
TWENTY-0NE DOLLARS ($16,121.00) per annum payable in equal monthly instalments
- 1 -
<PAGE>
of ONE THOUSAND THREE HUNDRED AND FORTY-THREE DOLLARS AND FORTY-TWO CENTS
($1,343.42) each in advance, on the first day of each calendar month of the
Term. The Net Rent is based on an annual rate of ELEVEN DOLLARS AND SEVENTY-FIVE
CENTS ($11.75) per square foot of the Rentable Area of the Premises. As soon as
reasonably possible after completion of construction of the Premises, the
Landlord shall measure the Net Rentable Area of the Premises and shall calculate
the Rentable Area of the Premises and Rent shall be adjusted accordingly.
Section 2.03 Payment of Operating Costs
The Tenant shall pay to the Landlord the Tenant's Proportionate Share of
Operating Costs.
Section 2.04 Payment of Taxes
(a) The Tenant shall pay when due all Business Tax. If the Tenant's Business Tax
is payable by the Landlord to the relevant taxing authority, the Tenant shall
pay the amount thereof to the Landlord or as it directs. If no separate tax
bills for Business Tax are issued with respect to the Tenant or the Premises,
the Landlord may allocate Business Tax charged, assessed or levied against the
Building or the Lands to the Tenant on the basis of the Tenant's Proportionate
Share. If Business Taxes are eliminated by the Province or the city in which the
Building is located, and Taxes are increased the Tenant will pay an equitable
share of Taxes attributable to the Premises to the extent, (and only to the
extent) that Taxes attributable to the Premises are increased as a consequence
of the elimination of Business Taxes.
(b) The Landlord shall allocate Taxes between the Total Rentable Area of the
Building and other components of the Development on such basis as the Landlord,
acting equitably, determines from time to time.
(c) The Tenant shall promptly pay to the Landlord or the relevant taxing
authority, as the Landlord may direct, not later than the due date thereof, its
Proportionate Share of the Taxes allocated to the Total Rentable Area of the
Building by the Landlord.
(d) If the Landlord obtains a written statement from the assessment or taxing
authorities indicating that as a result of any construction or installation of
improvements in the Premises, or any act or election of the Tenant, the Taxes
payable by the Tenant under subsection 2.05(b) do not accurately reflect the
Tenant's proper share of Taxes, the Landlord may require the Tenant to pay such
greater or lesser amount as is determined by the Landlord, acting reasonably.
(e) The Landlord may: contest any Taxes and appeal any assessments with respect
thereto; withdraw any such contest or appeal; and agree with the taxing
authorities on any settlement or compromise with respect to Taxes. The Tenant
will co-operate with the Landlord in respect of any such contest or appeal and
will provide the Landlord with all relevant information, documents and consents
required by the Landlord in connection with any such contest or appeal. The
Tenant will not contest any Taxes or appeal any assessments related thereto
without the Landlord's prior written consent.
(f) The Tenant shall promptly deliver to the Landlord on request, copies of
assessment notices, tax bills and other documents received by the Tenant
relating to Taxes and Business Tax and receipts for payment of Taxes and
Business Tax payable by the Tenant.
(g) The Tenant shall on demand, pay to the Landlord or to the appropriate taxing
authority if required by the Landlord, all goods and services taxes, sales
taxes, value added taxes, business transfer taxes, or any other taxes imposed on
the Landlord with respect to Rent or in respect of the rental of space under
this Lease, whether characterized as a goods and services tax, sales tax, value
added tax, business transfer tax or otherwise. The Landlord shall have the same
remedies and rights with respect to the payment or recovery of such taxes as it
has for the payment or recovery of Rent under this Lease.
Section 2.05 Payment of Estimated Taxes and Operating Costs
(a) The amount of Taxes and Operating Costs may be estimated by the Landlord for
such period as the Landlord determines from time to time, and the Tenant agrees
to pay to the Landlord the amounts so estimated in equal instalments, in
advance, on the first day of each month during such period. Notwithstanding the
foregoing, when bills for all or any portion of the amounts so estimated are
received, the Landlord may bill the Tenant for the Tenant's Proportionate Share
thereof (or the amount determined under Section 2.04(d)) after crediting against
such amounts any monthly payments of estimated Taxes and Operating Costs
previously made by the Tenant and the Tenant shall pay the Landlord the amounts
so billed.
(b) Within a reasonable time after the end of the period for which such
estimated payments have been made, the Landlord shall submit to the Tenant a
statement showing the calculation of the Tenant's share of Taxes and Operating
Costs together with a report from the Landlord's auditor as to the total amount
of Operating Costs. If: (i) the amount the Tenant has paid is less than the
- 2 -
<PAGE>
amounts due, the Tenant shall pay such deficiency to the Landlord; or (ii) the
amount paid by the Tenant is greater than the amounts due, the Landlord shall
pay such excess to the Tenant.
(c) The obligations contained in this Section shall survive the expiration or
earlier termination of the Term. Failure of the Landlord to render any statement
of Taxes or Operating Costs shall not prejudice the Landlord's right to render
such statement thereafter or with respect to any other period. The rendering of
any such statement shall also not affect the Landlord's right to subsequently
render an amended or corrected statement.
Section 2.06 Additional Rent
Except as otherwise provided in this Lease, all Additional Rent shall be payable
by the Tenant to the Landlord within 5 business days after demand.
Section 2.07 Rent Past Due
All Rent past due shall bear interest from the date on which the same became due
until the date of payment at 5% per annum in excess of the prime interest rate
for Canadian Dollar demand loans announced from time to time by any Canadian
chartered bank designated by the Landlord.
Section 2.08 Utilities
(a) The Tenant shall pay to the Landlord, or as the Landlord directs, all gas,
electricity, water, steam and other utility charges applicable to the Premises
on the basis of the Rentable Area of the Premises. Charges for utilities shall
be payable in advance on the first day of each month at a basic rate determined
by the Landlord's engineers. The Landlord shall be entitled to allocate to the
Premises an additional charge, as determined by the Landlord's engineer, for any
supply of utilities to the Premises in excess of those covered by such basic
charge. If any utility rates or related taxes or charges are increased or
decreased during the Term, such charges shall be equitably adjusted and the
decision of the Landlord, acting reasonably, shall be final and binding with
respect to any such adjustment.
(b) The Landlord shall have the exclusive right to replace bulbs, tubes and
ballasts in the lighting system in the Premises, on either an individual or a
group basis. The Tenant shall pay the cost of such replacement on the first day
of each month or at the option of the Landlord upon demand.
(c) The Tenant shall pay the cost of installing and maintaining any meters
installed at the request of the Landlord or the Tenant to measure the usage of
utilities in the Premises.
Section 2.09 Adjustment of Areas
The Landlord may from time to time re-measure the Net Rentable Area of the
Premises or re-calculate the Rentable Area of the Premises and may re-adjust the
Net Rent and/or the Tenant's Proportionate Share of Additional Rent accordingly.
The effective date of any such re-adjustment shall: (a) in the case of an
adjustment to the Rentable Area resulting from a change in the aggregate Net
Rentable Area of all office premises on the floor on which the Premises are
situated, be the date on which such change occurred; and (b) in the case of a
correction to any measurement or calculation error, be the date as of which such
error was introduced in the calculation of Rent. Any necessary adjusting payment
will be made by the party responsible for that payment forthwith upon the amount
of the adjusting payment being determined.
Section 2.10 Net Lease
This Lease is a completely net lease to the Landlord, except as expressly herein
set out. The Landlord is not responsible for any expenses or outlays of any
nature arising from or relating to the Premises, or the use or occupancy
thereof, or the contents thereof or the business carried on therein. The Tenant
shall pay all charges, impositions and outlays of every nature and kind relating
to the Premises except as expressly herein set out.
Section 2.11 Deposit
The Landlord hereby acknowledges receipt of the Tenant's deposit cheque in the
sum of TWO THOUSAND SIX HUNDRED AND NINETY-ONE DOLLARS AND FORTY-ONE CENTS
($2,691.41) which will be applied without interest against the last two (2)
months Rent due under this Lease.
Section 2.12 Electronic Data Interchange
At the Landlord's request, the Tenant will participate in an electronic data
interchange ("EDI") system or similar system whereby the Tenant will authorize
its bank, trust company, credit union or other financial institution to credit
the Landlord's bank account each month in an amount equal to the Net Rent and
Additional Rent payable on a monthly basis pursuant to the provisions of this
Lease.
- 3 -
<PAGE>
ARTICLE III - CONTROL OF BUILDING
Section 3.01 Landlord's Services
(a) The Landlord shall provide climate control to the Premises during Normal
Business Hours to maintain a temperature adequate for normal occupancy, except
during the making of repairs, alterations or improvements, provided that the
Landlord shall have no liability for failure to supply climate control service
when stopped as aforesaid or when prevented from doing so by repairs, or causes
beyond the Landlord's reasonable control. Any rebalancing of the climate control
system in the Premises necessitated by the installation of partitions, equipment
or fixtures by the Tenant or by any use of the Premises not in accordance with
the design standards of such system will be performed by the Landlord or, at the
option of the Landlord, by the Tenant, but in either case at the Tenant's
expense.
(b) Subject to the Rules and Regulations, the Landlord shall provide elevator
service during Normal Business Hours for use by the Tenant in common with
others, except when prevented by repairs. The Landlord will operate at least one
passenger elevator for use by tenants at all times except in the case of fire or
other emergencies.
(c) The Landlord will provide cleaning services in the Building consistent with
the standards of a first class office building.
(d) Subject to Section 2.08, the Landlord shall make available to the Premises
electricity for normal lighting and miscellaneous power requirements and, in
normal quantities gas, water, and other public utilities generally made
available to other tenants of the Building by the Landlord.
Section 3.02 Alterations by Landlord
The Landlord may: (a) alter, add to, subtract from, construct improvements to,
rearrange, build additional storeys on and construct additional facilities
adjoining or near the Development; (b) relocate the facilities and improvements
comprising the Building or erected on the Lands, or relocate, alter or rearrange
the Premises, provided that the premises as relocated, altered, or rearranged
shall be in all material aspects comparable to the Premises as herein
defined;(c) do such things on, or in the Lands or Development as are required to
comply with any laws, by-laws, regulations, orders or directives affecting the
Lands or any part of the Development; and (d) do such other things on or in the
Lands or Development as the Landlord, in the use of good business judgment
determines to be advisable; provided that notwithstanding anything contained in
this Section, access to the Premises shall at all times be available from the
elevator lobbies of the Building.
The Landlord shall not be in breach of its covenant for quiet enjoyment or
liable for any loss, costs or damages, whether direct or indirect, incurred by
the Tenant due to any of the foregoing.
ARTICLE IV - ACCESS AND ENTRY
Section 4.01 Entry for Inspection and Work
The Landlord shall be entitled at all reasonable times (and at any time in case
of emergency) to enter the Premises to examine them; to make such repairs,
alterations or improvements in the Premises or to the Building as the Landlord
considers necessary or desirable; to have access to underfloor ducts and access
panels to mechanical shafts; to check, calibrate, adjust and balance controls
and other parts of the heating, air conditioning, ventilating and climate
control systems; and for any other purpose necessary to enable the Landlord to
perform its obligations or exercise its rights under this Lease or in the
administration of the Building or other improvements on the Lands. The Tenant
shall not obstruct any pipes, conduits or mechanical or electrical equipment so
as to prevent reasonable access thereto. The Landlord shall exercise its rights
under this Section, to the extent possible in the circumstances, in such manner
so as to minimize interference with the Tenant's use and enjoyment of the
Premises.
Section 4.02 Right to Show Premises
The Landlord and its agents shall have the right to enter the Premises at all
reasonable times during Normal Business Hours to show them to prospective
purchasers, or Mortgagees or prospective Mortgagees, and, during the last six
months of the Term (or the last six months of any renewal term if this Lease is
renewed), to prospective tenants.
Section 4.03 Entry not Forfeiture
No entry into the Premises or anything done hereunder by the Landlord pursuant
to a right granted by this Lease shall constitute a breach of any covenant for
quiet enjoyment, or (except where expressed by the Landlord in writing) shall
constitute a re-entry or forfeiture, or an actual or constructive eviction. The
Tenant shall have no claim for injury, damages or loss suffered as a result of
any such entry or thing, except in the case of wilful misconduct by the Landlord
in the course of such entry, but the Landlord shall in no event be responsible
for the acts or negligence of any Persons providing cleaning services in the
Building.
- 4 -
<PAGE>
ARTICLE V - MAINTENANCE, REPAIRS AND ALTERATIONS
Section 5.01 Maintenance By Landlord
(a) The Landlord covenants to keep the following in good repair as a prudent
owner: (i) the structure of the Building including exterior walls and roofs;
(ii) the mechanical, electrical and other base building systems; and (iii) the
entrance, lobbies, plazas, stairways, corridors, parking areas and other
facilities from time to time provided for use in common by the Tenant and other
tenants of the Building. If such maintenance or repairs or alterations are
required by law or in the prudent management of the Building or any other
improvements on the Lands due to the business carried on by the Tenant, then the
full cost of such maintenance and repairs plus a sum equal to 15% of such cost
representing the Landlord's overhead, shall be paid by the Tenant to the
Landlord.
(b) The Landlord shall not be responsible for any damages caused to the Tenant
by reason of failure of any equipment or facilities serving the Building or
delays in the performance of any work for which the Landlord is responsible
under this Lease. The Landlord shall have the right to stop, interrupt or reduce
any services, systems or utilities provided to, or serving the Building or
Premises to perform repairs, alterations or maintenance or to comply with laws
or regulations, or requirements of its insurers, or for causes beyond the
Landlord's reasonable control or as a result of the Landlord exercising its
rights under Section 3.02. The Landlord shall not be in breach of its covenant
for quiet enjoyment or liable for any loss, costs or damages, whether direct or
indirect, incurred by the Tenant due to any of the foregoing, but the Landlord
shall make reasonable efforts to restore the services, utilities or systems so
stopped, interrupted or reduced.
(c) If the Tenant fails to carry out any maintenance, repairs or work required
to be carried out by it under this Lease to the reasonable satisfaction of the
Landlord, the Landlord may at its option carry out such maintenance or repairs
without any liability for any resulting damage to the Tenant's property or
business. The cost of such work, plus a sum equal to 15% of such cost
representing the Landlord's overhead, shall be paid by the Tenant to the
Landlord.
Section 5.02 Maintenance by Tenant; Compliance with Laws
(a) The Tenant shall at its sole cost repair and maintain the Premises exclusive
of base building mechanical and electrical systems, all to a standard consistent
with a first class office building, with the exception only of those repairs
which are the obligation of the Landlord under this Lease, subject to Article
VII. The Landlord may enter the Premises at all reasonable times to view their
condition and the Tenant shall maintain and keep the Premises in good and
substantial repair according to notice in writing. At the expiration or earlier
termination of the Term, the Tenant shall surrender the Premises to the Landlord
in as good condition and repair as the Tenant is required to maintain the
Premises throughout the Term.
(b) The Tenant shall, at its own expense, promptly comply with all laws,
by-laws, government orders and with all reasonable requirements or directives of
the Landlord's insurers affecting the Premises or their use, repair or
alteration.
Section 5.03 Tenant's Alterations
(a) No Alterations shall be made to the Premises without the Landlord's written
approval. The Tenant shall submit to the Landlord details of the proposed work
including drawings and specifications prepared by qualified architects or
engineers conforming to good engineering practice. All such Alterations shall be
performed: (i) at the sole cost of the Tenant; (ii) by contractors and workmen
approved by the Landlord; (iii) in a good and workmanlike manner; (iv) in
accordance with drawings and specifications approved by the Landlord; (v) in
accordance with all applicable legal and insurance requirements; (vi) subject to
the reasonable regulations, supervision, control and inspection of the Landlord;
(vii) subject to such indemnification against liens and expenses as the Landlord
reasonably requires; and (viii) in accordance with all applicable laws, by-laws
and government orders. The Landlord's reasonable cost incurred with respect to
the Tenant's Alterations including without limitation the cost of approving,
supervising and inspecting all such work shall be paid by the Tenant.
(b) If the Alterations would affect the structure of the Building or any of the
electrical, plumbing, mechanical, heating, ventilating or air conditioning
systems or other base building systems, such work shall at the option of the
Landlord be performed by the Landlord at the Tenant's cost. If the Landlord
performs such work, then on completion of such work, the cost of the work plus a
sum equal to 15% of said cost representing the Landlord's overhead shall be paid
by the Tenant to the Landlord.
(c) If the Tenant installs Leasehold Improvements, or makes Alterations which
depart from the Building standard and which restrict access to any Building
system or to any structural element of the Building by the Landlord or by any
person or corporation authorized by the Landlord, or which restrict the
installation of the leasehold improvements of any other tenant in the Building,
then the Tenant shall at the request of the Landlord remove any obstruction in a
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manner acceptable to the Landlord, failing which the Landlord may remove the
same; and the Tenant will pay, or reimburse the Landlord for, the cost of such
removal and for any replacement or restoration of such Leasehold Improvements or
Alterations.
Section 5.04 Repair Where Tenant at Fault
Notwithstanding any other provisions of this Lease, but subject to Section 6.07,
if the Building is damaged or destroyed or requires repair, replacement or
alteration as a result of the act or omission of the Tenant, its employees,
agents, invitees, licensees, contractors or others for whom it is in law
responsible, the cost of the resulting repairs, replacements or alterations plus
a sum equal to 15% of such cost representing the Landlord's overhead, shall be
paid by the Tenant to the Landlord.
Section 5.05 Removal of Improvements and Fixtures
All Leasehold Improvements (other than Trade Fixtures) shall immediately upon
their placement, before or during the Term, become the Landlord's property
without compensation to the Tenant. Except as otherwise agreed by the Landlord
in writing, no Leasehold Improvements shall be removed from the Premises by the
Tenant either during or at the expiration or sooner termination of the Term
except that:
(a) the Tenant may, during the Term, in the usual course of its business, remove
its Trade Fixtures, provided that the Tenant is not in default under this Lease;
(b) the Tenant shall, at the expiration or earlier termination of the Term, at
its sole cost, remove its Trade Fixtures from the Premises, failing which, at
the option of the Landlord, the Trade Fixtures shall become the property of the
Landlord and may be removed from the Premises and sold or disposed of by the
Landlord in such manner as it deems advisable; and
(c) the Tenant shall, at the expiration or earlier termination of the Term, at
its sole cost, either remove such of the Leasehold Improvements in the Premises
as the Landlord shall require to be removed, and restore the Premises to the
Landlord's then current base Building standard to the extent required by the
Landlord, or at the Landlord's option, pay to the Landlord the estimated cost of
such removal and restoration as determined by the Architect, acting reasonably.
If the Landlord requires the Tenant to perform the required work, then:
(i) the Tenant shall submit detailed demolition drawings to the
Landlord for its prior approval, and such work shall be
completed under the supervision of the Landlord;
(ii) the Tenant shall, at its expense, repair any damage caused to
the Building by such removal; and
(iii) if the Tenant fails to complete such work within 30 days
following the expiry or earlier termination of the Term, the
Tenant shall pay compensation to the Landlord for each day
following such 30th day until the completion of such work, at
a rate equal to the per diem Rent payable during the last
month preceding the expiration or earlier termination of the
Term, which sum is agreed by the parties to be a reasonable
estimate of the damages suffered by the Landlord for the loss
of use of the Premises.
No other property of the Landlord in or comprising the Premises or any other
part of the Building may be removed by the Tenant under any circumstances.
Section 5.06 Liens
The Tenant shall promptly pay for all materials supplied and work done in
respect of the Premises so as to ensure that no lien is registered against any
portion of the Lands or Building or against the Landlord's or Tenant's interest
therein. If a lien is registered or filed, the Tenant shall discharge it at its
expense forthwith, failing which the Landlord may at its option discharge the
lien by paying the amount claimed to be due into court or directly to the lien
claimant and the amount so paid and all expenses of the Landlord including legal
fees (on a solicitor and client basis) shall be paid by the Tenant to the
Landlord. The Tenant will not grant any security interest in the Leasehold
Improvements without the prior written consent of the Landlord and will promptly
cause the discharge of any financing statement or notice which may be filed in
respect of such security interest under any statute, unless such statement or
notice is in favour of the Landlord.
Section 5.07 Notice by Tenant
The Tenant shall notify the Landlord of any accident, defect, damage or
deficiency in any part of the Premises or the Building which comes to the
attention of the Tenant, its employees or contractors notwithstanding that the
Landlord may have no obligation in respect thereof.
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ARTICLE VI - INSURANCE AND INDEMNITY
Section 6.01 Tenant's Insurance
(a) The Tenant shall maintain the following insurance throughout the Term at its
sole cost:
(i) "All Risks" (including flood and earthquake) property
insurance with reasonable deductibles, naming the Landlord,
the owners of the Lands and Development and the Mortgagee as
insured parties, containing a waiver of any subrogation rights
which the Tenant's insurers may have against the Landlord and
against those for whom the Landlord is in law responsible, and
(except with respect to the Tenant's chattels) incorporating
the Mortgagee's standard mortgage clause. Such insurance shall
insure: (1) property of every kind owned by the Tenant or for
which the Tenant is legally liable located on or in the
Development including, without limitation, Leasehold
Improvements, in an amount equal to not less than 90% of the
full replacement cost thereof, subject to a stated amount
co-insurance clause; and (2) extra expense insurance in such
amount as will reimburse the Tenant for loss attributable to
all perils referred to in this paragraph 6.01(a)(i) or
resulting from prevention of access to the Premises;
(ii) Comprehensive general liability insurance which includes the
following coverages: owners protective; personal injury;
occurrence property damage; and employers and blanket
contractual liability. Such policies shall contain inclusive
limits of not less than $5,000,000, provide for cross
liability, and name the Landlord as an insured;
(iii) Tenant's "all risks" legal liability insurance for the
replacement cost value of the Premises including loss of use
thereof;
(iv) Automobile liability insurance on a non-owned form including
contractual liability, and on an owner's form covering all
licensed vehicles operated by or on behalf of the Tenant,
which insurance shall have inclusive limits of not less than
$1,000,000; and
(v) Any other form of insurance which the Tenant or the Landlord,
acting reasonably, or the Mortgagee requires from time to time
in form, in amounts and for risks against which a prudent
tenant would insure.
(b) All policies referred to in this Section 6.01 shall:
(i) be taken out with insurers reasonably acceptable to the
Landlord;
(ii) be in a form reasonably satisfactory to the Landlord;
(iii) be non-contributing with, and shall apply only as primary and
not as excess to any other insurance available to the
Landlord;
(iv) not be invalidated as respects the interests of the Landlord
or the Mortgagee by reason of any breach of or violation of
any warranty, representation, declaration or condition; and
(v) contain an undertaking by the insurers to notify the Landlord
by registered mail not less than 30 days prior to any material
change, cancellation or termination.
Certificates of insurance on the Landlord's standard form or other proof of
insurance as reasonably required by the Landlord, shall be delivered to the
Landlord prior to the Commencement Date and from time to time, forthwith upon
request. If the Tenant fails to take out or to keep in force any insurance
referred to in this Section 6.01 or should any such insurance not be approved by
either the Landlord or the Mortgagee and should the Tenant not commence to
diligently rectify (and thereafter proceed to diligently rectify) the situation
within 48 hours after written notice by the Landlord to the Tenant (stating, if
the Landlord or the Mortgagee, from time to time, does not approve of such
insurance, the reasons therefor) the Landlord has the right without assuming any
obligation in connection therewith, to effect such insurance at the sole cost of
the Tenant and all outlays by the Landlord shall be paid by the Tenant to the
Landlord without prejudice to any other rights or remedies of the Landlord under
this Lease.
Section 6.02 Increase in Insurance Premiums
The Tenant shall not keep or use in the Premises any article which may be
prohibited by any fire insurance policy in force from time to time covering the
Premises or the Development. If: (a) the conduct of business in, or use or
manner of use of the Premises; (b) or any acts or omissions of the Tenant in the
Development or any part thereof; cause or result in any increase in premiums for
any insurance carried by the Landlord with respect to the Development, the
Tenant shall pay any such increase in premiums. In determining whether increased
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premiums are caused by or result from the use or occupancy of the Premises, a
schedule issued by the organization computing the insurance rate on the
Development showing the various components of such rate, shall be conclusive
evidence of the items and charges which make up such rate.
Section 6.03 Cancellation of Insurance
If any insurer under any insurance policy covering any part of the Development
or any occupant thereof cancels or threatens to cancel its insurance policy or
reduces or threatens to reduce coverage under such policy by reason of the use
of the Premises by the Tenant or by any Transferee, or by anyone permitted by
the Tenant to be upon the Premises, the Tenant shall remedy such condition
within 48 hours after notice thereof by the Landlord.
Section 6.04 Loss or Damage
The Landlord shall not be liable for any death or injury arising from or out of
any occurrence in, upon, at, or relating to the Lands or Development or damage
to property of the Tenant or of others located on the Premises or elsewhere in
the Development, nor shall it be responsible for any loss of or damage to any
property of the Tenant or others from any cause, whether or not any such death,
injury, loss or damage results from the negligence of the Landlord, its agents,
employees, contractors, or others for whom it may, in law, be responsible.
Without limiting the generality of the foregoing, the Landlord shall not be
liable for any injury or damage to Persons or property resulting from fire,
explosion, falling plaster, falling ceiling tile, falling fixtures, steam, gas,
electricity, water, rain, flood, snow or leaks from any part of the Premises or
from the pipes, sprinklers, appliances, plumbing works, roof, windows or
subsurface of any floor or ceiling of the Development or from the street or any
other place or by dampness or by any other cause whatsoever. The Landlord shall
not be liable for any such damage caused by other tenants or Persons on the
Lands or in the Development or by occupants of adjacent property thereto, or the
public, or caused by construction or by any private, public or quasi-public
work. All property of the Tenant kept or stored on the Premises shall be so kept
or stored at the risk of the Tenant only and the Tenant releases and agrees to
indemnify the Landlord and save it harmless from any claims arising out of any
damage to the same including, without limitation, any subrogation claims by the
Tenant's insurers.
Section 6.05 Landlord's Insurance
The Landlord shall throughout the Term carry: (a) insurance on the Development
(excluding the foundations and excavations) and the machinery, boilers and
equipment in or servicing the Development and owned by the Landlord or the
owners of the Development (excluding any property which the Tenant and other
tenants are obliged to insure under Section 6.01 or similar sections of their
respective leases) against damage by fire and extended perils coverage; (b)
public liability and property damage insurance with respect to the Landlord's
operations in the Development; and (c) such other form or forms of insurance as
the Landlord or the Mortgagee reasonably considers advisable. Such insurance
shall be in such reasonable amounts and with such reasonable deductibles as
would be carried by a prudent owner of a reasonably similar building, having
regard to size, age and location. Notwithstanding the Landlord's covenant in
this Section and notwithstanding any contribution by the Tenant to the cost of
the Landlord's insurance premiums, the Tenant acknowledges and agrees that:
subject to Section 6.07, (i) the Tenant is not relieved of any liability arising
from or contributed to by its negligence or its wilful act or omissions; (ii) no
insurable interest is conferred upon the Tenant under any insurance policies
carried by the Landlord; and (iii) the Tenant has no right to receive any
proceeds of any insurance policies carried by the Landlord.
Section 6.06 Indemnification of the Landlord
Notwithstanding any other provision of this Lease, the Tenant shall indemnify
the Landlord and save it harmless from all loss (including loss of Net Rent and
Additional Rent) claims, actions, damages, liability and expense in connection
with loss of life, personal injury, damage to property or any other loss or
injury whatsoever arising out of this Lease, or any occurrence in, upon or at
the Premises, or the occupancy or use by the Tenant of the Premises or any part
thereof, or occasioned wholly or in part by any act or omission of the Tenant or
by anyone permitted to be on the Premises by the Tenant. If the Landlord shall,
without fault on its part, be made a party to any litigation commenced by or
against the Tenant, then the Tenant shall protect, indemnify and hold the
Landlord harmless in connection with such litigation. The Landlord may, at its
option, participate in or assume carriage of any litigation or settlement
discussions relating to the foregoing, or any other matter for which the Tenant
is required to indemnify the Landlord under this Lease. Alternatively, the
Landlord may require the Tenant to assume carriage of and responsibility for all
or any part of such litigation or discussions.
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Section 6.07 Release by the Landlord
Despite any other section or clause of this Lease (except the last sentence of
this Section 6.07), the Tenant is not responsible for any part, in excess of
$5,000,000.00, or any amount of liability insurance coverage available to the
Tenant, whichever is the greater, of any loss or damage to property of the
Landlord that is located in, or is part of the Building and Lands caused by any
of the perils for which the Landlord is required under Section 6.05 to maintain
insurance. This release applies whether or not the loss or damage arises from
the negligence of the Tenant. This release does not apply, however, to damage
arising from the wilful or grossly negligent acts of the Tenant.
ARTICLE VII - DAMAGE AND DESTRUCTION
Section 7.01 No Abatement or Termination
If the Premises or Building are damaged or destroyed in whole or in part by fire
or any other occurrence, this Lease shall continue in full force and effect and
there shall be no abatement of Rent except as provided in this Article VII.
Section 7.02 Damage to Premises
If the Premises are at any time destroyed or damaged as a result of fire or any
other casualty required to be insured against by the Landlord under this Lease
or otherwise insured against by the Landlord and not caused or contributed to by
the Tenant, then the following provisions shall apply:
(a) if the Premises are rendered untenantable only in part, the Landlord shall
diligently repair the Premises to the extent only of its obligations under
Section 5.01 and Net Rent shall abate proportionately to the portion of the
Premises rendered untenantable from the date of destruction or damage until the
Landlord's repairs have been completed;
(b) if the Premises are rendered wholly untenantable, the Landlord shall
diligently repair the Premises to the extent only of its obligations pursuant to
Section 5.01 and Net Rent shall abate entirely from the date of destruction or
damage until the Landlord's repairs have been completed;
(c) if the Premises are not rendered untenantable in whole or in part, the
Landlord shall diligently perform such repairs to the Premises to the extent
only of its obligations under Section 5.01, but in such circumstances Net Rent
shall not terminate or abate;
(d) upon being notified by the Landlord that the Landlord's repairs have been
substantially completed, the Tenant shall diligently perform all repairs to the
Premises which are the Tenant's responsibility under Section 5.02, and all other
work required to fully restore the Premises for use in the Tenant's business, in
every case at the Tenant's cost and without any contribution to such cost by the
Landlord, whether or not the Landlord has at any time made any contribution to
the cost of supply, installation or construction of Leasehold Improvements in
the Premises;
(e) nothing in this Section shall require the Landlord to rebuild the Premises
in the condition which existed before any such damage or destruction so long as
the Premises as rebuilt will have reasonably similar facilities to those in the
Premises prior to such damage or destruction, having regard, however, to the age
of the Building at such time; and
(f) nothing in this Section shall require the Landlord to undertake any repairs
having a cost in excess of the insurance proceeds actually received by the
Landlord with respect to such damage or destruction.
Section 7.03 Right of Termination
Notwithstanding Section 7.02, if the damage or destruction which has occurred in
the Premises is such that in the reasonable opinion of the Landlord the Premises
cannot be rebuilt or made fit for the purposes of the Tenant within 90 days of
the happening of the damage or destruction, the Landlord may, at its option,
terminate this Lease on notice to the Tenant given within 30 days after such
damage or destruction. If such notice of termination is given, Rent shall be
apportioned and paid to the date of such damage or destruction and the Tenant
shall immediately deliver vacant possession of the Premises in accordance with
the terms of this Lease.
Section 7.04 Destruction of or Damage to Building
(a) Notwithstanding anything contained in this Lease and specifically
notwithstanding the provisions of Section 7.03, if
(i) thirty-five percent (35%) or more of the Total Rentable Area
of the Building; or
(ii) a portion of the Building or of the Lands or any other
improvements on the Lands which affect access or services
essential to the Premises;
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is damaged or destroyed by any cause whatsoever (irrespective of whether the
Premises are damaged or destroyed) and if, in the reasonable opinion of the
Landlord, the Total Rentable Area of the Building or the essential portion
described above, as the case may be, so damaged or destroyed cannot be rebuilt
or made fit for the purposes of the respective tenants of such space within one
hundred and eighty (180) days of the happening of the damage or destruction;
then, the Landlord may at its option (to be exercised by written notice to the
Tenant within sixty (60) days following any such occurrence), elect to terminate
this Lease. In the case of such election, the Term and the tenancy hereby
created shall expire upon the thirtieth (30th) day after such notice is given,
without indemnity or penalty payable by, or any other recourse against the
Landlord, and the Tenant shall, within such thirty (30) day period, vacate the
Premises and surrender them to the Landlord with the Landlord having the right
to re-enter and repossess the Premises discharged of this lease and to expel all
Persons and remove all property therefrom. Net Rent and Additional Rent shall be
due and payable without reduction or abatement subsequent to the destruction or
damage and until the date of termination, unless the Premises shall have been
destroyed or damaged as well, in which event Section 7.03 shall apply.
(b) If the Landlord is entitled to, but does not elect to terminate this Lease
under Section 7.04(a), the Landlord shall, following such damage or destruction,
diligently repair if necessary that part of the Building damaged or destroyed,
but only to the extent of the Landlord's obligations under the terms of the
various leases for premises in the Building and exclusive of any tenant's
responsibilities with respect to such repair. If the Landlord elects to repair
the Building, the Landlord may do so in accordance with plans and specifications
other than those used in the original construction of the Building.
Section 7.05 Architect's Certificate
The certificate of the Architect shall bind the parties as to: (a) the
percentage of the Total Rentable Area of the Building damaged or destroyed; (b)
whether or not the Premises are rendered untenantable and the percentage of the
Premises rendered untenantable; (c) the date upon which either the Landlord's or
Tenant's work of reconstruction or repair is completed or substantially
completed and the date when the Premises are rendered tenantable; and (d) the
state of completion of any work of the Landlord or the Tenant.
ARTICLE VIII - ASSIGNMENT, SUBLETTING AND TRANSFERS
Section 8.01 Assignments, Subleases and Transfers
The Tenant shall not enter into, consent to, or permit any Transfer without the
prior written consent of the Landlord in each instance, which consent shall not
be unreasonably withheld but shall be subject to the Landlord's rights under
Section 8.02. Notwithstanding any statutory provision to the contrary, it shall
not be considered unreasonable for the Landlord to take into account the
following factors in deciding whether to grant or withhold its consent: (a)
whether such Transfer is in violation or in breach of any covenants or
restrictions made or granted by the Landlord to other tenants or occupants or
prospective tenants or occupants of the Building; (b) whether in the Landlord's
opinion, the financial background, business history and capability of the
proposed Transferee is satisfactory; and (c) if the Transfer is to an existing
tenant of the Landlord. Consent by the Landlord to any Transfer if granted shall
not constitute a waiver of the necessity for such consent to any subsequent
Transfer. This prohibition against Transfer shall include a prohibition against
any Transfer by operation of law and no Transfer shall take place by reason of
the failure of the Landlord to give notice to the Tenant within 30 days as
required by Section 8.02. Notwithstanding anything to the contrary herein
contained, the Tenant may not assign this Lease while any Rent is in arrears
hereunder or while any other Event of Default exists hereunder. Before making
any assignment of this Lease the Tenant will pay all Rent in arrears and will
remedy any Event of Default which then exists or will cause any Event of Default
to cease to exist.
Section 8.02 Landlord's Rights
If the Tenant intends to effect a Transfer, the Tenant shall give prior notice
to the Landlord of such intent specifying the identity of the Transferee, the
type of Transfer contemplated, the portion of the Premises affected thereby, and
the financial and other terms of the Transfer, and shall provide such financial,
business or other information relating to the proposed Transferee and its
principals as the Landlord or any Mortgagee requires, together with copies of
any documents which record the particulars of the proposed Transfer. The
Landlord shall, within 30 days after having received such notice and all
requested information, notify the Tenant either that:
(a) it consents or does not consent to the Transfer in accordance with the
provisions and qualifications of this Article VIII; or
(b) it elects to cancel this Lease as to the whole or part, as the case may be,
of the Premises affected by the proposed Transfer, in preference to giving such
consent; or
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(c) it elects to take over the position of the proposed Transferee with respect
to the Transfer such that the Landlord becomes the assignee or subtenant, as the
case may be, of the Tenant on the financial terms set out in the notice.
If the Landlord elects to terminate this Lease it shall stipulate in its notice
the termination date of this Lease, which date shall be no less than 30 days nor
more than 90 days following the giving of such notice of termination. If the
Landlord elects to terminate this Lease, the Tenant shall notify the Landlord
within 10 days thereafter of the Tenant's intention either to refrain from such
Transfer or to accept termination of this Lease or the portion thereof in
respect of which the Landlord has exercised its rights. If the Tenant fails to
deliver such notice within such 10 days or notifies the Landlord that it accepts
the Landlord's termination, this Lease will as to the whole or affected part of
the Premises, as the case may be, be terminated on the date of termination
stipulated by the Landlord in its notice of termination. If the Tenant notifies
the Landlord within 10 days that it intends to refrain from such Transfer, then
the Landlord's election to terminate this Lease shall become void.
Section 8.03 Conditions of Transfer
(a) Subject to Section 8.03(e), if there is a permitted Transfer, the Landlord
may collect Rent from the Transferee and apply the net amount collected to the
Rent payable under this Lease but no acceptance by the Landlord of any payments
by a Transferee shall be deemed a waiver of the Tenant's covenants or any
acceptance of the Transferee as tenant or a release from the Tenant from the
further performance by the Tenant of its obligations under this Lease. Any
consent by the Landlord shall be subject to the Tenant and Transferee executing
an agreement with the Landlord agreeing:
(i) that the Transferee will be bound by all of the terms of this
Lease and, except in the case of a sublease, that the
Transferee will be so bound as if it had originally executed
this Lease as tenant; and
(ii) to amend the Lease to incorporate such terms, covenants and
conditions as are necessary so that the Lease will be in
accordance with the Landlord's standard form of office lease
in use for the Building at the time of the Transfer, and so as
to incorporate any conditions imposed by the Landlord in its
consent or required by this Section 8.03.
(b) Notwithstanding any Transfer permitted or consented to by the Landlord,
including a Transfer to the Landlord pursuant to Section 8.02(c), the Tenant
making such Transfer shall remain liable under this Lease and shall not be
released from performing any of the terms of this Lease.
(c) The Landlord's consent to any Transfer shall be subject to the condition
that: (i) the net and additional rent payable by the Transferee shall not be
less than the Rent payable by the Tenant under this Lease as at the effective
date of the Transfer, (including any increases provided for in this Lease); and
(ii) if the net and additional rent to be paid by the Transferee under such
Transfer exceeds the Rent payable under this Lease, the amount of such excess
shall be paid by the Tenant to the Landlord. If the Tenant receives from any
Transferee, either directly or indirectly, any consideration other than rent or
additional rent for such Transfer, either in the form of cash, goods or services
(other than the proceeds of any financing as the result of a Transfer involving
a mortgage, charge or similar security interest in this Lease) the Tenant shall
forthwith pay to the Landlord an amount equivalent to such consideration. The
Tenant and the Transferee shall execute any agreement required by the Landlord
to give effect to the foregoing terms.
(d) Notwithstanding the effective date of any permitted Transfer as between the
Tenant and the Transferee, all Rent for the month in which such effective date
occurs shall be paid in advance by the Tenant so that the Landlord will not be
required to accept partial payments of Rent for such month from either the
Tenant or Transferee.
(e) If a Transfer occurs as a result of the Landlord's election pursuant to
Section 8.02(c), the Landlord will apply the Rent payable by the Landlord, as
Transferee, to the Rent payable under this Lease, but otherwise the Tenant will
not be released from its covenants under this Lease or from the further
performance of its obligations under this Lease. The Tenant will enter into an
agreement with the Landlord setting out the terms of such Transfer, which
agreement will be prepared by the Landlord or its solicitors and all legal costs
associated with such Transfer shall be paid by the Tenant.
(f) Any document evidencing any Transfer permitted by the Landlord, or setting
out any terms applicable to such Transfer or the rights and obligations of the
Tenant or Transferee thereunder including a Transfer under Section 8.02(c), or
any amendment of this Lease pursuant to clause 8.03(a)(ii), shall be prepared by
the Landlord or its solicitors and all associated legal costs shall be paid by
the Tenant.
Section 8.04 Change of Control
If the Tenant is at any time a corporation or partnership, any actual or
proposed Change of Control in such corporation or partnership shall be deemed to
be a Transfer and subject to all of the provisions of this Article VIII. The
Tenant shall make available to the Landlord or its representatives all of its
corporate or partnership records, as the case may be, for inspection at all
reasonable times, in order to ascertain whether any Change of Control has
occurred.
Section 8.05 No Advertising
The Tenant shall not advertise that the whole or any part of the Premises are
available for a Transfer and shall not permit any broker or other Person to do
so unless the text and format of such advertisement and the publications in
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which such advertisement is to be placed are approved in writing by the
Landlord. No such advertisement shall contain any reference to the rental rate
of the Premises.
Section 8.06 Assignment By Landlord
The Landlord shall have the unrestricted right to sell, lease, convey or
otherwise dispose of all or any part of the Building or Lands or this Lease or
any interest of the Landlord in this Lease. To the extent that the purchaser or
assignee from the Landlord assumes the obligations of the Landlord under this
Lease, the Landlord shall thereupon and without further agreement be released
from all liability under this Lease.
ARTICLE IX - DEFAULT
Section 9.01 Default and Remedies
If and whenever an Event of Default occurs, then without prejudice to any other
rights which it has pursuant to this Lease or at law, the Landlord shall have
the following rights and remedies, which are cumulative and not alternative:
(a) to re-enter the Premises or any part thereof in the name of the whole and
the same to have again, repossess, and enjoy as of the Landlord's former estate,
anything herein contained to the contrary notwithstanding;
(b) to terminate this Lease, with or without notice to the Tenant, whether or
not the Landlord has, with respect to the same or another Event of Default,
previously elected or pursued a right or remedy which is inconsistent with
termination of this Lease;
(c) to enter the Premises as agent of the Tenant and to relet the Premises for
whatever term, and on such terms as the Landlord in its discretion may determine
and to receive the Rent therefor and as agent of the Tenant to take possession
of any property of the Tenant on the Premises, to store such property at the
expense and risk of the Tenant or to sell or otherwise dispose of such property
in such manner as the Landlord may see fit without notice to the Tenant; to make
alterations to the Premises to facilitate their reletting; and to apply the
proceeds of any such sale or reletting first, to the payment of any expenses
incurred by the Landlord with respect to any such reletting or sale; second, to
the payment of any indebtedness of the Tenant to the Landlord other than Rent;
and third, to the payment of Rent in arrears; with the residue to be held by the
Landlord and applied in payment of future Rent as it becomes due and payable.
The Tenant shall remain liable for any deficiency to the Landlord. If any
reletting extends for a period beyond the end of the Term, such reletting shall
not constitute a termination of this Lease, but a reletting as agent of the
Tenant up to the end of the Term and a letting thereafter by the Landlord for
its own account. The Tenant acknowledges and agrees that if the Tenant has
abandoned property on the Premises after notice from the Landlord to remove such
property, the Landlord has no obligation whatsoever to store such property for
any period of time;
(d) to remedy or attempt to remedy any default of the Tenant under this Lease
for the account of the Tenant and to enter upon the Premises for such purposes.
No notice of the Landlord's intention to perform such covenants need be given
the Tenant unless expressly required by this Lease. The Landlord shall not be
liable to the Tenant for any loss, injury or damage caused by acts of the
Landlord in remedying or attempting to remedy such default and the Tenant shall
pay to the Landlord all expenses incurred by the Landlord in connection with
remedying or attempting to remedy such default;
(e) to recover from the Tenant all damages, and expenses incurred by the
Landlord as a result of any breach by the Tenant including, if the Landlord
terminates this Lease, any deficiency between those amounts which would have
been payable by the Tenant for the portion of the Term following such
termination and the net amounts actually received by the Landlord during such
period of time with respect to the Premises;
(f) to recover from the Tenant the full amount of the current month's Rent
together with 3 months' instalments of Rent, all of which shall immediately
become due and payable as accelerated rent and may be held and applied by the
Landlord without interest against the last Rent due under this Lease; and
(g) if this Lease has been terminated in accordance with Section 9.01(b), to
recover from the Tenant the unamortized portion of any leasehold improvement
allowance or inducement paid or given by the Landlord under the terms of this
Lease or the Lease Proposal, calculated from the date which is the later of the
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date of payment by the Landlord or the Commencement Date, on the basis of an
assumed rate of depreciation on a straight line basis to zero over the initial
Term of this Lease.
Section 9.02 Distress
Notwithstanding any provision of this Lease or any provision of applicable
legislation, none of the goods and chattels of the Tenant on the Premises at any
time during the Term shall be exempt from levy by distress for Rent in arrears,
and the Tenant waives any such exemption. If the Landlord makes any claim
against the goods and chattels of the Tenant by way of distress, this provision
may be pleaded as an estoppel against the Tenant in any action brought to test
the right of the Landlord to levy such distress. The Tenant acknowledges and
agrees that the Landlord is entitled to levy by distress any accelerated rent
which becomes due and is payable pursuant to Section 9.01(f) of this Lease.
Section 9.03 Damages and Costs
The Tenant shall pay to the Landlord all damages and costs (including, without
limitation, all legal fees on a solicitor and his client basis) incurred by the
Landlord in enforcing or interpreting the terms of this Lease, or with respect
to any matter or thing which is the obligation of the Tenant under this Lease,
or in respect of which the Tenant has agreed to insure, or to indemnify the
Landlord.
Section 9.04 Allocation of Payments
The Landlord may at its option apply sums received from the Tenant against any
amounts due and payable by the Tenant under this Lease in such manner as the
Landlord sees fit.
Section 9.05 Survival of Obligations
If the Tenant has failed to fulfil its obligations under this Lease with respect
to the payment of Rent, the maintenance, repair and alteration of the Premises
and removal of improvements and fixtures from the Premises during or at the end
of the Term, such obligations and the Landlord's rights in respect thereto shall
remain in full force and effect notwithstanding the expiration, surrender or
sooner termination of the Term.
ARTICLE X - STATUS STATEMENT, ATTORNMENT AND SUBORDINATION
Section 10.01 Status Statement
Within 10 days after written request by the Landlord, the Tenant shall deliver
in a form supplied by the Landlord a statement or estoppel certificate to the
Landlord as to the status of this Lease, including as to whether this Lease is
unmodified and in full force and effect (or, if there have been modifications
that this Lease is in full force and effect as modified and identifying the
modification agreements); the amount of Net Rent and Additional Rent then being
paid and the dates to which same have been paid; whether or not there is any
existing or alleged default by either party with respect to which a notice of
default has been served and if there is any such default, specifying the nature
and extent thereof; and any other matters pertaining to this Lease as to which
the Landlord shall request such statement or certificate.
Section 10.02 Subordination
This Lease and all rights of the Tenant shall be subject and subordinate to any
and all Mortgages and any ground, operating, overriding or underlying leases,
from time to time in existence against the Lands and Building (including without
limitation those referred to in section 11.15 hereof). On request, the Tenant
shall acknowledge in writing the subordination of this Lease and its rights
under this Lease to any and all such Mortgages and leases and to all advances
made under such Mortgages. The form of such subordination shall be as required
by the Landlord or any Mortgagee or the lessee under any such lease.
Section 10.03 Attornment
The Tenant shall promptly, on request, attorn to any Mortgagee, or to the owners
of the Building and Lands, or the lessor under any ground, operating,
overriding, underlying or similar lease of all or substantially all of the
Building made by the Landlord or otherwise affecting the Building and Lands, or
the purchaser on any foreclosure or sale proceedings taken under any Mortgage,
and shall recognize such Mortgagee, owner, lessor or purchaser as the Landlord
under this Lease.
Section 10.04 Execution of Documents
The Tenant irrevocably constitutes the Landlord the agent and attorney of the
Tenant for the purpose of executing any agreement, certificate, attornment or
subordination required by this Lease and for registering postponements in favour
of any Mortgagee if the Tenant fails to execute such documents within 10 days
after request by the Landlord.
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ARTICLE XI - GENERAL PROVISIONS
Section 11.01 Rules and Regulations
The Tenant shall comply with all Rules and Regulations, and amendments thereto,
adopted by the Landlord from time to time including those set out in Schedule
"D". Such Rules and Regulations may differentiate between different types of
businesses in the Building, and the Landlord shall have no obligation to enforce
any Rule or Regulation or the provisions of any other lease against any other
tenant, and the Landlord shall have no liability to the Tenant with respect
thereto.
Section 11.02 Delay
Except as expressly provided in this Lease, whenever the Landlord or Tenant is
delayed in the fulfilment of any obligation under this Lease (other than the
payment of Rent and surrender of the Premises on termination) by an unavoidable
occurrence which is not the fault of the party delayed in performing such
obligation, then the time for fulfilment of such obligation shall be extended
during the period in which such circumstances operate to delay the fulfilment of
such obligation.
Section 11.03 Overholding
If the Tenant remains in possession of the Premises after the end of the Term
with the consent of the Landlord but without having executed and delivered a new
lease or an agreement extending the Term, there shall be no tacit renewal of
this Lease, and the Tenant shall be deemed to be occupying the Premises as a
Tenant from month to month at a monthly Net Rent payable in advance on the first
day of each month equal to twice the monthly amount of Net Rent payable during
the last month of the Term, and otherwise upon the same terms as are set forth
in this Lease, so far as these are applicable to a monthly tenancy.
Section 11.04 Waiver
If either the Landlord or Tenant excuses or condones any default by the other of
any obligation under this Lease, no waiver of such obligation shall be implied
in respect of any continuing or subsequent default.
Section 11.05 Registration
Neither the Tenant nor anyone claiming under the Tenant shall register this
Lease or any Transfer without the prior written consent of the Landlord. The
Tenant hereby waives any right which the Tenant may have to require the Landlord
to deliver this Lease in registrable form or to provide a plan of the Premises
acceptable to the land title office or other office of public record for
registration or filing purposes.
Section 11.06 Notices
Any notice, consent or other instrument which may be or is required to be given
under this Lease shall be in writing and shall be delivered in person or sent by
registered mail postage prepaid, addressed: (a) if to the Landlord: c/o The
Cadillac Fairview Corporation Limited, 20 Queen Street, 5th Floor, Toronto,
Ontario, M5H 3R4, Attention: Executive Vice President, Property Management, with
a copy to the Building Manager; and (b) if to the Tenant, at the Premises. Any
such notice or other instrument shall be deemed to have been given and received
on the day upon which personal delivery is made or, if mailed, then 48 hours
following the date of mailing. Either party may give notice to the other of any
change of address and after the giving of such notice, the address therein
specified is deemed to be the address of such party for the giving of notices.
If postal service is interrupted or substantially delayed, all notices or other
instruments shall be delivered in person.
Section 11.07 Successors
The rights and liabilities created by this Lease extend to and bind the
successors and assigns of the Landlord and the heirs, executors, administrators
and permitted successors and assigns of the Tenant. No rights, however, shall
enure to the benefit of any Transferee unless the provisions of Article VIII are
complied with.
Section 11.08 Joint and Several Liability
If there is at any time more than one Tenant or more than one Person
constituting the Tenant, their covenants shall be considered to be joint and
several and shall apply to each and every one of them. If the Tenant is or
becomes a partnership, each Person who is a member, or shall become a member, of
such partnership or its successors shall be and continue to be jointly and
severally liable for the performance of all covenants of the Tenant pursuant to
this Lease, whether or not such Person ceases to be a member of such partnership
or its successor.
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Section 11.09 Captions and Section Numbers
The captions, section numbers, article numbers and table of contents appearing
in this Lease are inserted only as a matter of convenience and in no way affect
the substance of this Lease.
Section 11.10 Extended Meanings
The words "hereof", "hereto" and "hereunder" and similar expressions used in
this Lease relate to the whole of this Lease and not only to the provisions in
which such expressions appear. This Lease shall be read with all changes in
number and gender as may be appropriate or required by the context. Any
reference to the Tenant includes, where the context allows, the employees,
agents, invitees and licensees of the Tenant and all others over whom the Tenant
might reasonably be expected to exercise control.
Section 11.11 Partial Invalidity
All of the provisions of this Lease are to be construed as covenants even though
not expressed as such. If any such provision is held or rendered illegal or
unenforceable it shall be considered separate and severable from this Lease and
the remaining provisions of this Lease shall remain in force and bind the
parties as though the illegal or unenforceable provision had never been included
in this Lease.
Section 11.12 Entire Agreement
This Lease and the Schedules and riders, if any, attached hereto and the Lease
Proposal, if any, and the Landlord's leasehold improvement manual, set forth the
entire agreement between the Landlord and Tenant concerning the Premises and
there are no agreements or understandings between them other than as are herein
set forth. Subject to Section 11.01, this Lease and its Schedules and riders may
not be modified except by agreement in writing executed by the Landlord and
Tenant. In the event of any inconsistency between the provisions of this Lease
and the provisions of the Lease Proposal, the provisions of this Lease shall
prevail.
Section 11.13 Governing Law
This Lease shall be construed in accordance with and governed by the laws of the
Province.
Section 11.14 Time of the Essence
Time is of the essence of this Lease.
Section 11.15 Quiet Enjoyment
If the Tenant pays Rent, fully observes and performs all of its obligations
under this Lease, and there has been no Event of Default, the Tenant shall be
entitled to peaceful and quiet enjoyment of the Premises for the Term without
interruption or interference by the Landlord or any Person claiming through the
Landlord.
Section 11.16 Indemnity Agreement
If any Indemnifier is named in this Lease, the Indemnifier agrees to execute and
deliver to the Landlord an Indemnity Agreement in the form attached as Schedule
"E" hereto (with blanks completed) with respect to this Lease and any and all
renewals hereof; and the Tenant agrees that failure of the Indemnifier to do so
shall constitute an Event of Default.
Section 11.17 Early Occupancy
Following the execution and delivery of this Lease by the Tenant to the
Landlord, the Tenant shall be given access to the Premises for purposes of
fixturing and improving the same. From the date of such early access to the
Commencement Date, the Tenant shall not be required to pay any Net Rent or
Additional Rent. The Tenant shall, during that period, observe and perform all
other provisions contained in the Lease and shall, without limiting the
generality of the foregoing, place and maintain all policies of insurance
required by the Lease.
Section 11.18 Landlord's Work
The Landlord agrees to perform the work set out below in respect of the Premises
on a "once only" basis (also herein referred to as "Landlord's Work"). It is
understood and agreed that the Landlord is not required to provide any materials
or to do any work to or in respect of the Premises except the Landlord's Work
and materials listed below and Landlord's Work will be performed in accordance
with the Landlord's specifications and using standard finishes for the Building:
(i) build a small storage room in the location agreed to between the
parties
(ii) re-carpet, re-paint and install glazing in the boardroom, and
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(iii) rebalance the heating, ventilating and air conditioning
system.
Section 11.19 Parking
The Landlord agrees that the use and occupation by the Tenant of the Premises
throughout the Term includes the license to use, subject to compliance by the
Tenant of the reasonable rules and regulations of the Landlord from time to
time, one (1) unreserved parking stall in the parkade at the prevailing monthly
rate as established by the Landlord from time to time.
The Landlord is not responsible for damage to, or loss of the Tenant's vehicle
or its contents and the Tenant releases and agrees to hold harmless the Landlord
from and against all liability for any loss or damage to the Tenant or its
vehicle by any cause whatsoever.
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Section 11.20 Execution
If the Tenant is a corporation, the Tenant confirms and agrees that this Lease
has been executed by its authorized signatories and that if only one signatory
has signed this Lease, the Tenant is authorized by its articles of incorporation
or other constating documents to execute leases by such sole authorized
signatory and if this Lease is not executed under seal by the Tenant, the Tenant
is authorized by its articles of incorporation or other constating documents to
execute leases without a seal.
IN WITNESS WHEREOF the Parties hereto have duly executed this Agreement as of
the day and year first above written, under the hands of their proper signing
officers duly authorized in that behalf or by signing in their personal
capacity, as the case may be.
PACIFIC CENTRE LEASEHOLDS LIMITED
____________________________________________________________
(Landlord)
Per: /s/ S. Swain
--------------------------------------------------------
Authorized Signature
Per: /s/ B. Murray
--------------------------------------------------------
Authorized Signature
I/We have authority to bind the corporation.
THE NATIONAL FOR SALE PHONE COMPANY INC.
____________________________________________________________
(Tenant)
Per: /s/ Brian Collins
--------------------------------------------------------
Authorized Signature
Per:
--------------------------------------------------------
Authorized Signature
I/We have authority to bind the corporation.
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SCHEDULE "A" - LEGAL DESCRIPTION OF THE LANDS
Those lands and premises lying and being in the City of
Vancouver in the Province of British Columbia more particularly known and
described as
City of Vancouver
Parcel Identifier 015-106-705
Parcel Identifier 015-106-713
Parcel Identifier 015-106-721
Parcel Identifier 015-106-730
Parcel Identifier 015-106-748
Lots 1 to 5
Block 32
District Lot 541
Plan 210
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SCHEDULE "B" - FLOOR PLAN OF THE PREMISES
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SCHEDULE "C" - DEFINITIONS
In this Lease and in the Schedules to this Lease:
1. "Additional Rent" means all sums of money required to be paid by the Tenant
under this Lease (except Net Rent) whether or not the same are designated
"Additional Rent" or are payable to the Landlord or otherwise.
2. "Alterations" means all repairs, replacements, improvements or alterations to
the Premises by the Tenant and the placing of a load of more than 50 lbs per
square foot in any part of the Premises or the relocation of any such load.
3. "Architect" means the architect from time to time named by the Landlord.
4. "Building" means the multi-storey building known municipally as 750 West
Pender Street, Vancouver, British Columbia and generally as Pender Place from
and including the ground floor of such Building to and including the roof
thereof and including all premises rented or intended to be rented therein,
whether for office, retail, cafeteria, banking or other similar purposes but
excluding any Premises below grade which are intended for leasing for retail or
parking purposes; and the areas, buildings systems and facilities serving the
Building or having utility in connection therewith, as determined by the
Landlord, whether or not located directly under the Building, which areas and
facilities may include, without limitation, internal malls, sidewalks and
plazas, exhibit areas, storage and mechanical areas, janitor rooms, mail rooms,
telephone, mechanical and electrical rooms, stairways, escalators, elevators,
truck and receiving areas, driveways, parking facilities, loading docks and
corridors.
5. "Business Tax" means all taxes (whether imposed on the Landlord or Tenant)
attributable to the personal property, trade fixtures, business, income,
occupancy or sales of the Tenant or any other occupant of the Premises and to
any leasehold improvements installed in the Premises and to the use of the
Building or Lands by the Tenant.
6. "Capital Tax" is an amount determined by multiplying each of the "Applicable
Rates" by the "Building Capital" and totalling the products. "Building Capital"
is the amount of capital which the Landlord determines, without duplication, is
invested from time to time by the Landlord, the owners, or all of them, in doing
all or any of the following: acquiring, developing, expanding, redeveloping and
improving the Building. Building Capital will not be increased by any financing
or refinancing except to the extent that the proceeds are invested directly as
Building Capital. An "Applicable Rate" is the capital tax rate specified from
time to time under any statute of Canada and any statute of the Province which
imposes a tax in respect of the capital of corporations. Each Applicable Rate
will be considered to be the rate that would apply if none of the Landlord or
the owners employed capital outside of the Province.
7. "Change of Control" means, in the case of any corporation or partnership, the
transfer or issue by sale, assignment, subscription, transmission on death,
mortgage, charge, security interest, operation of law or otherwise, of any
shares, voting rights or interest which would result in any change in the
effective control of such corporation or partnership unless such change occurs
as a result of trading in the shares of a corporation listed on a recognized
stock exchange in Canada or the United States and then only so long as the
Landlord receives assurances reasonably satisfactory to it that there will be a
continuity of management and of the business practices of such corporation
notwithstanding such Change of Control.
8. "Commencement Date" means the date on which the Term commences under Section
1.02.
9. "Development" means the Lands more particularly described in Schedule "A"
attached to this Lease or as such Lands may be altered, expanded or reduced from
time to time, and the improvements, buildings, equipment and facilities erected
thereon or situate from time to time therein. The Development includes those
areas designated or intended by the Landlord to be leased for office, retail,
service and storage purposes, and those areas not so designated or intended, and
all non-leasable areas, parking facilities and the shared common areas and
facilities of the Development. The Development is known generally as "Pender
Place".
10. An "Event of Default" shall occur whenever:
(a) any Rent is in arrears and is not paid within 5 days after written demand
by the Landlord;
(b) the Tenant has breached any of its obligations in this Lease (other than the
payment of Rent) and:
(i) fails to remedy such breach within 15 days (or such shorter period
as may be provided in this Lease); or
(ii) if such breach cannot be reasonably remedied within 15 days or
such shorter period, the Tenant fails to commence to remedy such breach
within such 15 days or shorter period or thereafter fails to proceed
diligently to remedy such breach; in either case after notice in
writing from the Landlord;
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(c) the Tenant or any Indemnifier becomes bankrupt or insolvent or takes the
benefit of any statute for bankrupt or insolvent debtors or makes any proposal,
assignment or arrangement with its creditors, or any steps are taken or
proceedings commenced by any Person for the dissolution, winding-up or other
termination of the Tenant's existence or the liquidation of its assets;
(d) a trustee, receiver, receiver/manager or like Person is appointed with
respect to the business or assets of the Tenant or any Indemnifier;
(e) the Tenant makes a sale in bulk of all or a substantial portion of its
assets other than in conjunction with a Transfer approved by the Landlord;
(f) this Lease or any of the Tenant's assets are taken under a writ of
execution;
(g) the Tenant purports to make a Transfer other than in compliance with the
provisions of this Lease;
(h) the Tenant abandons or attempts to abandon the Premises or disposes of its
goods so that there would not after such disposal be sufficient goods of the
Tenant on the Premises subject to distress to satisfy Rent for at least 3
months, or the Premises become vacant and unoccupied for a period of 10
consecutive days or more without the consent of the Landlord;
(i) any insurance policies covering any part of the Building or any occupant
thereof are actually or threatened to be cancelled or adversely changed as a
result of any use or occupancy of the Premises;
(j) if an Event of Default as defined in this paragraph occurs with respect to
any lease or agreement under which the Tenant occupies other premises in the
Building; or
(k) if the Tenant or any Indemnifier is a corporation and at any time during the
Term does not remain in good standing with the Office of the Registrar of
Companies for the Province.
11. "Fiscal Year" means (i) the period of time commencing on the Commencement
Date and ending on the last day of the next ensuing October; and (ii) thereafter
the period of time commencing on the first day of November and ending on the
last day of the next ensuing October, or (iii) the fiscal period designated by
the Landlord from time to time.
12. "Indemnifier" means the Person, if any, who has executed or agreed to
execute an Indemnity Agreement substantially in the form attached to this Lease
as Schedule "E", or any other indemnity agreement in favour of the Landlord.
13. "Landlord" means the party named as landlord on the first page of this Lease
and those for whom it is responsible at law.
14. "Lands" means the lands situated in the City of Vancouver in the Province of
British Columbia on which the Building is constructed, as more particularly
described in Schedule "A", or as such lands may be expanded or reduced from time
to time.
15. "Lease Proposal" means the written proposal to lease between Pacific Centre
Leaseholds Limited and the Tenant with respect to the Premises, consisting of an
offer dated the 10th day of June, 1999 and accepted on the 11th day of June,
1999.
16. "Leasehold Improvements" mean leasehold improvements in the Premises
determined according to common law, and shall include, without limitation, all
fixtures, improvements, installations, alterations and additions from time to
time made, erected or installed in the Premises by or on behalf of the Tenant or
any previous occupant of the Premises, including signs and lettering,
partitions, doors and hardware however affixed and whether or not movable, all
mechanical, electrical and utility installations and all carpeting and drapes
with the exception only of furniture and equipment not in the nature of
fixtures.
17. "Mortgage" means any and all mortgages, charges, debentures, security
agreements, trust deeds, hypothecs or like instruments resulting from financing,
refinancing or collateral financing (including renewals or extensions thereof)
made or arranged by the Landlord of its interest in all or any part of the
Building or Lands.
18. "Mortgagee" means the holder of, or secured party under, any Mortgage and
includes any trustee for bondholders.
19. "Net Rent" means the annual rent payable by the Tenant under Section 2.02.
20. "Net Rentable Area" means, in the case of premises consisting of part of a
floor, the floor area bounded by the inside surface of the exterior glass, the
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office side of the corridor or other permanent partitions and the centre of
partitions that separate the premises from adjoining leasable areas (if any)
without deductions for columns or projections but after making the same
exclusions as are made in computing Rentable Area.
21. "Normal Business Hours" means the hours from 8:00 a.m. to 6:00 p.m. on
Mondays through Fridays and the hours from 8:00 a.m. to 1:00 p.m. on Saturdays,
unless any such day is a statutory holiday.
22. "Operating Costs" means (without duplication) any amounts paid or payable
whether by the Landlord or by others on behalf of the Landlord for maintenance,
operation, repair, replacement to and administration of the Lands and Building
or allocated by the Landlord to the Lands and Building and for services provided
generally to tenants, calculated as if the Building were 100% occupied by
tenants during the Term, including without limitation:
(a) the cost of insurance which the Landlord is obligated or permitted to obtain
under this Lease and any deductible amount applicable to any claim made by the
Landlord under such insurance;
(b) the cost of security, janitorial, landscaping, window cleaning, garbage
removal and snow removal services;
(c) the cost of heating, ventilating and air-conditioning;
(d) the cost of fuel, steam, water, electricity, telephone and other utilities
used in the maintenance, operation or administration of the Building, including
charges and imposts related to such utilities to the extent such costs, charges
and imposts are not recovered from other tenants;
(e) management office expenses of operation, and salaries, wages and other
amounts paid or payable for all personnel involved in the repair, maintenance,
operation, leasing, on site management, security, supervision or cleaning of the
Building, including fringe benefits, unemployment and worker's compensation
insurance premiums, pension plan contributions and other employment costs and
the cost of engaging contractors for the repair, maintenance, security,
supervision or cleaning of the Building;
(f) auditing, accounting, legal and other professional and consulting fees and
disbursements;
(g) the costs: (i) of repairing, operating and maintaining the Building and the
equipment serving the Building and of all replacements and modifications to the
Building or such equipment, including those made by the Landlord in order to
comply with laws or regulations affecting the Building;(ii) incurred by the
Landlord in providing and installing energy conservation equipment or systems
and life safety systems; (iii) incurred by the Landlord to make alterations,
replacements or additions to the Building intended to reduce operating costs,
improve the operation of the Building or maintain its operation as a first class
office building; and, (iv) incurred to replace machinery or equipment which by
its nature requires periodic replacement; all to the extent that such costs are
fully chargeable in the Fiscal Year in which they are incurred in accordance
with sound accounting principles;
(h) the cost of the rental of all equipment, supplies, tools, materials and
signs;
(i) all costs incurred by the Landlord in contesting or appealing Taxes or
related assessments including legal, appraisal and other professional fees, and
administration and overhead costs;
(j) Capital Tax;
(k) depreciation or amortization of the costs referred to in paragraph 22(g)
above as determined by the Landlord in accordance with sound accounting
principles, if such costs have not been charged fully in the Fiscal Year in
which they are incurred;
(l) interest calculated at 2 percentage points above the average daily prime
bank commercial lending rate charged during such Fiscal Year by any Canadian
chartered bank designated from time to time by the Landlord upon the
undepreciated or unamortized balance of the costs referred to in paragraph
22(k); and
(m) a reasonable fee for the administration and management of the Building equal
to an amount which the Landlord might reasonably pay to a third party for the
administration and management of the Building as part of the Pender Place
complex.
Operating Costs shall exclude or have deducted from them as the case may be:
(aa) all amounts which otherwise would be included in Operating Costs which are
recovered by the Landlord from tenants (other than under sections of their
leases comparable to section 2.03 of this Lease);
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(bb) such of the Operating Costs as are recovered from insurance proceeds,
warranties or guarantees to the extent such recovery represents reimbursements
for costs previously included in Operating Costs;
(cc) interest on debt and capital retirement of debt;
(dd) ground rent payable by the Landlord to the owner of the Lands under any
ground lease of the Lands; and
(ee) all amounts which otherwise would be included in Operating Costs which are
directly attributable to the operation of the parking garage forming part of and
serving the Building. Costs incurred in maintaining and operating the Building
may be attributed by the Landlord to the various components of the Building in
accordance with reasonable and current practices and on a basis consistent with
the nature of the particular costs being attributed, and the costs so attributed
may be allocated to the tenants of such components accordingly.
(ff) commissions and other expenses payable in connection with the marketing and
leasing of the Building including the cost of any leasehold improvement
allowance or other inducement paid to tenants of the Building; and
(gg) the amount of any goods and services tax ("G.S.T.") paid or payable by the
Landlord on the purchase of goods and services included in Operating Costs which
may be available to the Landlord as a credit in determining the Landlord's net
tax liability or refund on account of G.S.T.
23. "Person" means any person, firm, partnership or corporation, or any group or
combination of persons, firms, partnerships or corporations.
24. "Premises" means the premises leased to the Tenant described in Section 1.01
and includes Leasehold Improvements in such premises.
25. "Proportionate Share" means a fraction which has as its numerator the
Rentable Area of the Premises and as its denominator the Total Rentable Area of
the Building.
26. "Province" the province in which the Building is located.
27. "Rent" means the aggregate of Net Rent and Additional Rent.
28. "Rentable Area" means (a) in the case of premises used or intended to be
used for office purposes and occupying an entire floor, the floor area bounded
by the inside surface of the glass on the exterior walls, including without
limitation, washrooms, telephone, electrical and janitorial closets and elevator
lobbies; (b) in the case of premises used or intended to be used for office
purposes and consisting of part of a floor, the area computed by multiplying the
Net Rentable Area of such premises by a fraction, the numerator of which is the
aggregate floor area of the floor on which the Premises are located (using the
measurement method set out in subparagraph (a)) and the denominator of which is
the aggregate Net Rentable Area of all office premises on such floor; and (c) in
the case of premises used or intended to be used for retail purposes, the Net
Rentable Area thereof. In calculating Rentable Area, stairs, elevator shafts,
flues, stacks, pipe shafts and vertical ducts with their own enclosing walls,
any of which are used in common, shall be excluded but no deductions or
exclusions shall be made for columns and projections necessary for the Building.
The Landlord may for the purpose of calculating the Net Rent and any
Proportionate Share change the fraction referred to in subparagraph (b) from
time to time to reflect the actual ratio of the aggregate floor area of the
floor on which the Premises or part thereof are located (using the measurement
method set out in subparagraph (a)) to the aggregate Net Rentable Area of all
office premises on such floor.
29. "Rules and Regulations" means the rules and regulations adopted and
promulgated by the Landlord from time to time pursuant to Section 11.01. The
Rules and Regulations existing as at the Commencement Date are those set out in
Schedule "D".
30. "Taxes" means all taxes, levies, charges, local improvement rates and
assessments whatsoever assessed or charged against the Building and the Lands or
any part thereof by any lawful taxing authority and including any amounts
assessed or charged in substitution for or in lieu of any such taxes, but
excluding only such taxes as capital gains taxes, corporate, income, profit or
excess profit taxes to the extent such taxes are not levied in lieu of any of
the foregoing against the Building or Lands or the Landlord in respect thereof.
Taxes shall in every instance be calculated on the basis of the Total Rentable
Area of the Building being assessed as fully leased and operational.
31. "Tenant" means the party named as tenant on the first page of this Lease,
and those for whom it is responsible in law.
32. "Term" means the period set out in Section 1.02.
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33. "Total Rentable Area of the Building" means the aggregate of the Rentable
Area of each floor in the Building intended for office or retail use as if each
floor is occupied by one tenant, all as determined by the Architect. The Total
Rentable Area of the Building shall: (a) exclude the main telephone, mechanical,
electrical and other utility rooms and enclosures, public lobbies on the ground
floor, and other public space common to the entire Building; and, (b) be
adjusted by the Architect from time to time to take account of any structural,
functional or other change affecting the same.
34. "Trade Fixtures" means trade fixtures as determined at common law, but for
greater certainty, shall not include: (a) heating, ventilating or air
conditioning systems, facilities and equipment in or serving the Premises; (b)
floor coverings affixed to the floor of the Premises; (c) light fixtures; (d)
internal stairways and doors; and, (e) any fixtures, facilities, equipment or
installations installed by or at the expense of the Landlord pursuant to this
Lease or otherwise.
35. "Transfer" means an assignment of this Lease in whole or in part, a sublease
of all or any part of the Premises (whether by the Tenant or by a subtenant),
any transaction whereby the rights of the Tenant under this Lease or the rights
of any subtenant or to the Premises are transferred to another, any transaction
by which any right of use or occupancy of all or any part of the Premises is
conferred upon anyone, any mortgage, charge or encumbrance of this Lease or the
Premises or any part thereof or other arrangement under which either this Lease
or the Premises become security for any indebtedness or other obligations and
includes any transaction or occurrence whatsoever (including, but not limited
to, expropriation, receivership proceedings, seizure by legal process and
transfer by operation of law), which has changed or might change the identity of
the Persons having lawful use or occupancy of any part of the Premises or which
creates a security interest in any part of the Premises, including without
limitation, any of the Leasehold Improvements.
36. "Transferee" means the Person or Persons to whom a Transfer is or is to be
made.
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SCHEDULE "D" - RULES AND REGULATIONS
1. Life Safety. (a) The Tenant shall not do or permit anything to be done in the
Premises, or bring or keep anything therein which will in any way increase the
risk of fire or the rate of fire insurance on the Building or on property kept
therein, or obstruct or interfere with the rights of other tenants or in any way
injure or annoy them or the Landlord, or violate or act at variance with the
laws relating to fires or with regulations of the Fire Department, or with any
insurance upon the Lands or Building or in any part thereof, or violate or act
in conflict with any statutes, rules and ordinances governing health standards
or with any other statute or municipal by-law. (b) No inflammable oils or other
inflammable, dangerous or explosive materials save those approved in writing by
the Landlord's insurers shall be kept or permitted to be kept in the Premises.
2. Security. (a) The Landlord shall permit the Tenant and the Tenant's employees
and all Persons lawfully requiring communication with them to have the use,
during Normal Business Hours in common with others entitled thereto, of the main
entrance and the stairways, corridors, elevators, escalators, or other
mechanical means of access leading to the Building and the Premises. At times
other than during Normal Business Hours the Tenant and the employees of the
Tenant shall have access to the Building and to the Premises only in accordance
with the Rules and Regulations and shall be required to satisfactorily identify
themselves and to register in any book which may at the Landlord's option be
kept by the Landlord for such purpose. If identification is not satisfactory,
the Landlord is entitled to prevent the Tenant or the Tenant's employees or
other Persons lawfully requiring communication with the Tenant from having
access to the Building and to the Premises. In addition, the Landlord is not
required to open the door to the Premises for the purpose of permitting entry
therein to any Person not having a key to the Premises. (b) The Tenant shall not
place or cause to be placed any additional locks upon any doors of the Premises
without the approval of the Landlord. Two keys shall be supplied to the Tenant
for each entrance door to the Premises and all locks shall be Building standard
to permit access by the Landlord's master key. If additional keys are required,
they must be obtained from the Landlord at the cost of the Tenant. Keys or other
means of access for entrance doors to the Building will not be issued without
the written authority of the Landlord.
3. Housekeeping. (a) The Tenant shall permit window cleaners to clean the
windows of the Premises during Normal Business Hours. (b) The Tenant shall not
place any debris, garbage, trash or refuse or permit same to be placed or left
in or upon any part of the Lands or Building outside of the Premises, other than
in a location provided by the Landlord specifically for such purposes, and the
Tenant shall not allow any undue accumulation of any debris, garbage, trash or
refuse in or outside of the Premises. If the Tenant uses perishable articles or
generates wet garbage, the Tenant shall provide refrigerated storage facilities
suitable to the Landlord. (c) The Tenant shall not place or maintain any
supplies, or other articles in any vestibule or entry of the Premises, on the
adjacent footwalks or elsewhere on the exterior of the Premises or elsewhere on
the Lands or Building. (d) The sidewalks, entrances, passages, escalators,
elevators and staircases shall not be obstructed or used by the Tenant, its
agents, servants, contractors, invitees or employees for any purpose other than
ingress to and egress from the Premises and the Building. The Landlord reserves
entire control of all parts of the Lands and Building employed for the common
benefit of the tenants and without restricting the generality of the foregoing,
the sidewalks, entrances, corridors and passages not within the Premises,
washrooms, lavatories, air conditioning closets, fan rooms, janitor's closets,
electrical closets and other closets, stairs, escalators, elevator shafts,
flues, stacks, pipe shafts and ducts and shall have the right to place such
signs and appliances therein, as it deems advisable, provided that ingress to
and egress from the Premises is not unduly impaired thereby. (e) The Tenant
shall not cause or permit: any waste or damage to the Premises; any overloading
of the floors or the utility, electrical or mechanical facilities of the
Premises; any nuisance in the Premises; or any use or manner of use causing a
hazard or annoyance to other occupants of the Building or to the Landlord.
4. Receiving, Shipping, Movement of Articles. (a) The Tenant shall not receive
or ship articles of any kind except through facilities and designated doors and
at hours designated by the Landlord and under the supervision of the Landlord.
(b) Hand trucks, carryalls or similar appliances shall only be used in the
Building with the consent of the Landlord and shall be equipped with rubber
tires, slide guards and such other safeguards as the Landlord requires. (c) The
Tenant, its agents, servants, contractors, invitees or employees, shall not
bring in or take out, position, construct, install or move any safe, business
machinery or other heavy machinery or equipment or anything liable to injure or
destroy any part of the Building, including the Premises, without first
obtaining the consent in writing of the Landlord. In giving such consent, the
Landlord shall have the right in its sole discretion, to prescribe the weight
permitted and the position thereof, the use and design of planks, skids or
platforms, and to distribute the weight thereof. All damage done to the
Building, including the Premises, by moving or using any such heavy equipment or
other office equipment or furniture shall be repaired at the expense of the
Tenant. The moving of all heavy equipment or other office furniture shall occur
only by prior arrangement with the Landlord. The cost of such moving shall be
paid by the Tenant. Safes and other heavy office equipment and machinery shall
be moved through the halls and corridors only in a manner expressly approved by
the Landlord. No freight or bulky matter of any description will be received
into any part of the Building, including the Premises, or carried in the
elevators except during hours approved by the Landlord.
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<PAGE>
5. Prevention of Injury to Premises. (a) It shall be the duty of the Tenant to
assist and co-operate with the Landlord in preventing injury to the Premises.
(b) The Tenant shall not deface or mark any part of the Building, including the
Premises, and shall not drive nails, spikes, hooks or screws into the walls,
floors, ceilings or woodwork of any part of the Building, including the
Premises, or bore, drill or cut into the walls, floors, ceilings or woodwork of
any part of the Building including the Premises, in any manner or for any
reason. (c) If the Tenant desires telegraphic or telephonic connections, the
Landlord, in its sole discretion, may direct the electricians as to where and
how the wires are to be introduced. No gas pipe or electric wire will be
permitted which has not been ordered or authorized by the Landlord. No outside
radio or television antenna shall be allowed on any part of the Premises without
authorization in writing by the Landlord.
6. Windows. Except for the proper use of approved blinds and drapes, the Tenant
shall not cover, obstruct or affix any object or material to any of the
skylights and windows that reflect or admit light into any part of the Building,
including, without limiting the generality of the foregoing, the application of
solar films.
7. Washrooms. (a) The Landlord shall permit the Tenant and the employees of the
Tenant in common with others entitled thereto, to use the washrooms on the floor
of the Building on which the Premises are situated or, in lieu thereof, those
washrooms designated by the Landlord, save and except when the general water
supply may be turned off from the public main or at such other times when repair
and maintenance undertaken by the Landlord shall necessitate the non-use of the
facilities. (b) The water closets and other apparatus shall not be used for any
purposes other than those for which they were intended, and no sweepings,
rubbish, rags, ashes or other substances shall be thrown into them. Any damage
resulting from misuse shall be borne by the Tenant by whom or by whose agents,
servants, invitees, or employees such damage is caused.
8. Use of Premises. (a) No one shall use the Premises for sleeping apartments or
residential purposes, or for the storage of personal effects or articles other
than those required for business purposes. (b) No cooking or heating of any
foods or liquids (other than the heating of water or coffee in coffee makers or
kettles) shall be permitted in the Premises without the written consent of the
Landlord. (c) The Tenant shall not install or permit the installation or use of
any machine dispensing goods for sale in the Premises or the Building or permit
the delivery of any food or beverage to the Premises without the written
approval of the Landlord or in contravention of the Rules and Regulations. (d)
The Tenant shall not permit or allow any odours, vapours, steam, water,
vibrations, noises or other undesirable effects to emanate from the Premises or
any equipment or installation therein which, in the Landlord's opinion, are
objectionable or cause any interference with the safety, comfort or convenience
of the Building to the Landlord or the occupants and tenants thereof or their
agents, servants, invitees or employees.
9. Canvassing, Soliciting, Peddling. Canvassing, soliciting and peddling in or
about the Lands and Building are prohibited.
10. Bicycles. No bicycles or other vehicles shall be brought within any part of
the Lands or Building without the consent of the Landlord.
11. Animals and Birds. No animals or birds shall be brought into any part of the
Lands or Building without the consent of the Landlord.
12. Signs and Advertising. The Tenant shall not paint, affix, display or cause
to be painted, affixed or displayed, any sign, picture, advertisement, notice,
lettering or decoration on any part of the outside of the Building or in the
interior of the Premises which is visible from the outside of the Building. The
Landlord will prescribe a uniform pattern and location of identification signs
for tenants, to be placed on the outside of the Premises, by the Landlord at the
expense of the Tenant, and the Tenant shall not paint, affix, display or cause
to be painted, affixed or displayed any sign, picture, advertisement, notice,
lettering or decoration on the outside of the Premises for exterior view without
the written consent of the Landlord. Any such signs shall remain the property of
the Tenant and shall be maintained at the Tenant's sole cost and expense. At the
expiration of the Term or earlier termination of this Lease, the Tenant shall
remove any such sign, picture, advertisement, notice, lettering or decoration
from the Premises at the Tenant's expense and shall promptly repair all damage
caused by any such removal. The Tenant's obligation to observe and perform this
covenant shall survive the expiration of the Term or earlier termination of the
Lease.
13. Directory Board. The Tenant shall be entitled at its expense to have its
name shown upon the directory board of the Building and the Landlord shall
design the style of such identification and shall determine the number of spaces
available on the directory board for each tenant. The directory board shall be
located in an area designated by the Landlord in the main lobby of the Building.
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)
)
)
)
)
)
)__________________________________ (seal)
) Print Name______________________
)
)
)
)
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AMENDED AGREEMENT
THIS AMENDED AGREEMENT (the "Amendment") is made effective the 30th day
of June 1999, between Phon-Net.com, Inc., a Florida corporation (the "Company"),
Phon- Net Corp., a Nevada corporation (Phon-Net Nevada), Quad-Linq Software,
Inc., a British Columbia corporation ("Quad-Linq") and, as to Section 11, those
individuals identified on Exhibit A hereto.
W I T N E S S E T H :
WHEREAS, Phon-Net Nevada is a wholly-owned subsidiary of the Company;
and
WHEREAS, Phon-Net Nevada and Quad-Linq entered into an agreement dated
January 6, 1999 (the "Initial Agreement");
WHEREAS, the Company, Phon-Net Nevada and Quad-Linq desire to amend
certain terms of the Initial Agreement as set forth herein.
NOW, THEREFORE, in consideration of the mutual promises and covenants
herein contained, and other good and valuable consideration, the receipt of
which is hereby acknowledged, the Company, Phon-Net Nevada and Quad-Linq hereby
agree as follows:
1. Section 1.2 of the Initial Agreement and any companion sections are
hereby deleted, except the parties agree that Quad-Linq will develop all future
software and source code for any future iterations of the Software. The
Software, including source code, and any future enhancements to or iterations of
the Software, shall be the sole and exclusive property of the Company. At the
Company's request and expense, Quad-Linq shall consult the Company to enable the
Company to establish servers in other locations, including without limitation,
the United States, Great Britain, Europe and Japan, and the Company shall supply
all hardware in connection therewith.
2. Section 1.3 of the Initial Agreement and any companion sections are
hereby deleted, except the parties agree that Quad-Linq relinquish's all of its
right, title, and interest in and to the Software.
3. Sections 2.2 and 2.3 of the Initial Agreement and any companion
sections are hereby deleted in their entirety.
4. Section 4 of the Initial Agreement and any companion sections are
hereby deleted, except the parties agree that, simultaneous with the execution
of this Agreement, a complete operation and technical manual, as well as the
source code for the Software,
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<PAGE>
will be delivered to the Company. To the extent that Quad-Linq modifies the
Software at the Company's request, updated copies of the operation and technical
manual, as well as the related source code, shall be delivered to the Company.
5. Section 5 of the Initial Agreement and any companion sections are
hereby deleted, except the parties agree that all decisions concerning
ownership, marketing and development of the Software shall be made solely by the
Company. Quad-Linq, however, will receive recognition as the developer of the
Software.
6. The Initial Agreement is hereby amended to add thereto Section 10
which reads in its entirety as follows:
Section 10: As full compensation for all services rendered
hereunder, and in lieu of any and all amounts that may have been payable to
Quad-Linq under the Initial Agreement, the Company (i) agrees to issue to those
persons identified on Exhibit A hereto ("Exhibit A"), an aggregate of three
million (3,000,000) shares of the Company's Common Stock (the "Common Shares"),
on or prior to July 15, 1999, and (ii) hereby grants to those persons identified
on Exhibit A hereto, options (the "Options") to purchase two million (2,000,000)
shares of the Company's Common Stock (the "Option Shares"), exercisable at $.40
per share beginning on the date hereof and continuing for a period of two (2)
years hereafter.
7. The Initial Agreement is hereby amended to add thereto Section 11
which reads in its entirety as follows:
Section 11: In order to induce the Company to issue the Common
Shares and grant the Options, Quad-Linq and each of the individuals identified
on Exhibit A (each, a "Subscriber"), hereby severally represents and warrants to
the Company, as follows:
Section 11.1: Subscriber has a preexisting business
relationship with the Company and is familiar with the Company, its business and
financial condition. Subscriber understands that the Company is in its
development stage, has not generate substantial revenues to date, and the
Company's financial condition does not justify a conclusion that the Company
will operate profitably in the future. Accordingly, Subscriber acknowledges that
acceptance of the Common Shares and Options is a speculative investment, and
that there is no assurance that the Common Shares or Option Shares can be resold
at a particular price, or at all.
Section 11.2: The Company has not made any representations or
warranties to Subscriber with respect to the Company or rendered any investment
advice to Subscriber.
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<PAGE>
Section 11.3: Subscriber has such knowledge and experience in
financial, investment and business matters that it is capable of evaluating the
merits and risks an investment in the Company. Subscriber has consulted with
such independent legal counsel or other advisers as it has deemed appropriate to
assist it in evaluating the proposed investment in the Company.
Section 11.4: Subscriber represents that it (i) has adequate
means of providing for its current financial needs and possible personal
contingencies and has no need for liquidity of investment in the Company; (ii)
can afford (a) to hold unregistered securities for an indefinite period of time
as required; and (b) sustain a complete loss of the entire amount of the
subscription; and (iii) has not made an overall commitment to investments which
are not readily marketable which is disproportionate so as to cause such overall
commitment to become excessive.
Section 11.5: Subscriber has been afforded the opportunity to
ask questions of, and receive answers from, the officers and/or directors of the
Company acting on its behalf concerning the terms and conditions of this
transaction and to obtain any additional information, to the extent that the
Company possesses such information or can acquire it without unreasonable effort
or expense, necessary to verify the accuracy of the information furnished; and
has availed itself of such opportunity to the extent it considers appropriate in
order to permit Subscriber to evaluate the merits and risks of an investment in
the Company. It is understood that all documents, records and books pertaining
to this investment have been made available for inspection, and that the books
and records of the Company will be available upon reasonable notice for
inspection by Subscriber during reasonable business hours at its principal place
of business.
Section 11.6: Subscriber acknowledges that the Shares have not
been registered under the Securities Act of 1933, as amended (the "Act"), or the
securities laws of any state.
Section 11.7: The Shares are being acquired solely for the
account of Subscriber for investment and not with a view to, or for resale in
connection with, any distribution in any jurisdiction where such sale or
distribution would be precluded. By such representation, Subscriber means that
no other person has a beneficial interest in the Shares. Subscriber does not
intend to dispose of, encumber, pledge or hypothecate in any manner all or any
part of the Shares, except in compliance with the provisions of the Act and
applicable state securities laws.
Section 11.8: Subscriber acknowledges and agrees that the
following or similar legend will be placed on the face of the certificates
evidencing the Common Shares and Option Shares:
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<PAGE>
"These securities have not been registered under the
Securities Act of 1933, as amended, or any state securities
laws, and may not be sold or otherwise transferred or disposed
of except pursuant to an effective registration statement
under the Act and any applicable state securities laws, or an
opinion of counsel satisfactory to counsel to the Company that
an exemption from registration is available."
8. The Initial Agreement is hereby amended to add thereto Section 12
which reads in its entirety as follows:
Section 12: The Company agrees to include the Common Shares
and the Option Shares in its contemplated form SB-2 registration statement. The
preparation of such registration statement shall be at the cost and expense of
the Company. The Shareholders agree to provide such information and to execute
such documents as may reasonably be required by the Company in order to effect
the registration of the Common Shares and Option Shares.
9. The Initial Agreement is hereby amended to add thereto Section 14
which reads in its entirety as follows:
Section 14: Quad-Linq will provide the Company, at no
additional cost, with maintenance and support, in the North American and
Japanese markets, including AOL operational use (with a maximum use of 240 hours
annually), for the twelve (12) months following the execution of this Agreement.
After the expiration of such twelve (12) month period, the parties will, in good
faith, negotiate a new service contract.
10. The Initial Agreement is hereby amended to add thereto Section 15
which reads in its entirety as follows:
Section 15: Simultaneous with the execution of this Agreement,
and as a material inducement to the Company to issue its securities to each
Subscriber, as contemplated by paragraph 6, above, Quad-Linq and each individual
Subscriber shall execute and deliver to the Company a Confidentiality and
Non-Compete Agreement substantially in the form of Exhibit B hereto.
11. The Initial Agreement is hereby amended to add thereto Section 16
which reads in its entirety as follows:
Section 16: Quad-Linq shall provide the additional services
with respect to the Software as are described on the attached Exhibit C.
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<PAGE>
11. In the event of any inconsistency between this Amendment and the
Initial Agreement this Amendment shall govern. Except as specifically amended
hereby, the terms of the Initial Agreement shall remain in full force and
effect.
12. This Amendment may be executed in one or more counterparts, each of
which will be deemed an original and all of which together will constitute one
and the same instrument.
13. The parties, as evidenced by their signatures below, acknowledge
that this Amendment has been presented to their attorneys and that their
attorneys have had the opportunity to review and explain to them the terms and
provisions of the Agreement, and that they fully understand those terms and
provisions.
IN WITNESS WHEREOF, the parties have respectively caused this Agreement
to be executed on the date first above written.
Phon-Net.com Inc.
By:/s/ Brian Collins
---------------------
Name: Brian Collins
Its: President
Phon-Net Corp.
By:/s/ Brian Collins
--------------------
Name: Brian Collins
Its: President
Quad-Linq Software, Inc.
By: /s/ Roger L. Betterton
--------------------------
Name: Roger L. Betterton
Its: President
/s/ Christopher E. Georgelin
----------------------------
Christopher E. Georgelin
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/s/ Seidmehdi Seidbagherzadeh
-----------------------------
Seidmehdi Seidbagherzadeh
/s/ Roger L. Betterton
----------------------
Roger L. Betterton
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<PAGE>
EXHIBIT A
Number of Number of
Name Common Shares Options
---- ------------- -------
Christopher E. Georgelin 480,000 320,000
3340 Blundell Rd.
Richmond, BC V7C 1G3
Seidmehdi Seidbagherzadeh 480,000 320,000
10-901 West 7th Street
North Vancouver, BC V7P 1V8
Roger L. Betterton 1,040,000 693,333
RR 3, Box 142
Pana, IL 62577
S.S. No.: _____________
Quad-Linq Software, Inc. 1,000,000 666,667
401-889 West Pender Street
Vancouver, BC V6C 3B2
<PAGE>
EXHIBIT B
In order to induce Phon-Net.com, Inc. (the "Company") to issue
securities to the undersigned pursuant to an agreement of even date herewith
(the "Agreement"), and as partial consideration therefor, the Undersigned hereby
agrees as follows:
I. Covenant Not to Compete.
(A) The Undersigned acknowledges and recognizes (1) the highly
competitive nature of the Company's business and the substantial goodwill
developed by the Company through considerable time, money and effort expended by
it, and (2) that the Undersigned, by reason of my relationship to Quad-Linq
Software, Inc., will have access to proprietary information relating to the
Company and its products, and will enjoy the certain benefits to be derived by
Quad-Linq under the Agreement.
(B) Accordingly, for a period of ten (10) years following the date
hereof, the Undersigned will not, individually or in conjunction with others,
directly or indirectly,
(1) engage in any Business Activities (as hereinafter
defined), whether as an officer, director, proprietor, employer, partner,
independent contractor, investor (other than as a holder solely as an investment
of less than one percent (1%) of the equity of an entity), consultant, advisor,
agent or otherwise;
(2) solicit, induce or influence any of the Company's
Customers to discontinue or reduce the level of business conducted by such
customer with the Company;
(3) (a) recruit, solicit or otherwise influence any the
Company's Employees to discontinue its employment or agency relationship with
the Company, or (b) employ or seek to employ, or cause or permit any business
which competes directly or indirectly with the Business Activities of the
Company (the "Competitive Business") to employ or seek to employ for any
Competitive Business, any of the Company's Employees; or
(4) interfere with, or disrupt or attempt to disrupt any past,
present or prospective relationship, contractual or otherwise, between the
Company and any of the Company's Customers or any of the Company's Employees.
II. Non-Disclosure of Information.
(A) Employee acknowledges that the Company's customer list, trade
secrets, private or secret processes, methods and ideas, as they exist from time
to time, information concerning the Company's products, services, training
methods, development, technical
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<PAGE>
information, marketing activities and procedures, credit and financial data
concerning the Company and/or the Company's Customers (the "Proprietary
Information") are valuable, special and unique assets of the Company, access to
and knowledge of which may be acquired by the Undersigned by reason of my
relationship to Quad-Linq Software, Inc. In light of the highly competitive
nature of the industry in which the Company's business is conducted, the
Undersigned agrees that all Proprietary Information, heretofore or in the future
obtained by the Undersigned shall be considered confidential.
(B) In recognition of the foregoing, the Undersigned agrees not to use
or disclose any of such Proprietary Information for the Undersigned's own
purposes or for the benefit of any person or other entity or organization
(except the Company) at any time, under any circumstances. Promptly upon request
by the Company, all physical Proprietary Information in the custody or under the
control of the Undersigned shall be returned to the Company.
(C) The foregoing to the contrary notwithstanding, Proprietary
Information shall not include (1) any information which (a) the Undersigned can
establish was already in my possession prior to my receipt from the Company of
the Proprietary Information, or (b) was then generally known to the public, or
(c) became known to the public through no fault or participation of the
Undersigned; or (2) information disclosed by the Undersigned in accordance with
an order of a court of competent jurisdiction.
III. Definitions.
(A) "Company's Customers" shall mean any person(s), partnership(s),
corporation(s), professional association(s) or other organization(s) or
entity(ies) to whom the Company has performed Business Activities at any time
commencing one year prior to the date hereof.
(B) "Business Activities" shall mean the development, sale,
distribution or marketing of phone direct connect software, with connect
directory to and over the Internet.
(C) "Company's Employees" shall mean any person who was employed by, or
served as an agent of, the Company at any time commencing one year prior to the
date hereof.
IV. Injunctive Relief. The Undersigned acknowledges that monetary damages will
not compensate the Company for a breach or attempted breach by the Undersigned
of my obligations under this Agreement. Accordingly, the Undersigned agrees that
in the event I breach or attempt to breach any of my obligations hereunder, the
Company shall be entitled to obtain injunctive relief or specific performance.
-2-
<PAGE>
V. Miscellaneous. This Agreement shall be governed and construed in accordance
with the laws of the State of Florida without regard to the conflicts of laws
provisions thereof. This Agreement may not be amended except in a writing signed
by Employee and the Company.
/s/ Roger L. Betterton
----------------------
Signature
Roger L. Betterton
------------------
Print Name
July 8, 1999
Date
-3-
<PAGE>
EXHIBIT C
Quad-Linq agrees to provide 20 hours of support and maintenance per month for 1
full year, for a total of 240 hours.
The following three points have already been agreed upon by Quad-Linq for
immediate development:
1. INSTALLING
a) Double-clicking the Direct Connect desktop icon creates an explorer
window: (Install which Directory?)
b) This window supplies a default directory: "c:\Program Files\Direct
Connect".
2. UNINSTALLING
A) Ctrl + double-clicking on "phon-net_double_click.exe" creates
an uninstall wizard: (Are you sure you want to uninstall
Direct Connect?)
B) Clicking Yes will remove "c:\Quad-Linq Autodialer.js" and all
registry items, but not the executable file.
<PAGE>
THIS AGREEMENT dated the 6th day of January, 1999;
BETWEEN:
PHON-NET CORP., a Nevada corporation, with an office located
at 5694 Imperial Street, Burnaby, British Columbia, V5J 1G2
(hereafter "PHON-NET")
AND
QUAD-LINQ SOFTWARE INC., a British Columbia corporation with
an office located at Suite 102 - 1198 West Pender Street,
Vancouver, British Columbia, V6E 2R9
(hereafter "QUAD-LINQ")
WHEREAS:
A. PHON-NET has developed marketing expertise in the telecommunications
field and currently owns and markets a number of products under the
PHON-NET trade name.
B. QUAD-LINQ have certain expertise and contacts in the area of software
development.
C. QUAD-LINQ will develop a software product for a plug-in for Netscape
and MS Internet Explorer (the "Software") that will be jointly owned by
QUAD-LINQ and PHONE-NET.
D. PHON-NET shall establish a marketing channel for the Software.
NOW THEREFORE IN CONSIDERATION of the mutual covenants, obligations and benefits
the parties hereby agree as follows:
1 QUAD-LINQ shall:
1.1 develop the plug-in software to e used in conjunction with
Netscape and Microsoft Internet Explorer (the "Software"). The
Software shall incorporate the following design
considerations:
(a) a transparent disconnection from the Internet;
<PAGE>
(b) a transparent dial-up of a telephone number specified
in the HTML code; and
(c) transparent reconnection to the Internet.
1.2 develop all future software and source code for any future
iterations of the Software, which shall be jointly owned by
PHON-NET and QUAD-LINQ on a 51%/49% basis;
1.3 transfer a 51% ownership share in all right, title and
interest of the Software to PHON-NET.
2 PHON-NET shall:
2.1 market the Software as it, in its sole discretion, sees fit;
2.2 shall pay to QUAD-LINQ, an amount equal to 49% of the net
revenues received by PHON-NET for marketing the Software;
2.3 pay to QUAD-LINQ the sum of $2,980.14 in consideration of a
51% interest in the Software.
3 QUAD-LINQ and PHON-NET shall operate independently of each other and
neither party shall have the power or authority to bind the other.
4 The source code will be retained by QUAD-LINQ to enable it to carry out
its obligations under paragraph 1.2 hereunder.
5 The software shall be owned jointly PHON-NET and QUAD-LINQ, with
PHON-NET owning 51% interest in the software and QUAD-LINQ holding a
49% interest in the software. All decisions concerning marketing and
development of the Software shall be made solely by PHON-NET.
6 QUAD-LINQ may not assign or transfer any of its rights or obligations
under this agreement without the prior written consent of PHON-NET.
7 This agreement is the entire agreement between the parties regarding
its subject- matter and supersedes all prior agreements between the
parties relating to its subject-matter. No modification or variation of
this agreement shall be effective unless in writing and signed by all
parties.
8 Time is of the essence of this agreement.
<PAGE>
9 This agreement shall be governed by the laws and jurisdiction of the
Province of British Columbia and shall enure to the benefit of and be
binding on the parties to it and their respective successors and
permitted assigns.
10 Any notice to be given under this agreement shall be delivered to the
respective address first above written unless a notice of a change of
address has been given.
IN WITNES WHEREOF the parties have executed this agreement on the day, month and
year first written above.
The Corporate Seal of PHON-NET CORP. )
was hereunto affixed in the presence of )
)
) c/s
/s/ Brian Collins )
- --------------------- )
Authorized Signatory )
President )
The Corporate Seal of QUAD-LINQ )
SOFTWARE, INC. was hereunto )
affixed in the presence of: )
)
) c/s
Roger L. Betterton )
- --------------------- )
Authorized Signatory )
)
)
Christopher E. Georgelin )
- --------------------- )
Authorized Signatory )
EXHIBIT 21
Subsidiaries of the Registrant
<TABLE>
<CAPTION>
Name Under Which
Name of Subsidiary Jurisdiction of Organization Business Conducted
- ------------------ ---------------------------- ------------------
<S> <C> <C>
Phon-Net Corp. Nevada Phon-Net
Piedmont Technologies, Inc. British Columbia Piedmont Technologies
The National For Sale British Columbia National For Sale Phone
Phone Company, Inc. Company
V NETT Enterprises, Inc. British Columbia V NETT
</TABLE>
EXHIBIT 23(ii)
INDEPENDENT AUDITORS' CONSENT
We consent to the use in the Registration Statement of Phon-Net.com,
Inc. (formerly known as Phon-Net Corporation) on Form SB-2 of our review
engagement report dated July 15, 1999 on the consolidated balance sheets of
Phon-Net Corporation (formerly known as Phon-Net Corporation) as of April 30,
1999, and the consolidated statements of operations and deficit, cash flows and
stockholders' equity for the nine months then ended. We also consent to the use
of our audit report dated February 15, 1999 on the consolidated balance sheets
as of July 31, 1998 and 1997, and the consolidated statements of operations and
deficit, cash flows and stockholders' equity for the periods ended July 31,
1998, 1997 and 1996.
In addition, we also consent to the reference to us under the heading
"Experts" in such Registration Statement.
/s/ Morgan & Company
- ------------------------------
MORGAN & COMPANY
Chartered Accountants
Vancouver, British Columbia
August 27, 1999
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<FISCAL-YEAR-END> JUl-31-1999
<PERIOD-START> AUG-01-1998
<PERIOD-END> APR-30-1999
<CASH> 379,508
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<RECEIVABLES> 23,995
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<COMMON> 1,916,163
<OTHER-SE> (1,526,779)
<TOTAL-LIABILITY-AND-EQUITY> 649,540
<SALES> 19,545
<TOTAL-REVENUES> 19,545
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